Jun 092016
 
 June 9, 2016  Posted by at 8:33 am Finance Tagged with: , , , , , , , , ,  2 Responses »


G. G. Bain Temporary footpath, Manhattan Bridge 1908

Everything’s a Buy as Central Banks Keep on Greasing Markets (BBG)
Draghi Starts Buying Junk Bonds, “Means Business” (BBG)
FinMin: Greece In ECB’s QE Program By This Fall (Kath.)
Europe Junk Borrowers Rush to Refinance Before Brexit Vote (BBG)
China’s Factory-Gate Deflation Eases Somewhat (BBG)
Chinese Trade Data Lies Exposed -Again- (ZH)
Cheap Oil Will Weigh On Global Economy, Says World Bank (G.)
Gulf Nations Must Cut Deficits to Keep Currency Pegs, IMF Says (BBG)
Hedge Funds’ Fast Money Not Welcome as Iceland Bolsters Defenses (BBG)
Britain’s Defiant Judges Fight Back Against Europe’s Imperial Court (AEP)
Greek Asylum Service Starts Process Of Recording Applications (Kath.)
Erdogan’s Draconian New Law Demolishes Turkey’s EU Ambitions (G.)

As per the apt title of my article yesterday, ‘the only thing that grows is debt’. Markets need price discovery to function, but right now it’s everyone’s biggest fear. “Oil at 8-month high!”

Everything’s a Buy as Central Banks Keep on Greasing Markets (BBG)

Misery is making strange bedfellows in global markets. At a time when risky assets including stocks, commodities, junk bonds and emerging-market currencies are rallying to multi-month highs, so are the havens, from gold, government bonds to the Swiss franc and the Japanese yen. No matter that the U.S. labor market is deteriorating and the World Bank has just cut its estimates for global economic growth. Investors either don’t believe the news is bad enough to kill a global recovery that’s already long in the tooth, or they’re betting that sluggishness in some of the biggest economies means central banks will stay more accommodative for longer.

“Everything is being driven by high liquidity that ultimately is being provided by central banks,” Simon Quijano-Evans at Commerzbank, Germany’s second-largest lender, said in London. “It’s an unusual situation that’s a spill over from the 2008-09 crisis. Fund managers just have cash to put to work.” For much of the time since the financial meltdown eight years ago, investors have been in the mindset that bad economic data is good news for markets. The near-zero interest-rate policies by major central banks – and negative borrowing costs in Japan and some European nations – have pushed traders to grab anything that offers yield. And every indication that the liquidity punch bowl will stay in place is greeted by markets with a cheer.

Read more …

Paraphrasing Springsteen: “Someday we’ll look back on this and it will all seem not one bit funny.”

Draghi Starts Buying Junk Bonds, “Means Business” (BBG)

Since a surprise interest-rate cut at his first meeting as ECB President, Mario Draghi has shown a penchant for pushing the envelope. The bank’s entry into the corporate bond market on Wednesday was no exception: buying bonds with junk ratings. Purchases on the first day included notes from Telecom Italia, according to people familiar with the matter, who aren’t authorized to speak about it and asked not to be identified. Italy’s biggest phone company has speculative-grade ratings at both Moody’s Investors Service and S&P Global Ratings. The company’s bonds only qualifies for the central bank’s purchase program because Fitch Ratings ranks it at investment grade.

By casting his net as wide as the program allows, Draghi ensured that the first day of corporate bond purchases made an impact. While the ECB has said it would buy bonds from companies with a single investment-grade rating, investors expected the central bank to start with the region’s highest-rated securities. “It’s been an aggressive start to the program,” said Jeroen van den Broek at ING Groep in Amsterdam. “The wide-reaching nature of the purchases shows Draghi means business.” [..] Telecom Italia’s bonds are in Bank of America Merrill Lynch’s Euro High Yield Index and credit-default swaps insuring the notes against losses are part of the Markit iTraxx Crossover Index linked to companies with mostly junk ratings.

Moody’s and S&P have ranked Telecom Italia one level below investment grade, at Ba1 and an equivalent BB+ respectively, since 2013. Fitch puts the company at the lowest investment-grade rating and only revised its outlook on that level to stable from negative in November. “This dispels any doubts investors may have had about the commitment of the ECB and the central banks to tackle lower-rated names,” said Alex Eventon at Oddo Meriten Asset Management. “Telecom Italia is firmly at the weak end of the spectrum the ECB can buy.”

Read more …

I’ll have to see it to believe it. Draghi buys everything not bolted down, but not Greece.

FinMin: Greece In ECB’s QE Program By This Fall (Kath.)

Greece will enter the ECB’s quantitative easing (QE) program “soon,” Finance Minister Euclid Tsakalotos told Bloomberg in an interview on Wednesday. However, the Greek government’s optimism is not shared by banking sources and analysts, who estimate that Greece’s inclusion in ECB Governor Mario Draghi’s bond-buying program will be tied to the successful completion of the second bailout review in the fall, as well as the progress in talks on settling the problem of the Greek national debt.

In his interview Tsakalotos went as far as to say that Greece will join the QE program by September, stressing that such a development would open the way for the lifting of the capital controls and the gradual restoration of investor trust. He also said that the ECB will start accepting Greek bonds as collateral for loans after Athens completes the July debt repayments to Frankfurt. “I feel confident the Greek bonds will be eligible” by September, he predicted. He also forecast that once Greece enters the QE program, depending also on the decisions on the country’s debt, “you can take Grexit off the table,” referring to the possibility of a Greek exit from the eurozone. “Then you have a straight runway for investors,” he added in the same optimistic spirit.

Read more …

Draghi’s got your back, guys.

Europe Junk Borrowers Rush to Refinance Before Brexit Vote (BBG)

Junk-rated companies in Europe are hurrying to refinance debt, locking in borrowing costs at one-year lows amid concerns that a U.K. referendum on EU membership will paralyze markets. Leveraged-loan borrowers are poised to raise more money in euros this week for refinancing than in the whole of May, according to data compiled by Bloomberg. The amount amassed for repaying old debt from selling high-yield bonds is on track to be equal to about two-thirds of comparable sales last month. Companies including Altice and Verisure Holding have entered the market as the start of corporate-bond purchases by the ECB on Wednesday has driven down borrowing costs across the continent.

The window may prove short-lived as banks including Goldman Sachs have said a June 23 vote in favor of a Brexit could roil European markets and endanger economic growth. “It’s possible that uncertainty will rise as we approach the Brexit referendum,” said Colm D’Rosario at Pioneer Investment Management. “Issuers won’t want to wait until then.” Companies may sell about €2.5 billion of leveraged loans and at least €2.6 billion of high-yield bonds for refinancing this week, the Bloomberg data show.

Read more …

The new reality: “..raw-material producer prices fell 7.2%, less than the prior month’s 7.7% decline..” And what does BBG call this? Yes, that’s right: “Firmer producer prices..”

China’s Factory-Gate Deflation Eases Somewhat (BBG)

Deflationary pressures in China’s industries eased further in May, while consumer price gains continued to be subdued enough to offer the central bank scope for more easing if needed. Amid a drive by the Communist Party leadership to cut excess capacity, producer prices fell 2.8%, the least since late 2014 and less than the 3.2% decline economists had estimated in a Bloomberg survey. The consumer price index rose 2% from a year earlier, less than the median forecast of 2.2%. Easing factory-gate deflation is the latest signal of stabilization after more than four years of falling producer prices. Tepid consumer price gains may allow the People’s Bank of China, which has kept interest rates at a record low since October, room to add further stimulus in the short term to help prop up growth.

“The deflationary threat has substantially diminished,” said Raymond Yeung at Australia & New Zealand Banking Group in Hong Kong. “Domestic demand has stabilized so we don’t see a strong upward pressure either. We still think the PBOC will remain moderately accommodative.” [..] Mining and raw-materials producer prices slumped less in May than the previous month, though still recorded the biggest declines. Mining producer goods fell 9.6% last month, versus a 13% drop in April, while raw-material producer prices fell 7.2%, less than the prior month’s 7.7% decline, the statistics bureau reported.

“Firmer producer prices reflect a combination of factors,” Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note. “Commodity prices are a big part of the picture, with oil and iron ore both down less sharply than in 2015. So, too, is slightly more resilient domestic demand. Capacity utilization remains extremely low in historical comparison, but has ticked up over the last few months.”

Read more …

Different version of the graph I posted yesterday with the comment: “Where would China’s imports be without the fake invoices?”

Chinese Trade Data Lies Exposed -Again- (ZH)

If March’s 116.5% surge in China imports from Hong Kong didn’t raise eyebrows as the veracity of the trade data, then perhaps following last night’s data drop, this month’s 242.6% explosion year-over in China imports from Hong Kong must at minimum deserve a second glance. As Bloomberg’s Tom Orlik previously noted, the implausible 242.6% YoY surge screams that China is clearly disguising capital flows… Trade mis-invoicing as a way to hide capital flows remains a factor. In the past, over-invoicing for exports was used as a way to hide capital inflows. The latest data show the reverse phenomenon, with over-invoicing of imports as a way of hiding capital outflows. Does this look “real”?

Read more …

Yes, that’s right. Cheap oil is now bad, all of a sudden. Who could have thought? Oh wait, me.

Cheap Oil Will Weigh On Global Economy, Says World Bank (G.)

Global growth will slow this year as oil exporters in the developing world struggle to cope with lower energy prices, the World Bank has said in its half-yearly economic health check. The benefit of cheaper oil prices for Europe, Japan and other oil importing nations, which has sustained their growth through 2015 and 2016, has failed to offset a slowdown in parts of Africa, Asia and South America that depend on selling energy to sustain their incomes. In one of the gloomiest predictions by an international forecaster, the bank said the effect of the collapse in oil income on developing countries would restrict global growth to 2.4% this year, well down on its January forecast of 2.9%.

In the UK the growth rate will be restricted to 2% this year and 2.1% in 2017 and in 2018. The US will also stabilise at about 2% annually for the next couple of years, while the eurozone will expand at a more modest 1.6% in 2016 and in 2017 before slipping to 1.5% in 2018. The tumbling price of metals and food on world markets last year hit emerging and developing economies without triggering a significant rise in spending by richer countries. The Washington-based bank, which lends more than £25bn a year to developing countries, said weaker global trade, a downturn in private and public investment and a slump in manufacturing added to the woes of economies that have become dependent on high oil prices to bolster growth.

Read more …

They all pray for growing demand. There won’t be any.

Gulf Nations Must Cut Deficits to Keep Currency Pegs, IMF Says (BBG)

Gulf oil exporters must cut spending and narrow their budget shortfalls to keep their currencies pegged to the dollar, the IMF said. While substantial foreign assets have allowed the six members of the Gulf Cooperation Council to fix the value of their currencies to the greenback, keeping the status quo comes at a price as lower crude prices strain public finances, the lender said in a report titled “Learning to Live with Cheaper Oil.” “When a country faces prolonged fiscal and external deficits, policy adjustment must come from fiscal consolidation measures,” the IMF said in the report authored by Martin Sommer, deputy chief of its regional studies division. Maintaining the currency pegs “will require sustained fiscal consolidation through direct expenditure cutbacks and non-oil revenue increases,” it said.

As investors increased bets that currency fixes may become too expensive to maintain, the United Arab Emirates and Saudi Arabia renewed their commitment to their pegs – with the latter also said to ban betting against its currency. Gulf oil producers’ budgets swung from surplus to deficit as Brent crude fell by as much as 75% from June 2014 to January this year, before a partial recovery in recent months. Even after cutting spending, the combined budget gap in the GCC region – which also includes Kuwait, Qatar, Bahrain and Oman – as well as Algeria is expected to reach $900 billion for the period 2016-2021, and represent 7% of their gross domestic product in the final year, the IMF said. Their debt-to-GDP ratio is expected to rise to 45% in 2021 from 13% last year as governments issue debt to plug their budget gaps.

Read more …

Iceland’s learned a lesson or two.

Hedge Funds’ Fast Money Not Welcome as Iceland Bolsters Defenses (BBG)

Iceland has gone its own way since its three largest lenders collapsed in 2008 under a mountain of debt almost eight times the size of its economy. The steps included capital controls that locked in hedge funds, mortgage writedowns and throwing bankers in jail. With the recovery well under way, the island nation – once a hedge fund paradise – is continuing on its isolated path. Lawmakers have effectively outlawed the kind of trade that inflated the bubble a decade ago, protecting against a repeat. Surrounded by sub-zero interest rates, Iceland’s benchmark gauge of 5.75%, the highest in the developed world, is luring cash from abroad. That’s unlikely to change any time soon.

“The problem is the ability to have an independent monetary policy and an independent monetary policy means the ability to have a different interest rate than the rest of the world,” central bank Governor Mar Gudmundsson said on Monday. “If that’s not possible, then you can’t have an independent monetary policy. And the problem of very significant interest rate differential – interest rates in Iceland are higher than the rest of the world – will not disappear overnight.” Both geographically and financially Iceland is a small island in vast, turbulent waters. Under the law enacted last week, the central bank over the weekend set rules that will force investors in Icelandic bonds to keep 40% of their investments in a 0% account for a year. That will limit the profit to be made from investing in Iceland, where government bonds offer yields of more than 6%.

Those type of returns are tempting in a world of near zero and even negative key rates. As evidence, the Icelandic krona has strengthened this year even as the central bank has been selling the currency to build up foreign holdings as it prepares to lift the capital controls that have been in place since 2008. But the country may have seen nothing yet, according to the governor. The new rules are a “precautionary” measure to stifle any major flows after the controls are lifted, he said. “There have been certain inflows in the last few months,” he said. “We thought there was a possibility of much greater inflows going forward, especially if the auction goes well and we take further steps to liberalize the capital account and the economy is booming and interest rates are high.”

Read more …

As I’ve said many times, the EU is made up of sovereign countries, and they’re not going to give up their sovereignty, not a single one of them.

Britain’s Defiant Judges Fight Back Against Europe’s Imperial Court (AEP)

The British judiciary has begun to draw its sword. For the first time since the European Court asserted supremacy and launched its long campaign of teleological conquest, our own judges are fighting back. It is the first stirring of sovereign resistance against an imperial ECJ that acquired sweeping powers under the Lisbon Treaty, and has since levered its gains to claim jurisdiction over almost everything. What has emerged is an EU supreme court that knows no restraint and has been captured by judicial activists – much like the US Supreme Court in the 1970s, but without two centuries of authority and a ratified constitution to back it up. This is what the Brexit referendum ought to be about, for this thrusting ECJ is in elemental conflict with the supremacy of Parliament. The two cannot co-exist. One or the other must give.

It is the core issue that has been allowed to fester and should have been addressed when David Cameron went to Brussels in February to state Britain’s grievances. It was instead brushed under the carpet. The explosive importance of Lisbon is not just that it enlarged the ECJ’s domain from commercial matters (pillar I), to broad areas of defence, foreign affairs, immigration, justice and home affairs, nor that this great leap forward was rammed through without a referenda – after the French and the Dutch had already rejected it in its original guise as the European Constitution. Lisbon also made the Charter of Fundamental Rights legally-binding. As we have since discovered, that puts our entire commercial, social, and criminal system at the mercy of the ECJ.

The Rubicon was crossed in Åklagaren v Fransson, a VAT tax evasion case in non-euro Sweden. The dispute had nothing to do with the EU. The Charter should come into force only when a country is specifically applying EU law. The ECJ muscled into the case on the grounds that since VAT stems from an EU directive, Sweden was therefore operating “within the scope of EU law”. This can mean anything, and that is the point. To general consternation, it ruled that Sweden had violated the double-jeopardy principle of Article 50 of the Charter. Almost nothing is safe when faced with a court like this, neither the City of London, nor our tax policies or labour laws, nor even our fiscal and monetary self-government. The ECJ can strike down almost any law it wants, with no possibility of appeal.

Read more …

The EU slowly but surely forces Greece to take in 10s of 1000s of refugees on a -much more- permanent basis. But Erdogan can send a million more.

Greek Asylum Service Starts Process Of Recording Applications (Kath.)

Greece’s asylum service on Wednesday launched a new scheme for processing registrations from migrants who want to apply for asylum in the country, a process that could take up to a year for many of the applicants, according to sources. The “recognition documents” issued to migrants to date will have their validity extended to cover a year. Many of the documents held by migrants in camps across the country have expired as they apply for six months for Syrians and just one month for all other nationalities.

Once the migrants have been registered, they will be issued with a yellow bracelet bearing their name and other personal details. The registration document and bracelet will grant each migrant the right to legal residence in Greece and access to free healthcare but will not give them permission to work in Greece which must be sought separately. The applicants will be informed by SMS about their interview, according to an official of Greece’s asylum service who said the interview could take place several months after their application “due to the large population of refugees in the country.”

Read more …

Got the feeling he’s just getting started.

Erdogan’s Draconian New Law Demolishes Turkey’s EU Ambitions (G.)

Any chance Turkey could join the EU by 2020, as Brexit campaigners have asserted, went up in smoke on Wednesday after the country’s president, Recep Tayyip Erdogan, signed a draconian new law that in effect demolishes any notion that his country is a fully functioning, western-style democracy. EU rules dating to 1993, known as the Copenhagen criteria, insist all applicant states must adhere to a system of democratic governance and uphold other basic principles, such as the rule of law, human rights, freedom of speech, and protection of minorities. Turkey is struggling to meet these standards. The new measures make EU membership even more of a chimera.

They are expected to eviscerate parliamentary opposition to Erdog an’s ruling neo-Islamist Justice and Development party (AKP) by allowing politically inspired, criminal prosecutions of anti-government MPs. The main target is the pro-Kurdish Peoples’ Democratic party (HDP), which Erdog an accuses of complicity in terrorism, although other opposition parties are also affected. By signing the new law, Erdog an, who has dubbed the EU a “Christian club”, has signalled the end of any realistic chance of Turkey joining the union for the foreseeable future. Critics say he may also have sounded the death knell for Turkey’s secular democracy and set the stage for intensified armed conflict with Kurdish groups. Erdogan’s move comes against a backdrop of heightened violence between Turkey’s security forces and militants belonging to the outlawed Kurdistan Workers’ party (PKK) and its radical offshoots.

Read more …

May 292016
 
 May 29, 2016  Posted by at 9:12 am Finance Tagged with: , , , , , , , ,  3 Responses »


Matt Black/Magnum Photos USA. El Paso, Texas. 2015

Iceland Puts Freeze on Foreign Investors (WSJ)
Japan’s Abe To Delay Sales Tax Hike Until 2019 (R.)
Fade The Oil Bounce (CNBC)
Trade Deals Going Nowhere (DR)
Schrödinger’s Cat Gets a Playmate (CSM)
The Geography of American Poverty (G.)
Miracle In Athens As Greek Tourism Numbers Keep Growing (Observer)
The EU Has Turned Greece Into a Prison for Refugees (Nation)
13,000 People Rescued In Mediterranean In One Week (G.)
Rescued Migrants Say Ship Sank Off Italy With Hundreds Aboard (R.)

Recovering from debt addiction: “We don’t need the money..”

Iceland Puts Freeze on Foreign Investors (WSJ)

Iceland has spent eight years locking down its financial markets to keep foreign investors in. Now some are complaining the island nation is trying to shove them out. A law passed May 22 by Iceland’s parliament offers the foreign holders of about $2.3 billion worth of krona-denominated government bonds a Hobson’s choice: Sell out in June at a below-market exchange rate, or have the money they receive when their bonds mature impounded indefinitely in low-interest bank accounts. Investors, including Boston-based mutual-fund companies Eaton Vance and Loomis Sayles, a unit of Natixis, don’t want to go. They say they will reject the government’s offer. “We would like to stay invested,” said Patrick Campbell, a global bond analyst at Eaton Vance.

The dispute is the result of a wholesale turnaround in Iceland’s relationship with foreign investors. The country became synonymous with financial alchemy after its banks ballooned by borrowing in bond markets and attracting foreign depositors with high interest rates. That system imploded in 2008 when depositors made a run on the banks just as their bonds fell due, causing the krona to sharply devalue against the euro. Yet a growing number of fund managers are now buying Icelandic government bonds, including those that were marooned on the island when it applied capital controls. The country is now one of the few offering a combination of high interest rates and strong economic growth prospects.

Eaton Vance and another holder of the legacy debt, also called “offshore” debt, hedge fund Autonomy Capital LP, have been courting the government for months to allow them to keep their cash on the island, even offering to swap their holdings into long-term bonds that they would pledge to hold on to.But the country isn’t interested. Instead, officials behind the law say they aim to keep the $16.7 billion economy of the island with a population of 327,386 from being swamped anew by the ebb and flow of offshore funds. “We don’t need the money,” said Mar Gudmundsson, governor of Iceland’s central bank. “These are remnants from the last boom and bust, and we are not going to repeat that mistake.”

Read more …

“..Japan “must reignite powerfully the engine of Abenomics”..”

Japan’s Abe To Delay Sales Tax Hike Until 2019 (R.)

Japanese Prime Minister Shinzo Abe plans to delay an increase in sales tax by two and a half years, a government official said on Sunday, as the economy sputters and Abe prepares for a national election. Abe told Finance Minister Taro Aso and the secretary general of his ruling Liberal Democratic Party, Sadakazu Tanigaki, on Saturday of his plan to propose delaying the tax hike for a second time, until October 2019, said the official, who was briefed on the meeting. The prime minister, who has promised to announce steps on Tuesday to spur economic growth and promote structural reform, is also expected to order an extra budget to fund stimulus measures, just two months into the fiscal year and on the heels of a supplementary budget to pay for recovery from recent earthquakes in southern Japan.

After chairing a summit of Group of Seven leaders on Friday, Abe said Japan would mobilize “all policy tools” – including the possibility of delaying the tax hike – to avoid what he called an economic crisis on the scale of the global financial crisis that followed the 2008 Lehman Brothers bankruptcy. “There is a risk of the global economy falling into crisis if appropriate policy responses are not made,” Abe told a news conference after the summit. To play its part, Japan “must reignite powerfully the engine of Abenomics,” he said, referring to his easy-money policies aimed at getting Japan out of two decades of deflation and fitful growth. Abe has long said he would proceed with a plan to raise the tax rate to 10% from 8% next April unless Japan faced a crisis on the magnitude of the Lehman shock.

He said the G7 “shares a strong sense of crisis” about the global outlook, with the most worrisome risk being a global contraction led by a slowdown in emerging economies like China. Other G7 leaders, however, appeared to differ with Abe on the risk of a global crisis, fuelling comment that Abe was using the G7 to justify delaying the painful tax hike.

Read more …

Interesting graph.

Fade The Oil Bounce (CNBC)

This week, oil broke above the key $50 level for the first time since October 2015. Yet rather than interpret the move as a sign to buy, one top technician is warning investors not to chase the rally. “I think it’s all about risk-reward and there’s probably no more important chart right now than the oil chart,” Chris Verrone, a technician at Strategas Research Partners, told CNBC’s “Fast Money” this week. According to Verrone, it’s the steepness of the move that bothers him most. In the past 72 days, oil has moved 20% above its 200-day moving average. “It looks excessive to us, we think there’s a higher likelihood you come back and retest the 200 near 39, 40 bucks,” said Verrone.

Also troubling to Verrone is the fact that while crude has surged to new highs, energy stocks and the Mexican peso — both of which are closely tied to oil — have not made new highs in a month. Energy names have fallen since peaking on April 27, whereas crude has surged 12%. Since peaking back April 29, the peso’s gains are still lagging those in oil. They are up 8% and 33%, respectively, this year. Indeed, analysts at Bank of America Merrill Lynch warned this week that continued strength in the dollar could trigger a series of knock-on effects that may push crude off its new highs. The bank said a “black swan event” such as Saudi Arabia removing its currency peg could lead to a collapse of Brent crude to as deep as $25 per barrel, and it expects oil prices to average $46 per barrel this year. On Friday, crude ended the session above $49 per barrel.

Read more …

Pretty soon exactly zero people outside of the elite will want these deals.

Trade Deals Going Nowhere (DR)

As the politics of this election year heat up, the chances of Congress debating — let alone passing — either of the White House’s marque trade deals continue to melt away. Oh, there’s plenty of talk about the westward-looking Trans-Pacific Partnership and the Euro-centered Transatlantic Trade and Investment Partnership, or TPP and TTIP, respectively. Most of the yakking, however, flows from Obama Administration officials; nary a word trickles out of Congress. Worse than Capitol Hill silence is the vocal pounding free trade takes when any of Obama’s would-be successors talk trade.

Bernie Sanders, a Democrat by name but socialist by heart, makes it crystal clear that he would rather eat glass than back “free” trade. Hillary Clinton, who three years ago called the TPP “exciting,” “innovative” and “ambitious,” now sees it as an agreement that has “failed to provide the basic safety net support needed” for American workers. Take that as an “innovative” no. And the Donald? He’s against TPP because, as he noted in one Republican debate this spring, “It’s a deal that was designed for China to come in, as they always do, through the back door … ” China, however, is not part of the Trans-Pacific Partnership, so whatever Trump meant must have been more of a “suggestion” than a fact. Whatever.

[..] Big Ag’s big push for the pending trade deals is understandable, given the two changed realities of today’s election year politics. First, even as we lean on the EU to alter its biotech food rules, the U.S. Senate still can’t agree on how to write a biotech food labeling law here. Members know the tide has turned on labeling; 89 out of 100 Americans want it. Majority Republicans, however, don’t and they continue to search for a way to be anti-labeling without becoming anti-incumbents. Second, not one presidential contender sees free trade as a vote-winning issue. Taken together, it’s hard to see how any trade deal goes anywhere this year. After that, you have to take the word of Hillary or Bernie or Donald. Well, maybe not Donald. Or Hillary. Bernie’s solid, though.

Read more …

Entanglement is poorly understood, and poorly explained.

Schrödinger’s Cat Gets a Playmate (CSM)

Schrödinger’s cat is something many of us have heard of, but perhaps fewer actually understand. The idea was first dreamed up by an Austrian physicist, Erwin Schrödinger, who wanted to illustrate the mind-bending nature of quantum mechanics. He created a thought experiment in this world to illustrate the point, which would allow a cat to be both dead and alive in a box at the same time. Now, scientists have added another box. And another cat. And the first cat being dead and alive simultaneously in the first box, so this causes the second cat in the second box to also be dead and alive at the same time. Makes perfect quantum sense, right? “It’s understandable that people don’t understand it,” lead author Chen Wang of Yale University told The Washington Post.

“You can’t understand it using common sense. We can’t either.” But here’s the premise: A cat sits in a box. Alongside the cat, there’s poison. That poison will only be released upon the decay of a radioactive subatomic particle. According to quantum mechanics, and specifically the theory of “superposition,” these particles actually exist in all possible states at the same time – until, that is, someone takes a measurement. At that point, the particle falls into a single, known state. So, the particles could be decaying, and not decaying, simultaneously. As a consequence, the poison is being released – and not released. And so the cat is both dead and alive. Until someone opens the box, of course, and is observed. Then, the cat can’t be doing both things at once.

What Dr. Wang and his team have done is to add another dimension: the concept of “entanglement.” This proposes that two objects can be intimately linked, even if billions of light-years separate them, and any change that happens to one will happen to the other instantaneously, a relationship Einstein once described as “spooky action at a distance.” For our cat, this means, quite simply, that there’s a twin, in another box. And everything that happens to one, happens to the other. In Wang’s experiment, there were no cats, just light. He used two aluminum cavities, each with a wave of light bouncing around inside. The researchers induced such a state so that the light existed in two different wavelengths at the same time, in both boxes.

Read more …

‘Poverty Is Often Looked At In Isolation, But It Is An American Problem’

The Geography of American Poverty (G.)


USA. Allensworth, California. 2014. Fence post. Allensworth has a population of 471 and 54% live below the poverty level. Matt Black/Magnum Photos

Last summer Matt Black left the Central Valley of California, where he lives, to travel 18,000 miles across the US on a road trip that took him through 30 states and 70 of the poorest towns in America. The startling image of a hand resting on a fence post against a barren backdrop was taken in the small town of Allensworth, California, where 54% of the population of 471 people live below the poverty level. “California always seemed special and unique in terms of how it symbolised promise and progress,” says Black, 45, during a break in shooting landscapes in Idaho, where he’s working on another stage of the same series, Geography of Poverty. “So it seemed somehow symbolic to begin there and travel east, but what has surprised me is the similarities I have encountered as I travelled from one community to another.

All these diverse communities are connected, not least in their powerlessness. In the mainstream media, poverty is often looked at in isolation, but it is an American problem. It seems to me that it goes unreported because it does not fit the way America sees itself.” As if to bear this out, Black tells me that the route he took was mapped out in advance using geotagged photographs found online alongside census information to identify the poorest areas. In each instance, the communities he visited were never more than a two-hour drive apart. “I was able to drive from California to the east coast and back without ever leaving these poor areas.” Black’s striking images are on show in a group exhibition, New Blood, at the Magnum Print Room in London…


USA. El Paso, Texas. 2015. El Paso has a population of 649,121 and 21.5% live below the poverty level. Matt Black/Magnum Photos

Read more …

More tourists, more refugees.

Miracle In Athens As Greek Tourism Numbers Keep Growing (Observer)

It’s been a busy winter in downtown Athens, where scaffolding, tarpaulins and dust have been symbols of hope: a mini construction boom heralding a tourist renaissance. Nine hotels are being built or restored around the city centre. Their arrival correlates with the huge upturn in holidaymakers visiting the Greek capital since a low point in late 2008, when Athens erupted into riots after the police killing of a teenage boy. “It’s a miracle, what’s been happening in Athens,” Greece’s tourism chief, Andreas Andreadis, told the Observer. “The tourist industry in Greece grew two to three times faster than in Spain, Portugal, Italy or France last year. This year we expect around 4.5 million visitors in Athens alone.”

For an economy stuck in depression-era recession, dependent on emergency bails and seemingly locked in a perpetual fiscal vice, tourism is vital. A record 23.5 million holidaymakers visited Greece in 2015 – generating €14.2bn in direct receipts, or 24% of GDP. In 2010, at the start of the country’s debt crisis – which has seen it struggle to avert default and remain in the euro – revenues from tourism were €10bn, or 15% of GDP. The Greek Tourism Confederation, Sete, is predicting another bumper season for an industry that has long been the single biggest contributor to the economy and job market. Arrivals could reach 25 million (27.5 million including cruise ship passengers), which is more than twice the country’s population. Economic recovery will depend on the sector to a great degree.

Andreadis said: “If we get 1.5 million more visitors it will produce an additional €800m in direct receipts. Such a positive kick that would come in the third and fourth quarters.” Much of the upsurge is linked to Greece’s safety record. Tourists are staying away from resort in Egypt, Tunisia, Turkey and elsewhere in the wake of high-profile attacks. Countries whose economies are also dependent on holidaymakers have suffered incalculable damage following a severe drop in arrivals. Travel advice from governments and fears of fresh violence are simply keeping tourists away. But other countries’ loss could be Greece’s gain. And it could not come at a better time: tourism provides one in five jobs in Greece, at a time when unemployment in the effectively bankrupt nation has hovered stubbornly around 25%. Youth unemployment stands at an astonishing 67%.

Read more …

And Greece has no way of dealing with it.

The EU Has Turned Greece Into a Prison for Refugees (Nation)

In the port-side café before the sun comes up, a group of men are talking. “In the beginning, when there were maybe 40 of them in the boats, all wet, we helped them. Now they’re too many. They steal chickens. They shit in the fields. They threw stones at a woman.” “Do you think it’s chance that they’re all coming here? The NGOs, the whatever they’re called, are making money off it. It’s a plan. A racket.” “Eventually they’ll set off a bomb and sink the island.” “Sink or float, what difference does it make? Are we happy, now we’re floating?” Chios, my grandfather’s island in the northeast Aegean Sea, has become an open-air prison for more than 2,000 refugees. Almost all of them arrived after the March 20 “statement” signed by the EU and Turkey, designed to stop the flow of people from Turkey to the Greek islands and then to mainland Europe.

The statement, which followed the unilateral closure by Central European countries of the western Balkans route, cut time and space like a guillotine, arbitrarily separating those who’d arrived before it from those who landed after, trapping more than 50,000 refugees and migrants in Greece. These late arrivals can’t leave the islands until their cases have been decided by the Greek asylum system, which is overloaded to the point of paralysis. The refugees are supposed to prove not only that they’re at risk in their home country but that they’d be at risk in Turkey, which the EU (but not Greece) considers a “safe third country,” if they want to have their asylum claim heard in Greece. Otherwise, they will be returned to Turkey.

Of the 8,500 women, children, and men who have landed on the islands since the agreement was signed, 400 have been returned so far, some to be detained for weeks without legal representation. About 200 have been granted asylum in Greece. The rest are rotting in overcrowded camps, “hot spots,” and locked detention centers, without information, adequate food, medical care, or security. And the boats from Turkey, though many fewer than before, continue to come in.

Read more …

Are we going to keep acting as if this will stop when we simply look away?

13,000 People Rescued In Mediterranean In One Week (G.)

A flotilla of ships saved 668 people from boats in the Mediterranean Sea on Saturday, authorities in Italy said, bringing the week’s total of refugees plucked from the sea to 13,000 people. The rescues by the Italian coast guard and navy ships, aided by Irish and German vessels and humanitarian groups, are the latest by a multinational patrol south of the Italian island of Sicily. Warner spring weather has led to a surge of people attempting the perilous crossing from Africa to Europe. The Irish military said the vessel Le Roisin saved 123 people from a 12m-long (40-ft) rubber dinghy and recovered a male body. A German ship was involved in four separate rescue operations, the Italian coast guard said on Saturday evening.

Meanwhile, with shelters filling up in Sicily, the Italian navy vessel Vega headed toward Reggio Calabria, a southern Italian mainland port, bringing 135 survivors and 45 bodies from a rescue a day earlier. The Vega was due to dock on Sunday. Other survivors who arrived on Saturday in the Sicilian port of Pozzallo told authorities they had witnessed a fishing boat filled with“ hundreds” of people sink on Thursday, a Save The Children spokeswoman, Giovanna Di Benedetto, told The Associated Press by telephone from Sicily. According to survivors, two smugglers’ fishing boats and a dinghy set sail on Wednesday night from Libya’s coast. Di Benedetto said the survivors were among 500 or so aboard the one fishing boat that didn’t sink and the dinghy. “All of this must be verified, of course,” said Di Benedetto, but if the survivors’ accounts bear out, as many as 400 people could have drowned, with only a very few of those on the vessel that sank able to reach the other boats.

Read more …

Not an isolated incident.

Rescued Migrants Say Ship Sank Off Italy With Hundreds Aboard (R.)

Migrants rescued from two boats in the Mediterranean this week told humanitarian workers in Italy that they saw another vessel carrying some 400 migrants sink, Save the Children said on Saturday. Three vessels carrying migrants already are confirmed to have sunk or capsized this week. More than 60 bodies are said to have been recovered, including those of three infants, and hundreds are believed to be missing. But the possible sinking of a fourth vessel on Thursday had not been reported, said Giovanna Di Benedetto, spokeswoman for Save the Children in Italy. That ship along with another fishing boat and a rubber boat left Sabratha in Libya late Wednesday night, according to interviews on Saturday with some of the more than 600 survivors from the two other vessels in the Sicilian port of Pozzallo.

They said the rubber boat had its own motor, but the smaller fishing boat, carrying some 400 migrants, did not. It was towed by the larger fishing vessel, which held about 500 others. Eventually the smaller boat began to take on water and, when the captain of the larger boat ordered the tow line cut, sank with most of its passengers, the survivors told Save the Children. Those aboard the other two vessels were not rescued until much later. “There were many women and children on board,” the survivors said, according to Di Benedetto. “We collected testimony from several of those rescued from both (the rubber and fishing) boats. They all say they saw the same thing.”

Read more …

Apr 092016
 
 April 9, 2016  Posted by at 10:20 am Finance Tagged with: , , , , , , , , ,  1 Response »


Wyland Stanley Pedestrians ascending steep grade, San Francisco 1935

David Cameron’s Gift To The World: Trickle-Down Tax-Dodging (G.)
The Brexit Nightmare Is Becoming Reality (G.)
Swiss Finance Minister Offers Defense For Rich Caught Up In Panama Papers (R.)
Tax Scandal Reheats Iceland Politics (FT)
Germany Takes Aim at the European Central Bank (Spiegel)
The Eurodollar As An Economic No-Man’s Land (Kaminska)
Iran Steps Up Offense in Oil Market War With Price Discount (BBG)
China’s Robot Army Set To Surge (FT)
Shanghai Wealth Management Firm Crashes To Earth As Executives Arrested (R.)
Melting Ice Sheets Change The Way The Earth Wobbles On Its Axis (AP)
Weaknesses Emerge in EU-Turkey Refugee Deal (Spiegel)
5 Refugees Drown Off Greek Island Of Samos In Aegean (AP)

Demonstrations as we speak in London for Cameron to stand down. He will release tax files instead. But will that stem the protests?!

David Cameron’s Gift To The World: Trickle-Down Tax-Dodging (G.)

An intriguing approach to damage limitation by Panama prat David Cameron, particularly considering the prime minister’s only real life job ever was as a PR. The prime minister appears to have been the last person to realise what everyone else in Westminster could see on Monday. Namely, that he’d be sitting down for an awkward tell-all – or at least a tell-some – by Thursday. My absolute favourite tale from Cameron’s era as press chief for the culturocidal Carlton Television comes courtesy of the Guardian’s then media correspondent, who rang him up on a story. Like all mediocre PRs, a large part of his strategy was ignoring calls, but having accidentally answered this one he was cornered – and consequently pretended to be his own cleaner. “I can’t prove it was him,” the journalist reflected later, “but it certainly sounded a lot like him.”

Well, he does have that central casting cleaner’s voice, so perhaps we ought to leave the case file open. Even so, for the journalists who recall the barefaced whoppers Cameron was able to tell them back in those days, this week has not been an occasion to break out the smelling salts. “I’ve never tried to be anything I’m not,” Cameron claimed to Robert Peston in his belated confession. What about a cleaner? Or a football fan? Evidently the PM judged it the wrong moment to bring up either impersonations of the help, or Aston Villa. Or, indeed, West Ham. Still, at some point, Fortune was always going to collect on the deal Cameron foolishly made when he called the comedian Jimmy Carr’s (also legal) tax arrangements “morally wrong”. Showbiz now joins football on the list of things upon which he ought never to comment again.

Explaining to Peston that “my dad was a man I love and miss every day”, Cameron admitted that he and his wife had in fact invested in Ian Cameron’s offshore firm Blairmore in 1997, then sold their stake in 2010 for “something like £30,000”. That Cameron’s shifty cover-up has been more damaging than his non-crime is almost too insultingly obvious to state. He will not be assisted by the subconscious dismissiveness in that styling – “something like £30,000”. There is a fine line between fastidious precision and sounding like something north of the average British salary is rather forgettable, and the PM fell on the wrong side of it.

Read more …

Cameron as PM now guarantees a Brexit vote. But who to replace him? Can’t be Osborne.

The Brexit Nightmare Is Becoming Reality (G.)

[..] Three years ago Cameron put the future of the UK – and even its territorial integrity (think Scotland) – at stake by setting off towards an in-out referendum on the EU as a way of managing his own party. It is obvious he has failed to put internal Tory dissent to rest. That Boris Johnson has sided with leave brings to mind how in 2005 Laurent Fabius, one of France’s socialist heavyweights, opted for no against his own party’s leadership in the referendum campaign on the EU constitution. That led to disastrous results – despite a majority of the French media calling for a yes vote. In Britain the media has long been Eurosceptic. Even the BBC seems hesitant these days. The Daily Telegraph describes the EU as either a threatening entity for Britain, or too weak an institution to protect it.

And long gone are the days when authoritative European voices could reach out to British voters in a convincing manner – as when Jacques Delors singlehandedly swayed the British left towards a pro-European position in 1988. The French president, François Hollande, is dismally weak, and Angela Merkel is less politically sturdy than she once was. Populist movements whose leaders believe they stand to benefit from a British exit are on the rise across the continent. The deeper phenomenon at work is a wider one. British society suffers from an identity crisis not unlike those that have hit other western countries in the wake of globalisation and the 2008 financial crisis. Fragmentation is spreading everywhere as nations become more inward-looking and worried about how the world is changing.

In the British case this general sense of disarray now has the opportunity to express itself in a referendum. Britain’s image has often been associated with common decency, sober assessment and cool-headedness. But this is an age of extremes when moderate voices are fast drowned out by radical slogans. Of course, Cassandras have been wrong before about the European project. The eurozone has held together. Grexit didn’t happen. Merkel may be weaker, but she has not lost power. Yet it would be foolish not to see that the omens for Britain remaining in the EU are very poor. But does anyone care? If they do, they need to wake up now and shout stop.

Read more …

Curious: in defense of tax evaders, saying that they pay so much tax.

Swiss Finance Minister Offers Defense For Rich Caught Up In Panama Papers (R.)

Switzerland’s finance minister has defended the use of offshore companies by the world’s wealthy to cut their tax bills, now under scrutiny after publication of the “Panama Papers”. “You have to create these opportunities,” Finance Minister Ueli Maurer, from the right-wing Swiss People’s Party (SVP), told Swiss newspaper Blick in an interview published on Friday. “Rich people pay a lot more tax than me,” said Maurer. “I am not rich – and without the rich I would have to pay more tax.” Four decades of documents from Panamanian law firm Mossack Fonseca, which specializes in setting up offshore companies and has offices in Zurich and Geneva, showed widespread use of those instruments by global banks and triggered investigations around the world.

Maurer’s comments were not echoed by the head of Switzerland’s financial watchdog Mark Branson on Thursday. He said the country’s banks must clamp down on money laundering in the wake of the Panama Papers. The Geneva prosecutor has also opened a criminal inquiry in connection with the millions of documents leaked to the German newspaper Sueddeutsche Zeitung. They then became part of a broader investigation coordinated by the International Consortium of Investigative Journalists. Switzerland is the world’s biggest international wealth management center with around $2.5 trillion in assets and has taken on more wealth of late from emerging markets, from which it is harder determine the origin of assets, Branson said.

Read more …

Iceland is all of us, on a more practical scale.

Tax Scandal Reheats Iceland Politics (FT)

In the years since the 2008 financial crisis, Iceland – one of its unlikely epicentres – has recovered far better than most. It is enjoying robust economic growth, low income inequality and a 4 per cent unemployment rate that would make southern Europe’s lost generation salivate. So why are so many Icelanders now trying to topple their government, hurling eggs, Skyr yoghurt and even fish heads at the parliament? The immediate answer is buried within the Panama Papers of the Mossack Fonseca law firm, which this week revealed prime minister Sigurdur David Gunnlaugsson’s links with an offshore company. In so doing, they prompted protests that rocked Reykjavik and eventually forced Mr Gunnlaugsson’s resignation.

Yet the episode has also laid bare the deep divisions and unresolved anger still festering beneath the subarctic island’s social surface since the 2008 crisis. The politics that have flowed from it are all the more intimate on an island of just 330,000 souls. There are two nations in this country, the ones who own everything… and the rest of us, said Kristjan Saevald, a 28-year-old graphic designer and keen participant in demonstrations outside Iceland’s parliament and presidential residence. “We are sick of it. It’s not just a change of government we want, it’s a change of the system,” Mr Saevald said. For him and others who feel that the pain of Iceland’s rebuilding has not been shared equally, the ruling coalition’s replacement of Mr Gunnlaugsson with his fisheries minister, Sigurdur Ingi Johannsson, is unlikely to assuage their anger.

Just minutes after Mr Johannsson’s appointment, Asdis Thoroddsen, a tour guide and film-maker, stood in a chill wind outside Iceland’s presidential residence on a spit of coastal land near Reykjavik to show the new prime minister a symbolic red card. Ms Thoroddsen accused Mr Johannsson’s Progressives and his coalition partner, the Independence party, of presiding over a longstanding political system of patronage and state favour. “The cronyism here is very deep rooted and very hard to get rid of,” she said. Iceland’s ills were papered over by the extraordinary boom that preceded the last crisis, when a fishing-dominated economy suddenly became a global banking hub — sucking in foreign money with promises of high returns. Its citizens suddenly enjoyed among the world’s highest per-capita GDP.

Of course, the country’s overly-leveraged banks ended up crashing in spectacular fashion. This week’s demonstrations have echoed Iceland’s 2009 “pots and pans revolution”, when large crowds bashing kitchen utensils together to make more noise besieged parliament in fury and eventually forced then Independence party-led government to resign.

Read more …

One delusion fights the other.

Germany Takes Aim at the European Central Bank (Spiegel)

There was a time when the German chancellor and the head of the ECB had nice things to say about each other. Mario Draghi spoke of a “good working relationship,” while Angela Merkel noted “broad agreement.” Draghi, said Merkel, is extremely supportive “when it comes to European competitiveness.” These days, though, meetings between the two most powerful politicians in the euro zone are often no different than their face-to-face at the most recent summit in Brussels. She observed that his forced policy of cheap money is endangering the business model of Germany’s Sparkassen savings banks and retirement insurance companies. He snarled back that the sectors would simply have to adapt, just as the American financial sector has. The alienation between Germany and the ECB has reached a new level.

Back in deutsche mark times, Europeans often joked that the Germans “may not believe in God, but they believe in the Bundesbank,” as Germany’s central bank is called. Today, though, when it comes to relations between the ECB and the German population, people are more likely to speak of “parallel universes.” ECB head Draghi doesn’t understand why he is getting so much resistance from the country that has profited from the euro more than any other. Yet Germans blame Draghi for miniscule yields on savings accounts and life/retirement insurance policies. Frustration is growing. Draghi has pushed the prime rate down to zero and now even charges commercial banks a fee for parking their money at the ECB. He has also bought almost €2 trillion worth of bonds from euro-zone member states, making the ECB one of the largest state creditors of all time.

During his most recent appearance before the Frankfurt reporter pool, he went even further. The idea of pumping money directly into the economy, he said, was a “very interesting concept,” with a helicopter to distribute the money across the country if necessary, as economists have half-jokingly recommended. Doing so is seen as a way of boosting the economy. German money being thrown out of a helicopter: It would be difficult to find a more fitting image to show people that the money they have set aside for retirement may soon be worth very little. The criticism of Draghi had already been significant, but his public ruminations about so-called “helicopter money” have magnified it to extreme levels.

Even economists that tend to back the ECB, such as Peter Bofinger, who is one of Merkel’s economic advisors, are now accusing Draghi of constantly “pulling new rabbits out of the hat.” Leading representatives of the banking and insurance sectors are openly speaking of legal violations. And strategists within Merkel’s governing coalition, which pairs her conservatives with the center-left Social Democrats (SPD), are concerned that Draghi is handing the right-wing populist Alternative for Germany (AfD) yet another issue where they can score points with the voters. There is hardly any other issue that enrages Germans at town meetings and political party conventions as much as the disappearance of their savings due to the “unconventional measures” adopted by the ECB in Frankfurt.

Read more …

“..laissez-faire market experimentation intended to prove a fundamental point about the capacity of free markets to organise the economy without the necessary subjugation of free will..”

The Eurodollar As An Economic No-Man’s Land (Kaminska)

What’s the euro really? The collective currency of sovereigns subscribed to the European monetary system? Or an international bridging platform — a no man’s land if you will — for laissez-faire market experimentation intended to prove a fundamental point about the capacity of free markets to organise the economy without the necessary subjugation of free will? The euro-zone, we propose, is not what it seems. And if we see it as something it’s not, it’s mainly because we’ve forgotten the history which made it the thing it is today. That though is the story of the rise and dominance of European-brokered international capital markets from the 1960s onwards, a system itself predicated on the rise of the no-man’s land neutral security: Eurodollars. Euromoney. Eurocurrency. Eurobonds. Eurosecurities.

But also… Offshore arrangements. Through this particular looking glass, offshore doesn’t stand for a safe haven loophole which allows the elite to escape their social duties and obligations. It stands for something entirely different. A honey trap designed to lure capital away from outrageous spending in the consumption markets today, and over to the funding of much riskier development in territories or classes yet to be assimilated to westernised cultural norms. It also provides a neutral territory or common ground were capital can be ranked pari passu irrespective of where it’s come from, for the good of international agreement, trade and neutrality. Hence why the likes of James Quarmby, a wealth structuring expert at law firm Stephenson Harwood, argue the offshore system is the essential “grease on the wheels in international trade”.

Read more …

Let the price wars begin.

Iran Steps Up Offense in Oil Market War With Price Discount (BBG)

Iran ratcheted up its offense in the oil market after breaking a pricing tradition, signaling it’s seeking to win market share at a time when rival producers are trying to forge a deal on freezing output. State-run National Iranian Oil Co. will sell the Forozan Blend crude for May to Asia below the level offered by rival Saudi Aramco for Arab Medium, the third month the Persian Gulf state is giving the discount after setting it at a premium for almost seven years through February 2016, data compiled by Bloomberg show. NIOC will also sell the Iranian Light grade to Asian customers at 60 cents below Middle East benchmark prices, a company official said on Friday, asking not to be identified because of internal policy.

While producers including Saudi Arabia, OPEC’s biggest member, and Russia are due to meet in Doha on April 17 to discuss a deal to freeze output in a step toward clearing a global glut, Iran is determined to regain market share lost over the past few years due to sanctions over its nuclear program. To pry away customers relishing oil that is cheaper than mid-2014 levels by more than 50 percent, the Persian Gulf state is expected to focus on pricing and boosting supply. “Unquestionably, since the lifting of sanctions, the Iranians have become a force to be reckoned with in global oil markets,” said John Driscoll, chief strategist at JTD Energy Services Pte, who has spent more than 30 years trading crude and petroleum in Singapore. “Their mission is to recapture market share, pure and simple.”

NIOC will sell the Forozan Blend in May for Asian customers at $2.43 a barrel below the average of the Oman and Dubai benchmark grades, according to the company official. That’s 3 cents lower than state-run Saudi Aramco’s price for the similar Arab Medium variety for a third month, data compiled by Bloomberg show. Forozan was at a premium of 7 cents to the Saudi oil for February sales. The Iranian Heavy grade will sell in May to Asia at a discount of $2.60 a barrel to the Oman-Dubai average while the Soroosh variety’s price was set at $5.65 a barrel below Iranian Heavy, according to the official.

Read more …

How about that consumer society, though?!

China’s Robot Army Set To Surge (FT)

China’s uptake of industrial robots is set to rise rapidly in the coming years as higher labour costs and the heightened aspirations of workers push manufacturers to embrace automation. The development may add to fears that workers in poorer countries are most in danger of being displaced by automation, with analysis by Citi and the Oxford Martin School, a research and policy unit of the UK university, published earlier this year suggesting that more than 75% of jobs in China are at a “high risk” of computerisation. Mirae Asset Management, an Asia-focused house with $75bn of assets, predicts that China’s robot army will expand at a compound annual growth rate of 35% until 2020.

Given that the International Federation of Robotics estimates that China had 260,000 industrial robots last year, Rahul Chadha, chief investment officer of Mirae, says: “Using the rule thumb that one industrial robot replaces four to five workers, this suggests that robots have rendered more than 1m people jobless.” This figure is set to rise sharply in the coming years. As the first chart shows, the number of robots per 1,000 employees in China, as of 2013, was just 30% of the level in North America, 11% of the German figure, 9% of Japan’s tally and 7% of that in South Korea. Mirae argues that China’s use of robots is tracing the path blazed by Japan a quarter of a century ago, and still has several years of rapid expansion ahead of it, as the second chart shows.

This concurs with forecasts from the IFR, which says China acquired 57,000 robots in 2014 but is likely to be buying 150,000 a year by 2018. Mr Chadha, who calculates that robots will replace around 3.5m Chinese workers over the next five years, says: “The message that comes from the leadership is on improving productivity via automation. They are paranoid about doing things quickly, they believe they have got to because their competitors will do the same. “When I meet companies on the ground, they say ‘the demand environment is not great, what we can do is improve our processes, improve our productivity’.”

Read more …

Shadow banking.

Shanghai Wealth Management Firm Crashes To Earth As Executives Arrested (R.)

Zhongjin Capital Management made a splash in the past couple of years in Shanghai. The wealth management firm’s imposing branch office on Shanghai’s historic Bund pulled in many eager investors seeking the double-digit returns it promised on short-term financing products. It had a big profile, sponsoring popular Shanghai TV dating program “Saturday Date” and signed up domestic billiards star Pan Xiaoting as a spokesperson. But this week, the image of riches and success that it had cultivated came crashing down. Police said they arrested 21 executives linked to Zhongjin Capital on April 5 on suspicion of “illegal fundraising,” a loosely defined term applied to irregular behavior in China’s energetic but opaque shadow banking sector.

The only person named by Shanghai police so far has been top executive Xu Qin, who local media said had been arrested at the Shanghai airport on his way to get married in the Vatican. Xu has been described by domestic media as a high roller, who is under 30 years of age. Chen Jiajing, the 29-year-old chairwoman of Zhongjin’s parent Guotai Investment Holdings, cannot be located. Public statements issued this week by two Hong Kong-listed companies in which Guotai is a major stakeholder indicated they had been unable to reach her. Zhongjin employees told Reuters that other senior managers had been arrested during a raid on company offices. They were interrogated, allowed to use the bathroom only if they had a police escort, then hauled off, the staff said.

Calls to Zhongjin and Guotai headquarters in Shanghai went unanswered. Both company websites were inaccessible on Friday. The authorities did not provide further information about the case, and what the investigation’s focus is. “The really strange part was that our business hit a new all-time high on April 5, but the next day the offices were closed,” one employee who gave her name as Jiang said in a phone interview, adding that investors had been paid off on schedule the day prior to the arrests, but were unable to withdraw funds that were scheduled to mature on April 6. “The victims are the small investors and the low-level employees. We all got our friends and family to invest in the company’s products,” she said.

Read more …

Playing God.

Melting Ice Sheets Change The Way The Earth Wobbles On Its Axis (AP)

Global warming is changing the way the Earth wobbles on its polar axis, a new Nasa study has found. Melting ice sheets, especially in Greenland, are changing the distribution of weight on Earth. And that has caused both the North Pole and the wobble, which is called polar motion, to change course, according to a study published on Friday in the journal Science Advances. Scientists and navigators have been accurately measuring the true pole and polar motion since 1899, and for almost the entire 20th century they migrated a bit toward Canada. But that has changed with this century, and now it’s moving toward England, according to study lead author Surendra Adhikari at Nasa’s Jet Propulsion Lab. “The recent shift from the 20th-century direction is very dramatic,” Adhikari said.

While scientists say the shift is harmless, it is meaningful. Jonathan Overpeck, professor of geosciences at the University of Arizona, who wasn’t part of the study, said that “this highlights how real and profoundly large an impact humans are having on the planet.” Since 2003, Greenland has lost on average more than 272 trillion kilograms of ice a year, and that affects the way the Earth wobbles in a manner similar to a figure skater lifting one leg while spinning, said Nasa scientist Eirk Ivins, the study’s co-author. On top of that, West Antarctica loses 124 trillion kgs of ice and East Antarctica gains about 74 trillion kgs of ice yearly, helping tilt the wobble further, Ivins said. They all combine to pull polar motion toward the east, Adhikari said.

Read more …

“Monday was an expensive, but meaningless show..”

Weaknesses Emerge in EU-Turkey Refugee Deal (Spiegel)

When the Greek authorities announced last week that they were unable to carry out additional mass deportations because some migrants had suddenly disappeared, they were referring to people like Mohammed. Just as quickly as the deportations had begun, they came to a halt. In the dawn hours on Monday, the EU began implementing the refugee deal it recently reached with Turkey. At least that’s the way things looked. That day, 202 migrants were deported from Lesbos and Chios to Dikili in Turkey. The action was intended to show that the major exchange of refugees had begun. The same day, Syrian refugees arrived in Germany legally on flights from Turkey. By the middle of the week, no more refugees were arriving on the Greek islands. The message appeared to be getting across.

So was the deal working? The short answer is: No. “Perhaps we should wait and see a bit longer,” Dimitris Vitsas, the deputy Greek defense minister responsible for addressing the refugee crisis, says. He says the weather may have played a part and that he doesn’t want to draw premature conclusions. “But the numbers do show that something is working.” But what? Is it the deal with Turkey or the PR machinery that has accompanied it? The deportations that took place on Monday aren’t very telling in terms of whether the mechanism will ultimately work or not. The EU had set April 4 as the day of implementation because it wanted to finally show that it could produce results. The overly hasty operation had one aim: that of sending a strong message.

What went unnoticed by most, though, is that the people sent back to Turkey from Lesbos and Chios on Monday were exclusively migrants who had wanted to continue their journey to Northern Europe and had not submitted applications for asylum in Greece. But Greece had already had the ability to deport these “illegal” migrants to Turkey since 2002 within the scope of a so-called readmission agreement that both countries had agreed to. So the new deal hadn’t even been necessary for the deportations to happen. “Monday was an expensive, but meaningless show,” says Angeliki Dimitriadi, a visiting researcher at the European Council on Foreign Relations in Berlin. “Now the truly delicate work begins.”

Of the more than 3,000 migrants who are still on Lesbos, almost all have since submitted asylum applications. They hope that doing so will enable them to prevent being deported. The refugees are assuming that it will take weeks or months to process their applications. With the submission of the applications, the Greek government no longer has the right to automatically deport them; the country is legally obligated to review every application. Refugees who have applied can only be deported once asylum status has been rejected. The worry now is that thousands of people may be stuck on the island for months to come without any certainty.

Things will get more difficult when Greece soon begins rejecting Syrian refugees as planned and sending them back to Turkey. At that point, a complicated legal dispute is expected to ensue. First, it remains questionable whether Greece will be capable of carrying out the asylum procedures within only a matter of days as planned. The country lacks both money and the necessary personnel. The Greek asylum agency currently has only 295 employees at its disposal across the entire country. It often takes months if not years before decisions are made.

Read more …

And the beat goes on..

5 Refugees Drown Off Greek Island Of Samos In Aegean (AP)

Greece’s coast guard says at least five refugees have drowned in the eastern Aegean Sea after a small plastic boat capsized. The five victims, four women and a child, were found around dawn Saturday northeast of the Greek island of Samos, close to the Turkish coast. A coast guard spokeswoman says there were also five survivors: two women, two men and a child. The spokeswoman spoke on customary condition of anonymity. She says the coast guard has no information about the ages and nationalities of the refugees or the children’s gender. The survivors, who are in a state of shock, told authorities a total of 11 people were aboard the 3.5-meter boat.

Read more …

Apr 052016
 


DPC Surf Avenue, Coney Island, NY 1903

Panama Bombshell Spells Demise Of Shadow Finance, And Privacy (AEP)
Tax Havens Don’t Need To Be Reformed. They Should Be Outlawed (Brooks)
Thousands Protest Demanding Icelandic PM’s Resignation (AFP)
German Banks Enmeshed In Panama Papers Leak (DW)
Data From Panama Law Firm Came From Employee, Not Hackers (Rijock)
Panama Papers Cause Guardian to Collapse into Self-Parody (OG)
China State Paper Sees ‘Powerful Force’ Behind Panama Leak (BBG)
The Forces of Globalization Are Sputtering (WSJ)
China Hard Landing Could Trigger Global Market Bloodbath: IMF (Tel.)
Lagarde Says Risks to Weak Global Recovery Are Increasing (BBG)
Subprime Housing Risks Raise Red Flags In China (WSJ)
Bond Market ‘Exhausted’ as Kuroda Stimulus Enters Fourth Year (BBG)
Sperm Whales Found Full of Car Parts and Plastics (NatGeo)
Turkey: The Business Of Refugee Smuggling & Sex Trafficking (ZH)
Italy Pleads For Greek-Style Push To Return Its Migrants (FT)
So The Greece Deportations Are Going ‘Smoothly’? Take A Closer Look (G.)

Ambrose bets on a substantial fall-out.

Panama Bombshell Spells Demise Of Shadow Finance, And Privacy (AEP)

The secret world of offshore banks and money-laundering has been under the microscope ever since the financial crisis. Now it is the turn of lawyers, registrars, and the hidden network of facilitators. The treasure trove of 11.5m documents leaked – or more precisely stolen – from the Panama law firm Mossack Fonseca lifts the lid on the extraordinary practices of the global elites, and on the alleged services of off-shore legal cabinets for terrorist organisations, drug cartels, sanctions busting, and front companies of all kinds. The files on 213,000 firms first slipped to the Suddeutsche Zeitung and then shared with the International Consortium of Investigative Journalists (ICIJ) is the biggest data leak in history. It will have long-lasting ramifications. The avalanche of allegations has barely begun.

The red-hot dossier on US citizens has not even been released. Yet the scandal has already triggered a string of criminal investigations around the world, kicking off in Australia and New Zealand within hours. Germany’s vice-chancellor Sigmar Gabriel said the files go far beyond issues of tax evasion, touching on vital national interests and the rule of law. “It is about organized crime, evasion of UN sanctions, and terrorist finance,” he said. “This shadow economy is a risk for global security. We must ban the anonymous letterbox companies. The international community must ostracize any country that allows these dirty dealings,” said Mr Gabriel. Mossack Fonseca’s clients include 23 people under sanctions for helping North Korea, Russia, Iran, Syria, and Zimbabwe. The Israeli newspaper Haaretz reports that 33 of those named are on the US black list for terrorism.

Panama has cornered the trade in anonymous shell companies that allow owners to disguise their identity and carry out global operations secretly. While this may be a legitimate for those in the limelight trying to protect their privacy or to safeguard sensitive corporate dealings, many use it to avoid detection for money-laundering, tax avoidance, or predatory behaviour. The country has pushed through reforms in a bid to clear its name and to get off the OECD’s ‘grey list’ of uncooperative tax havens, but has clearly not yet done enough. “Panama has an extremely aggressive and obstructive attitude. Dialogue has broken down,” said Pascal Saint-Amans, the OECD’s tax chief. “It is the last financial centre that has refused to implement global standards of fiscal transparency. There has been very strong pressure from the law firms on the Panamanian government.”

Mr Saint-Amans said offshore secrecy in on the wane in most of the world, but becoming more concentrated in Panama. “The majority of undeclared clients are coming clean in other locations, but those who don’t are going to Panama,” he said.

Read more …

Thing is, that’s been obvious for ages.

Tax Havens Don’t Need To Be Reformed. They Should Be Outlawed (Brooks)

The Panama Papers are not really about a central American state. They are a glimpse through a Panamanian keyhole of an orgy of tax evasion, money laundering and kleptocracy – amid the legitimate financial planning – hosted by the world’s tax havens. Seven years after world leaders came together at a post-financial crisis G20 summit in London and committed to end tax haven abuse, it is clear from these papers that no such end is in sight. The good intentions have translated into a blizzard of international agreements on sharing information, amnesties through which tax evaders can come clean, and prosecution drives of variable quality to nail the cheats. All are demonstrably inadequate. Information will not, and cannot, be exchanged to any meaningful extent by countries and territories whose “offer” is that they don’t ask for it or will turn a blind eye to being deceived.

Amnesties teach rich tax evaders that, even if they are caught, they will get off far more lightly than somebody overclaiming a few pounds in social security benefits. Criminal pursuit of offenders, certainly in the UK, is little more than a joke. One prosecution from 1,000 tax evaders using HSBC’s Swiss accounts is the now infamously poor punchline. Here, the Panama Papers lay bare another national disgrace: Britain’s longstanding role at the centre of the offshore web. More than half of the 200,000 secret companies set up by the Panama lawyers Mossack Fonseca were registered in the British Virgin Islands, where details of company ownership don’t have to be filed with the authorities, never mind be made public. While this week’s leak is on an unprecedented scale, it exposes a historic as well as current failing.

As the British empire faded away after the second world war and territories such as the British Virgin Islands drifted into the constitutional limbo of semi-independence, they were encouraged to develop financial services as a way of sustaining precarious economies. If this meant a few of the world’s wealthier people paid a little less tax, thought successive British governments, it was a price worth paying for not having to support the territories. Late 20th-century financial liberalisation turned this already complacent calculation into something more lethal. With fortunes sloshing freely across borders, tax havens became voracious parasites on the world economy, most seriously sucking the life out of some of its poorer parts. All the great national robbers of recent decades, such as Nigeria’s Sani Abacha, have used tax haven companies, including British Virgin Islands ones, as the getaway cars.

Despite this long trail of evidence, leading economies refuse to address the problem at its source. The UK has great leverage over its 17 overseas territories and crown dependencies, all of which depend on the mother country for security and happily trade off its legal system. At a stroke our government could shut down the British Virgin Islands corporate system, for example. But under influence from a banking system that thrives on the legal benefits of offshore centres such as the British Virgin Islands and the Cayman Islands, it takes a more relaxed view. Asked recently about whether Britain’s overseas territories should publish registers of beneficial owners of their companies, foreign office minister James Duddridge replied that these were a “direction, rather than an ultimate destination”. The Panama Papers should expose this indifference for the great scandal that it is.

Read more …

Gone tomorrow.

Thousands Protest Demanding Icelandic PM’s Resignation (AFP)

Thousands of Icelanders took to the streets late Monday calling for their prime minister’s resignation after leaked tax documents dubbed the “Panama Papers” prompted allegations that he and his wife used an offshore firm to hide million-dollar investments. Protesters filled the square outside Iceland’s parliament in Reykjavik, footage on public television RUV showed, answering a call from opposition parties to demonstrate against Prime Minister Sigmundur David Gunnlaugsson. Police provided no estimate of the size of the crowd, but said the demonstrators outnumbered the thousands who in 2009 brought down the right-wing government over its responsibility in Iceland’s 2008 banking collapse.

“Take responsibility” and “Where is the new constitution?” read some of the signs carried by demonstrators on Monday, referring to the country’s new charter drawn up after the 2009 political crisis and which has since been held up in parliament. Financial records published by the International Consortium of Investigative Journalists showed that Gunnlaugsson, 41, and his wife Anna Sigurlaug Palsdottir bought the offshore company Wintris Inc. in the British Virgin Islands in December 2007. The company was intended to manage Palsdottir’s inheritance from her wealthy businessman father, the amount of which has not been disclosed. Gunnlaugsson transferred his 50% stake to his wife at the end of 2009, for the symbolic sum of one dollar.

But when he was elected a member of parliament for the first time in April 2009 as a member of the centre-right Progressive Party, he neglected to mention the stake in his declaration of shareholdings, as required by law. Gunnlaugsson has meanwhile denied any wrongdoing or tax evasion and insisted Monday he would not step down. He said he never hid any money abroad and that his wife paid all her taxes on the company in Iceland. A motion of no-confidence was presented to parliament by the opposition, and will be submitted to a vote at an as yet undetermined date. Almost 28,000 Icelanders, in a country of just 320,000 inhabitants, have also signed a petition demanding his resignation.

Read more …

All global banks are involved.

German Banks Enmeshed In Panama Papers Leak (DW)

The two German financial institutions specifically mentioned in media reports as having helped high-ranking politicians, celebrities and sports stars hide their money abroad were Deutsche Bank, Germany’s largest lender, and the Hamburg-based Berenberg bank. The allegations were part of the so-called Panama Papers, a massive trove of leaked emails, PDFs and other records that expose a world of letterbox companies and business arrangements that until recently had been largely hidden from public view. The Panama Papers were first obtained by reporters at the German daily “Süddeutsche Zeitung,” and on Sunday, the head of the paper’s investigative unit suggested to a German TV host that every bank in Germany was somehow implicated.

“If you were to ask me which German bank hadn’t helped its customers go to Mossack Fonseca, I would have to think long and hard to see if a single one came to mind,” said Georg Mascolo, referring to the Panama-based law firm that is at the center of the leaks because it’s where the documents originated. Mascolo proceeded to single out Deutsche Bank and Berenberg bank, the latter of which he said had “especially distinguished itself.” Both institutions promptly denied any wrongdoing. Speaking to the news agency DPA, a spokesman for Berenberg’s Swiss subsidiary insisted there was nothing inherently illegal about dealing with offshore companies. “This is, of course, done in line with legal regulations, but it does require greater due diligence on the part of the banks,” he said, noting that such accounts were “permanently monitored.”

Read more …

Sort of funny. Note that this story had been playing out for a few years already.

Data From Panama Law Firm Came From Employee, Not Hackers (Rijock)

Now it’s Panama Leaks: massive amounts of customer data stored on the computers of the country’s principal provider of corporations, Mossack Fonseca, have been stolen and delivered to foreign journalists, who reportedly are planning on releasing it as early as Monday. The data is believed to contain information on Panama companies, and bank accounts, held by foreign government officials, other politically exposed persons (PEPs) and organized crime syndicates. The public release of this information could result in widespread criminal charges against corrupt heads of state and other officials who have banked the proceeds of illegal bribes and kickbacks they have received.

There will be special attention paid to individuals who accepted money from American and British firms to allow them to participate in lucrative business arrangements, as the US and UK both strictly enforce their foreign corruption laws. Mossack Fonseca, already reeling being implicated in a major corruption case in Brazil, in which present or former government officials at the highest level are under criminal investigation, has also been in the news lately due to allegations that senior officials in Malta hold secret banks accounts in Panama, facilitated by the Mossack firm. Investigative reporters are allegedly already to publish the names, and sordid details, of a large number of corrupt PEPs. Some television media are reportedly planning on running stories early this week.

Panama insiders have said that the source of the information was not, as Mossack is reporting, an intrusion by hackers, but an inside job. A former female employee, with access to the data, was allegedly involved in an intimate relationship with a Mossack name partner. The relationship ended badly some time ago, and the employee exacted her revenge by going public with Mossack client lists and related data. The impact of this leak cannot be underestimated; it will seriously undermine global confidence in the ability of Panamanian financial service providers to assist corrupt government officials, and career criminals in hiding their ill-gotten gains, which is the major segment of the client base in such firms. It is too early to know whether dirty money will now seek a different opaque haven to be hidden.

Read more …

To further illustrate the point I made yesterday.

Panama Papers Cause Guardian to Collapse into Self-Parody (OG)

You’d be forgiven for thinking, given the above picture, that the Panama Papers had something to do with Vladimir Putin. Maybe he was a kingpin of the whole thing. Maybe he was, at least, among the 12 world leaders implicated in various shady financial practices – along with Petro Poroshenko, the saviour of Ukrainian democracy, and the King of Saudi Arabia (dad of the recent Légion d’Honneur winner). Luke Harding, a bastion of ethical journalism (and not at all a paranoid lunatic), has churned out 2 articles totaling over 5000 words, each using the word “Putin”, almost as often as they use the phrases “allegedly”, “speculation suggests”, “has been described as” and “may have been”.

Neither of his articles mentions by name any of the 12 world leaders, past and present, actually identified in the documents, nor do they mention David Cameron’s dad, who is also in there. No, they focus on a cellist friend of Putin’s, talk about his daughter’s marriage, and include an awful lot of diagrams with big arrows that point at pictures of…Vladimir Putin. This is, apparently, all evidence of…something …I’m not sure what, but it will probably be discussed at length in the “book” Luke Harding is probably planning to publish in a couple of weeks. That’s if the NSA don’t delete it all while he’s typing. The only important, or even true, phrase Harding uses appears at the very top of this article:

…the president’s name does not appear in any of the records…

That’s a minor detail of course, I mean, they have a video: “How to hide $1 billion”. The title screen is, you guessed it, a photo of Putin. Presumably because he is SO GOOD at hiding his billions that, unlike Petro Poroshenko and David Cameron’s dad:

…the president’s name does not appear in any of the records…

So there you go. The Guardian falls into self parody, pasting up a massive picture, a misleading headline and 5000 words (that Harding presumably copied from someone else), at the merest suggestion of a tenuous connection to the Russian president. It’s a bit odd, really.

Read more …

While scrambling to delete any and all references. But still, they do have a point. It’s not as if something financed by Soros is even remotely neutral.

China State Paper Sees ‘Powerful Force’ Behind Panama Leak (BBG)

A “powerful force is behind” the leak of more than 11 million documents detailing the offshore accounts of some of the world’s wealthiest people, and the U.S. government stands to gain the most from the revelations, a state-run Chinese newspaper said. An editorial published by the Global Times newspaper Tuesday provided China’s first official reaction to investigations by more than 100 news organizations, detailing overseas holdings of about 140 politicians, public officials and family members, including President Xi Jinping’s brother-in-law. The editorial, which focused on Russian President Vladimir Putin and didn’t mention any of the Chinese examples, assessed the “eye-catching” revelations as a salvo in an East-West ideological struggle, echoing the Kremlin’s response.

“The Western media has taken control of the interpretation each time there has been such a document dump, and Washington has demonstrated particular influence in it,” said the Global Times, which is published by the Communist Party’s flagship People’s Daily. “Information that is negative to the U.S. can always be minimized, while exposure of non-Western leaders, such as Putin, can get extra spin.” The release of the so-called Panama Papers come at an embarrassing time for Xi, who’s requiring party members to give authorities more information about their family wealth to institutionalize his more than three-year-old war on graft. Mentions of the documents were widely scrubbed from China’s heavily censored Internet and news outlets, which have come under increased pressure from Xi to toe the party line.

Links shared on Tencent Holdings’s WeChat messaging service said the “page could not be found.” Attempts to search “Panama Papers” on Baidu’s Google-like search engine returned only a one-line warning that “search results may not comply with relevant laws or regulations.” The Global Times editorial was published only in English.

Read more …

Those forces are waiting for TTP and TTiP to be ratified.

The Forces of Globalization Are Sputtering (WSJ)

On the campaign trail, presidential candidates in both parties depict an America under siege from cheap imports, job-stealing globalization or waves of illegal immigration. The reality since the global recession is far more complicated. Across a range of measures, the forces that once pointed to an inexorable internationalization of the world’s economy have slowed, stuttered or swung into reverse. The slowdown points to deeper economic challenges far different from the political alarms. Much of the world is struggling with a sluggishness that is clouding the U.S. outlook, driven by aging demographics, slumping labor productivity and policy makers lacking the tools or the will to pump more life into the global economy. Whatever the causes, signs abound that the forces of globalization have slowed.

Manufacturing jobs in the U.S. declined every year from 1998 to 2009, regardless of whether the overall economy was expanding or in recession. But over the past six years, manufacturing employment has edged up. It’s hardly a renaissance—the U.S. has regained about 1 million manufacturing jobs after losing 8 million since the late 1970s—but it’s a halt to the decline. The U.S. share of global exports fell sharply, especially from 1998 to 2004, but has held steady over the past 12 years at roughly 8.5%. There’s even evidence the trend of illegal immigration in the 1990s and 2000s, when millions of Mexicans crossed the border for the U.S., has stalled or gone into reverse, despite frequent alarms raised by Republican front-runner Donald Trump. The Pew Research Center estimates that since 2007, the flow of illegal immigrants returning to Mexico has been larger than the number entering the U.S.

“The globalization process, which was firing on all cylinders during the 2000s, has stalled over the past six or seven years,” said Benjamin Mandel, global strategist at J.P. Morgan Asset Management and a former New York Fed economist. The trend isn’t specific to the U.S. Globalization has sputtered around the world. From 1992 to 2008, trade climbed to about 30% of total world economic output, from 20%. That climb has halted, and remains at about 30% of GDP in the latest World Bank estimates. If the historical trend between trade growth and GDP growth had continued, global trade would be $1.8 trillion larger, according to estimates from Eric Lascelles, chief U.S. economist of RBC Asset Management. That’s equivalent to an economy the size of Canada or Russia disappearing from global output.

Read more …

From the IMF research department.

China Hard Landing Could Trigger Global Market Bloodbath: IMF (Tel.)

Jitters over the health of the Chinese economy could trigger a bloodbath on financial markets if a hard landing materialises, the IMF has warned. The IMF said policy choices in the world’s second largest economy would also have “increasing implications for global financial stability” in the coming years as the country opens up its bond and equity markets. The fund said emerging market economies such as China, India, Brazil and Russia had driven more than half of global growth over the past 15 years. Stronger trade ties and financial linkages meant spillovers from these countries had become “the norm, not the exception”, increasing the risk that future shocks could send powerful reverberations around the globe. The IMF calculated that emerging market spillovers now accounted for a third of the fluctuations seen in equity and currency markets in advanced nations.

Highlighting last summer’s massive stock market sell-off after China devalued its currency, the IMF noted that Chinese growth had an “increasing” and “significant” impact on global equity prices. “The impact of shocks to China’s fundamentals on global financial markets is expected to grow stronger and wider over time,” the Fund said in a pre-released chapter of its Financial Stability report. “Clear and timely communication of its policy decisions, transparency about its policy goals, and strategies consistent with achieving them will, therefore, be essential to ensure against volatile market reactions, which may have broader repercussions.” The IMF also urged policymakers to do more to rein in corporate debt, which it has previously said could see a wave of defaults as the US hikes interest rates.

“Fire sales” of assets by money managers could also amplify emerging market spillovers in a downturn, if mutual funds rushed to sell illiquid assets, the IMF warned. Financial “spillbacks” triggered by policy actions in advanced economies such as tighter monetary policy in the US underscored “the importance of enhanced international macroeconomic and macroprudential policy co-operation”, the IMF said. The Fund issued a separate warning on the $24 trillion life insurance sector. It said herding behaviour created systemic risks that could make firms “too many to fail”. The IMF said the low interest rate environment had encouraged many firms to increase risk taking in order to “resurrect their fortunes”, particularly among smaller and less capitalised firms. “Jointly firms can propagate shocks, if they act similarly,” the IMF said. “They may be ‘too many to fail’,” it warned.

Read more …

From the other IMF orifice. She has absolutely nothing. Zilch. Not a word she utters has any meaning.

Lagarde Says Risks to Weak Global Recovery Are Increasing (BBG)

The global recovery is facing growing risks, and frustration with inequality is increasing the lure of protectionism, IMF Managing Director Christine Lagarde said. The world economy’s outlook has dimmed over the last six months, exacerbated by China’s slowdown, lower commodity prices and the risk of financial tightening in many countries, Lagarde said Tuesday in the prepared text of a speech in Frankfurt. The expected passing of the “growth baton” from emerging markets to advanced economies hasn’t occurred, she added. Lagarde, fresh from winning a new five-year term at the fund’s helm, used the opportunity to caution against being drawn to the kinds of forces that have fueled the populism-driven candidacies of Bernie Sanders and Donald Trump in the U.S. presidential election.

While inequality has been declining on a global scale, the perception remains that “the cards are stacked against the common man – and woman – in favor of elites,” said Lagarde, 60. “To some, the answer is to look inward, to somehow unwind these linkages, to close borders and retreat into protectionism,” she said, without naming any politicians. “As history has told us – time and again – this would be a tragic course.” Lagarde’s comments on the global economy add to signs that the IMF will downgrade its growth forecast when it releases its updated World Economic Outlook on April 12. Finance ministers and central bankers from the fund’s 188 member nations will gather later that week in Washington for the IMF’s spring meetings. “The good news is that the recovery continues; we have growth; we are not in a crisis,” Lagarde said. “The not-so-good news is that the recovery remains too slow, too fragile, and risks to its durability are increasing.”

Lagarde said U.S. growth is flat due partly to the strong dollar, while low investment and high unemployment are weighing on growth in the euro zone. Growth and inflation in Japan have been weaker than expected, she added. China’s transition to a more sustainable economic model involves slower growth, Lagarde said, adding that downturns in Brazil and Russia have been worse than expected and Middle Eastern nations have been hit hard by the decline in oil prices. “Certainly, we have made much progress since the great financial crisis,” Lagarde said. “But because growth has been too low for too long, too many people are simply not feeling it.” The persistent low growth can be “self-reinforcing,” because of negative effects on potential output that can be hard to reverse, she said.

Read more …

Beijing is deliberately creating an ever bigger housing bubble. Scary.

Subprime Housing Risks Raise Red Flags In China (WSJ)

China’s efforts to tackle a glut of vacant housing by spurring home lending have triggered a bigger problem: A surge in risky subprime-style loans that is generating alarm among regulators. Home buyers in China normally put down a third of the cost of a new property upfront. But a rapid rise in buyers borrowing for their down payments – an echo of the easy credit that cratered the U.S. housing market and sparked the financial crisis – has prompted authorities to clamp down. Peer-to-peer lenders, who raise money from investors and then lend it out at higher interest rates, made 924 million yuan ($143 million) in down-payment loans in January, more than three times the amount made in July, according to Shanghai-based consultancy Yingcan.

A senior banking executive at one of China’s top four state-owned banks said down-payment loans directly contributed to a recent run-up in housing prices in big cities. “It’s a risky practice that should be contained,” he said. Officials at various levels of government are now stepping on the brakes. The central bank and the housing ministry last month started to crack down on loans enticing home-buyers with “zero-down-payment” slogans. [..] Beijing began easing credit in late 2014 to help cities fill empty apartments — a legacy of a housing-construction boom fueled by a decade of urban population growth and cheap credit. As companies and local governments sag under crippling debt, authorities have seen room for more borrowing among households and have tried to widen the pool of home buyers.

But despite a rise in down-payment loans and lower mortgage barriers for groups such as rural migrant workers, it has proven hard to unleash buying in the right places. Instead, the easing measures and new incentives fed a property frenzy in China’s megacities, with buyers driven by fear of being left behind in a market increasingly out of reach. Shenzhen, where housing prices have soared 57% since last year, according to official data, has tightened down-payment requirements. So has Shanghai, where housing loans more than tripled in January compared with a year earlier. Data on loans used to finance down payments is sketchy, as such financing is a relatively new business. In addition, developers sometimes offer such loans, and banks offer mortgage applicants loans for renovations, taxes or travel that can be channeled toward the down payment, according to property agents. Depending on the housing market, agents say, these loans can attract annual interest rates of up to 24%.

Read more …

Until there’s nothing left.

Bond Market ‘Exhausted’ as Kuroda Stimulus Enters Fourth Year (BBG)

Three years since Bank of Japan Governor Haruhiko Kuroda embarked on an unprecedented monetary experiment, yields continue to test new lows even as concern grows that his policies will cripple the world’s second-biggest bond market. Yields have tumbled below zero on maturities up to a decade following the central bank’s surprise decision this year to implement negative interest rates, after unleashing two rounds of quantitative easing since April 4, 2013. As the BOJ’s bond holdings have swelled to one-third of total debt outstanding, the market has begun to seize up amid a dearth of liquidity, causing volatility to soar. Even so, inflation – and inflationary expectations – remain far from Kuroda’s 2% target.

That’s why an overwhelming majority of analysts predict the BOJ will expand stimulus again by July, even while some warn that the technical limits to the asset-purchase program are rapidly approaching. In the BOJ’s latest survey of bond market participants, 41% rated market functioning as “low.” Kuroda said Tuesday the central bank can lower the deposit rate from the current minus 0.1% if needed, and he doesn’t think negative rates will make asset purchases difficult. “The bond market is becoming increasingly exhausted, and increasingly volatile,” said Shuichi Ohsaki at Bank of America Merrill Lynch in Tokyo. “It’s not a properly functioning market anymore. This stimulus can’t go on indefinitely.”

Read more …

The achievements of the ‘intelligent’ human species.

Sperm Whales Found Full of Car Parts and Plastics (NatGeo)

Fishing gear and an engine cover are just some of the startling contents found inside the stomachs of sperm whales that recently beached themselves on Germany’s North Sea coast. The 13 sperm whales washed up near the German state of Schleswig-Holstein earlier this year, the latest in a series of whale strandings around the North Sea. So far, more than 30 sperm whales have been found beached since the start of the year in the U.K., the Netherlands, France, Denmark, and Germany. After a necropsy of the whales in Germany, researchers found that four of the giant marine animals had large amounts of plastic waste in their stomachs. The garbage included a nearly 43-foot-long shrimp fishing net, a plastic car engine cover, and the remains of a plastic bucket, according to a press release from Wadden Sea National Park in Schleswig-Holstein.

However, “the marine litter did not directly cause the stranding,” says Ursula Siebert at the University of Veterinary Medicine Hannover, whose team examined the sperm whales. Instead, the researchers suspect that the whales died because the animals accidentally ventured into shallow seas. Male sperm whales normally migrate from their tropical or subtropical breeding grounds to colder waters at higher latitudes. The species is one of the deepest diving animals in the cetacean family, known to plummet as far as 3,280 feet (1,000 meters) in search of squid, its favorite food. The beached whales were all young males between the ages of 10 and 15, and the necropsies revealed that they died of heart failure. The team believes this particular group mistakenly swam into the North Sea, a shallower zone in between the U.K. and Norway. There the whales could not support their own body weights, and their internal organs collapsed.

“It is thought that the sperm whales may have got lost and entered the North Sea (possibly chasing squid), where the sea floor is not deep enough, causing the whales to become disorientated and die,” Danny Groves, a spokesperson for the nonprofit Whale and Dolphin Conservation (WDC), wrote in an email. According to the WDC, whales and dolphins may strand for many reasons, such as excessive noise pollution from ships and drilling surveys or even subtle shifts in Earth’s magnetic field. In addition, pilot whales that beached off the coast of Scotland three years ago showed high levels of toxins from ocean pollution, which scientists linked to stress on their brains that may have caused disorientation.

Read more …

The EU-Turket deal is a disgrace on more levels than we can count.

Turkey: The Business Of Refugee Smuggling & Sex Trafficking (ZH)

A detailed report on Syrian women refugees, asylum seekers, and immigrants in Turkey, issued as far back as 2014 by the Association for Human Rights and Solidarity with the Oppressed (known in Turkish as Mazlumder), tells of early and forced marriages, polygamy, sexual harassment, human trafficking, prostitution, and rape that criminals inflicted upon Syrians in Turkey. According to the Mazlumder report, Syrians are sexually exploited by those who take advantage of their destitution. Children, especially girls, suffer most. Evidence, both witnessed and forensic, indicates that in every city where Syrian refugees have settled, prostitution has drastically increased. Young women between the ages of 15 and 20 are most commonly prostituted, but girls as young as thirteen are also exploited.

Secil Erpolat, a lawyer with the Women’s Rights Commission of the Bar Association in the Turkish province of Batman, said that many young Syrian girls are offered between 20 and 50 Turkish liras ($7-$18). Sometimes their clients pay them with food or other goods for which they are desperate. Women who have crossed the border illegally and arrive with no passport are at high risk of being kidnapped and sold as prostitutes or sex slaves. Criminal gangs bring refugees to towns along the border or into the local bus terminals where “refugee smuggling” has become a major source of income. Professional criminals convince parents that their daughters are going to a better life in Turkey. The parents are given 2000-5000 Turkish liras ($700-$1700) as a “bride price” – an enormous sum for a poor Syrian family – to smuggle their daughters across the border.

“Many men in Turkey practice polygamy with Syrian girls or women, even though polygamy is illegal in Turkey,” the lawyer Abdulhalim Yilmaz, head of Mazlumder’s Refugee Commission, told Gatestone Institute. “Some men in Turkey take second or third Syrian wives without even officially registering them. These girls therefore have no legal status in Turkey. Economic deprivation is a major factor in this suffering, but it is also a religious and cultural phenomenon, as early marriage is allowed in the religion.” Syrian women and children in Turkey also experience sexual harassment at work. Those who are able to get jobs earn little – perhaps enough to eat, but they work long and hard for that little. They are also subjected to whatever others choose to do to them as they work those long hours.

[..] The organization End Child Prostitution, Child Pornography and Trafficking of Children for Sexual Purposes (ECPAT) has produced a detailed report on the “Status of action against commercial sexual exploitation of children: Turkey.” ECPAT’s report cites, from the 2014 Global Slavery Index, estimates that the incidence of slavery in Turkey is the highest in Europe, due in no small measure to the prevalence of trafficking for sexual exploitation and early marriage.

Read more …

The problem merely shifts.

Italy Pleads For Greek-Style Push To Return Its Migrants (FT)

Italy is pleading for EU help to ramp up the deportation of migrants arriving on its southern shores, warning that the bloc’s immigration system is at risk of collapse without a more aggressive policy on so-called returns. In an interview with the FT, Angelino Alfano, Italy’s interior minister, says the EU should move to secure deals with African nations, which are the source of the vast majority of migrants arriving in Italy, offering economic aid in exchange for taking back their citizens and preventing new flows. His comments come as the EU enacts a scheme with Turkey in which thousands of Middle Eastern refugees will be sent back across the Aegean Sea from Greece in exchange for up to €6bn in EU aid for Ankara. A first group of 135 were returned to Turkey on Monday.

“Europe was able to find the resources when it was urgent – I am referring to Turkey. It’s a matter of political leadership,” Mr Alfano said. “If returns don’t work, the whole Juncker migration agenda will fail,” he said. Mr Alfano’s request reflects renewed nervousness in Rome about the migration crisis following an 80 per cent spike in the number of arrivals to Italy across the central Mediterranean Sea in the first quarter of this year compared to 2015. If that increase holds through the warmer spring and summer months, it would smash the record 170,000 migrants who arrived in Italy in 2014, straining resources and creating a political problem for the centre-left government led by Matteo Renzi. As the Greece plan goes into action, there are worries in Rome that it may compound problems by encouraging Middle Eastern migrants to switch routes and attempt to enter the EU through Italy, boosting the numbers even further.

“If Syrians don’t want to stay in Turkey but want to try the trip to Europe, they will go around and try to get here from Libya,” Mr Alfano said. “We still don’t have any evidence that this is happening, but we are monitoring.” Italy has held talks with Albania about containing a possible surge in flows through the Balkan nation. Mr Alfano also expressed hope that the recent, if wobbly, establishment of a national unity government in Libya could lead to a crackdown against migrant smugglers there. For those who do arrive, Italian officials are hoping that an EU plan to relocate thousands of refugees across its 28 member states will relieve some pressure. So far, only about 500 migrants have been moved from Italy under the plan – “apartment building numbers” – says Mr Alfano, derisively.

Italy last year deported 15,000 people, or about 10 per cent of all arrivals. Officials believe higher figures are essential to alleviate the country’s burden, even if mass returns could trigger concerns about possible violations of human rights and international law. “Irregular [migrants] have to be kept in closed camps from where they cannot escape. So how many tens of thousands of people can you keep, year after year? Without returns, either you organise real prisons, or it’s obvious that the system will collapse,” Mr Alfano said. “It doesn’t take a prophet to glimpse the future”.

Read more …

Yesterday’s deportations will prove to be mainly symbolic. From here on in the problems start.

So The Greece Deportations Are Going ‘Smoothly’? Take A Closer Look (G.)

Today had been declared the first day that migrants and refugees would be deported from Greece within the framework of the EU-Turkey deal, and European authorities seemed determined not to miss the date. So as of Sunday, Greek police, along with the EU border agency Frontex, organised a large-scale operation to ensure the smooth handling of today’s returns from the islands of Chios and Lesbos. The operation was initially deemed a success, with reports being limited to the boats and their occupants, which offered some digestible photo ops. There is plenty of evidence, though, that suggests that it has been no more than a media-savvy gesture on behalf of the European commission.

Officials from Frontex clarified that the boats carried mostly Pakistanis, Bangladeshis, Afghans and Moroccans who were going to be deported to Turkey prior to the deal or didn’t request asylum. There were only two Syrians among them who appear not to have requested international protection. Indeed authorities appear to have rushed to identify such people so they could be available for today’s return. Termed “easy cases” by Frontex spokeswoman Eva Moncure, they are perfect material for today’s photo op. As it turns out, more than 90% of people arriving in Greek islands since 20 March – when the EU-Turkey deal was enacted – have opted for asylum, thus complicating their return under the arrangement. It is no surprise then that no further dates have been announced for future deportations.

The first day of deportations has been met with affirmative statements by credible international organisations, including the UN High Commissioner for Refugees (UNHCR), who confirmed that all procedures were regular and rights of deportees were observed. Everything is smooth and tidy, it seems. But this is one version of the story only. There is a second where things have gone less smoothly. Activist lawyers’ accounts and journalist reports from the islands raise the question of whether refugees have been given sufficient time and access to asylum procedures. It appears that many of them do not yet understand the content of the deal or why they have been restricted, and there has been a last-minute rush for asylum claims among the people who are possible deportees. It is also unclear how Turkey plans to handle returnees, how they will be received, and whether they will be able to receive the protection that was previously offered to them there.

Read more …

Feb 022016
 
 February 2, 2016  Posted by at 9:41 am Finance Tagged with: , , , , , , , ,  1 Response »


NPC Minker Motor Co, 14th Street NW, Washington, DC 1922

The Citi Market-Crash Clock Says It’s 5 Minutes To Midnight (BI)
Time Running Out For China On Capital Flight, Warns Bank Chief (AEP)
China Announces 400,000 Steelworker Job Cuts, 3 Million More Expected (WSWS)
Hong Kong Property Sales Slump To 25 Year Low (BBG)
Hong Kong Short Sellers Could Find The Weak Link In Real Estate (MW)
Oil-Price Poker: Why the Saudis Won’t Fold ‘Em (WSJ)
BP Reports 91% Decline In Fourth-Quarter Earnings (BBG)
BP Posts Biggest Loss In 20 Years, Axes 7000 Jobs, Shares Lose 5% (Guardian)
Flood Of Oil Asset Writedowns Across Asia (BBG)
Iceland Central Bank Preparing New Weapons To Fight Capital Rush (Reuters)
World Index Of Economic Freedom Tells Us That EU Should Be Broken Up (AEP)
Ground Control to Captain Zhou Xiaochuan (Jim Kunstler)
Progress On Migration Could ‘Facilitate’ Greece’s Bailout Review (Kath.)
Europe’s Refugee Story Has Hardly Begun (Paul Mason)
Where Are Our Principles? (Boukalas)

Nice concept.

The Citi Market-Crash Clock Says It’s 5 Minutes To Midnight (BI)

Citi published a scary update to its market clock chart at the end of last month. According to Citi’s analysis, the economy has moved into Phase 4 of the economic cycle, the point at which both credit and equities move into recessionary downward cycles. The US is further along in the clock rotation than the eurozone is. But both are heading into the dreaded Phase 4.

The last time Business Insider looked at the Citi clock, in August 2014, it was still in Phase 3. Here is how the clock works, according to Citi global strategy analyst Robert Buckland:

• Phase 1: This begins at the end of a recession, when interest rates have fallen, money is cheap, but stocks are still battered.

• Phase 2: A bull market sets in during phase 2, when stocks start to rise as easy credit lubricates the economy.

• Phase 3: This is the tricky part. Stocks are still flying high, but credits spreads are widening as investors become increasingly unwilling to finance further risk. Corporate CEOs have now experienced a lengthy period of gains and become risk-happy. (And we’d note that central banks are already talking about tightening credit by raising interest rates.) Bubbles can form in Phase 3, as the high-flying stock market ignores the early warning signs of the deteriorating credit market. Hello, tech startup IPOs!

• Phase 4: Stocks react to the lack of available credit by collapsing, and we see the kinds of things you get in a recession: “This is the classic bear market, when equity and credit prices fall together. It is usually associated with collapsing profits and worsening balance sheets,” Buckland said last year.

Read more …

“At the moment they won’t impose losses on anybody..”

Time Running Out For China On Capital Flight, Warns Bank Chief (AEP)

China is rapidly losing the confidence of global lenders and capital outflows risk turning virulent if the current policy paralysis continues, the world’s top banking body has warned. “There is a perception that the renminbi could weaken drastically,” said Charles Collyns, the managing-director of the Institute of International Finance in Washington. Mr Collyns said the authorities have so far failed to articulate a coherent strategy, and there are serious worries that outflows of capital could accelerate, broadening into a flood beyond Beijing’s control. “The Chinese have not been rigorous and they have not been very convincing,” he told The Telegraph. Mr Collyns said China has already allowed the renminbi (yuan) to weaken against the country’s new trade-weighted basket of currencies, stoking suspicions that the recent shift from a crawling dollar-peg to a more opaque foreign-exchange regime is really a cover for devaluation.

The IIF, the chief global body for the banking industry, calculates that capital outflows from China reached $676bn last year. The central bank has been burning through foreign exchange reserves to offset the bleeding and shore up the currency, culminating in intervention of $140bn in December, by some estimates. A big drop in the yuan would send a deflationary shockwave through a fragile world economy already on the cusp of a debt-deflation trap, and do so at a time when the eurozone and Japan are actively driving down their currencies. It would risk a pan-Asian currency storm along the lines of 1998, but on a much bigger scale. China is not just another country. Its fixed capital investment has been running at $5 trillion a year, matching the combined total of North America and Europe.

This has led to excess capacity across swathes of industry that casts a shadow over the entire global system. Chinese officials insist solemnly that the new basket rate is the “decided policy of China” and will be upheld come what may, but concerns are mounting that they may be overwhelmed by market forces. The crucial question is whether the exodus of money is chiefly a one-off move by Chinese companies and investors to pay off dollar debt – and to unwind “carry trade” positions in dollars – as the US Federal Reserve raises interest rates and drains liquidity. If so, the outflows are largely benign and should make the world’s financial system safer. Mark Tinker, head of equities for AXA Framlington in Asia, said the bulk of the outflows are to pay off liabilities. “Chinese corporates are issuing corporate bonds in record quantities and using the capital to restructure their balance sheets, both onshore and offshore. This is not capital flight, it is asset liability matching, both duration and currency. It is a good thing being presented as a bad thing,” he said.

The IIF’s Mr Collyns, a former assistant US Treasury Secretary, is less sanguine. He calculates that total dollar debt in China peaked at roughly $1.5 trillion in late 2014, if all forms of exposure are included. “We think they have paid off a third of this. Half of the outflows are to repay dollar debt,” he said. “What is worrying is that there could be a broadening of the outflows. There has been a surge in ‘errors and emissions’ and this is ominous. A lot of this is a capital outflow below board through inflated trade invoices and other forms of subterfuge, and some of it is ending up in the London property market,” he said.

Mr Collyns said there is no guarantee that the outflows will slow even if all the dollar debt is paid off since Chinese companies may start taking out “long” dollar positions (short renminbi) in the currency markets if they fear that Beijing is losing control. “The Chinese have to restore confidence by pushing through reforms. There must be greater transparency in fiscal and monetary policy, and they must tackle excess industrial capacity. At the moment they won’t impose losses on anybody,” he said.

Read more …

“..it is estimated that for every job lost in steel, another 3 jobs are lost in related and supporting industries.”

China Announces 400,000 Steelworker Job Cuts, 3 Million More Expected (WSWS)

An estimated 400,000 steelworkers in China will lose their jobs, in line with plans to slash crude steel production capacity by between 100 million and 150 million tons. The announcement was posted Sunday on government web sites, and reports a decision made by the State Council on January 22 to cut steel, coal and other basic industrial production in response to the global slump and declining growth in China. Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, said that the cuts in production would translate into 400,000 steelworkers losing their jobs. “Large-scale redundancies in the steel sector could threaten social stability,” Li Xinchuang told the official Xinhua News Agency Monday.

The State Council did not say when the cuts would be made, but China, which produces half of the world’s steel, has already cut capacity by 90 million tons in response to the growing slowdown in the Chinese and world economy, and is under enormous pressure to do more. Along with the cuts already made, the new cuts will amount to about a 20% reduction in steelmaking capacity. The reductions will have an enormous impact on Chinese workers. In addition to those directly employed in steel making, it is estimated that for every job lost in steel, another 3 jobs are lost in related and supporting industries. Three million workers in the steel, coal, cement, aluminum and glass industries are expected to lose their jobs in the next few years as these industries seek to cut production by 30%.

Many of these employees are first-generation workers who migrated from impoverished rural villages with hopes of a better life. Often their families are dependent upon money these workers are able to send home. As in the United States and every other country, investors responded to the announced job cuts with joy. The stock price of China’s largest steelmaker, Hebei Iron & Steel, rose 4.3% on the news, and the second-biggest, Baoshan Iron & Steel, rose by 5.3%. The stock prices of China’s coal producers also rose on the news of the layoffs. According to the World Steel Association, China’s steel production in 2014 amounted to 822.7 million tons, or 49.4% of the world output of steel. Japan is the second largest steel producer, at 110.7 million tons, followed by the United States at 88.2 million tons and India at 86.5.

Read more …

Square peg in a round trap.

Hong Kong Property Sales Slump To 25 Year Low (BBG)

In a city that saw demand propel property prices to a record last year, the estimate that transactions reached a 25 year-low in Hong Kong shows how quickly sentiment has turned. Home prices have slumped almost 10% since September and monthly sales in January fell to the lowest since at least 1991, according to Centaline Property. Amid a spike in flexible mortgage rates this month and anemic demand for new developments, the low transactions volume for January is the latest evidence that prices have further to fall. “The danger is that when sentiment turns negative, it’s very hard to turn things around,” Michael Spencer, Deutsche Bank’s Hong Kong-based Asian chief economist, said in a telephone interview. “Developers realize they missed the best opportunity to sell.”

Hong Kong’s property market has been showing signs of weakening amid a rising supply of homes, higher short-term interest rates and slowing growth in China. Developers have been slow to make outright price cuts to move real estate while would-be buyers are delaying purchases in anticipation of further price declines, creating a standoff that could put more pressure on prices and drag down the city’s economy. Falling property prices may create a negative wealth effect on consumption by prompting buyers to cut back on their purchases, Deutsche Bank’s Spencer said. That could deal a huge blow to an already vulnerable economy where half the population owns homes and consumption accounts for nearly two-thirds of gross domestic product.

Based on housing and economic growth data going back to 2000, Spencer said that consumption growth declined on average by one percentage point for every 10% decline in housing prices. That suggests economic growth in Hong Kong could be halved to 1.1% this year assuming a 20% drop this year, he said. [..] Housing prices are down 9.5% since their September peak, according to the Centaline Property Centa-City Leading Index and may fall another 20% in 2016, according to some estimates. Centaline estimates that transactions reached 3,000 units last month. The previous low was 3,786 units in November 2008, according to a Jan. 31 release.

Read more …

How can Beijing stop this one?

Hong Kong Short Sellers Could Find The Weak Link In Real Estate (MW)

Hong Kong’s monetary chief warned Monday that speculators are wasting their time trying to short the Hong Kong dollar. But could Hong Kong’s property market be the government’s weak spot as more hedge funds line up to short China? The Hong Kong dollar has recently come into the spotlight amid reports that U.S. hedge funds are stepping up bets against the Chinese yuan. This comes after capital outflows have extended from China to Hong Kong in recent weeks as investors’ lack of confidence spreads. Since last week, Beijing’s job to hold the line on the yuan became even more difficult,thanks to the Bank of Japan’s surprise move to negative interest rates on a portion of bank reserves, which sent the yen on a renewed downward trend.

The move by the world’s third-largest economy to effectively target its exchange rate came only hours after Premier Li Keqiang pledged that China would not engage in a trade war by depreciating its currency. This is inconvenient as the market already views the yuan as overvalued as shown by accelerating foreign currency outflows. The latest move to weaken the yen just adds to the yuan’s perceived overvaluation. As well as unhelpful currency moves, confidence in the yuan is unlikely to be helped by renewed signs that China’s extended debt binge will be followed by a messy hangover.

New reports have emerged of multiple arrests after the discovery of a 50 billion yuan ponzi scheme, which may have seen 900,000 people lose money in a people-to-people lending scam. This comes on the heels of a 3.9 billion yuan loss at Agricultural Bank of China after staff reportedly devised a scam where bills of exchange were illegally funneled into the stock market before it crashed. The concern is that this is just the tip of the iceberg and that authorities will have a sizable cleanup bill as they deal with the aftermath of the stock market bubble and the loosely regulated shadow-banking sector. Still, for those with a bear view on China’s economy and currency, this is only likely to strengthen the conviction that the yuan will need to go lower.

Read more …

It’s not tactics, it’s sheer desperation.

Oil-Price Poker: Why the Saudis Won’t Fold ‘Em (WSJ)

The game being played in the global oil market today bears more than a passing resemblance to poker. Nobody wants to quit while they’re losing. That is important for investors to keep in mind as they ponder what have become almost daily spikes and drops in the price of crude. So, too, is the role of Saudi Arabia in the game. It remains within Saudi Arabia’s ability to foster at least a partial recovery in crude prices on its own. A sharp rally in prices last Thursday morning was based on comments from Russia’s energy minister that the Saudis might get the ball rolling on 5% output cuts. That was quickly refuted and oil gave up much of the gains. All major producers are suffering financially at today’s low prices—while oil has bounced from its sub-$30 nadir of January, it is still down nearly 7% in 2016 and nearly 70% from its 2014 peak.

And Saudi Arabia hasn’t forfeited only a couple of hundred billion dollars and counting in forgone revenue, but also market share. That has mainly been to a relative newcomer, U.S. shale producers. But going forward it may be to an old adversary: Iran. The Shiite powerhouse is ramping up production following the lifting of nuclear sanctions. And its export surge is occurring against the backdrop of ongoing proxy wars in Syria and Yemen. Those make it difficult for Sunni champion Saudi Arabia to take the lead with output cuts. Russia, meanwhile, is pumping the most crude ever, hitting a post-Soviet Union peak. But it may have difficulty maintaining today’s pace given a lack of investment in its aging Siberian fields. The chief executive of Russian oil giant Lukoil predicted that Russian output would drop in 2016 for the first time in several years.

Read more …

Nervous boardrooms.

BP Reports 91% Decline In Fourth-Quarter Earnings (BBG)

BP reported a 91% decline in fourth-quarter earnings after average crude oil prices dropped to the lowest in more than a decade. Profit adjusted for one-time items and inventory changes totaled $196 million, the London-based company said Tuesday in a statement. That missed the $814.7 million average estimate of 10 analysts surveyed by Bloomberg, and compares with year-earlier profit of $2.24 billion. Crude’s collapse has driven BP’s market value below $100 billion for the first time since the Gulf of Mexico oil spill in 2010. CEO Bob Dudley has cut billions of dollars of spending, removed thousands of jobs and deferred projects in an attempt to protect the balance sheet. Dudley was one of the first of his peers to start preparing for a prolonged slump and that puts BP in a better position, according to Barclays.

Profit has been lower year-on-year for six consecutive quarters as oil prices tumbled. The average price of benchmark Brent crude slumped 42% in the fourth quarter from a year earlier to $44.69 a barrel, the lowest since 2004. PetroChina said last week it expects 2015 profit to fall at least 60%. Chevron Corp. on Friday reported its first quarterly loss since 2002, while Royal Dutch Shell said last month that fourth-quarter profit is likely to drop at least 42%. The European oil major is scheduled to report full earnings on Thursday. BP started cutting costs and selling assets following the 2010 oil spill. In October, it lowered its 2015 capital-spending forecast to about $19 billion after investing about $23 billion in 2014. The company said then it expects to spend $17 billion to $19 billion a year through 2017.

Read more …

But: “We’re making good progress in managing and lowering our costs and capital spending, while maintaining safe and reliable operations..”

BP Posts Biggest Loss In 20 Years, Axes 7000 Jobs, Shares Lose 5% (Guardian)

BP is to cut another 3,000 jobs after reporting a loss of $6.5bn, its worst annual loss in at least 20 years. The latest job cuts are in addition to the 4,000 job cuts already announced. The group also said it has set aside a further $440m (£305m) over the last three months for liabilities associated with the Deepwater Horizon disaster, bringing the total bill so far to $55bn. The latest financial blow from the US Gulf accident nearly six years ago helped to drag BP into a fourth quarter loss of $2.2bn and an annual loss of $6.5bn.. Shares in the group fell by more than 5% as the results underlined the impact of falling oil prices. Despite this, Bob Dudley, BP’s chief executive, blamed low oil prices for the losses but gave an upbeat message saying the company was continuing to move rapidly to “adapt and rebalance” to cope with a changing environment.

“We’re making good progress in managing and lowering our costs and capital spending, while maintaining safe and reliable operations and continuing disciplined investment into the future of our portfolio.” The underlying profit for the last three months, not counting the Gulf and other factors, was down from $2.2bn last time to $196m, much worse than analysts had expected. A consensus among 17 analysts ahead of the results predicted that underlying profits would fall in the final three months to $730m down almost 70% on the same period a year earlier. The biggest problem for BP has come from low crude prices with Brent averaging $44 a barrel across the fourth quarter compared with $77 for the same period 12 months earlier. Brent is now down to just above $33, 42% less than a year ago.

Read more …

Deflation.

Flood Of Oil Asset Writedowns Across Asia (BBG)

Investors in Asian oil and gas companies should prepare for a wave of writedowns after a collapse in crude prices. CNOOC, Santos and Inpex are among explorers and producers that may report full-year net losses because of writedowns that may be equal to as much as 10% of book value, analysts at Sanford C. Bernstein in Hong Kong wrote in a report Tuesday. “The future value of oil and gas properties has been significantly reduced,” according to the Bernstein analysts, including Neil Beveridge. “The impairment loss will likely be larger than earnings for the year for some companies, pushing several E&P’s in the region into a loss.” Oil prices have tumbled almost 70% in the past two years, weighing on earnings and forcing explorers to cut spending.

Writedowns at Santos, the Adelaide-based energy company that built the $18.5 billion Gladstone liquefied natural gas project in Australia, may exceed A$3.4 billion ($2.4 billion), according to UBS. Companies including PTT Exploration & Production that have been active in mergers and acquisitions over the past five years also are expected to write down the value of assets, the analysts wrote. Writedowns at Chevron last week pushed the company to its first quarterly loss in 13 years. “Investors should look through impairment losses at the underlying earnings or cash flow for each company,” according to the Bernstein analysts, who expect a recovery in oil in the second half of the year. “Assuming an oil price of greater than $50 a barrel, we see value in the sector.”

Read more …

Iceland remains a unique and interesting story.

Iceland Central Bank Preparing New Weapons To Fight Capital Rush (Reuters)

Iceland is drawing up plans to tax foreigners who buy its bonds or to remove certain interest privileges to keep from being overwhelmed by a flood of money drawn by the highest interest rates in western Europe. The country is about to start the tricky process of removing the capital controls that have been in place since what the central bank governor, Mar Gudmundsson, calls “the third biggest bankruptcy in the history of mankind”. With its economy recovering and interest rates at 5.75% compared with virtually zero in the rest of Europe, concern is growing about a destabilizing rush of cash coming in. “The conditions are good for lifting capital controls – they have never been better,” Gudmundsson said in an interview with Reuters. “A current account surplus, high level of reserves, a fiscal surplus and, hopefully, inflation that is still not too high.”

He expects the first stage of that process to come in the next few months, which is to remove restrictions on foreigners’ ‘offshore crown’ funds, which are worth around 14% of Iceland’s annual economic output. Once that it is done, the bank has said, it will use some of its foreign exchange reserves to prevent any bad reaction, before taking the more uncertain step of lifting controls for the wider population. “Possibly in the Autumn or hopefully at least before the end of the year” controls on domestic residents can be lifted, Gudmundsson said. With interest rates higher in Iceland than in virtually every other developed economy in the world, Gudmundsson said, it was unlikely locals would be rushing to take their money out of their bank accounts. It was more likely foreign investors will put more in.

Foreign cash flowing into the country’s banks was one reason Iceland got into so much trouble in the first place. It has introduced a raft of measures to prevent those kind of problems. But now has a different one: so many people are buying its government bonds that interest rate increases are losing their effect. As a result, it is drawing up some counter measures. “We are working on designing certain tools that hopefully we do not need to use often but are there on the shelf if capital inflows into the bond market are making it very difficult for us to run our own monetary policy,” Gudmundsson said. “Theoretically we can do it through a tax, so instead of having an interest rate of say 6%, you are getting an interest rate of 3 or 4% in effective terms.

Read more …

“The message is that a country can keep most of its economic freedoms within the EU (provided it does not join the euro)..”

World Index Of Economic Freedom Tells Us That EU Should Be Broken Up (AEP)

Britain has overtaken the United States in the global index of economic freedom, jumping three points to 10th place. What is striking about the 2016 index released today by the Heritage Foundation is the shockingly “unfree” state of the European Union. “Greece has dropped to 138 because it has lost control over its economic levers and monetary policy” What you have is a northern free-zone clustered around the UK, Ireland (7), the Netherlands (16), and the Nordic-Baltic region of the old Hanseatic League, with Switzerland (4) as ever near the top, and safely beyond the clutches of Brussels and regulatory asphyxiation. Or put another way, it is the Protestant alliance that battled reactionary Habsburg absolutism in the late 16th and early 17th Centuries – with Germany split within, torn in both directions.

This Northern grouping is roughly that which would emerge as a closely linked area of prosperity if Britain left the EU. In my view most of these states would also pull out within 10 to 15 years – de facto, if not jure – once Britain had set the ball rolling. Germany would be left trying to manage two deeply troubled blocs with demographic crises: a poor sphere to the East where a fragile rule of law is breaking down in one country after another; and a heavily indebted bloc in the South that is trapped in deflation and labour hysteresis, and has yet to claw back its lost competitiveness within the structure of monetary union. The index shows that EU countries are on average less free than other countries with a comparable per capita income and level of development, an indictment that should give cause for thought. Several of them are disasters.

Greece is ranked “mostly unfree” and is deteriorating five years after it crashed into the arms of the Troika, which claimed to be pushing through reforms to make the country more efficient, transparent, modern and competitive – but was in reality collecting debts for northern creditors under false guise. Greece has dropped to 138 – sandwiched between Bangladesh and Mozambique – precisely because it has lost control over its economic levers and monetary policy. Capital controls have been relaxed somewhat since the banking crisis last summer, yet Greeks are still limited to ATM withdrawals of €420 a week. Italy is only “moderately free” at 86. Heritage says it is plagued by high taxes and rigid labour laws. It has yet to sell off the rump of state-owned industries. Court procedures are “extremely slow”. State contracts are tainted by “high-level corruption scandals” and the “involvement of local organized crime.”

Read more …

“..this sucker could go down so much further than they imagined, that whatever fortunes they gain from its descent will be foiled by the destruction of the very economic system needed for them to enjoy their gains.”

Ground Control to Captain Zhou Xiaochuan (Jim Kunstler)

Why would anybody suppose that the Peoples Bank of China might want to tell the truth about anything that was within their power to lie about? Especially the soundness of any loan portfolio vested unto the grasp of its tentacles? Of course, most of what China has done in speeding toward the wall of financial crack-up, it learned from watching US bankers slime their way into Too Big To Fail nirvana — most particularly the array of swindles, dodges, and frauds constructed in the half-light of shadow banking to hedge the sudden, catastrophic appearance of reality-based price discovery. When so many loans end up networked as collateral in some kind of bet against previous bets against other previous bets, you can be sure that cascading contagion will follow.

And so that is exactly what’s happening as China’s rocket ride into Modernity falls back to earth. Like most historical fiascos, it seemed like a good idea at the time: take a nation of about a billion people living in the equivalent of the Twelfth Century, introduce the magic of money printing, spend a gazillion of it on CAT and Kubota earth-moving machines, build the biggest cement industry the world has ever seen, purchase whole factory set-ups, and flood the rest of the world with stuff. Then the trouble starts when you try to defeat the business cycles associated with over-production and saturated markets. Poor China and poor us. Escape velocity has failed. Which raises the question: escape from what, exactly? Answer: the implacable limits of life on earth.

The metaphor for all this, of course, is the old journey-into-space idea, which still persists in the salesmanship of Elon Musk, the ragged remnants of NASA, and even the nightmares of Stephen Hawking. Get off this messed-up home planet and light out of the territories, say Mars. Of course, this is a vain and stupid idea, since we already have a planet engineered to perfection for all the life systems associated with the human project. We just can’t respect its limits. So now, that dynamic duo, Nature and Reality, the actual owners of the planet, have showed up to read the riot act to the renters throwing a wild party.

The fourth and perhaps ultimate financial crisis of the last twenty years begins to express itself in terms that only the raptors and vultures can see from on high. George Soros, Kyle Bass, and the other flocking shadow banking scavengers prepare to short the living shit out of the old Middle Kingdom. The immortal words of G.W. Bush ring in their ears: “This sucker is going down,” and they are sure to win big by betting on the obvious. Trouble is, this sucker could go down so much further than they imagined, that whatever fortunes they gain from its descent will be foiled by the destruction of the very economic system needed for them to enjoy their gains.

Read more …

Refugees are back on sale.

Progress On Migration Could ‘Facilitate’ Greece’s Bailout Review (Kath.)

Greek authorities are scrambling to set up screening centers for migrants and refugees as soon as possible as German officials have made it clear to Athens that more efficient management of the refugee crisis could help along creditors’ review of the country’s third bailout, Kathimerini understands. According to sources, German Chancellor Angela Merkel has indicated to Prime Minister Alexis Tsipras that success in tackling the migration crisis could boost the country’s prospects for progress with the review, which Athens hopes could ease the way for debt talks. Combined with a burgeoning debate about Greece’s future in the passport-free Schengen area, the message from Berlin is said to have encouraged action by Greek officials.

A source close to Tsipras who participated in a meeting of government officials on the refugee crisis over the weekend told Kathimerini that the prospect of a “European solution” to the migration crisis and Schengen issue was “becoming increasingly remote” as EU governments face a backlash from their own people about rising migrant arrivals. Tsipras is expected to meet Merkel on the sidelines of a Syria donors’ conference in London on Thursday where Greece’s response to the refugee crisis is likely to be the key topic of conversation. A broader meeting including Turkish Prime Minister Ahmet Davutoglu and key officials from other European countries, among them Austria and the Netherlands, is also probable, sources indicated.

On Monday Tsipras met in Athens with visiting European Home and Migration Commissioner Dimitris Avramopoulos and reassured him that the Defense Ministry, despite initial objections, would actively participate in finding a solution for accommodating thousands of migrants and refugees arriving in Greece. He insisted, however, that others must also share the burden, indicating other European states.

Read more …

Nice try, but Mason drops the ball somewhere.

Europe’s Refugee Story Has Hardly Begun (Paul Mason)

The refugee story has hardly begun. There will be, on conservative estimates, another million arriving via Turkey this year and maybe more. The distribution quotas proposed by Germany, and resisted by many states in eastern Europe, are already a fiction and will fade into insignificance as the next wave comes. Germany itself will face critical choices: if you’re suddenly running a budget deficit to meet the needs of asylum seekers, how do you justify not spending on the infrastructure that s supposed to serve German citizens, which has crumbled through underinvestment in the Angela Merkel era? But these problems are sideshows compared with the big, existential issues that a second summer of uncontrolled migration into Greece would bring.

[..] Greece is not going to push back or sink inflatables containing refugees. However many compromises Alexis Tsipras s government made over austerity, it is full of human rights lawyers, criminology professors and people who spent their lives fighting fascism. There is outrage at Europe s demands inside the Greek political establishment, ranging well beyond the radical-left party Syriza and its small nationalist coalition partner. Eastern Europe is, by and large, going to let the refugees go to hell. There is very little compassion in the media coverage of the refugees east of the former Iron Curtain. Poland, Hungary and Slovakia have swung towards populist nationalism. While there are tens of millions of liberal-minded, largely young people who are prepared to show compassion and adhere to international obligations, they do not control east Europe’s governments.

As for Turkey, it has, to date, taken no visibly stronger measures to keep Syrian refugees inside its own borders and prevent the deadly traffic across the sea to Greece. For a state that can arrest its own newspaper editors at will and bomb its own cities, that demonstrates a clear set of priorities. So there are only two variables: what the EU does next and what the European peoples do. If Germany has given up trying to organise the orderly distribution of refugees inside the EU, then free movement itself is on borrowed time. Everybody understands this, except the political and media classes who have to maintain the fiction that everything is fine. Germany had, by December, registered just over half the 900,000 asylum claims it is facing. The hard-right AfD party has sprung from sixth to third in the polls. Angela Merkel seems frozen in the headlights of the oncoming train.

Which leaves the people. Quietly, and without rhetoric, one of the most spectacular, cross-border solidarity movements ever formed has emerged to help the refugees. Churches, NGOs, communities, police forces and social services – plus ordinary people with no big agenda – just got on and saved people, moved them along, gave them water, food and clothing, and are right now helping them to settle in.

Read more …

Solid.

Where Are Our Principles? (Boukalas)

When neo-Nazis are seen heading out in force on a new kind of safari, hunting down and assaulting refugees and migrants, preferably young Africans, in Sweden, a country regarded as a paradigm of prosperity and openness, Europe has a duty to have a good think about what it represents – all of Europe, together, honestly and methodically, not alone, hypocritically and intermittently. When in Germany, which has seen successive neo-Nazi attacks against refugee camps, the head of the anti-immigration Alternative for Germany party – polling at 13% – demands that refugees be stopped from entering the country by use of force if necessary, we should all be afraid. We should be afraid that not enough people in Europe would mind if Greece were to allow migrant boats to sink, as some of the harder cynics have suggested with a hint of blackmail, even though their problem would not be solved by 244 drowned in January alone.

When European states and regions are caught up in competing over who will further reduce the amount of money refugees are allowed to keep on them (from what wasn’t lost to the extortionate greed of people smugglers and thieves en route) and seize what’s left over so that the beleaguered Asians and African don’t get too comfortable, then “something is rotten in the state of Denmark.” Denmark here extends to various parts of Europe: to Denmark proper, where the maximum “fortune” a refugee is allowed has been set at €1,340, to Switzerland, where it’s €915, Bavaria, €750, and Baden-Wurttemberg, where it’s just €350. Many already regard this as too much. When in Italy noble merchants are selling “boy and girl refugee costumes” for the Carnival, then every European, not just the Italians, ought to wonder how much longer we will allow our masks to present us as sympathetic champions of a culture that is about solidarity and hospitality.

When countries of the European Union intervene in a non-member state (our neighbor the Former Yugoslav Republic of Macedonia) wielding a whip in one hand and a carrot of monetary reward and diplomatic support in the other in order to force it to control the flow of migrants and refugees to Northern Europe at the pace the north sees fit, then many of the principles touted as being inviolate in the EU are exposed as a myth: solidarity between partners and avoidance of unilateral decisions and intervention in third countries. What solidarity is there to talk about when instead of admitting that the refugee crisis is a huge added weight on the exhausted shoulders of Greece and, looking for ways to ease the burden, many Europeans are using it as another opportunity to blackmail the country? Even if Greece has delayed in setting up “hot spots,” who gave the tough guys of Europe the moral authority to threaten it with drowning?

Read more …

Dec 192015
 
 December 19, 2015  Posted by at 9:46 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle December 19 2015


John Vachon Auto of migrant fruit worker at gas station, Sturgeon Bay, Wisconsin Jul 1940

Rate Rally Fizzles as Dow Loses 621 Points in 2 Days (WSJ)
Explaining Today’s “Massive Stop Loss” Quad-Witching Market Waterfall (ZH)
Hedge Funds Cut Fees To Stem Client Exodus (FT)
History of Junk Bond Meltdowns Points to Trouble (BBG)
IEA Sees ‘Peak Coal’ As Demand For Fossil Fuel Crumbles In China (AEP)
Congress Slips Controversial CISA Law In With Sure-To-Pass Budget Bill (Wired)
US-Mexico Border: Arizona’s Open Door (FT)
Bundesbank’s Weidmann: Greek Debt Relief Is Not Urgent (Kath.)
Iceland Bank Collapse Nears End as Creditors Reach Last Accord (BBG)
Ukraine Debt Default and EU Sanctions Extension Anger Russia (IT)
Merkel Defends Russian Gas Pipeline Plan (WSJ)
The Unraveling Of The European Union Has Begun (MarketWatch)
‘Cameron’s Battle Against EU Is Like Grappling With A Jellyfish’ (RT)
‘Cancer of Europe’ – Russian Duma Speaker Calls For NATO Dissolution (RT)
135 Jobs In 2.5 Years: The Plight Of Spain’s New Working Poor (Guardian)
One Of Every 122 Humans Today Has Been Forced To Flee Their Home (WaPo)

The Dow doesn’t often lose over 2% in a day. “..on pace for its first negative year since 2008.”

Rate Rally Fizzles as Dow Loses 621 Points in 2 Days (WSJ)

In the two days after the Federal Reserve gave investors exactly what they expected, the Dow Jones Industrial Average posted its steepest loss since a late-August plunge. The back-to-back selloff erased 621 points from the blue chips—sending the Dow to its lowest level in two months and wiping out a three-session winning streak logged around the Fed’s liftoff for interest rates. The fizzled rally underscores the difficult backdrop across markets as investors prepare to close out what is shaping up to be worst year for U.S. stocks since the financial crisis. Investors are going into the holidays with grim news from the energy and mining sectors, uncertainty about the stability of markets for low-rated debt and worries about slowing economies overseas.

Meanwhile, public companies have struggled to post higher profits, and investors remain wary of buying stocks that look expensive compared with historical averages. “When you buy a share of stock you’re paying for a piece of future cash flows,” said David Lebovitz, global market strategist, at J.P. Morgan Asset Management, which has about $1.7 trillion under management. “If those cash flows aren’t materializing, it doesn’t make sense.” Investors had taken heart from stronger jobs data and the Fed’s signal that the U.S. economy is strong enough to begin returning rates to a more normal level. But optimism took a back seat at the end of the week. The Dow fell 367.29, or 2.1%, to 17128.55 on Friday, leaving it with a loss of 0.8% for the week. The index is down 3.9% so far in 2015, on pace for its first negative year since 2008.

The S&P 500 fell 1.8% to 2005.55. It ended the week down 2.6% for 2015, on track for first yearly decline since 2011 and its biggest fall since 2008. Both indexes had rallied broadly over the past six years, in part fueled by record-low interest rates. Weaker stocks and crude oil prices Friday added to demand for safe havens, sending investors into Treasurys. The yield on the benchmark 10-year Treasury note fell to 2.197% late Friday from 2.236% Thursday, as investors bid up the price. Yields on the note now aren’t much above where they started the year. “Shorting Treasury bonds which are a safe haven beneficiary when the economic and geopolitical risks are rising is foolhardy,’’ said Jonathan Lewis at Samson Capital Advisors.

Read more …

They kept the S&P500 neatly just above 2000, for a reason.

Explaining Today’s “Massive Stop Loss” Quad-Witching Market Waterfall (ZH)

One week ago, and again last night, we previewed today’s main event: an immensely important quad-witching expiration, the year’s last, one which as JPM’s head quant calculated will be the “largest option expiry in many years. There are $1.1 trillion of S&P 500 options expiring on Friday morning. $670Bn of these are puts, of which $215Bn are struck relatively close below the market level, between 1900 and 2050.” What is most important, is that the “pin risk”, or price toward which underlying prices may gravitate if HFTs are unleashed to trigger option stop hunts, is well below current S&P levels: as JPM notes, “clients are net long these puts and will likely hold onto them through the event and until expiry. At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market.”

What does this mean? Considering that the bulk of the puts have been layered by the program traders themselves, including CTA trend-followers and various momentum strategist (which work in up markets as well as down), and since the vol surface of today’s market is well-known to everyone in advance, there is a very high probability the implied “stop loss” level will be triggered. Not helping matters will be the dramatic lack of market depth (thank you HFTs and regulators) and overall lack of liquidity, which means even small orders can snowball into dramatic market moves. “While equity volumes look robust, market depth has declined by more than 60% over the last 2 years. With market depth so low, the market does not have capacity to absorb large shocks. This was best illustrated during the August 24th crash.”

[..] the problem is that since over the past 7 years, the entire market has become one giant stop hunt, the very algos which “provide liquidity” will do everything they can to inflict the biggest pain possible to option holders – recall that for every put (or call) buyer, there is also a seller. As such, illiquid markets plus algo liquidity providers makes for an explosive cocktail at a time when the Fed is already worried whether the Fed may have engaged in “policy error.” So what does this mean in simple English? As Reuters again points out, levels to watch are the large imbalances in favor of puts in Dec SPX put contracts at 2050, 2000, 1950, 1900 strikes It further writes that “as SPX moves below these levels market makers who are short these puts would be forced to sell spot futures to hedge, which could exacerbate a market selloff.” In other words, selling which begets even more selling, which begets even more selling.

Read more …

They might as well close then.

Hedge Funds Cut Fees To Stem Client Exodus (FT)

Many hedge funds are cutting fees and negotiating with investors to trim some of their hefty costs and avert withdrawals after another mediocre year for returns. The industry has been shifting for several years away from its traditional model of charging 2% of assets and keeping 20% of profit. Some funds are already wooing customers with fees closer to 1% and 15%, people in the industry say. Now pressures are mounting on a wider range of fund managers, as a crowded sector copes with a middling year. The HFRI Fund Weighted Composite index is up 0.3% on the year and returned just under 3% in 2014, according to Hedge Fund Research. Management fees declined this year in every strategy except event driven, falling to a mean of 1.61% from 1.69%, according to JPMorgan’s Capital Introduction Group.

For performance fees, some strategies were impacted more than others, with the biggest declines in global macro, multi-strategy, commodity trading advisers and relative value. When Sir Chris Hohn founded The Children’s Investment Fund about a decade ago, he was an outlier. His $10bn fund charges management fees as low as 1%, depending on how long investors lock up their money. He recently referred to himself as “the antithesis of the classic hedge fund,” because he waived performance fees until the fund crossed a set return hurdle for the year. But others are following his lead in an effort to attract and retain clients amid tough competition.

There are now more than 10,000 hedge funds compared with 610 in 1990, HFR data show, and there are increasing benefits for the larger operators, including lower prime broker costs and better access to company management for research. The client base has also moved away from wealthy individuals, who were happy to take on significant risk in exchange for high returns. Now funds depend on institutional investors such as insurers and pension schemes, who cannot afford to miss minimum return targets and are themselves under pressure from boards that oversee investments. “Most [fund] managers prefer to haggle like rug-salesmen at a bazaar; institutional investors would rather shop at Ikea,” says Simon Ruddick, founder of consultant Albourne.

Read more …

Nothing new, but nothing learned either.

History of Junk Bond Meltdowns Points to Trouble (BBG)

The rout in junk bonds is intensifying and there’s blood in the water. After claiming some high-profile casualties – notably Third Avenue Management – the turmoil is raising fears of a larger meltdown in the markets, perhaps even a recession. In other words, is high-yield debt the canary in the credit mine? Academic work on the subject suggests that the difference in the rates for high-risk debt and rock-solid government securities – the so-called risk premium, or high-yield spread – often is a significant harbinger. A paper published in the Oxford Review of Economic Policy in 1999 concluded that the high-yield spread “outperforms other leading financial indicators,” such as the term spread and the federal funds rate. An International Monetary Fund staff paper published in 2003 offered a similar assessment, but added that “abnormally high levels of the high-yield spread have significant short-term predictive power.”

The trouble with these findings is that the pool of data is focused on very recent financial history, which makes it harder to draw broad conclusions. This limitation reflects the conventional wisdom that junk bonds are a recent invention cooked up by the likes of Michael Milken and company, and as a consequence, there are no comparable data sets before the late 1980s. But several economists at Rutgers – Peter Basile, John Landon-Lane and Hugh Rockoff – recently disputed that conclusion in an intriguing working paper that resurrected neglected data on high-yield securities from 1910 to 1955. These forerunners of today’s junk bonds initially merited Aaa or Baa ratings, but lost their appeal once they were downgraded to Ba or worse. Such speculative-grade bonds constituted, on average, approximately a quarter of the total book value of outstanding bonds before the end of World War II.

The authors of the study argue that although other kinds of spreads also have predictive power, “junk bonds may be a more sensitive indicator, perhaps a more sensitive leading indicator, of economic conditions than higher-grade bonds.” While their research opens all sorts of avenues for academic exploration – Was there a decline in lending standards in the late 1920s? Was there a liquidity trap in the late 1930s? – the most intriguing question it raises is about the predictive power of the spread between high-yield and high-quality debt. In theory, this power to predict turning points in the business cycle could manifest in two ways. The first would be a narrowing of the spread, which would mean that investors recognized the worst was over, a trough was imminent and a rebound was in offing. The second would be a spike in the spread, which means that investors anticipated that the economy had peaked and that a contraction was in the offing.

The authors found that a narrowing of the high-yield spread predicted a mere three of 10 troughs. But spikes were another matter: Exceptional bumps in the high-yield spread accurately predicted eight of 10 peaks (and the subsequent declines, most notably the downturn that began in August 1929 and turned into the Great Depression, as well as the recession that began in 1937 after the Fed prematurely hiked rates). It may be too early to read too much into these findings. But when combined with the research on the predictive capacity of the high-yield spread from the 1980s onward, this recent work suggests that the spread is a leading indicator worth watching.

And given the recent spike, something far worse than a junk bond meltdown may be brewing. How bad? In the three months before August 1929, the high-yield spread spiked by 47 basis points, and in the three months before May 1937, it shot up 85 basis points. In the past six weeks of 2015, it has spiked by about 120 basis points. That doesn’t mean we’re headed for disaster: There’s still an apples-and-oranges quality to comparisons of the two eras, despite the best efforts to create a commensurate set of data. But if the spread continues to widen, another downturn – or worse – could be ahead.

Read more …

Ambrose is blind: “Crucially, the switch is happening because the country is moving up the technology ladder and switching to a new growth model. ” No, coal use is tumbling because the Chinese economy is.

IEA Sees ‘Peak Coal’ As Demand For Fossil Fuel Crumbles In China (AEP)

China’s coal consumption has been falling for two years and may never recover as the moment of “peak coal” draws closer, the International Energy Agency (IEA) has said. The energy watchdog has slashed its 2020 forecast for global coal demand by 500m tonnes, warning that the industry risks unstoppable decline as renewable technologies and tougher climate laws shatter previous assumptions. In poignant symbolism, the peak coal report came as miners worked their final shift at Britain’s last surviving deep coal mine at Kellingley in North Yorkshire, closing the chapter on the British industrial revolution. Mines around the world are at increasing risk as prices slump to 12-year lows of $38 a tonne, and the super-cycle gives way to a pervasive glut. The IEA said the $40bn Galilee Basin project in Australia may never become operational.

There is simply not enough demand, even for cheap, open-cast coal. “The golden age of coal seems to be over,” said the IEA’s medium-term market report. “Given the dramatic fall in the cost of solar and wind generation and the stronger climate policies that are anticipated, the question is whether coal prices will ever recover.” “The coal industry is facing huge pressures, and the main reason is China,” said Fatih Birol, the agency’s director. The IEA reported that China’s coal demand fell by 2.9pc in 2014 and the slide has accelerated this year as the steel and cement bubble bursts. The country produced more cement between 2011 and 2013 than the US in the entire 20th century, according to one study. This will never happen again. Crucially, the switch is happening because the country is moving up the technology ladder and switching to a new growth model.

The link between electricity use and economic growth has completely broken down. The “energy intensity” of GDP fell by 4pc in 2014. Mr Birol said China’s coal consumption is likely to flatten out until 2020 before declining, but the definitive tipping point could happen much faster if president Xi Jinping carries out his economic reform drive with real vigour. Coal demand will drop by 9.8pc under the agency’s “peak coal scenario”. The shift is dramatic. China’s coal demand has tripled since 2000 to 3.920m tonnes – half of global consumption – and the big mining companies had assumed that it would continue. The market is now badly out of kilter. Rising demand from India under its electrification drive will not be enough to soak up excess supply or replace the lost demand from China.

Read more …

“They’ve got this bill that’s kicked around for years and had been too controversial to pass, so they’ve seen an opportunity to push it through without debate. And they’re taking that opportunity.”

Congress Slips Controversial CISA Law In With Sure-To-Pass Budget Bill (Wired)

Update 12/18/2015 12pm: The House and Senate have now passed the omnibus bill, including the new version of CISA.

Privacy advocates were aghast in October when the Senate passed the Cybersecurity Information Sharing Act by a vote of 74 to 21, leaving intact portions of the law they say make it more amenable to surveillance than actual security. Now, as CISA gets closer to the President’s desk, those privacy critics argue that Congress has quietly stripped out even more of its remaining privacy protections. In a late-night session of Congress, House Speaker Paul Ryan announced a new version of the “omnibus” bill, a massive piece of legislation that deals with much of the federal government’s funding. It now includes a version of CISA as well. Lumping CISA in with the omnibus bill further reduces any chance for debate over its surveillance-friendly provisions, or a White House veto.

And the latest version actually chips away even further at the remaining personal information protections that privacy advocates had fought for in the version of the bill that passed the Senate. “They took a bad bill, and they made it worse,” says Robyn Greene, policy counsel for the Open Technology Institute. CISA had alarmed the privacy community by giving companies the ability to share cybersecurity information with federal agencies, including the NSA, “notwithstanding any other provision of law.” That means CISA’s information-sharing channel, ostensibly created for responding quickly to hacks and breaches, could also provide a loophole in privacy laws that enabled intelligence and law enforcement surveillance without a warrant. The latest version of the bill appended to the omnibus legislation seems to exacerbate that problem.

It creates the ability for the president to set up “portals” for agencies like the FBI and the Office of the Director of National Intelligence, so that companies hand information directly to law enforcement and intelligence agencies instead of to the Department of Homeland Security. And it also changes when information shared for cybersecurity reasons can be used for law enforcement investigations. The earlier bill had only allowed that backchannel use of the data for law enforcement in cases of “imminent threats,” while the new bill requires just a “specific threat,” potentially allowing the search of the data for any specific terms regardless of timeliness. [..] Even in its earlier version, CISA had drawn the opposition of tech firms including Apple, Twitter, and Reddit, as well as the Business Software Alliance and the Computer and Communications Industry Association.

In April, a coalition of 55 civil liberties groups and security experts signed onto an open letter opposing it. In July, the Department of Homeland Security itself warned that the bill could overwhelm the agency with data of “dubious value” at the same time as it “sweep[s] away privacy protections.” That Senate CISA bill was already likely on its way to become law. The White House expressed its support for the bill in August, despite its threat to veto similar legislation in the past. But the inclusion of CISA in the omnibus package may make it even more likely to be signed into law in its current form. Any “nay” vote in the house—or President Obama’s veto—would also threaten the entire budget of the federal government. “They’re kind of pulling a Patriot Act,” says OTI’s Greene. “They’ve got this bill that’s kicked around for years and had been too controversial to pass, so they’ve seen an opportunity to push it through without debate. And they’re taking that opportunity.”

Read more …

Reality vs hubris.

US-Mexico Border: Arizona’s Open Door (FT)

Many people in the US today look towards the country’s border with Mexico and tremble. So great are the fears about illegal immigration and the possible infiltration of terrorists that Donald Trump has vaulted to the top of the Republican presidential field by vowing to build a wall between the two countries and make the Mexicans pay for it. So it may come as a surprise to learn about the economic ideas now emerging from Arizona, a solid red state — having voted Republican in 15 of the past 16 presidential elections – that sits cheek by jowl with the Mexican state of Sonora. Arizonan movers and shakers have started to think that bringing in more Mexicans is a good way to stimulate growth.

To make people from south of the border feel more welcome, county planning organisations, municipal officials and business leaders are lining up behind a proposal to transform their entire state into a “free-travel zone” for millions of better-off Mexicans with the money and wherewithal to qualify for a travel document that is widely used in the south-west, but little known elsewhere – a border-crossing card, or BCC. “Fear gets you nowhere. Chances get you somewhere,” says Dennis Smith, executive director of the Maricopa Association of Governments, planning body for the county that includes Phoenix, Arizona’s capital and biggest city. “What do we have to lose? Nothing.” BCC holders are currently allowed to go 75 miles into Arizona, which takes them as far as Tucson, the state’s second-largest city.

But Arizona officials are seeking a change in federal rules that would allow these people to roam across the state, hoping that if the visitors travel further, they will stay longer and spend more money at malls, restaurants and tourist attractions. The desired Mexicans are a far cry from the “murderers” and “rapists” of Mr Trump’s stump speeches. They can afford the $160 fee and offer the proof of employment and family ties back home that are required for a BCC, which is good for 10 years and enables Mexicans to remain in the US for up to 30 days at a time. To stay longer or travel further, they need more documentation. However, Arizona’s charm offensive illustrates the complexity of border politics as the 2016 presidential election approaches. In the US imagination, Mexico looms as both a menace and a market. People want to keep some kinds of Mexicans out — and encourage others to come in.

The impulses are often contradictory. For now, the emphasis in Arizona is shifting toward accommodation. Local planners speak excitedly of integrating the economies of Arizona and Sonora into an “Ari-Son” mega-region, in which cross-border trade will increase and more Mexicans will attend pop concerts or sports events in Phoenix, take family car trips to the Grand Canyon and ski in the state’s northern mountains. “This is vitally important to the state’s economic health,” says Glenn Hamer, chief executive of the Arizona Chamber of Commerce and a former executive director of Arizona’s Republican party. “On the business side, it is a great asset for the state to be close to a market that is growing and becoming more prosperous every single day.”

Read more …

Yes, it is.

Bundesbank’s Weidmann: Greek Debt Relief Is Not Urgent (Kath.)

Greece faces relatively low debt servicing needs in the coming years and further debt relief is not a matter of urgency, Greek financial daily Naftemporiki quoted ECB Governing Council member Jens Weidmann as saying on Thursday. “In 2014 interest payments as a percentage of GDP were lower in Greece than in Spain, Portugal and Italy,” Weidmann, head of Germany’s central bank, told the paper. “Taking into account the low refinancing needs for the next years, further debt relief does not seem to be an issue of particularly urgent interest.” Athens has been struggling to legislate reforms agreed with its eurozone partners in exchange for an €86 billion bailout, the third financial aid package to keep it afloat since its debt crisis exploded in 2010.

The government, however, wants some form of debt relief to allow for future growth. Weidmann said the most important task at hand was the full implementation of the agreed economic adjustment program of reforms. “This will not simply increase the ability to grow but also dissolve prevailing uncertainty which acts as a brake for investments,” he told the paper. Weidmann added it was up to the Greek government to decide when to lift capital controls it imposed in late June to stem a flight of deposits.

Read more …

And this is what can happen when you don’t have the EU to bully you.

Iceland Bank Collapse Nears End as Creditors Reach Last Accord (BBG)

A seven-year standoff between Iceland and the international creditors of its failed banks is nearing an end after a court approved the last remaining settlement. The agreement signed by the caretakers of LBI hf paves the way for creditor payments from the bank’s 455.6 billion kronur ($3.5 billion) estate. It follows similar deals involving Glitnir Bank hf and Kaupthing Bank hf. The three banks hold combined assets of $17.6 billion, according to their latest financial statements. The banks failed within weeks of each other in 2008 under the weight of $85 billion in debt. Iceland then resorted to capital controls to prevent a total collapse of its $15 billion economy. International creditors, among them the Davidson Kempner Capital Management, Quantum Partners and Taconic Capital Advisors hedge funds, have been unable to access the lenders’ assets.

Glitnir’s administrators said they planned to make the first payments to creditors on Friday. Theodor S. Sigurbergsson, a member of Kaupthing’s winding up committee, said in an interview this week that he expects “to start payments to creditors early next year.”
In June, the government offered creditors in Glitnir, Kaupthing and LBI the option of either paying a 39% exit tax on all their assets or making what it calls a stability contribution of as much as 500 billion kronur by the end of the year. To be eligible for the offer, creditors needed to complete settlements by Dec. 31. Parliament later extended that deadline to March 15. The island’s handling of the financial crisis has won praise from Nobel laureates and the IMF. The krona has strengthened about 8% this year and Iceland’s economy is now growing at a faster pace than the euro-zone average. With Glitnir having been granted an exemption from capital controls on Thursday, Iceland is expected to make a full return to the international financial community during the course of 2016.

Read more …

It’s a miracle Russia stays so quiet.

Ukraine Debt Default and EU Sanctions Extension Anger Russia (IT)

Ukraine and Russia are on a collision course over major trade and finance disputes, as the European Union prepares to extend sanctions against Moscow for annexing Crimea and fomenting a bloody conflict in eastern Ukraine. Kiev has refused to meet Sunday’s due date on a $3 billion loan that Moscow gave to authorities led by former Ukrainian president Viktor Yanukovich in December 2013, when they were rocked by huge street protests. Moscow has vowed to take Kiev to court over the disputed bond, which comes due just as Russia gets ready to scrap its free-trade zone with Ukraine in response to the planned January 1st launch of a landmark EU-Ukraine trade pact. “The government of Ukraine is imposing a moratorium on payment of the so-called Russian bond,” Ukrainian prime minister Arseniy Yatsenyuk said on Friday.

“I remind you that Ukraine has agreed to restructure its debt obligations with responsible creditors, who accepted the terms of the Ukrainian side. Russia has refused, despite our many efforts to sign a restructuring deal, to accept our offers.” Russian officials have threatened to launch legal action by the end of the year to reclaim the cash from Ukraine. “By announcing a moratorium on returning this sovereign debt, the Ukrainian side has, you could say, in fact admitted default,” said Kremlin press secretary Dmitry Peskov. Russia long argued that the unpaid debt should block future IMF funding for cash-strapped Ukraine, and Moscow was furious with the lender this week for changing its rules to allow aid to keep flowing to countries that are in arrears. The IMF agreed with Moscow, however, that the bond should be treated as sovereign debt, and told Kiev that it must negotiate with Russia “in good faith” to ensure continued access to a $17.5 billion aid package.

Ukraine relies on the IMF, United States and EU to prop up its ailing economy, and depends on the West to maintain diplomatic pressure on Russia. Diplomats say EU states have agreed to extend sanctions on Russia for another six months from Monday, due to its continuing failure to fulfil a deal aimed at ending an 18-month conflict in eastern Ukraine that has killed more than 9,000 people. “It was an expected decision, we heard nothing new, and it will have no effect on the economy of the Russian Federation, ” said Alexei Ulyukaev, Russia’s minister for economic development. Russia’s economy has been damaged by sanctions and above all by the plunge in the price of oil. The Kremlin has ordered the suspension of a free-trade agreement between Russia and Ukraine from January 1st, when a far-reaching trade deal is due to start between Ukraine and the EU.

Read more …

Gas is more important than Ukraine.

Merkel Defends Russian Gas Pipeline Plan (WSJ)

German Chancellor Angela Merkel found herself under pressure on Friday from other Europe Union leaders over her government’s support for a natural-gas pipeline from Russia that others fear could further undermine the economic and political stability of Ukraine. The planned expansion of PAO Gazprom’s Nord Stream pipeline, which ships Russian gas via the Baltic Sea to northern Germany, would add an extra 55 billion cubic meters of gas in capacity—about as much as the company currently transports through Ukraine. Officials in Brussels and Washington as well as Kiev have accused Moscow of using the project, dubbed Nord Stream 2, to deprive Ukraine of much of its remaining political leverage as well as much-needed revenues from transit fees. Ukrainian President Petro Poroshenko on Wednesday called Nord Stream 2 his country’s “greatest concern as of today.”

But Ms. Merkel defended the planned pipeline. “I made clear, along with others, that this is a commercial project; there are private investors,” Ms. Merkel said following talks with the other 27 EU leaders. During the discussion on Nord Stream, the chancellor’s position was attacked by Italian Prime Minister Matteo Renzi and Bulgaria’s Boyko Borisov, while she received some backing from Dutch Premier Mark Rutte. Gazprom holds a 50% stake in the Nord Stream 2 consortium. The other 50% are held in equal parts by Shell, Germany’s E.On and BASF, Austria’s OMV and France’s Engie. Despite the involvement of these private investors, several European Union and U.S. officials have questioned the commercial reasoning behind Nord Stream 2, arguing that existing transit routes from Russia, including the first Nord Stream pipeline and the Ukrainian lines aren’t used at full capacity.

In a recent interview, the U.S. special envoy for international energy affairs, Amos Hochstein, called Nord Stream 2 “an entirely politically motivated project” and warned European authorities against “rushing into” the project. Since relations with Moscow cooled over the conflict in eastern Ukraine, the EU has been working to reduce its dependence on Russian gas. Building Nord Stream 2, however, would concentrate 80% of the bloc’s gas imports from Russia onto a single route, according to the EU’s climate and energy commissioner, Miguel Arias Cañete. “In my perspective, Nord Stream does not help diversification nor would it reduce energy dependence,” said European Council President Donald Tusk, who presided over Friday’s discussions among the 28 EU leaders. He said, however, the EU must avoid politicizing this issue and check whether the pipeline would comply with EU rules, which block companies from controlling both a pipeline and its supply.

Read more …

“..the mantra of 28 states having the same ultimate objective … is officially dead.”

The Unraveling Of The European Union Has Begun (MarketWatch)

Whatever spin comes out of the Brussels summit this week, the European Union finds itself in the midst of an existential crisis after the bloc’s most challenging year since the launch of economic and monetary union in 1999. National leaders will continue to do what they do best — muddle through in a fog of obfuscation as they fail again to address the fundamental problems that have led to a string of financial, political and foreign policy crises from the Ukraine incursion through the Greek bailout to a flood of refugees. Even as British Prime Minister David Cameron tries to renegotiate his country’s terms of membership to avoid an exit from the EU, recent elections in Poland, France and Portugal reflect a shift in public opinion to question whether European integration on the current model is such a good idea after all.

Spain faces an election Sunday in which the conservative Popular Party, which has toed the Brussels line on austerity, is sure to lose its majority as voters are poised to create a new political landscape with four major parties and big questions about the future of the country. And Cameron himself is wrestling with a growing momentum in Britain favoring an exit from a Brussels regime that seems increasingly onerous or irrelevant. It is, of course, Cameron’s Conservative Party that historically has championed EU membership, and the EU itself is generally touted as a boon for business and the economy. So it is perhaps telling that recent commentary from a London-based think tank that generally mirrors the relatively conservative views of its central-banking and asset-management constituency is taking an increasingly critical view of Europe.

“There is a sense that the Union is drifting towards some form of calamity — the end of free movement of people, or the exit of Greece from the euro, or the departure of Britain from the Union itself,” John Nugée, a former Bank of England official who is a director of the Official Monetary and Financial Institutions Forum in London, wrote this week after meeting with officials in Asia, who have a pessimistic view of Europe’s situation. “The view from Asia is that the Union is struggling because it falls between two extremes of strength and weakness: It has neither a strong democratic regime nor a strong autocratic one,” Nugée writes in an OMFIF commentary. The EU is instead a “weak democracy” in this view. “The authorities have sufficient strength to try to rule without popular consent,” Nugée observes.

“But they are too weak to ignore the negative populist response such action inevitably incites and which, in turn, exacerbates their initial weakness.” The bottom line, according to this analyst, is that Europe’s leaders are simply overwhelmed. “The complexity of each individual issue seems to make the combined difficulties beyond the capacity of the political system to solve,” Nugée writes. In another OMFIF commentary this week, Antonio Armellini, a former Italian diplomat who represented his country in a number of foreign capitals and international organizations, argued that the British request for special terms “obliges everyone to recognize that the mantra of 28 states having the same ultimate objective … is officially dead.”

Read more …

“They [EU] have already made these decisions. They are not known for being democratic – [Jean-Claude] Juncker and [Donald] Tusk. There is no democracy in the EU. They pay lip service to democracy, they have decided, what is going to happen. ”

‘Cameron’s Battle Against EU Is Like Grappling With A Jellyfish’ (RT)

It’s unlikely that ‘lame duck PM’ David Cameron, would get any concessions over the UK’s EU membership, but he is still banging his head against that brick wall, says investigative journalist Tony Gosling. EU leaders have gathered in Brussels for a summit to partly determine Britain’s future within the union. Prime Minister David Cameron on Thursday pushed for changes to the terms of the country’s EU membership saying that “there is a pathway to a deal in February.” He also emphasized the importance of UK’s demand to constrain access to in-work benefits for EU migrants in Britain. RT: Would the EU be better to lose Britain altogether than sacrifice the main principles. Who’s going to win in this regard?

Tony Gosling: … You can almost pick a tramp from the streets of London – there are plenty more since Cameron came to power – and they probably would make a better job of this than David Cameron, because he first promised this referendum back in 2009, and still we’re waiting. Also we’ve got the situation back in May, when we had a general election that [François] Hollande and [Angela] Merkel made absolutely clear to Cameron – there would be no concessions, but he is still banging his head against that brick wall. No, I don’t think he is going to get these concessions. The battle is almost like he is grappling with a jellyfish, with the EU. They [EU] have already made these decisions. They are not known for being democratic – [Jean-Claude] Juncker and [Donald] Tusk. There is no democracy in the EU. They pay lip service to democracy, they have decided, what is going to happen.

Cameron’s real problem here is that he is looking for this four-year ban on benefits going to migrants coming into Britain. The problem being that four years is just not enough. Those benefits are keep going up to about 40 percent of everybody that comes into Britain’s pay packets. We’ve got a massive problem here with the working poor on benefits. He’s effectively saying that if migrants come to Britain, that they are going to be below the poverty line immediately… And of course, we can’t have that. Anybody in Britain that needs benefits is going to have to get them. We’ve already seen signs of this with things like tent cities springing up across the country…

RT: Are EU leaders growing tired of negotiating with the UK? TG: It almost seems we are the basket case of Europe, doesn’t it? And partly that is because we’ve stayed out of the euro and they wanted us in the euro. But we are in a similar position to many of the countries economically. We’ve got a massive property bubble. We’ve just heard here in Britain – it is so difficult to just to find somewhere to live. The house prices in Britain are now up to 300,000 pounds – that is $450,000 average to buy a house here in Britain. And that is what a classic bubble – massively over inflated house prices; no real market anymore.

Read more …

Just like Ron Paul does. And me.

‘Cancer of Europe’ – Russian Duma Speaker Calls For NATO Dissolution (RT)

State Duma Speaker Sergey Naryshkin has said that Russia is very concerned by continuing NATO expansion, adding that global security would benefit significantly from the dissolution of the military bloc. “My attitude to this organization is special – I see it as a cancerous tumor on the whole European continent. It would only be for the better if this organization is dissolved,” Naryshkin said during a meeting with Serbian lawmakers on Thursday. This dissolution could be conducted in several stages, the Duma speaker suggested. “First of all, the USA should be excluded from the bloc and after this it would be possible to painlessly disband the whole organization,” he said. “This would be a good step towards greater security and stability on the whole European continent.”

Naryshkin also told Serbian lawmakers that Russia was aware of the fact that large numbers of Montenegrin citizens, possibly even the majority of the country’s population, were resisting their nation’s potential entry into NATO. He noted that in late November the Russian State Duma called for the Montenegrin parliament to abandon plans to enter the military bloc, and expressed hope that Serbian politicians would offer some help in persuading Montenegro – which historically has been always close to Serbia – not to make this dangerous step. In early December NATO foreign ministers agreed to invite Montenegro to join the military alliance. In September, Montenegro’s parliament voted for a resolution to support the country’s accession to the military organization. The opposition called for a national referendum on the issue, but failed to push their initiative through the national legislature.

Moscow has promised that a response would follow if Montenegro joined NATO, but added that the details of any such steps are still under consideration. The head of the Russian Upper House Committee for Defense and Security, Viktor Ozerov, said that the step would force Russia to cut a number of joint projects with Montenegro, including military programs. In mid-December Russian Foreign Ministry spokesperson Maria Zakharova said the row over possible NATO membership had revealed deep divisions in Montenegrin society. “We think that the Montenegrin people should have their say in a referendum on this issue. This would be a manifestation of democracy that we call for,” Zakharova said.

Read more …

Election tomorrow.

135 Jobs In 2.5 Years: The Plight Of Spain’s New Working Poor (Guardian)

He has taken on stints as a stable hand, been a door-to-door salesman and set up stages for local concerts: rarely does David Pena turn down a job. “In the past two a half years, I’ve probably had about 135 contracts,” said Pena. Most of them last between one and three days. “It’s a bit tiresome not to ever have anything stable.” Tiresome is perhaps an understatement. The 33-year-old’s disjointed CV stands out as an extreme example of a growing section of Spanish society made up of those ousted from the workforce during the economic crisis and now struggling to land anything but precarious short-term contracts. On Sunday Spaniards will cast their ballots in one of the tightest races in the country’s recent history.

The result promises to offer a glimpse of the national mindset as Spain emerges from a prolonged economic downturn that sent unemployment soaring, triggered painful austerity measures and saw thousands of families evicted. The wide brush of corruption has sent Spaniards’ trust in politicians and institutions plunging in recent years, and given rise to a crop of national newcomers promising a better future. For many, however, the key issue in this campaign is jobs. Unemployment in Spain stands at 21.6% – the highest in the EU after Greece. Mariano Rajoy, the country’s current prime minister, has based his re-election campaign on the economy and its fragile recovery, pointing to more than 1m jobs created in the past two years and one of the fastest growth rates in the eurozone.

Polls suggest that his conservative People’s party (PP) will remain the largest party after Sunday’s election, even it looks likely to lose its majority. Rajoy’s critics point to the dire situation still facing many Spaniards, who, like Pena, have been forced to string together a salary from a series of low-paying contracts that offer scant benefits. Temporary workers now make up more than a quarter of the workforce in Spain. Far from just seasonal work, temporary contracts have become more common among hospital workers, teachers and other public servants. Statistics suggest that short-term work is the definitive feature of the new jobs being created, making up about 90% of the contracts signed this year so far in Spain, with about one in four lasting seven days or less.

Read more …

But arms sales are booming.

One Of Every 122 Humans Today Has Been Forced To Flee Their Home (WaPo)

The number of people who have been forced to flee their homes has reached a staggering level, with 2015 on track to break previous records, according to a United Nations report released Friday. People who have been forcibly displaced — including those who fled domestically as well as international refugees and asylum-seekers — has likely “far surpassed 60 million” for the first time, reads the U.N. High Commissioner for Refugees report. Last year, 59.5 million had been displaced. “In a global context, that means that one person in every 122 has been forced to flee their home,” the agency said in a statement. Forced displacement “is now profoundly affecting our times,” High Commissioner for Refugees António Guterres said in a statement.

“It touches the lives of millions of our fellow human beings – both those forced to flee and those who provide them with shelter and protection. Never has there been a greater need for tolerance, compassion and solidarity with people who have lost everything.” War in Syria has become the “single biggest generator worldwide of both new refugees and continuing mass internal and external displacement,” the agency said. More than 4 million Syrians are now refugees – compared t0 less than 20,000 in 2010. Following Syria, most refugees come from Afghanistan, Somalia and South Sudan. The report, which covers the first six months of 2015, found that by June, the world had 20.2 million refugees – nearly 1 million more than a year before.

An average of 4,600 people flee their homes daily, and nearly 1 million refugees and migrants have crossed the Mediterranean to get to Europe so far this year. Turkey, Pakistan and Lebanon host the most refugees. Such a massive flow of people from country to country has also put a strain on host nations, and left unmanaged, this “can increase resentment and abet politicization of refugees,” the report notes.

Read more …

Oct 222015
 
 October 22, 2015  Posted by at 11:09 am Finance Tagged with: , , , , , , , , , , , ,  7 Responses »


Jack Delano Spectators at annual barrel rolling contest, Presque Isle, ME 1940

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)
HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)
Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)
Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)
Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)
China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)
China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)
Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)
ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)
Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)
3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)
The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)
The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)
The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)
UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)
EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)
Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)
A Cultural Revolution To Save Humanity (Serge Latouche)
Why Too Much Choice Is Stressing Us Out (Guardian)

Envy of the entire world. “We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.”

Iceland Sentences 26 Bankers To A Combined 74 Years In Prison (USUncut)

In a move that would make many capitalists’ head explode if it ever happened here, Iceland just sentenced their 26th banker to prison for their part in the 2008 financial collapse. In two separate Icelandic Supreme Court and Reykjavik District Court rulings, five top bankers from Landsbankinn and Kaupping — the two largest banks in the country — were found guilty of market manipulation, embezzlement, and breach of fiduciary duties. Most of those convicted have been sentenced to prison for two to five years. The maximum penalty for financial crimes in Iceland is six years, although their Supreme Court is currently hearing arguments to consider expanding sentences beyond the six year maximum.

After the crash in 2008, while congress was giving American banks a $700 billion TARP bailout courtesy of taxpayers, Iceland decided to go in a different direction and enabled their government with financial supervisory authority to take control of the banks as the chaos resulting from the crash unraveled. Back in 2001, Iceland deregulated their financial sector, following in the path of former President Bill Clinton. In less than a decade, Iceland was bogged down in so much foreign debt they couldn’t refinance it before the system crashed. Almost eight years later, the government of Iceland is still prosecuting and jailing those responsible for the market manipulation that crippled their economy. Even now, Iceland is still paying back loans to the IMF and other countries which were needed just to keep the country operating.

When Iceland’s President, Olafur Ragnar Grimmson, was asked how the country managed to recover from the global financial disaster, he famously replied, “We were wise enough not to follow the traditional prevailing orthodoxies of the Western financial world in the last 30 years. We introduced currency controls, we let the banks fail, we provided support for the poor, and we didn’t introduce austerity measures like you’re seeing in Europe.” Meanwhile, in America, not one single banking executive has been charged with a crime related to the 2008 crash and U.S. banks are raking in more than $160 billion in annual profits with little to no regulation in place to avoid another financial catastrophe.

Read more …

Sweden, Norway, New Zealand, Australia. And the rest of the emerging markets.

HSBC: These Are the Economies That Could Run Into Trouble (Bloomberg)

“Forecasters spend much of their time finessing central projections. But sometimes by focusing on the most likely outlook for growth we lose track of vulnerabilities that are accumulating,” HSBC Economist James Pomeroy writes in the latest edition of the bank’s “Macro Health Check.” And while global markets may have stabilized since the volatile days of summer, there seems to be no shortage of potential vulnerabilities worth keeping an eye on. Here are the major trends Pomeroy is watching:

• Weakness in Asia: Lower commodity prices as well as capital flight is hurting a number of Asian economies, not to mention lowering their growth prospects. In particular, HSBC says it’s newly concerned about Malaysia and Indonesia thanks to their proximity to China – both geographically and in terms of trade. As Pomeroy puts it: “The downturn in Chinese data has hit sentiment. Currencies have weakened and borrowing costs have risen, putting the sustainability of the corporate sector at risk.”

• Bubbles in developed economies: Asset prices that are historically high as well as household debt levels well above the norm is concerning, according to Pomeroy. He notes that in Sweden and Norway, high levels of household debt and rising house prices are combining with central banks that have already cut interest rates to record lows. “This leaves them vulnerable to financial stability risks that could leave the economies exposed to any downturn or, at some later stage, a rise in rates,” he says.

• Commodities continue to struggle: Energy is still a huge topic for the world and emerging markets in particular, with Saudi Arabia and the United Arab Emirates on track to see big hits to their economies, the HSBC economist noted. There are also worries over the macroeconomic backdrops in countries like Brazil, Russia, Colombia, and Chile, where 50% of exports are commodities -related, Pomeroy adds.

Based on these concerns, HSBC presents a “diagnosis” showing how a number of economies are and are not seeing impacts from these and other macro factors. New entries on the bank’s list of concerns include the previously-mentioned Malaysia, Indonesia, Sweden and Norway, while New Zealand also makes the cut thanks to its links to China, rising asset prices and tumbling milk prices. “Although low risk, New Zealand may be one to watch,” Pomeroy says.

Read more …

Losing money way before the oil price crash… “..cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010..”

Jim Chanos Nails the Link Between Debt and Energy (Bloomberg)

“Energy Investments After The Fall: Opportunity Or Slippery Slope?” So begins the latest presentation from renowned short-seller Jim Chanos. What follows is a powerful outlining of the spirally debt dynamics now dominating the future of the oil industry. At the heart of Chanos’s thesis is the contention that years of low interest rates, cheap financing, over-eager investors and ambitious managers have helped propel the boom in U.S. shale and imbue it with near unstoppable momentum; U.S. oil production is expected to grow 6% in 2015 despite a stunning 59% drop in the U.S. rig count over the past year. The extent of the capital market’s support for energy over the past half-decade is laid bare in the financial figures.

According to Chanos, cash flow from operations has not covered capital expenditure since 2010 at some of the most prominent exploration and production companies since 2010, meaning the firms have consistently outspent their income. That trend is present even at the larger “big oil” firms such as Exxon, Chevron and Royal Dutch Shell, Chanos claims, with cash flow following distributions to shareholders also firmly in the red. The question hovering over the energy sector now is whether the continuous flow of capital investment that has propped up shale firms for so long continues. There are signs that it might not. Spreads on the bonds issued by energy companies are currently 480 basis points wider than average yield on the debt of junk-rated companies, meaning investors are (finally) demanding extra return to compensate them for the added risk of E&P.

Many oil companies have large revolving credit facilities from which they could draw financing to help replace the hole left by suddenly skittish investors – an argument that has been picked up by energy bulls and managers with some aplomb. However, Chanos says that even the most reliable E&P firms will be reluctant to tap such revolvers, given the negative publicity around such a move. And while banks have so far largely continued to renew and extend credit lines to energy firms (opting perhaps to keep such companies afloat rather than cut them off and suffer the consequences on their own balance sheets) those renewals have been accompanied by a tightening of terms. It’s a reversal of an historic trend that has seen the balance of power firmly in favor of energy firms as the sheer amount of investors and bankers willing to lend to exploratory shale has meant the vast majority of debt and loans sold and issued in recent years came with far fewer protections for lenders, known as “covenants.”

Read more …

Trouble brewing. A very imbalanced society.

Saudis Risk Draining Financial Assets in 5 Years, IMF Says (Bloomberg)

Saudi Arabia may run out of financial assets needed to support spending within five years if the government maintains current policies, the IMF said, underscoring the need of measures to shore up public finances amid the drop in oil prices. The same is true of Bahrain and Oman in the six-member Gulf Cooperation Council, the IMF said in a report on Wednesday. Kuwait, Qatar and the United Arab Emirates have relatively more financial assets that could support them for more than 20 years, the Washington-based lender said. Saudi authorities are already planning spending cuts as the world’s biggest oil exporter seeks to cut its budget deficit.

Officials have repeatedly said that the kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in crude prices as it did in similar crises, when its finances were under more strain. But the IMF said measures being considered by oil exporters “are likely to be inadequate to achieve the needed medium-term fiscal consolidation,” the IMF said. “Under current policies, countries would run out of buffers in less than five years because of large fiscal deficits.” Saudi Arabia accumulated hundreds of billions of dollars in the past decade to help the economy absorb the shock of falling prices. The kingdom’s debt as a percentage of GDP fell to less than 2% in 2014, the lowest in the world.

The recent decline in the price of crude, which accounts for about 80% of Saudi’s revenue, is prompting the government to delay projects and sell bonds for the first time since 2007. Net foreign assets fell to the lowest level in more than two years in August, with the kingdom fighting a war in Yemen and avoiding economic policies that could trigger social or political unrest. The IMF expects Saudi’s budget deficit to rise to more than 20% of gross domestic product this year after King Salman announced one-time bonuses for public-sector workers following his accession to the throne in January. The deficit is expected to be 19.4% in 2016.

Read more …

Pension funds, mom and pop.

Who on Wall Street is Now Eating the Oil & Gas Losses? (WolfStreet)

Banks, when reporting earnings, are saying a few choice things about their oil-and-gas loans, which boil down to this: it’s bloody out there in the oil patch, but we made our money and rolled off the risks to others who’re now eating most of the losses. On Monday, it was Zions Bancorp. Its oil-and-gas loans deteriorated further, it reported. More were non-performing and were charged-off. There’d be even more credit downgrades. By the end of September, 15.7% of them were considered “classified loans,” with clear signs of stress, up from 11.3% in the prior quarter. These classified energy loans pushed the total classified loans to $1.32 billion. But energy loans fell by $86 million in the quarter and “further attrition in this portfolio is likely over the next several quarters,” Zions reported.

Since the oil bust got going, Zions, like other banks, has been trying to unload its oil-and-gas exposure. Wells Fargo announced that it set aside more cash to absorb defaults from the “deterioration in the energy sector.” Bank of America figured it would have to set aside an additional 15% of its energy portfolio, which makes up only a small portion of its total loan book. JPMorgan added $160 million – a minuscule amount for a giant bank – to its loan-loss reserves last quarter, based on the now standard expectation that “oil prices will remain low for longer.” Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves.

Once a borrower reached the limit of the revolving line of credit, the bank pushed the company to issue bonds to pay off the line of credit. The company could then draw again on its line of credit. When it reached the limit, it would issue more bonds and pay off its line of credit…. Banks made money coming and going. They made money from interest income and fees, including underwriting fees for the bond offerings. It performed miracles for years. It funded the permanently cash-flow negative shale revolution. It loaded up oil-and-gas companies with debt. While bank loans were secured, many of the bonds were unsecured. Thus, banks elegantly rolled off the risks to bondholders, and made money doing so. And when it all blew up, the shrapnel slashed bondholders to the bone.

Banks are only getting scratched. Then late last year and early this year, the hottest energy trade of the century took off. Hedge funds and private equity firms raised new money and started buying junk-rated energy bonds for cents on the dollar and they lent new money at higher rates to desperate companies that were staring bankruptcy in the face. It became a multi-billion-dollar frenzy. They hoped that the price of oil would recover by early summer and that these cheap bonds would make the “smart money” a fortune and confirm once and for all that it was truly the “smart money.” Then oil re-crashed.

Read more …

Coming from a steel man, this can only mean it’ll be much worse.

China Steel Output May Collapse 20%, Baosteel Chairman Says (Bloomberg)

China’s steel industry, the largest in the world, is bleeding cash and every producer is feeling the pain, according to the head of the country’s second-biggest mill by output, which raised the prospect that nationwide production may shrink 20%. Losses for the industry totaled 18 billion yuan ($2.8 billion) in the first eight months of the year compared with a profit of 14 billion yuan in the same period a year earlier, Shanghai Baosteel Group Corp. Chairman Xu Lejiang said on Wednesday. Output may eventually contract by a fifth, matching the experience seen in the U.S. and elsewhere, he said. After decades of expansion, China’s steel industry has been thrown into reverse as local demand contracts for the first time in a generation amid slowing economic growth and a property downturn.

The slowdown has pummeled steel and iron ore prices and prompted Chinese mills to seek increased overseas sales, boosting trade tensions. The country is the linchpin of the global industry, accounting for half of worldwide production. “If we extrapolate the previous experience in Europe, the United States, Japan, their steel sectors have all gone through painful restructuring in the past, with steel output all contracting by about 20%,” Xu told reporters at a forum in Shanghai. “China will eventually get there as well, regardless how long it takes.” Crude-steel output in China surged more than 12-fold between 1990 and 2014, and the increase was emblematic of the country’s emergence as Asia’s largest economy. Output probably peaked last year at 823 million metric tons, according to the China Iron & Steel Association.

The country produced 608.9 million tons in the first nine months, 2.1% less than the same period last year, the statistics bureau said on Monday. “The whole steel sector is struggling and no one can be insulated,” Xu said. “The sector is facing increasing pressure on funding as banks have been tightening lending to the sector – both loans and the financing provided for steel and raw material stockpiles.” Losses in China’s steel industry are unprecedented, Macquarie Group Ltd. said in a report on Monday that summarized deteriorating sentiment in the industry. While small mills have already cut production significantly, big mills are still holding out, the bank said, forecasting further cuts.

Read more …

When you can’t afford empire anymore.

China Slowdown Sees Investment In Africa Plummet 84% (ValueWalk)

The slowdown in the world’s second-largest economy has seen Chinese cross-border investment in Africa plunge. Beijing has invested just $568 million in greenfield projects and expansion of existing projects in the first 6 months of 2015, down from $3.54 billion the previous year. That investment has been focused on China’s primary interest in Africa, namely its raw materials, writes Adrienne Klasa for The Financial Times. While overall investment plunged, investment in extractive industries almost doubled from $141.4 million to $288.9 million over the period. Chinese investment in Africa has at times been controversial, but has played a major role in regional growth. The African growth story has been complicated by global headwinds such as low prices of oil and other commodities.

Many African states rely on raw materials for large parts of their revenues. Although foreign direct investment has fallen, China has been Africa’s main trade partner since 2009. In 2013 there was more than $170 billion in trade between China and sub-Saharan Africa, compared to less than $10 billion in 2002. “FDI has dipped across the board from emerging markets into other emerging markets, and into Africa in particular,” says Vera Songwe, the IFC’s director for West and Central Africa. FDI reflects changing patterns of investment. There are some concerns that a bursting Chinese real estate bubble could see demand for African raw materials reduce even further. This could have a knock-on effect on investment in the sector, and in Africa in general.

Read more …

“..if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks..”

Defiant Portugal Shatters The Eurozone’s Political Complacency (AEP)

The delayed fuse on the eurozone’s debt-deflation policies has finally detonated in a second country. Portugal has joined the revolt against austerity. The rickety scaffolding of fiscal discipline and economic surveillance imposed on southern Europe by Germany is falling apart on its most vulnerable front. Antonio Costa, Portugal’s Socialist leader and son of a Goan poet, has refused to go along with further pay cuts for public workers, or to submit tamely to a Right-wing coalition under the thumb of the now-departed EU-IMF ‘Troika’. Against all assumptions, he has suspended his party’s historic feud with Portugal’s Communists and combined in a triple alliance with the Left Bloc. The trio have demanded the right to govern the country, and together they have an absolute majority in the Portuguese parliament.

The verdict from the markets has been swift. “We would be very reluctant to invest in Portuguese debt,” said Rabobank, describing the turn of events as a political shock. The country’s president has the constitutional power to reappoint the old guard – and may in fact do so over coming days – but this would leave the country ungovernable and would be a dangerous demarche in a young Democracy, with memories of the Salazar dictatorship still relatively fresh. “The majority of the Portuguese people did not vote for the incumbent coalition. They want a change,” said Miriam Costa from Lisbon University. Joseph Daul, head of conservative bloc in the European Parliament, warned that Portugal now faces six months of chaos, and risks going the way of Greece.

Mr Costa’s hard-Left allies both favour a return to the escudo. Each concluded that Greece’s tortured acrobatics under Alexis Tspiras show beyond doubt that it is impossible to run a sovereign economic policy within the constraints of the single currency. The Communist leader, Jeronimo de Sousa, has called for a “dissolution of monetary union” for the good of everybody before it does any more damage to the productive base of the European economy. His party is demanding a 50pc write-off of Portugal’s public debt and a 75pc cut in interest payments, and aims to tear up the EU’s Lisbon Treaty and the Fiscal Compact. It wants to nationalize the banks, reverse the privatisation of the transport system, energy, and telephones, and take over the “commanding heights of the economy”.

Catarina Martins, the Left Bloc’s chief, is more nuanced but says that if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the ECB close down its banks,” she said. She is surely right about that. The lesson of the Greek drama is that the ECB is the political enforcer of monetary union, willing to bring rebels to their knees by pulling the plug on a nation’s banking system.

Read more …

Any real action will send the message that there are problems.

ECB Haunted by Paradox as Draghi Weighs Risk of QE Signaling (Bloomberg)

Mario Draghi’s challenge on Thursday is to show that he’s readier than ever to step up stimulus, without panicking investors over the euro area’s health. In the run-up to the European Central Bank’s meeting in Malta, the institution’s president and most of his Governing Council said it’s too early to decide whether to expand their €1.1 trillion bond-buying program. Yet with economists seeing the need for a fresh boost before year-end, he’ll probably be pressured to provide reassurance that the penultimate monetary-policy session of 2015 won’t leave the ECB behind the curve. Officials sitting down to talk will have to deal with a complex scenario of mixed domestic economic signals, an uncertain global outlook, and divergent opinions on what’s needed to combat feeble inflation.

The paradox for Draghi is that when he holds his regular press conference, he may find himself addressing the risks to the recovery without yet committing to action. “The ECB seems more worried about the economy yet less inclined to act; markets are more confident in the economy yet expect something will be done,” said Francesco Papadia, chairman of Prime Collaterised Securities and a former director general of market operations at the ECB. “For Draghi, it’ll be difficult to even hint that something was discussed because it would send two messages: ‘Good, they’re doing something, and wait, the situation is worse than we thought.’

Read more …

Full insanity.

Diesel Cars Emit Up To Four Times More Toxic Pollution Than A Bus (Guardian)

A modern diesel car pumps out more toxic pollution than a bus or heavy truck, according to new data, a situation described as a “disgrace” by one MEP. The revelation shows that effective technology to cut nitrogen oxides (NOx) pollution exists, but that car manufacturers are not implementing it in realistic driving conditions. Diesel cars tested in Norway produced quadruple the NOx emissions of large buses and lorries in city driving conditions, according to a report from the Norwegian Centre for Transport Research. A separate study for Transport for London showed that a small car in the “supermini” class emitted several times more NOx than most HGVs and the same amount as a 40-tonne vehicle.

“It is crackers,” said emissions expert James Tate from the University of Leeds. His own research, which uses roadside equipment to measure passing traffic, also shows the latest diesel models cars produce at least as much NOx as far heavier buses and trucks. The issue of NOx pollution, thought to kill 23,500 people a year in the UK alone, gained prominence when VW diesels were discovered to be cheating official US emissions tests. The scandal also led to revelations that the diesels of many car manufacturers produce far more NOx on the road than in EU lab tests, though not via illegal means. The UK government say the failure to keep NOx from vehicles low in the real world means road transport is “by far the largest contributor” to the illegal levels of NOx in many parts of the country.

“It is disgraceful that car manufacturers have failed to reduce deadly emissions when the technology to do so is affordable and readily available,” said Catherine Bearder, a Liberal Democrat MEP and a lead negotiator in the European parliament on the EU’s new air quality law. “The dramatic reduction in NOx emissions from heavier vehicles is a result of far stricter EU tests, in place since 2011, that reflect real-world driving conditions. If buses and trucks can comply with these limits, there’s no reason cars can’t as well.”

Read more …

VW is set to shrink a lot.

3 Million Volkswagen Cars Need Costly Hardware Fixes In Europe Alone (Bloomberg)

Volkswagen will need hardware fixes for about 3 million cars in Europe affected by the diesel-emission manipulations as the region’s largest automaker scrambles to meet demands from regulators. Cars featuring a 1.6-liter engine require technical tweaks, while software updates are sufficient to make the other affected engines compliant, a VW spokesman said by phone. VW said last week it will recall about 8.5 million cars across Europe through 2016 and acknowledged efforts to fix all cars might drag on until 2017. VW has also stated the fallout from the scandal will cost more than the €6.5 billion already set aside.

Worldwide some 11 million cars with diesel engines are affected by the wide-ranging emissions rigging that was uncovered by U.S. regulators and triggered the resignation of Chief Executive Officer Martin Winterkorn. Moody’s Investors Service said Wednesday that uncertainties about the potential impact on VW’s reputation, earnings and cash flows could weigh on the manufacturer’s credit profile into 2017. New CEO Matthias Mueller said last week protecting the company’s credit rating is a top priority. The manufacturer can recover from the scandal in two-to-three years if the right decisions are made now to make VW more efficient, agile and cost competitive, he said.

Read more …

“The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.”

The EU Is Emitting Way More Greenhouse Gases Than It Says (Quartz)

One of the planet’s exemplars in preventing climate change, the EU has instituted tough emissions rules and strong support for renewable energy. Yet this doesn’t necessarily mean more solar panels or wind turbines dotting Europe’s skyline. Nope, the EU’s biggest source of renewable energy is old-school: burning wood. There’s just one problem with this. Torching wood has the potential to warm the atmosphere faster than burning coal does. So why does Europe get nearly half of its renewable energy that way? As Climate Central argues in this three-part piece, a legal loophole in the EU’s climate rules means it turns a blind eye to tens of millions of CO2 emissions that it pumps into the atmosphere each year. Worse, this policy means European governments issue hundreds of millions of dollars in incentives to encourage power plants to burn even more wood.

The core issue lies in how to count the CO2 pollution released when wood is burned for electricity and heat. Because trees grow back, EU law deems wood a “renewable energy” just like solar or wind (a source of fuel, in other words, that can be used to meet its fairly tough climate action target of sourcing 20% of its final energy consumption to come from renewable energy by 2020). But in many ways, wood is more like coal or oil—it must be burned to generate power. This process releases a lot of CO2, which traps heat in the atmosphere, warming the planet. But since trees also absorb CO2, they act as what’s been described as a “brake” on the rate of global warming. The logic of the EU rules holds that burning a tree doesn’t actually create new carbon emissions; it just releases the old. The carbon balance is therefore zero.

This makes complete sense—provided the wood you’re burning comes from already-dead wood that would release its carbon as it decomposed anyway. This includes dust and chips from sawmills, for example. And since the energy created when that wood is burned isn’t coming from fossil fuels, it’s ultimately a net positive for the atmosphere, as the CarbonBrief explains. However, that equation changes once you start clear-cutting forests for the sole purpose of fueling power plants. Wood tends to emit more carbon than fossil fuels to generate the same amount of energy, according to the Natural Resources Defense Council (pdf). Eventually, trees grow back and absorb this carbon. However, a growing body of peer-reviewed research suggests it can take decades—or even centuries—before a forest grows back enough to balance out the atmospheric CO2 created when its trees were burned.

Read more …

Like the Bloomberg title.

The Strongest El Niño in Decades Is Going to Mess With Everything (Bloomberg)

It has choked Singapore with smoke, triggered Pacific typhoons and left Vietnamese coffee growers staring nervously at dwindling reservoirs. In Africa, cocoa farmers are blaming it for bad harvests, and in the Americas, it has Argentines bracing for lower milk production and Californians believing that rain is finally, mercifully on the way. El Nino is back and in a big way. Its effects are just beginning in much of the world – for the most part, it hasn’t really reached North America – and yet it’s already shaping up potentially as one of the three strongest El Nino patterns since record-keeping began in 1950. It will dominate weather’s many twists and turns through the end of this year and well into next. And it’s causing gyrations in everything from the price of Colombian coffee to the fate of cold-water fish.

Expect “major disruptions, widespread droughts and floods,” Kevin Trenberth, distinguished senior scientist at the National Center for Atmospheric Research in Boulder, Colorado. In principle, with advance warning, El Nino can be managed and prepared for, “but without that knowledge, all kinds of mayhem will let loose.” In the simplest terms, an El Nino pattern is a warming of the equatorial Pacific caused by a weakening of the trade winds that normally push sun-warmed waters to the west. This triggers a reaction from the atmosphere above. Its name traces back hundreds of years to the coast of Peru, where fishermen noticed the Pacific Ocean sometimes warmed in late December, around Christmas, and coincided with changes in fish populations. They named it El Nino after the infant Jesus Christ. Today meteorologists call it the El Nino Southern Oscillation.

The last time there was an El Nino of similar magnitude to the current one, the record-setting event of 1997-1998, floods, fires, droughts and other calamities killed at least 30,000 people and caused $100 billion in damage, Trenberth estimates. Another powerful El Nino, in 1918-19, sank India into a brutal drought and probably contributed to the global flu pandemic, according to a study by the Climate Program Office of the National Oceanic and Atmospheric Administration. As the Peruvian fishermen recognized in the 1600s, El Nino events tend to peak as summer comes to the Southern Hemisphere. The impact can be broken down into several categories. Coastal regions from Alaska to the Pacific Northwest in the U.S., as well as Japan, Korea and China may all have warmer winters. The southern U.S., parts of east Africa and western South America can get more rain, while drier conditions prevail across much of the western Pacific and parts of Brazil.

Read more …

Strong graphs. More El Niño.

The Graphic That Shows Why 2015 Global Temperatures Are Off The Charts (SMH)

If there is one chart that might finally put to rest debate of a pause or “hiatus” in global warming, this chart created by the US National Oceanic and Atmospheric Administration has just supplied it. For years, climate change sceptics relied on a spike in global temperatures that occurred during the monster 1997-98 El Nino to say the world had stopped warming because later years struggled to set a higher mark even as greenhouse gas emissions continued to rise. Never mind that US government scientists found the hiatus was an illusion because the oceans had absorbed most of the extra heat that satellites could tell the Earth was trapping. Nor that 2005, 2010 and 2014 all set subsequent records for annual heat.

Those record years were too incrementally warmer compared with the 1997 mark to satisfy those who wanted to believe climate change was a hoax. But it is 2015, which is packing an El Nino that is on track to match the record 1997-98, that looks set to blow away previous years of abnormal warmth. “This one could end the hiatus,” said Wenju Cai, a principal research scientist specialising in El Nino modelling at the CSIRO. “Whether it beats [the 1997-98 El Nino] will be academic – it’s already very big.” NOAA data released overnight backs up how exceptional this year is in terms of warming, with September alone a full quarter of a degree above the corresponding month in 1997. As the chart above shows, for the first nine months, 2015 has easily been the hottest year on record, with sunlight second.

[..] El Ninos typically add 0.1-0.2 degrees to the background global warming. US climate expert John Abraham has estimated how year-to-date temperatures are adding another step-up to temperatures, as seen in this chart published by Think Progress. Climate change sceptics will probably not concede in their battle to avoid action to curb emissions. Satellite or meteorological data must have been manipulated, the oceans might be producing chemical compounds never detected before that counter carbon dioxide, or perhaps the sun is about to burn a lot less brightly. Still, they now have one more inconvenient chart they have to find a reason to ignore.

Read more …

114 people. That’s the whole story. But the UK won’t have none of it.

UK Must Resettle Refugees Who Arrived On Cyprus Military Base: UN (Guardian)

The UN refugee agency, the UNHCR, has said that the UK is legally obliged to resettle more than a hundred Syrian refugees who arrived by boat at a British military base in Cyprus, contradicting claims from the Ministry of Defence (MoD) that they were a Cypriot responsibility. Two overloaded wooden boats carrying 114 refugees from Syria, including 28 children, have been transferred to a temporary reception area in the sovereign base at Akrotiri on the southern coast of the Mediterranean island. According to the Cypriot coastguard, the refugees were abandoned offshore by people smugglers and left to fend for themselves.

The arrival on British territory of asylum seekers fleeing the Syrian conflict intensifies the scrutiny on the UK’s response to Europe’s worst refugee crisis since the second world war. David Cameron has offered to take in 20,000 Syrian refugees over five years – significantly less than most other western European countries, though the government has pointed out it gives more aid for refugee camps along Syria’s borders. Reacting to the arrivals at Akrotiri, the MoD said: “At the moment our key priority is ensuring everybody on board is safe and well. We have had an agreement in place with the Republic of Cyprus since 2003 to ensure that the Cypriot authorities take responsibility in circumstances like this.”

Asked whether the refugees would be able to claim asylum in Britain, an MoD official said: “That’s not our understanding.” A spokeswoman for the Home Office also stated: “The resettlement of refugees landing on the southern bases in Cyprus is not the responsibility of the United Kingdom.” But the UNHCR said in a statement that the 2003 UK-Cyprus memorandum made it clear that “asylum seekers arriving directly on to the SBA [Sovereign Base Area] are the responsibility of the UK but they would be granted access to services in the republic at the cost of the SBA.”

Read more …

They’ll throw -promises of- more money around. And that’ll be it, again.

EU Calls Mini-Summit On Refugee Crisis As Slovenia Tightens Border (Guardian)

The EU has called a mini summit with Balkan countries on the migrant crisis as Slovenia became the latest state to buckle under a surge of refugees desperate to reach northern Europe before winter. The leaders of Austria, Bulgaria, Croatia, Germany, Greece, Hungary, Romania and Slovenia will meet in Brussels on Sunday with their counterparts from non-EU states Macedonia and Serbia, the office of EC president Jean-Claude Juncker said. “In view of the unfolding emergency in the countries along the western Balkans migratory route, there is a need for much greater cooperation, more extensive consultation and immediate operational action,” a statement said. The continent has been struggling to find a unified response on how to tackle its biggest migration crisis since 1945.

More than 600,000 migrants and refugees, mainly fleeing violence in Syria, Iraq and Afghanistan, have braved the dangerous journey to Europe so far this year, the UN said. Of these, more than 3,000 have drowned or gone missing as they set off from Turkey in inflatable boats seeking to reach Greece, the starting point for the migrants’ long trek north. With the crisis showing no sign of abating, France’s interior minister Bernard Cazeneuve reinforced security in the port city of Calais from where migrants and refugees try to cross to Britain. He also announced that women and children would be given heated tents, as arrivals in a makeshift camp face a dip in temperature.

Read more …

EU police? Don’t think that exists. So, German and French cops patrolling in Slovenia? Really?

Slovenia Asks For EU Police Help To Regulate Migrant Flow (Reuters)

Slovenia has asked the European Union for police to help regulate the inflow of migrants from Croatia, Interior Minister Vesna Gyorkos Znidar told TV Slovenia. Over the past 24 hours, more than 10,000 migrants, many fleeing violence in Syria, have arrived in Slovenia, the smallest country on the Balkan migration route, on their way to Austria. “Slovenia has already asked other EU member states for police units,” Znidar said late on Wednesday. European Commissioner for Migration and Home Affairs Dimitris Avramopoulos on Thursday will visit Slovenia to discuss the migrant crisis, while Commission President Jean-Claude Juncker called an extraordinary meeting of several European leaders for Sunday.

Juncker invited the leaders of Austria, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Germany, Greece, Hungary, Romania, Serbia and Slovenia. Slovenia’s parliament has given more power to the army which is helping police control the border, while the country also plans to rehire retired police to help. Huge number of migrants started coming to Slovenia on Saturday after Hungary on Friday sealed its border with Croatia with a bottleneck building up through the Balkans.

Read more …

I’m all for it, but not for the We Must.. It will take a lot more than that.

A Cultural Revolution To Save Humanity (Serge Latouche)

We’ve reached a point that means we can no longer go on as we are doing! Everyone’s talking about crisis and it’s slightly paradoxical because I’ve always been hearing about a crisis ever since 1968 when there was a cultural crisis, then in 1972, with the publication of the work by The Club of Rome, there was talk of an ecological crisis, then there was the neoliberal counter-revolution and the social crisis with Margaret Thatcher and Reagan, and now there’s the financial crisis and the economic crisis after the collapse of Lehmann Brothers. Finally, all these crises are getting mixed up and we re seeing a crisis of civilisation, an anthropological crisis. At this point, the system can no longer be reformed – we have to exit from this paradigm – and what is it? It s the paradigm of a growth society.

Our society has been slowly absorbed by an economy based on growth, not growth to satisfy needs – and that would be a good thing – but growth for the sake of growth and this naturally leads to the destruction of the planet because infinite growth is incompatible with a finite planet. We need a real reflection when we talk about an anthropological crisis. We need to take this seriously because we need a decolonisation of the imagination. Our imagination has been colonised by the economy. Everything has become economics. This is specific to the West and it’s fairly new in our history. It was in the seventeenth century when there was a great ethical switch with the theory expounded by Bernard Mandeville. Before, people said that altruism was good and then: “no, we have to be egoists, we have to make as much profit as possible; greed is good . Yes – to destroy our “oikos (our home) more quickly. And we have actually got to that point.

Read more …

“Monstromart’s slogan was “where shopping is a baffling ordeal”.

Why Too Much Choice Is Stressing Us Out (Guardian)

Once upon a time in Springfield, the Simpson family visited a new supermarket. Monstromart’s slogan was “where shopping is a baffling ordeal”. Product choice was unlimited, shelving reached the ceiling, nutmeg came in 12lb boxes and the express checkout had a sign reading, “1,000 items or less”. In the end the Simpsons returned to Apu’s Kwik-E-Mart. In doing so, the Simpsons were making a choice to reduce their choice. It wasn’t quite a rational choice, but it made sense. In the parlance of economic theory, they were not rational utility maximisers but, in Herbert Simon’s term, “satisficers” – opting for what was good enough, rather than becoming confused to the point of inertia in front of Monstromart’s ranges of products.

This comes to mind because Tesco chief executive Dave Lewis seems bent on making shopping in his stores less baffling than it used to be. Earlier this year, he decided to scrap 30,000 of the 90,000 products from Tesco’s shelves. This was, in part, a response to the growing market shares of Aldi and Lidl, which only offer between 2,000 and 3,000 lines. For instance, Tesco used to offer 28 tomato ketchups while in Aldi there is just one in one size; Tesco offered 224 kinds of air freshener, Aldi only 12 – which, to my mind, is still at least 11 too many. Now Lewis is doing something else to make shopping less of an ordeal and thereby, he hopes, reducing Tesco’s calamitous losses. He has introduced a trial in 50 stores to make it easier and quicker to shop for the ingredients for meals.

Basmati rice next to Indian sauces, tinned tomatoes next to pasta. What Lewis is doing to Tesco is revolutionary. Not just because he recognises that customers are time constrained, but because he realises that increased choice can be bad for you and, worse, result in losses that upset his shareholders. But the idea that choice is bad for us flies in the face of what we’ve been told for decades. The standard line is that choice is good for us, that it confers on us freedom, personal responsibility, self-determination, autonomy and lots of other things that don’t help when you’re standing before a towering aisle of water bottles, paralysed and increasingly dehydrated, unable to choose.

That wasn’t how endless choice was supposed to work, argues American psychologist and professor of social theory Barry Schwartz in his book The Paradox of Choice. “If we’re rational, [social scientists] tell us, added options can only make us better off as a society. This view is logically compelling, but empirically it isn’t true.”

Read more …

Oct 012015
 
 October 1, 2015  Posted by at 8:41 am Finance Tagged with: , , , , , , , , , , ,  1 Response »


John Vachon Beer signs on truck, Little Falls, Minnesota Oct 1940

2015 Is Turning Out to Be a Terrible Year for Investors (Bloomberg)
End Of World’s Biggest Ever Credit Boom Means More “Glencores” Ahead (Howell)
Traders Start Pricing Glencore Bonds Like Junk (FT)
Why Dow’s Three-Quarter Losing Streak Is A Big Deal (MarketWatch)
October 1 2015: China Factory Activity Picks Up To Beat Expectations (BBC)
Futures Soar After Chinese Composite PMI Drops To Lowest On Record (Zero Hedge)
China Cuts Minimum Home Down Payment for First-Time Buyers (Bloomberg)
Oil Suffers A Loss Of 24% For The Quarter (MarketWatch)
Market Moves That Aren’t Supposed to Happen Keep Happening (Tracy Alloway)
Wide Range Of Cars Emit More Pollution In Realistic Driving Conditions (Guardian)
VW Emissions Scandal: 1.2 Million UK Cars Affected (Guardian)
VW Board Considering Steps To Prop Up Credit Rating (Reuters)
Eurozone Inflation Turns Negative, Putting ECB In Corner (Reuters)
Tsipras Finds ‘Open Ears’ In US To Greek Appeal For Debt Relief (Kath.)
Greek Regulator Bans Short-Selling Of Bank Shares (Reuters)
How Greece Could Collapse The Eurozone (Satyajit Das)
Greek Shipowners Prepare to Weigh Anchor on Prospect of Higher Taxes (WSJ)
Iceland’s Next Collapse Is “Unavoidable,” Employers Union Warns (Bloomberg)
Obama Hands $1 Billion In Military Aid To Goverments Using Child Soldiers (CNN)
Millions Of Illegal Immigrants Will Overrun Trump’s ‘Beautiful Wall’ (Farrell)
Farmers Driven From Homes ‘Like Pests’ As Asia Plans 500 Dams (Bloomberg)

Debt. Deflation.

2015 Is Turning Out to Be a Terrible Year for Investors (Bloomberg)

For investors around the world, 2015 is turning into a year to forget. Stocks, commodities and currency funds are all in the red, and even the measly gains in bonds are being wiped out by what little inflation there is in the global economy. Rounding out its steepest quarterly descent in four years, the MSCI All Country World Index of shares is down 6.6% in 2015 including dividends. The Bloomberg Commodity Index has slumped 16%, while a Parker Global Strategies index of currency funds dropped 1.8%. Fixed income has failed to offer much of a haven: Bank of America’s global debt index gained just 1%, less than the 2.5% increase in world consumer prices shown in an IMF index. After three years in a virtuous cycle of rising share prices and unprecedented monetary easing, markets are now sinking as emerging economies from China to Brazil weaken and corporate profits slump.

Analysts have cut their global growth estimates for 2015 to 3% from 3.5% at the start of the year, and the turmoil has added pressure on central banks to prolong their stimulus programs, with traders scaling back forecasts for a Federal Reserve interest-rate increase by year-end. “There was an element of people believing they had found some sort of holy grail to investing, then this breakdown occurs and it breaks down in a way that’s remarkable,” said Tobias Levkovich, Citigroup’s chief U.S. equity strategist. “What seemed to trigger this all was China. It sent us on a wave of downward fears.” Investors suffered the brunt of this year’s losses in the third quarter. MSCI’s global equity index sank about 10% in the period, while the Bloomberg commodity index lost 14% in its biggest slump since the global financial crisis seven years ago.

The average level of Bank of America’s Market Risk index, a measure of price swings in equities, rates, currencies and raw materials, was the most this quarter since the end of 2011. The Chicago Board Options Exchange Volatility Index, a gauge of turbulence known as the VIX, reached the highest since 2011 in August. China has been the biggest source of anxiety for investors, after turmoil in the nation’s financial markets fueled concern that the country’s worst economic slowdown since 1990 was deepening. The Shanghai Composite Index fell 29% in the third quarter, the most worldwide, and the yuan weakened 2.4% after authorities devalued the currency in August. That sent a shudder around the world.

Read more …

And all over the world too.

End Of World’s Biggest Ever Credit Boom Means More “Glencores” Ahead (Howell)

It’s the great unwind show. Admittedly, Glencore’s latest problems may run deeper and look more specific, but together with Vale and Rio, the other great international mining houses plus their suppliers, like America’s Caterpillar, all are suffering the fall-out from the end of the world’s biggest ever credit boom. Oil is testing recent lows and commodity prices almost across the board are skidding. Alongside, emerging market currencies are being trashed and some even fear that this turmoil will spill-over into a recession by next year. It will. Your white-knuckle ride is far from over. So how did we get here? The answer comes in three parts.

Firstly, the fragile global financial system that disintegrated spectacularly in 2008 has simply been taped back together and not fundamentally rebuilt, so leaving it vulnerable to a renewed bust of funding problems. Secondly, debt problems have not been tackled. By demanding “austerity”, many governments have simply reshuffled debts from their balance sheets on to more fragile private sector ones. Debt burdens across emerging markets, for example, have jumped since 2007. Lastly, the biggest factor is China. China is only just starting to adjust to its huge credit boom. Since the year 2000, the size of its asset economy has jumped an eye-watering 12-fold.

This includes the construction of new cities, thousands of miles of motorway, several airports and, as the brochures once advertised, a new skyscraper every 14-days, pushing up her credit markets to a bloated $25 trillion. History teaches us that there are four stages to every credit cycle: (1) 20-30% rates of new loan growth; (2) asset price bubbles in real estate, commodities, equities and often art; (3) banking problems, corruption and state intervention, and (4) currency collapse. China already ticks the first three boxes, and a pen is hovering over the fourth. The decision to weaken the renminbi in August may have less to do with exchange rate politics, as some have suggested, and more to do with a plain shortage of US dollars.

Read more …

“..trading in the $36bn of bonds outstanding has moved to a cash basis, where prices are quoted in terms of cents on the dollar of face value.”

Traders Start Pricing Glencore Bonds Like Junk (FT)

Traders have started to quote prices for Glencore debt in a manner normally associated with lower-quality paper, commonly known as junk bonds. The shift in pricing dynamics in the private over-the-counter markets this week came as shares in Glencore swung wildly as investors worry about the ability of the miner and trading house to manage its debt pile in a commodity downturn. The group retains an investment grade credit rating according to rating agencies and its $36bn of outstanding bonds have up to now been bought and sold on the basis of their yield, which moves inversely to price. But this week, dealers and investors say trading in the $36bn of bonds outstanding has moved to a cash basis, where prices are quoted in terms of cents on the dollar of face value. This form of pricing is generally used for junk bonds, which have a higher risk of default.

Pressure on the company’s debt and equity has intensified as analysts debate the effect of falling raw materials prices and rising debt costs. One investment bank warned on Monday that the group’s equity might be worthless if commodity prices did not recover swiftly. The company said it retained “strong lines of credit and access to funding”. Unsecured senior Glencore debt maturing in May 2016 traded below 93 cents on the dollar on Tuesday, with some trades occurring below 90 cents, according to investors. A buyer of the debt should receive a 0.85 cent coupon in November, and a dollar of principal back in eight months’ time. The return available from doing so is equivalent to around a 13% yield on an annual basis. Prices for longer-term debt fell even further as investors began to assess the potential recovery values for Glencore debt, most of which is unsecured. “Everything beyond five years is trading around or below 70 cents on the dollar,” Zoso Davies at Barclays said.

Read more …

The history of three-quarter losing streaks is not pretty.

Why Dow’s Three-Quarter Losing Streak Is A Big Deal (MarketWatch)

The Dow Jones Industrial Average has suffered a third-straight quarterly decline for the first time since the Great Recession. This marks just the third time in nearly 40 years that a quarterly losing streak for the blue-chips benchmark stretched at least that long. The Dow surged 236 points on Wednesday, but has lost 1,335 points, or 7.6%, since the end of June. The Dow had lost 156.61 points, or 0.9%, over the second quarter and 46.95 points, or 0.3%, over the first quarter. The last time the Dow had a three-quarter losing streak was the six-quarter stretch ending the first quarter of 2009. Before that, there was a five-quarter losing streak ending with the first quarter of 1978, according to FactSet data.

In the Dow’s 119-year history, there have now been 20 quarterly losing streaks that stretched at least three quarters. The longest losing streak is six quarters, suffered twice, through the first quarter of 2009 and through the second quarter of 1970. There have been 12 quarterly losing streaks that have lasted longer than three quarters. If the current quarterly losing streak were to be snapped in the fourth quarter, the total three-quarter loss of 8.6% would be the smallest of all the other three-quarter losing streaks.

Read more …

What a difference a week makes, and/or a survey…

October 1 2015: China Factory Activity Picks Up To Beat Expectations (BBC)

Factory activity in China picked up in September, beating expectations, according to the government’s official manufacturing survey. The manufacturing purchasing managers’ index (PMI) was up to 49.8 from 49.7 in August, but the sector did shrink for the second consecutive month.

23 September 2015: China Factory Activity Contraction Worsens (BBC)

China’s factory activity contracted at the fastest pace for six and a half years in September, according to a preliminary survey of the vast sector. The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 47 in September, below forecasts of 47.5 and down from 47.3 in August.

Read more …

More of that discrepancy in China numbers.

Futures Soar After Chinese Composite PMI Drops To Lowest On Record (Zero Hedge)

Chinese markets may be closed for the next week due to a national holiday but China’s goalseeked manufacturing survey(s), which were the most anticipated data points of the evening, came right on schedule (or rather, were leaked just ahead of schedule). And they certainly did not disappoint in their disappointment. First, it was the official NBS September PMI, which at 49.8 was the smallest possible fraction above both the previous and expected, both of which were 49.7. The number was leaked about 6 minutes before the official statement, and while the leaked print which all humans were aware of well before the official release time at 9pm Eastern, had no impact on markets, it was the flashing red headline which confirmed the leak and which was read by machine-reading algos everywhere, that sent the E-mini spasming higher.

But while the official “data” was bad, and confirmed the economy remains in contraction, the Caixin – aka the new HSBC – Markit PMIs were absolutely atrocious. We bring you… the HSBC Manufacturing print, which dropped from 47.3 to 47.2, and which according to Caixin was the lowest print since March 2009. From the report:

A key factor weighing on the headline index was a sharper contraction of manufacturing output in September. According to panellists, worsening business conditions and subdued client demand had led firms to cut their production schedules. Weaker customer demand was highlighted by a further fall in total new orders placed at Chinese goods producers in September. Furthermore, the rate of reduction was the steepest seen for just over three years. Data suggested that the faster decline in total new business partly stemmed from a sharper fall in new export work. The latest survey showed new orders from abroad declined at the quickest rate since March 2009.

Reflective of lower workloads, manufacturing companies cut their staff numbers again in September. Moreover, the latest reduction in employment was the fastest seen in 80 months. Meanwhile, reduced production capacity led to an increased amount of unfinished work, though the pace of backlog accumulation was only slight.

Manufacturing companies noted a further steep decline in average cost burdens during September. Furthermore, the rate of deflation was the sharpest seen since April. Reports from panellists mentioned that lower raw material prices, particularly for oil-related products, had cut overall input costs. Increased competition for new work led manufacturing companies to generally pass on their savings to clients, as highlighted by a solid decline in output charges.

Read more …

“It’s one policy that’s part of a grand strategy to revive property investment and the whole national economy.”

China Cuts Minimum Home Down Payment for First-Time Buyers (Bloomberg)

China’s central bank cut the minimum home down payment required of first-time buyers for the first time in five years, stepping up support for the property market after five interest-rate reductions since November failed to reverse an economic slowdown. The People’s Bank of China cut the minimum down payment for buyers in cities without purchase restrictions to 25% from 30%, according to a statement released on its website Wednesday. The previous requirement had been in place since 2010, when the government boosted the ratio from 20% to help curb property speculation.

The move extends a year of loosening in the property market as Premier Li Keqiang seeks to boost demand in the world’s second-largest economy after fiscal and monetary stimulus produced few signs of a rebound. Growth will slow to 6.8% this year, according to the median of economist estimates compiled by Bloomberg. That’s below the government’s target for an expansion of about 7%. “Amid China’s economic slowdown, property’s role as a growth pillar has become even more important, and the government clearly sees it,” said Shen Jianguang at Mizuho in Hong Kong. “It’s one policy that’s part of a grand strategy to revive property investment and the whole national economy.”

While property investment has remained weak, home sales have recovered after mortgage policy easing and removal of purchase restrictions helped support demand. New-home prices rose in 35 of 70 cities in August, up from 31 in July and just two cities in February. UBS Group has estimated the real-estate industry accounts for more than a quarter of final demand in the economy when including property-related goods including electric machinery and instruments, chemicals and metals. The government also has urged some cities to allow citizens to borrow more from housing funds to help buyers, and encouraged cities to securitize more of those loans, according to a statement on the housing ministry’s website.

Read more …

In Q4, a lot of ‘reserves’ must be marked to much more realistic levels. That’s going to hurt.

Oil Suffers A Loss Of 24% For The Quarter (MarketWatch)

Oil futures tallied a loss of 24% for the third quarter, after ending Wednesday lower on the back of a report revealing the first U.S. crude-supply increase in three weeks. The report also showed a modest decline in domestic production, helping prices limit losses for the session. November West Texas Intermediate crude settled at $45.09 a barrel, down 14 cents, or 0.3%, on the New York Mercantile Exchange, trading between a high of $45.85 and a low of $44.68, according to FactSet data. WTI prices, based the front-month contracts, lost 8.4% for the month and were 24% lower for the quarter. Year to date, they’re down by more than 15%. November Brent crude on London’s ICE Futures exchange tacked on 14 cents, or 0.3%, to $48.37 a barrel.

Year to date, prices have fallen more than 15%. The U.S. Energy Information Administration reported Wednesday an increase of four million barrels in crude supplies for the week ended Sept. 25. That was the first climb in three weeks. Analysts polled by Platts expected supplies to be unchanged, while the American Petroleum Institute Tuesday said supplies jumped 4.6 million barrels. Part of the reason for the increase in crude supplies was less demand from refineries, where activity decreased with maintenance season in effect. Refinery utilization fell to 89.8% last week from 90.9%.

Read more …

Volatility. Way outside Fed control.

Market Moves That Aren’t Supposed to Happen Keep Happening (Tracy Alloway)

A counterpoint to Bill Dudley’s Wednesday speech on bond market liquidity comes courtesy of TD Securities. While the New York Fed president argued that there’s little evidence so far that new financial regulation has cut into the ease of trading U.S. Treasuries, TD analysts Priya Misra and Gennadiy Goldberg think otherwise. They point to daily, wild swings in the bond market as evidence of diminished liquidity.

Our findings show that daily changes in 10-year Treasury yields exceeded one standard deviation (√) 58% of the time so far in 2015, considerably higher than the 49% observed last year. The 58% measure is the highest reading going back to 1975, suggesting that recent volatility in Treasury markets is unprecedented. As if a record number of “choppy days” were not enough, 10-year yield movements also exceeded 3√ in as many as 9% of trading days this year. This is higher than the average of 6% of days since 1975.

It’s a point that’s been brought up before, notably by Bank of America Merrill Lynch’s Barnaby Martin. These observers argue that the number of assets registering large moves four or more standard deviations away from their normal trading range has been growing in recent months. Moves greater than one standard deviation should (based on a normal distribution of probabilities) happen about 32% of the time. Instead as the TD analysts point out, they are happening 58% of the time in U.S. Treasuries. Moves greater than three standard deviations should be happening about 1% of the time, not 9%.

While Dudley finds little evidence of average bond market liquidity having deteriorated, TD reckons the problem lies in so-called “tail events,” in which increased regulation and changes to market structure exacerbate the potential for extreme moves. Looking at average liquidity conditions won’t show much evidence of a problem, therefore. That might go some way toward explaining why all those market moves that are supposed to not happen very often keep occurring with some regularity.

Read more …

If everybody does it, who are you going to punish?

Wide Range Of Cars Emit More Pollution In Realistic Driving Conditions (Guardian)

New diesel cars from Renault, Nissan, Hyundai, Citroen, Fiat, Volvo and other manufacturers have all been found to emit substantially higher levels of pollution when tested in more realistic driving conditions, according to new data seen by the Guardian. Research compiled by Adac, Europe’s largest motoring organisation, shows that some of the diesel cars it examined released over 10 times more NOx than revealed by existing EU tests, using an alternative standard due to be introduced later this decade. Adac put the diesel cars through the EU’s existing lab-based regulatory test (NEDC) and then compared the results with a second, UN-developed test (WLTC) which, while still lab-based, is longer and is believed to better represent real driving conditions. The WLTC is currently due to be introduced by the EU in 2017.

[..] Emissions experts have warned for some time that there were problems with official lab-based NOx tests, meaning there was a failure to limit on-the-road emissions. “Gaming and optimising the test is ubiquitous across the industry,” said Greg Archer, an emissions expert at Transport & Environment. A recent T&E round-up of evidence found this affected nine out of 10 new diesel cars, which were on average seven times more polluting in the real world. But the Adac data are the first detailed list of specific makes and models affected. Adac also measured a Volvo S60 D4 producing NOx emissions over 14 times the official test level [..]

T&E argues that the Adac WLTC tests are minimum estimates of actual on-the-road emissions. Archer said the EU must back up the WLTC with on-the-road tests and end the practice of carmakers paying for the tests at their preferred test centres. “It is more realistic but it still isn’t entirely representative,” said Archer. “We still think there is a gap of about 25% between the WLTC test and typical average new car driving.”

Read more …

“The admission means that the UK is one of the countries worst affected by the scandal..”

VW Emissions Scandal: 1.2 Million UK Cars Affected (Guardian)

Volkswagen has revealed that almost 1.2m vehicles in the UK are involved in the diesel emissions scandal that has rocked the carmaker, meaning more than one in 10 diesel cars on the country’s roads are affected. VW said the diesel vehicles include 508,276 Volkswagen cars, 393,450 Audis, 76,773 Seats, 131,569 Skodas and 79,838 Volkswagen commercial vehicles. The total number of vehicles affected is 1,189,906. This is the first time VW has admitted how many of the 11m vehicles fitted with a defeat device to cheat emissions tests are in the UK.

The admission means that the UK is one of the countries worst affected by the scandal and will increase the pressure on the government to launch a full investigation. Figures from the Department for Transport show that there were 10.7m diesel cars on Britain s roads at the end of 2014 and that an estimated 5.3m of the petrol and diesel cars are Volkswagens or one of the groups sister brands. Patrick McLoughlin, the transport secretary, said: The government s priority is to protect the public and I understand VW are contacting all UK customers affected. I have made clear to the managing director this needs to happen as soon as possible. “The government expects VW to set out quickly the next steps it will take to correct the problem and support owners of these vehicles already purchased in the UK.”

VW said 2.8m vehicles in Germany are involved, while 482,000 cars have been recalled in the US. The company intends to set up a self-serve process that will allow UK motorists to find out if their vehicle is affected. Dealers will also be sent the vehicle identification numbers of those involved. Affected customers will be contacted about visiting a mechanic to have their cars refitted. The cars fitted with a defeat device have EA 189 EU5 engines. However, VW is yet to reveal the full details of the recall plan, which will need to be approved by regulators. The carmaker said: “In the meantime, all vehicles are technically safe and roadworthy. Volkswagen Group UK is committed to supporting its customers and its retailers through the coming weeks.”

Read more …

Buyback!

VW Board Considering Steps To Prop Up Credit Rating (Reuters)

Members of Volkswagen’s supervisory board are concerned about the carmaker’s credit rating and are considering steps to prop it up but have no plans to sell off assets, two sources close to the board said. Volkswagen declined to comment on the sources, who spoke to Reuters late on Wednesday evening. They said that following recent actions from credit rating agencies Fitch and Moody’s, there were worries that a downgrade could inflict higher borrowing costs on the company, hampering its ability to win back the trust of investors. As a result, the board is considering cost cuts and revenue-generating measures. However no discussions on selling off VW assets or brands have taken place, the sources said. The Wolfsburg-based company has been hammered by the revelations that it manipulated diesel emissions tests.

Read more …

An endless supply of stupidity. Or is it perfidiousness?

Eurozone Inflation Turns Negative, Putting ECB In Corner (Reuters)

Eurozone inflation turned negative again in September as oil prices tumbled, raising pressure on the European Central Bank to beef up its asset purchases to kick start anaemic price growth. Prices fell by 0.1% on an annual basis, the first time since March that inflation has dipped below zero, missing analysts’ expectations for a zero reading after August’s 0.1% increase. The negative reading is a headache for the ECB, which is buying €60 billion of assets a month to boost prices. It has already said it may have to increase or extend the QE scheme because inflation may fall short of its target of almost 2% even in 2017.

Long term inflation expectations have dropped to their lowest since February, before the ECB’s asset purchases started, as China’s economic slowdown, the commodity rout and paltry euro zone lending growth reinforce pessimistic predictions. Even Finnish central bank chief Erkki Liikanen, normally considered an inflation hawk, has warned that euro zone growth is at risk from the slowdown in emerging markets and that inflation could fall short of already modest expectations. “We believe the ECB will extend its QE programme beyond September 2016, most likely until mid-2018, and that it could reach €2.4 trillion – more than twice the original €1.1 trillion commitment,” credit ratings agency Standard & Poor’s said on Wednesday.

Read more …

Let’s see it first.

Tsipras Finds ‘Open Ears’ In US To Greek Appeal For Debt Relief (Kath.)

Prime Minister Alexis Tsipras on Wednesday indicated that Greece’s appeal for debt relief had been received far better in New York than in Brussels, continuing his US visit which included talks with Secretary of State John Kerry. “The Greek government has found far more open ears [here] than in Brussels for the need for there to be a fair resolution of the crisis and a necessary reduction of the unbearable and unsustainable public debt that has accumulated all those years,” Tsipras told reporters. He was speaking on the fifth day of an official visit to the US and following meetings with representatives of the Greek-American community in New York who he described as “the best ambassadors for Hellenism in the US, a country which plays the most significant role globally in all the crucial decisions that relate to our country’s future.”

Tsipras said Greeks have been “the victim of choices that led to the gradual erosion of the country’s national sovereignty and to the need for borrowing which resulted in the enforcement of measures which have… weakened the production base and the economy.” The comments came just a few days before representatives of Greece’s international creditors are to return to Athens for negotiations on the prior actions that Greek authorities must legislate to secure crucial rescue loans.

Read more …

Yeah, that’ll do the trick…

Greek Regulator Bans Short-Selling Of Bank Shares (Reuters)

The Greek securities regulator said on Wednesday it had banned short-selling of Greek bank shares to avoid pressure on prices ahead of the recapitalization of the sector. “The decision will come into effect starting Oct. 1 and will last until Nov. 9,” the Capital Markets Commission said in a statement. It affects the shares of the country’s four largest banks – National Bank, Alpha Bank, Eurobank and Piraeus Bank – and also the smaller Attica Bank.

Read more …

“At a deeper level, the EU’s actions are promoting political radicalization on both the political right and left with unknown consequences.”

How Greece Could Collapse The Eurozone (Satyajit Das)

The Greek debt affair has also harmed the European Project, potentially irreparably. The problem is not that the eurozone found itself facing serious economic challenges. The issue is its failure to anticipate the risk of such a crisis ever happening, the lack of contingency planning, and the eurozone’s inability to deal with the problem on a timely basis. The Greek crisis is now over five years old, with no signs of a permanent solution. There are only unpalatable choices. Some concessions will not solve the problem. Other eurozone members will have to continue to provide additional financing to Greece, further increasing their risk. Favorable treatment for the Greek government risks opening a Pandora’s Box of demands from other countries to relax austerity measures.

Demands for relaxation of budget deficit and debt level targets are likely from Spain, Portugal, Ireland, Italy, and France. A write-down of debt would crystallize losses. It might threaten the governments of Spain, Portugal, Italy, Finland, the Netherlands, and Germany. If Greece leaves the euro, then the consequences for the eurozone are unclear. Should Greece prosper outside the single currency, it reduces the attraction of the eurozone for weaker members. Given the absence of painless solutions, it seems for the moment that neither Greece nor its creditors have any objectives other than avoiding having their fingerprints on the instrument that triggers default, the world’s largest sovereign debt restructuring or a breakup of the euro.

The approach of the EU has also undermined the European project. Major countries such as Germany have reacted to the inability to resolve the crisis by resorting to economic and political repression, entailing less, not more, flexibility, with tougher rules and stricter enforcement, including tighter supervision of national budgets. [..] The EU fails to recognize that its actions may destabilize Europe in unexpected ways. Greece has the potential to undermine Western security, creating a large corridor of vulnerability through the Balkans, the Levant, the Middle East, and Caucasus. While a member of the EU, Greece can veto sanctions reducing European power. Its actions or lack thereof can aggravate the serious refugee crisis confronting Europe. An embittered Greece, hostile to European partners and NATO, has caused alarm in the US. At a deeper level, the EU’s actions are promoting political radicalization on both the political right and left with unknown consequences.

Read more …

Age old threat.

Greek Shipowners Prepare to Weigh Anchor on Prospect of Higher Taxes (WSJ)

Many of Greece’s world-leading shipowners are actively exploring options to leave their home country, reacting to the prospect of sharply higher shipping taxes in the debt-ridden nation. Dominated by some 800 largely family-run companies that control almost a fifth of the global shipping fleet from their base at the main Greek port of Piraeus, the industry has long been a source of national pride. But at the behest of Greece’s international creditors, the newly re-elected Syriza-led government has reluctantly agreed to raise taxes on the long-protected sector. While Greek owners have agreed to voluntarily double until 2017 the amount they pay in tonnage tax-a fixed annual rate based on the size of each vessel-they are adamant on keeping their tax-free status on ship profits and money generated from ship sales.

Yet Greece’s creditors want taxes gradually to be applied on all shipping operations and are pushing for a permanent increase in the tonnage tax. Senior Greek government officials, who asked not to be named, said the finance ministry is trying to find alternative sources of income to avoid saddling owners with more taxes, but one said that “the exercise is proving very difficult.” Final decisions on the matter are expected by the end of October. Income-based shipping taxes, levied in countries such as the U.S., China and Japan, can raise much more revenue than tonnage taxes, levied in most European countries. An owner of a midsize vessel in Greece would pay a flat tonnage tax of $50,000 a year at the temporary double rate.

A comparable U.S. owner, depending on daily freight rates, might pay about $3.7 million in annual taxes, and a Japanese owner could pay $7 million. However, while European owners have to pay the tonnage tax every year regardless of profitability, U.S. and Japanese owners get substantial tax refunds if their vessels lose money. Many in the Greek shipping world say any increase in taxes on shipping operations would prompt a mass exodus of the country’s shipowners. Relatively low-tax global shipping centers such as Cyprus, London, Singapore and Vancouver are positioning themselves to benefit.

Read more …

Rising wages.

Iceland’s Next Collapse Is “Unavoidable,” Employers Union Warns (Bloomberg)

The head of Iceland’s main employers’ group says the nation is displaying some worrying signs. Wages are soaring much too fast and will ruin the economy if they continue unchecked, according to Thorsteinn Viglundsson, managing director of Business Iceland. “Another economic collapse is unavoidable, if we’re going to keep going down this path,” Viglundsson said in a phone interview in Reykjavik. Pay is set to rise about 30% through 2019 in many industries. Unions wanted increases as high as 50%, to compensate for years of moderate pay growth, but some were forced to settle for less after the government put the matter to an arbitration court. Icelanders, who work longer hours than their Nordic peers according to the OECD, are demanding a bigger share of the island’s economic recovery after eight years of belt-tightening.

Pay growth has barely kept pace with inflation, with real wages rising little more than 3% in the six years through 2014, statistics office figures show. Over the same period, real gross domestic product grew 29%. Viglundsson says wage growth above 25% through 2019 will have “very serious economic consequences.” “It will mean a surge in inflation, to which the central bank will respond by raising rates considerably,” he said. Iceland’s main policy rate is already above 6%, a developed-world record. “It will mean that, in the end, the krona will lose its value, like it has always done in the past under similar circumstances,” Viglundsson said.

Read more …

To bring democracy. And protect our freedom.

Obama Hands $1 Billion In Military Aid To Goverments Using Child Soldiers (CNN)

When the extremist group the Islamic State of Iraq and Syria (ISIS) abducts boys from Friday prayers at mosques or indoctrinates children as young as 10 to become fighters or suicide bombers, there is little the United States can do. But when recipients of U.S. military aid recruit children into their forces as soldiers, the United States has a lot of leverage. It is disappointing that the Obama administration has been reluctant to use it. This week, U.S. President Barack Obama is expected to make his annual announcement about the issue, on whether he will waive sanctions on military foreign aid under U.S. law for any of the eight governments currently on the State Department’s list for using child soldiers.

In 14 countries around the world, according to the United Nations, children are recruited and used in armed conflicts as informants, guards, porters, cooks, and often, as front-line armed combatants. In some, only non-state armed groups are responsible for the practice, but in others, the perpetrators are rebel forces and governments alike. In South Sudan, child recruitment spiked sharply last year, with estimates that 12,000 children were fighting with both government and non-state armed groups. In Yemen, where UNICEF has estimated that one-third of all fighters are under 18, all sides to the ongoing conflict, including the government, use child soldiers. Yet both governments have received millions of dollars in U.S. military assistance.

In 2008, Congress enacted a law based on two simple ideas: first, that U.S. tax dollars should not support the use of child soldiers, and second, that suspending U.S. military assistance could be a powerful incentive to prompt governments to end this reprehensible practice. The law, the Child Soldiers Prevention Act, took effect in 2010, restricting U.S. military support to governments using children in their armed forces. But the Obama administration’s implementation of the law has fallen far short of the law’s goals. Our analysis found that during the five years the law has been in effect, President Obama has invoked “national interest” waivers to authorize nearly $1 billion in military assistance and arms sales for countries that are still using child soldiers. In contrast, we found that only $35 million in military assistance and arms sales – a mere 4% of what was sanctionable under the law – was actually withheld from these abusive governments.

Read more …

Farrell may be on to something.

Millions Of Illegal Immigrants Will Overrun Trump’s ‘Beautiful Wall’ (Farrell)

Warning to the next president, to all future U.S. presidents: They’re coming. More illegal immigrants. More refugees. Millions more than conservatives fear are here already. Millions more coming, like Syrian refugees storming Europe. This warning is targeted specifically for a future President Donald Trump. You cannot stop them. Nobody can. They will overrun America, add trillions more debt. Brag all you want, this is one deal you will never, never negotiate successfully. Never win. Worse, you lose, we lose big.

Can’t win? No, not even if you’re bankrolled with unlimited funds, a blank-check from a GOP-controlled Congress and Treasury … not even if you win carte blanche clearance to build your “classy, beautiful” dream wall to your specs … build it extra high… superthick … not even if you staff it with thousands of well-armed special-ops soldiers … add new guard towers … patrolled by thousands of drones, sonar ships, nuclear subs … all to stop every illegal coming by aircraft, by boats, using battering rams, secretly entering through an ever-increasing vast underground network built by drug cartels … a near impenetrable system operating as an integrated high-tech network designed by our best minds to keep out the new flood of illegal immigrants that you so fear … it still won’t stop them.

Give it up you guys: Nobody can stop the coming tidal wave rising dead ahead. Not you, Mr. Next President, not Congress, nor any combination of our Armed Forces, FBI, ATF, CIA will ever stop the coming flood, a tsunami of illegals and refugees. Why? Because they’re escaping dying lands, doing what is natural, fighting, desperate, in survival mode, for themselves, their families, future generations, escaping climate-caused natural disasters, droughts, water and food shortages, starvation, genocide, pandemics, dust bowls, and so many more dark consequences of global warming climate change. Yes, all this is so obvious, so predictable. In the next few decades the same conditions that created the Syrian civil war between President Bashar al-Assad and his people will overwhelm the American southwest.

As climate change puts increasing pressure on the 160 million people in Mexico and Central America, millions of refugees and illegal immigrants will escape north into the United States, overrunning us by the end of this century. Of course, this human tsunami will not be understood by the clueless mind of America’s climate-science-denying GOP Congress held captive by Big Oil. Nor by the candidates in the GOP presidential debates. Worse, this would be a total fantasy to a GOP President Trump who’s sole obsession is a slogan “Make America Great Again” by building a “beautiful” wall to keep out illegal refugees. Except they’re all just making matters worse, delaying the inevitable collapse of America.

Read more …

Clean energy.

Farmers Driven From Homes ‘Like Pests’ As Asia Plans 500 Dams (Bloomberg)

Developing nations are in the middle of the biggest dam construction program in history to generate power, irrigate fields, store water and regulate flooding. Yet governments are finding it harder to move people, who have become less trusting of officials and more connected to information about the effects of the dams. Corruption and wrangles over payments have stalled projects from Indonesia to India for decades and frustrated governments are increasingly turning to the ultimate threat: Move, or we will flood you out. Jatigede is the latest example, and it is unlikely to be the last. Indonesia plans to build 65 dams in the next 4 years, 16 of which are under construction. India aims to erect about 230.

China is in the middle of a program to add at least 130 on rivers in the mountainous southwest and Tibetan plateau, including barriers across major rivers like the Mekong and Brahmaputra that flow into other countries. It is reported to have relocated people before inundating land. Like Jatigede, many are financed by Chinese banks and led by the nation s biggest dam builder, Sinohydro Corp. China is involved in constructing some 330 dams in 74 different countries, according to environmental lobbying group International Rivers, based in Berkeley, California. “Sending rising waters to flood out people like pests is barbaric”, said Professor Michael Cernea at the Brookings Institution. “Indonesia has the resources and know-how to resettle these people decently”.

“The relocation program is the responsibility of the government”, Sinohydro President Liang Jun said in an interview on Aug. 31 at the Jatigede dam. West Java governor Ahmad Heryawan said the dam will irrigate 90,000 hectares of land and provide water to Cirebon, a city of about 300,000 people on the northern coast of Java. At a ceremony on top of the dam on Aug. 31 to begin filling the reservoir, he acknowledged that not everyone had received compensation and that thousands remained in their homes. Those being relocated were “heroes of development, not victims”, he said. “We don t want them to suffer, we want to improve their welfare”. [..] Protests against dams have multiplied across Asia as activists mobilize residents and media against large projects and question their long-term benefits.

Indian Prime Minister Narendra Modi plans about 200 hydropower projects on the mountainous rivers in northeast India, as well as a program of 30 large dams that would help link major rivers across the country. “We are considering approvals for about 20 to 30 hydro and about 15 irrigation dam projects at the moment,” said Ashwinkumar Pandya, chairman of India’s Central Water Commission, which gives technical and economic clearances for dams. “Dams are an important aspect of planning and they ensure that water and power requirements for the nation are met.” “There is not a single dam – not a single one – for which India has done proper rehabilitation of people,” said Himanshu Thakkar at South Asia Network on Dams, Rivers and People. “And typically, all of them have seen costs escalate and delays in building.”

Read more …

Sep 012015
 
 September 1, 2015  Posted by at 9:15 am Finance Tagged with: , , , , , , , ,  4 Responses »


Jack Delano Colored drivers entrance, U.S. 1, NY Avenue, Washington, DC Jun 1940

European Efforts to Stem Migrant Tide Sow Chaos on Austria-Hungary Border (WSJ)
Trains Carrying Refugees Reach Germany As EU Asylum Checks Collapse (Reuters)
Hungary Shuts Down Rail Traffic For Westward-Bound Refugees (AP)
The Refugee Crisis Reveals What We Have Become (Martin Sandbu)
Icelanders Call On Government To Take In More Syrian Refugees (Guardian)
Preparing For A Potential Economic Collapse In October (Jeff Thomas)
China PMI Shrinks, Sending Stocks Lower (FT)
Beijing’s Incompetence Is Now China’s Biggest Problem (MarketWatch)
Why China Had To Crash Part 2 (Steve Keen)
China Encourages Cash Bonuses, Share Buybacks (Xinhua)
Why Is China Finding It Hard To Fight The Markets? (Bruegel)
China Reporter Confesses To Stoking Market ‘Panic And Disorder’ (FT)
SocGen: Half-Hearted Capital Controls Are Coming to China (Bloomberg)
China Has Lots of Treasuries, Not Much Leverage (Pesek)
China’s Wealthy Look To Raise Overseas Investments (FT)
Global Trade Damaged By Weakness In Emerging Market Currencies (FT)
Reflation Threat To Bonds As Money Supply Catches Fire In Europe (AEP)
The Dying Institutions Of Western Civilization (Paul Craig Roberts)
Up To 90% Of Seabirds Have Plastic In Their Guts (Guardian)

Merkel: egg on her face and blood on her hands.

European Efforts to Stem Migrant Tide Sow Chaos on Austria-Hungary Border (WSJ)

Austrian and Hungarian efforts to stem a growing tide of migrants sowed chaos along their frontier on Monday as Germany’s chancellor warned that Europe’s open-border policy was in danger unless it united in its response to the crisis. In Austria, police toughened controls on the border, triggering miles of traffic jams as they checked cars and trucks for evidence of people smuggling. They said they were compelled to conduct the highway searches after discovering the decomposed bodies of 71 people, most of them believed to be Syrian refugees, in an abandoned truck last week. Authorities also stopped and boarded several Germany-bound trains overcrowded with hundreds of migrants, refusing entry into Austria until some of them got off.

Migrants had packed into the trains in Hungary earlier in the day after officials in Budapest abruptly lifted rules barring them from traveling further into the European Union without visas. Such temporary checks remain in accord with the Schengen Agreement, which allows people to travel freely across the borders of 26 European countries that have signed onto the treaty. But in Berlin, German Chancellor Angela Merkel cautioned that some countries could move to reintroduce systematic passport controls at their borders—unless EU governments agreed to more equally bear the burden of the bloc’s escalating crisis, “Europe must move,” she told reporters in Berlin. “Some will certainly put Schengen on the agenda if we don’t succeed in achieving a fair distribution of refugees within Europe.”

Ms. Merkel’s warning—aimed at governments in the bloc’s east that have resisted taking on a greater number of migrants—marked her most direct intervention in the fraught debate between those European countries, such as Germany, Italy and France, that have called for a fairer distribution of migrants across the bloc, and those that have opposed binding quotas. The comments also came as a rebuttal to opposition politicians and some members of the chancellor’s ruling coalition who have accused her of being slow to address the crisis. Echoing comments she made last week in a German town shaken by three days of antimigrant riots, Ms. Merkel urged her compatriots to welcome those fleeing war or persecution while warning that economic migrants, namely those from Southeastern Europe, couldn’t expect to settle in Germany. “If Europe fails on the question of refugees, then [Europe’s] close link with universal civil rights will be destroyed and it won’t be the Europe we wished for,” she said.

Read more …

“Syrians call [Chancellor Angela] Merkel ‘Mama Merkel’..” Well, mama let some 20,000 of you drown.

Trains Carrying Refugees Reach Germany As EU Asylum Checks Collapse (Reuters)

Packed trains arrived in Austria and Germany from Hungary on Monday, as European Union asylum rules collapsed under the strain of an unprecedented migration crisis. As men, women and children – many fleeing Syria’s civil war – continued to arrive from the east, authorities let thousands of undocumented people travel on towards Germany, the favoured destination for many. The arrivals are a crisis for the European Union, which has eliminated border controls between 26 Schengen area states but requires asylum seekers to apply in the first EU country they reach. In line with EU rules, an Austrian police spokesman said only those who had not already requested asylum in Hungary would be allowed through, but the sheer pressure of numbers prevailed and trains were allowed to move on.

“Thank God nobody asked for a passport … No police, no problem,” said Khalil, 33, an English teacher from Kobani in Syria. His wife held their sick baby daughter, coughing and crying in her arms, at the Vienna station where police stood by as hundred of people raced to board trains for Germany. Khalil said he had bought train tickets in Budapest for Hamburg, northern Germany, where he felt sure of a better welcome after traipsing across the Balkans and Hungary. “Syrians call [Chancellor Angela] Merkel ‘Mama Merkel’,” he said, referring to the German leader’s relatively compassionate response so far to the crisis. Late on Monday, a train from Vienna to Hamburg was met in Passau, Germany, by police wearing bullet-proof vests, according to a Reuters witness.

Police entered the train and several passengers were asked to accompany them to be registered. About 40 people were seen on the platform. Police said they would be taken to a police station for registration. Merkel, whose country expects some 800,000 migrants this year, said the crisis could destroy the Schengen open borders accord if other EU countries did not take a greater share. “If we don’t succeed in fairly distributing refugees then of course the Schengen question will be on the agenda for many,” she told a news conference in Berlin. “We stand before a huge national challenge. That will be a central challenge not only for days or months but for a long period of time.”

Read more …

I changed migrants to refugees in the title. Getting really tired of this politically motivated misnomer.

Hungary Shuts Down Rail Traffic For Westward-Bound Refugees (AP)

Hungarian authorities are stopping all trains from leaving Budapest’s main train terminal in an effort to prevent migrants from using it to leave for Austria and Germany. An announcement over the station’s loudspeakers Tuesday said the measure would be in effect for an undetermined length of time. Scuffles broke out earlier in the morning among some of the hundreds of migrants as they pushed toward metal gates at the platform where a train was scheduled to leave for Vienna and Munich, and were blocked by police. Several say they spent hundreds of euros for tickets after police told them they would be allowed free passage. Police in Vienna say 3,650 migrants arrived from Hungary Monday at the city’s Westbahnhof station. They say most continued on toward Germany.

Read more …

Fat and stupid?

The Refugee Crisis Reveals What We Have Become (Martin Sandbu)

When Sir Nicholas Winton died in July, he was widely celebrated for a few days. Obituarists eulogised his work in rescuing Jewish children from Germany and central Europe just before the second world war. Then everyone went back to their everyday business. Few noted the contrast between Winton’s initiative and our own attitudes to the refugee crisis lapping Europe’s shores. Winton was a banker who, in 1938-39, bankrolled and managed part of what became known as the Kindertransport, by which some 10,000 mostly Jewish children were moved and admitted to the UK. The government was persuaded to waive immigration restrictions for the children (they had to leave their parents, most of whom would soon perish) if the rescue organisers promised to find housing and guarantee funds for repatriating the children later.

There is no comparison today with the Holocaust. But last week’s mass deaths in capsized boats and an abandoned lorry show the risks hundreds of thousands of families are prepared to take for a journey they find preferable to the desperation they flee. Children are in large numbers among them: more than a quarter of those applying for asylum in Europe last year were minors, and almost one-fifth less than 14 years old. The two most welcoming countries in Europe are Germany and Sweden. Berlin is preparing for some 800,000 asylum applications this year, 1% of its population and four times more than last year. Even in 2014, Germany received and granted more than 25% of all asylum applications in the EU, far above its population share.

Sweden, with just 2% of the EU’s population, last year accounted for 13% of all applications and 18% of all successful ones. Twentieth-century history gives possible explanations for why these two countries stand out. Germany was responsible for the second world war and much of the country’s current openness to refugees can be attributed to a sense of historic responsibility. Sweden was one of very few European countries to pass through the war relatively unscathed. (Switzerland, too, accepted a disproportionate share of refugees last year, though at only half Sweden’s rate.) Most of the others, however, are twisting themselves into contortions to avoid letting people in. It is hard to banish the thought that guilt motivates determined action, and empathy does not.

Read more …

“Refugees are our future spouses, best friends, or soulmates, the drummer for the band of our children, our next colleague, Miss Iceland in 2022, the carpenter who finally finished the bathroom, the cook in the cafeteria, the fireman, the computer genius, or the television host.”

Icelanders Call On Government To Take In More Syrian Refugees (Guardian)

Thousands of Icelanders have called on their government to take in more Syrian refugees – with many offering to house them in their own homes and give them language lessons. Iceland, which has a population of just over 300,000, has currently capped the number of refugees it accepts at 50. Author and professor Bryndis Bjorgvinsdottir put out a call on Facebook on Sunday asking for Icelanders to speak out if they wanted the government to do more to help those fleeing Syria. More than 12,000 people have responded to her Facebook group “Syria is calling” to sign an open letter to their welfare minister, Eyglo Hardar.

“Refugees are human resources, they have experience and skills”, the letter said. “Refugees are our future spouses, best friends, or soulmates, the drummer for the band of our children, our next colleague, Miss Iceland in 2022, the carpenter who finally finished the bathroom, the cook in the cafeteria, the fireman, the computer genius, or the television host.”

Many of those posting on the group have said they would offer up their homes and skills to help refugees integrate. “I have clothing, kitchenware, bed and a room in Hvanneyri [western Iceland], which I am happy to share with Syrians”, one wrote. I would like to work as a volunteer to help welcome people and assist them with adapting to Icelandic society. “I want to help one displaced family have the chance to live the carefree life that I do”, another wrote. “We as a family are willing to provide the refugees with temporary housing near Egilsstadir [eastern Iceland], clothing and other assistance. I am a teacher and I can help children with their learning.”

Read more …

True, October has a bad reputation when it comes to markets.

Preparing For A Potential Economic Collapse In October (Jeff Thomas)

There’s no question that the world economy has been shaky at best since the crash of 2008. Yet, politicians, central banks, et al., have, since then, regularly announced that “things are picking up.” One year, we hear an announcement of “green shoots.” The next year, we hear an announcement of “shovel-ready jobs.” And yet, year after year, we witness the continued economic slump. Few dare call it a depression, but, if a depression can be defined as “a period of time in which most people’s standard of living drops significantly,” a depression it is. Many people are surprised that no amount of stimulus and low interest rates have resulted in creating more jobs or more productivity.

Were they a bit more cognizant of the simple, understandable principles of classical economics (as opposed to the complex theoretical principles of Keynesian invention), they’d recognise that, when debt reaches the level that it cannot be repaid, a major re-set of some sort must take place. The major economies of the world have reached and exceeded that point and the debt problem is no mere anomaly that can be papered over. It is, instead, systemic. There must be a major forgiveness of debt, a default, or an economic collapse, or some combination of the three. And so, those who recognise the inevitability of such an event have been storing their nuts away in preparation for an economic winter.

Those of us who warned of the 2008 crash in advance had been regarded as economic “Chicken Littles.” After the crash, we were largely resented as having made a “lucky guess.” Following that time, a moderate amount of credence has been allowed us, as we’ve recommended investments in real estate and precious metals (outside of those jurisdictions that are most at risk). However, since the Great Gold Correction (2011-2015), that begrudging credence has worn away and been replaced with renewed contempt. To the naysayers, the 2001-2011 gold boom has been relegated to the investment dustbin and, to most punters, gold is clearly “over.”

Just as importantly, the most significant events of the “Greater Depression” that we had been predicting have clearly not yet come to pass. They’re still ahead of us. And, in this, we must confess that those of us who made this prediction did unquestionably believe that it would have taken place by now. We were wrong. Or at least we were wrong on the timing, but most of us still believe, more than ever, in the inevitability of a collapse (again, this is true because the problem is systemic, not symptomatic). All of the above is a preface of the coming of October, a month which, historically, has seen more than its fair share of negative economic events. This time around, there are warning signs aplenty that, sometime around October of this year, we shall see a number of black swans on the wing, headed our way.

Read more …

Shanghai is the gift that keeps on giving.

China PMI Shrinks, Sending Stocks Lower (FT)

Activity in China’s manufacturing sector contracted at its fastest pace in three years, sending shares down and exacerbating fears about a China slowdown that have roiled global markets. The official Purchasing Managers’ Index (PMI) fell to 49.7 in August from the previous month’s reading of 50, the first time since February that the bellwether figure for large industrial enterprises has fallen below 50 — the level that separates expansion from contraction. The reading backs up the earlier Caixin flash PMI, representing a group of private sector and small and medium enterprises, which fell to 47.1 in August, from the final reading of 47.8 in July. China’s stock markets spiralled as much as 5.8% lower after the data, but pared back losses later.

The Shanghai Composite Index was down 1.1% at the lunchtime close while Shenzhen had fallen 2.9%. Wang Tao, chief China economist at UBS, said the reading showed the persistence of downward pressure on growth — a pressure that has triggered a flurry of supportive measures from Beijing, dented stock markets around the world and sent emerging market currencies into a swoon. “This is why the [Chinese] government has intensified policy support recently, announcing plans to bring forward some key infrastructure projects, ways to fund them, and another marginal easing for property purchase in the past couple of days,” said Ms Wang. China’s central bank cut interest rates last week and said it would inject liquidity into the banking sector, in a move to stimulate the slowing economy and stem a slide in share prices that has rattled global investors.

Read more …

It has been for many years.

Beijing’s Incompetence Is Now China’s Biggest Problem (MarketWatch)

For much of the summer, global markets have been able to carry on with a detached bemusement at Beijing’s fumbled handling of its stock market burst. But after last week’s “Black Monday” plunge in Shanghai stocks triggered a global equity selloff, suddenly the policy competence of China’s leaders matters to everyone from London to New York. As Beijing lurches between intervening to support its stock market and currency peg, while blaming everyone from the Federal Reserve to rogue brokers for the selloff, the enduring casualty has been confidence. The veil of omnipotence of President Xi Jinping’s government and the “exceptionalism” of China’s economy has been well and truly lifted.

Where once there was the “Beijing put” and policy certainty, now there is a wall of questions as market forces nibble away at China’s model of state-led capitalism. If China’s debt, equity and property markets — together with its currency — are finally marked to market, it could be quite a reckoning. Daiwa Research warns, “The debate for China is no longer between realizing a soft landing or a hard one. It is now between a hard landing and a financial crisis.” Other analysts are also flagging the risk of the equity rout snowballing into something much bigger. Credit Suisse says that because state banks were the main source of lending that financed the last round of stock purchases, intervention may pose a threat to financial stability.

The decision to mobilize the state to support a stock market that had been propelled to bubble highs through massive margin financing, always looked foolhardy, in that its chance of success were limited from the start. Beijing also failed to realize that by effectively becoming the only buyer, it has reduced investing in equities to a binary bet on when the government was buying or not. Last Monday’s plunge was attributed to rumors Beijing had capitulated in its stock-support efforts. The subsequent rebound from Thursday afternoon suggested the “national team” of state-owned investment funds was back in the market. But now once again it is believed state buying may be over after a $200 billion spend in recent weeks, according to a new report in the Financial Times. This suggests more extreme volatility lies ahead.

Read more …

“Cherchez La Debt!”

Why China Had To Crash Part 2 (Steve Keen)

One thing my 28 years as a card-carrying economist have taught me is that conventional economic theory is the best guide to what is likely to happen in the economy. Read whatever it advises or predicts, and then advise or expect the opposite. You (almost) can’t go wrong. Nowhere is this more obvious than in its strident assurances that the value of shares is unaffected by the level of debt taken on, either by the firms themselves or by the speculators who have purchased them. This theory, known as the “Modigliani-Miller theorem”, asserted that since a debt-free company could be purchased by a highly levered speculator, or a debt-laden company could be purchased by a debt-free speculator, therefore (under the usual host of Neoclassical “simplifying assumptions”, which are better described as fantasies) the level of leverage of neither firm nor speculator had any impact on a firm’s value—and hence its share price.

The sole determinant of the share price, it argued, was the rationally discounted value of the firm’s expected future cash flows. Armed with that theorem, I was always confident of the contrary assertion: that debt played a crucial role in determining stock prices. So, like the fictional 19th century French detective who began every investigation with the cry “Cherchez La Femme!”, my first port of call in understanding any stock market bubble is “Cherchez La Debt!”. It took a while to locate Shanghai’s margin debt data (the easier to find stock index data is here), but once I plotted it, the reliability of my trusty old contrarian indicator was obvious. While these figures may well substantially understate the actual level of margin debt [see also here], they imply that, starting at the truly negligible level of 0.000014% of China’s GDP in early 2010, margin debt rose to over 2% of China’s GDP at its peak in June of this year. It has since plunged to just under 1% of GDP—see Figure 1.

Figure 1: Margin debt as a percent of China’s GDP: from 0.000014% to 2% in 5 years–and back down again

The ups and downs of margin debt have both paralleled and driven the stock market boom and bust in China: as the leverage of speculators rose and fell, so did the market—see Figure 2.

Figure 2: A debt bubble begets a stock market bubble

Read more …

Hey, it worked for Apple until it didn’t…

China Encourages Cash Bonuses, Share Buybacks (Xinhua)

China issued a notice Monday encouraging mergers, cash bonuses and share repurchases by listed companies as part of its efforts to push forward reforms of state-owned enterprises and promote the steady and healthy development of the capital market. The notice was jointly announced by China Securities Regulatory Commission, Ministry of Finance, State-owned Assets Supervision and Administration Commission of the State Council and China Banking Regulatory Commission. The notice took effect Monday. The value of mergers and acquisitions (M&A) among listed companies totaled nearly 1.27 trillion yuan (198.77 billion U.S. dollars) in the first seven months this year, accounting for 87.5% of the overall value registered last year.

The notice also encouraged cash bonuses among listed companies. State-controlled listed companies took the lead, accounting for 76.9% of the total cash bonuses made in 2014. As an important way to repay investors, listed companies should repurchase their shares in due time, said the notice. Of the entire share repurchases published by the Shanghai and Shenzhen bourses since July this year, 72.8% were made by state-controlled listed companies. The notice also vowed to push forward market-oriented reforms and further cut red tape in order to facilitate the implementation of mergers, cash bonuses and share repurchases.

Read more …

Good evaluation, good graphs.

Why Is China Finding It Hard To Fight The Markets? (Bruegel)

China’s market drama started in June this year with the collapse of the Shanghai stock exchange, followed by frantic interventions by the Chinese authorities. As if the estimated $200 billion already spent on propping up stock prices were not enough, China found itself in another battle with the market, defending the RMB against depreciation pressures after the PBoC devalued the RMB by nearly 2% on August 11. The cost of the foreign exchange intervention to keep the RMB stable is estimated at $200 billion.This adds to existing pressures on China’s international reserves, which though still extensive, have been reduced by as much as $345 billion in the last year, notwithstanding China’s still large current account surplus and still positive net inflows of foreign direct investment (Graph 1).

The fall in reserves is not so much due to foreign investors fleeing from China but, rather, capital flight from Chinese residents. Another –more positive reason – for the fall in reserves is that Chinese banks and corporations, which had borrowed large amounts from abroad in the expectation of an ever appreciating RMB, finally started to redeem part of their USD funding while increasing it onshore. While this is certainly good news in light of the recent RMB depreciation, the question remains as to how much USD debt Chinese banks and corporations still hold and, more generally, how leveraged they really are a time when the markets may become much less complacent, at least internationally.

Public and corporate sector over-borrowing can be traced back to the huge stimulus package and lax monetary policies which Chinese economic authorities introduced during the global financial crisis in 2008-2009. A RMB 4 trillion investment plan focusing on infrastructure was deployed, but the real cost spiralled. The government also subsidized the development of several important industries and lowered mortgage rates to boost housing demand. At the same time, the PBoC substantially loosened monetary policy with interest rate cuts, reductions in reserve requirements and even very aggressive credit targets for banks. According to the authorities’ initial plan, the funds needed for the stimulus package would come from three sources: central government, local governments, and banks, with costs shared relatively equally.

However in practice, given their limited fiscal capacity, local governments had to turn to banks to meet their borrowing needs. Banks could not decline loan requests from central or local government because of government ownership and control over most banks. In the meantime, government subsidies for specific industries boosted credit demand as firms in these sectors sought to take advantage of policy support and expand their production capacity. Mini-stimulus packages have since become the new norm of China’s economic policy. When growth started to slow in 2012, the authorities responded by rolling out more infrastructure projects to revive the economy, which has blotted China’s consolidated deficits every year since 2008. Although no official statistics exist on this, our best estimate is 8-10% fiscal deficits with the corresponding increase in public debt every year.

Read more …

Are we sure this is not from the Onion?

China Reporter Confesses To Stoking Market ‘Panic And Disorder’ (FT)

A leading journalist at one of China s top financial publications has admitted to causing panic and disorder in the stock market, in a public confession carried on state television. The detention of Wang Xiaolu, a reporter for Caijing magazine, comes amid a broad crackdown on the role of the media in the slump in China’s stock market, which is down about 40% from its June 12 peak. Nearly 200 people have been punished for online rumour-mongering, state news agency Xinhua reported at the weekend. “I acquired the news from private conversations, which is an abnormal way, and added my personal judgment and subjective views to finish this story, said Mr Wang in a confession aired on China Central Television. I shouldn’t have released a report with a major negative impact on the market at such a sensitive time. I shouldn’t do that just to catch attention which has caused the country and its investors such a big loss. I regret . . . [it and am] willing to confess my crime.”

Mr Wang’s confession came after he was detained for allegedly fabricating and spreading false information about the stock market, according to Xinhua. High quality global journalism requires investment. State TV channels in China frequently broadcast public confessions in high-profile cases. CCTV on Monday also aired a confession by Liu Shufan, an official of market watchdog the China Securities Regulatory Commission, and reported that four senior executives of investment bank Citic Securities had confessed to insider trading. The state broadcaster showed Mr Liu confessing to market-related crimes including insider trading. The wider clampdown has also targeted those spreading online rumours about the recent fatal explosions in Tianjin and “other key events”. According to Xinhua’s report, crimes punished include claiming a man had jumped to his death in Beijing because of the stock market slump.

Read more …

Capital outflows is yet another losing wager for Beijing.

SocGen: Half-Hearted Capital Controls Are Coming to China (Bloomberg)

It’s a tough time to be a Chinese policymaker. Obvious overcapacity in industrial sectors forced the world’s second-largest economy to shift to a more consumer-oriented growth model. Maintaining an elevated currency was conducive to this goal, as it boosted the purchasing power of Chinese citizens. But the yuan’s peg to the U.S. dollar constituted an effective tightening of financial conditions as the greenback soared, despite a deterioration in the Chinese growth outlook. Even with continued current account surpluses, the currency appreciation was also beginning to hamper Chinese competitiveness in an environment in which external demand remains lackluster. Meanwhile, the liberalization of China’s capital account over the past five years provided a conduit for market forces to exert greater pressure on the exchange rate.

The manner by which the People’s Bank of China has been able to maintain an overvalued yuan—by intervening in foreign exchange markets—effectively dried up domestic liquidity, which serves as a rising potential vulnerability for the economy in light of China’s dependence on cheap credit for growth. When policymakers moved to devalue the yuan, market turmoil soon ensued—and China’s fingerprints were all over some of the bizarre moves that occurred in equities and fixed income last week. How Chinese policymakers elect to manage the currency in the face of continued capital outflows will likely play an outsize role in determining whether the current respite from market volatility will endure or prove to be the eye of the hurricane.

Société Générale China economist Wei Yao thinks Chinese policymakers will take a measured approach to solving this conundrum—allowing the currency to depreciate in a controlled manner while placing more restrictions on the flow of capital out of the country. Yao notes that in this discussion, it’s important to distinguish which variable is the dog and which is the tail. “The total size of capital outflows, among other factors, is mathematically a function of the PBoC’s choice of currency policy, not the other way around,” she writes. “That is, total capital outflows equal the current account surplus plus the amount of FX reserves that the PBoC is willing to sell based its target for the RMB relative to the market’s view.”

Read more …

Depends on what kind of leverage you mean.

China Has Lots of Treasuries, Not Much Leverage (Pesek)

In recent years, China’s relationship with the U.S. has resembled nothing so much as a hostage situation. Beijing’s enormous holdings of Treasuries gave it immense leverage over Washington, which lived in perpetual fear of China choosing to not finance any new debt, or sell off its current holdings. That worst-case scenario is closer than ever to becoming a reality – or so say the Republicans who are vying for their party’s presidential nomination. But one important point has escaped Donald Trump and company: If the dynamic between China and the U.S. is still a hostage scenario, the roles have been reversed. Beijing has been trimming its holdings of Treasuries in recent months in order to prop up the yuan.

Over the past year, its overall foreign-exchange reserves have fallen by about $315 billion to $3.7 trillion. But the scale of these sales have been relatively modest. And there are at least three reasons that a more massive Chinese selloff of Treasuries is exceedingly unlikely. The first reason is China’s rickety economy. It has always been true that if Beijing dumped hundreds of billions of dollars of Treasuries, U.S. yields would skyrocket and devastate the key market to which China ships its goods. In 2004, former U.S. Treasury Secretary Lawrence Summers warned about relying on this dynamic to ensure stability for the long term: “It surely cannot be prudent for us as a country to rely on a kind of balance of financial terror to hold back reserve sales that would threaten our stability.”

But as Summers also pointed out, the arrangement “is a reason a prudent person would avoid immediate concern.” That’s especially true in the current economic environment, as Chinese growth sputters and traders begin to short Shanghai stocks. China needs every growth engine it can muster. And that means enticing U.S. consumers to spend by ensuring their government enjoys low interest rates. The second reason China will hesitate to sell off Treasuries is Japan. Beijing knows that if it ends its unique relationship with the U.S., Tokyo would gladly step in to take its place. With about $1.2 trillion of Treasuries, Japan is already only marginally behind China in the dollar-leverage department. And two of Prime Minister Shinzo Abe’s signature policies are especially relevant in this context: keeping the yen weak and Barack Obama happy.

Read more …

Why not let them purchase your neighborhood too with monopoly money? What could go wrong?

China’s Wealthy Look To Raise Overseas Investments (FT)

China’s wobbly response to the bursting of its stock market bubble, the sudden devaluation of the renminbi and the mystery over the true health of the country’s economy continue to spook investors, large and small. But China’s wealthiest people know exactly what to do in these bewildering times: get some of their money out. More than 60% of wealthy Chinese people surveyed in July by FT Confidential, an investment research service at the FT, said they planned to increase their overseas holdings in the coming two years. Residential property was the most popular future investment, followed by fixed-income securities, commercial property, trust products and life insurance policies.

A significant proportion of China’s wealthy are self-made business people who have managed to profit from the nation’s economic expansion — a phenomenon that has led to massive inflows of foreign investment into China. FT Confidential identified and polled 77 wealthy individuals, divided into two groups: those with Rmb6m ($941,000) or more to invest, and a so-called “mass affluent” group with Rmb600,000-Rmb6m. An attempted rebalancing of the economy away from investment and towards greater consumption has dealt a blow to many once highly lucrative industries such as energy and low-end manufacturing, putting business owners under stress as profits have fallen.

The high-level anti-graft campaign kicked off by President Xi Jinping is making the problem worse as private bosses scramble to adjust their relationships with the government – key to their business success. With uncertainty rising at home, China’s rich have started looking elsewhere to store their wealth. “China’s policy changes so quickly,” said a businessman in Shenzhen who would only give his name as Mr Huang. “I am worried about the safety of my wealth.” The July stock market rout in Shanghai and the policy dilemma it has thrown up is likely to have underlined those concerns. The survey found that 47% of so-called high net worth individuals had earmarked more than 30% of their assets for investment overseas. The US was the preferred destination for 42% of respondents.

Read more …

No, that should read ‘damaged by central bankers’ incompetence and/or criminal actions’.

Global Trade Damaged By Weakness In Emerging Market Currencies (FT)

Weakness in emerging market currencies is hurting global trade by reducing imports without any benefit to export volumes, according to FT research based on more than 100 countries. The findings suggest any currency war between developing nations is likely to be even more damaging than previously thought, leading to a reduction in global trade and possibly economic growth, rather than just reapportioning a fixed level of trade between “winners” and “losers”. The analysis coincides with concerns that some countries are engaging in competitive devaluations in order to undercut their neighbours and steal market share. “We risk slipping into a beggar thy neighbour, competitive spiral of currency devaluations, with all the currency overshoots and volatility that go with that,” said Mohamed El-Erian.

Since June 2014, the currencies of Russia, Colombia, Brazil, Turkey, Mexico and Chile have fallen by between 20% and 50% against the dollar, while the Malaysian ringgit and Indonesian rupiah are at their weakest since the Asian financial crisis of 1998.\ China, which had held the renminbi firm against the dollar until this month, has since allowed it to fall 4.5%, triggering a further wave of currency weakness across emerging markets. The FT compared changes in the value of 107 emerging market countries’ currencies with their trade volumes in the following year.

The analysis found that having a weaker currency did not lead to any rise in export volumes. However, it did lead to a fall in import volumes of about 0.5% for every 1% a currency depreciated against the dollar. A fall in the value of a country’s currency pushes up the price of imports, leading to lower demand for imported goods. Brazilian import volumes for the past three months, for example, are falling at a pace of 13% year-on-year, according to estimates from Capital Economics, following a 37% collapse in the real over the past 12 months. Russia, South Africa and Venezuela have also seen imports fall in the wake of plummeting currencies.

Read more …

Well, uh, no, Ambrose. No matter how much Europe inflates its money supply, if people don’t spend, there’ll be no reflation or inflation. Spending is the crucial factor. Velocity of money.

Reflation Threat To Bonds As Money Supply Catches Fire In Europe (AEP)

Eurozone money supply is surging at a blistering pace as stimulus gains traction, signalling a powerful economic recovery over coming months and raising the risk of a mjaor sell-off in bond markets. The growth of narrow M1 money surged to 12.1pc in July, higher than the peak levels seen a decade ago when the EMU credit boom was reaching a crescendo. Such explosive rates of growth are usually associated with over-heating. The M1 figures cover cash and current accounts. They are watched closely by monetarists for clues of future spending and economic vigour six months or so ahead. The surge is the clearest evidence so far that zero interest rates and €60bn of asset purchases each month by the ECB are starting to ignite the eurozone’s damp kindling wood.

Doubts are growing over whether the ECB really can keep going with quantitative easing at the current blistering pace. “It is full steam ahead. I don’t see how they can continue to do QE until September (2016),” said Simon Ward from Henderson Global Investors. “It will be clear by early next year that there is a lot more life in the eurozone economy than people think. The bond markets are going to be vulnerable,” he said. The yields on Europe’s sovereign bonds are still at historic lows, priced for depression as far as they eye can see. Two-year yields are negative in 14 countries, including Ireland, Slovenia, Latvia and the Czech Republic. Ten-year yields are 1.09pc in France, 0.74pc in Germany and -0.17pc in Switzerland. Any sign that growth is picking up and that the “output gap” is closing faster than expected in these countries could lead to a spike in yields, and potentially a full-blown bond rout.

The eurozone’s broader M3 measure of the money supply is growing more slowly than M1 but has reached a post-Lehman high of 5.3pc. Private sector lending is coming back from the dead after three years of outright contraction. Loans to households rose by 1.9pc. Demand for housing loans and consumer credit is rocketing, surpassing levels reached at the height of the previous boom. The ECB is in no hurry to wind down QE. Vice-president Vitor Constancio raised eyebrows this week with hints that Frankfurt might actually increase the dosage if needed to stop inflation falling too low, or to avert further fall-out from trouble in China. “The Governing Council stands ready to use all the instruments available within its mandate to respond to any material change to the outlook for price stability,” he said.

Neil Mellor, from BNY Mellon, said the ECB risks a policy mistake by keeping the taps on too long to meet its inflation target. “There is a risk that this will end in asset price inflation, and we should have learned from 2008 how much damage asset booms can do,” he said. The inflation price data have been distorted by the slump in oil and commodity prices over the past year. Modern central banks usually take the view that such “positive supply shocks” increase spending power and are therefore benign.

Read more …

Could have read The Dying Constitutions.

The Dying Institutions Of Western Civilization (Paul Craig Roberts)

The US no longer has a judiciary. This former branch of government has transitioned into an enabler of executive branch fascism. Privacy is a civil liberty protected by the US Constitution. The Constitution relies on courts to enforce its prohibitions against intrusive government, but if the executive branch claims (no proof required) “national security,” courts kiss the Constitution good-bye. Federal judges are chosen by the executive branch. The senate can refuse to confirm, but that is rare. The executive branch chooses judges who are friendly to executive power. This is especially the case for the appeals courts and the Supreme Court. The Justice (sic) Department keeps tabs on district court judges who rule against the government, and these judges don’t make it to the higher courts. The result over time is to erode civil liberty.

Recently a three-judge panel of the US Appeals Court for the District of Columbia ruled that the National Security Agency can continue its mass surveillance of the US population without showing cause. The panel avoided the constitutional question by ruling on procedural terms that NSA had a right to withhold the information that would prove the plaintiffs’ case. By refusing to extend the section of the USA PATRIOT Act—a name that puts a patriotic sheen on Orwellian totalitarianism—that gave carte blanche to the NSA and by passing the USA Freedom Act, Congress attempted to give NSA’s spying a constitutional patina. The USA Freedom Act allows the telecom companies to spy on us and collect all of our communications data and for NSA to access the data by obtaining a warrant from the Foreign Intelligence Surveillance Act (FISA) Court.

The Freedom Act protects constitutional procedures by requiring NSA to go through the motions, but it does not prevent telecom companies from invading our privacy in behalf of NSA. No one has ever explained the supposed threat that American citizens pose to themselves that requires all of their communications to be collected and stored by Big Brother. If the US Constitution was respected by the executive branch, Congress, the judiciary, law schools and bar associations, there would have been a public discussion about whether Americans are most threatened by the supposed threat that requires universal surveillance or by the loss of their constitutional protections. We all know what our Founding Fathers’ answer would be.

Read more …

Feel proud of yourself?

Up To 90% Of Seabirds Have Plastic In Their Guts (Guardian)

As many as nine out of 10 of the world’s seabirds are likely to have pieces of plastic in their guts, a new study estimates. An Australian team of scientists who have studied birds and marine debris found that far more seabirds were affected than the previous estimate of 29%. Their results were published in the journal Proceedings of the National Academy of Sciences. “It’s pretty astronomical,” said study coauthor Denise Hardesty, a senior research scientist at the CSIRO. She said the problem with plastics in the ocean was increasing as the world made more of it. “In the next 11 years we will make as much plastic as has been made since industrial plastic production began in the 1950s.”

Birds mistook plastic bits for fish eggs so “they think they’re getting a proper meal but they’re really getting a plastic meal”, Hardesty said. Some species of albatross and shearwaters seem to be the most prone to eating plastic pieces. She combined computer simulations of garbage and the birds, as well as their eating habits, to see where the worst problems are. Hardesty’s work found the biggest problem was not where there was the most garbage, such as the infamous patch in the central north Pacific Ocean. Instead it was in areas with the greatest number of different species, especially in the southern hemisphere near Australia and New Zealand. Areas around North America and Europe were better off, she said.

By reducing plastic pellets Europe was seeing less of it in one key bird, the northern fulmar. Hardesty said she had seen an entire glowstick and three balloons in a single short-tailed shearwater bird. “I have seen everything from cigarette lighters … to bottle caps to model cars. I’ve found toys,” Hardesty said. And it is only likely to get worse. By 2050, 99% of seabirds will have plastic in them, Hardesty’s computer model forecasts. That prediction “seems astonishingly high but probably not unrealistic”, said American University environmental scientist Kiho Kim, who wasn’t part of the study but praised it.

Read more …

Jun 112015
 
 June 11, 2015  Posted by at 10:02 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle June 11 2015


Russell Lee Store, La Forge, Missouri 1938

Bond Crash Across The World As Deflation Trade Goes Horribly Wrong (AEP)
Janet Yellen Gives Asia the Jitters (William Pesek)
MSCI Backs Itself Into Corner On China Share Inclusion (Reuters)
China Approves Another 1 Trillion Yuan Local Debt Swap (WSJ)
Greece is Playing an Ultimatum Game (Bloomberg)
Markets Surge On Rumours Of German Compromise On Greece (Guardian)
Germany Against 3rd Greek Bailout Under Any Circumstances: BILD (Reuters)
IMF’s ‘Never Again’ Experience In Greece May Get Worse (Reuters)
Ruling On Pension Cuts Will Cost Greek State €1.5 Billion (Kathimerini)
Growth, What Growth? Thatcherism Fails To Produce The Goods (Guardian)
Iceland’s Economy Recovered After It Jailed Bankers And Let Banks Go Bust (Ind.)
Iceland: The Economy That Came In From The Cold? (Independent)
The New Currency Trade: Short The Kiwi (CNBC)
Trends Show Crowdfunding To Surpass Venture Capital in 2016 (Forbes)
The Microfinance Delusion: Who Really Wins? (Hickel)
US Shifts Stance on Big Pharma in TPP Talks (NY Times)
TTIP Vote Postponed As European Parliament Descends Into Panic (Independent)
Maybe WWIII Won’t Occur, But The Damages Are Already Horrible (Zuesse)
US Draws EU Into Russia Crusade, Against Our Interests – Ex-French PM (RT)
Poll Highlights Divisions Among Public On Tackling Ukraine Crisis (RT)
Why Our Brains Don’t Process The Gravest Threats To Humanity (Brian Merchant)

Long term, the threat of inflation is non-existent. Money supply can be artificially lifted, but spending can not.

Bond Crash Across The World As Deflation Trade Goes Horribly Wrong (AEP)

The global deflation trade is unwinding with a vengeance. Yields on 10-year Bunds blew through 1pc today, spearheading a violent repricing of credit across the world. The scale is starting to match the ‘taper tantrum’ of mid-2013 when the US Federal Reserve issued its first gentle warning that quantitative easing would not last forever, and that the long-feared inflexion point was nearing in the international monetary cycle. Paper losses over the last three months have reached $1.2 trillion. Yields have jumped by 175 basis points in Indonesia, 160 in South Africa, 150 in Turkey, 130 in Mexico, and 80 in Australia. The epicentre is in the eurozone as the “QE” bet goes horribly wrong. Bund yields hit 1.05pc this morning before falling back in wild trading, up 100 basis points since March. French, Italian, and Spanish yields have moved in lockstep.

A parallel drama is unfolding in America where the Pimco Total Return Fund has just revealed that it slashed its holdings of US debt to 8.5pc of total assets in May, from 23.4pc a month earlier. This sort of move in the staid fixed income markets is exceedingly rare. The 10-year US Treasury yield – still the global benchmark price of money – has jumped 48 points to 2.47pc in eight trading sessions. “It is capitulation out there, and a lot of pain,” said Marc Ostwald from ADM. The bond crash has been an accident waiting to happen for months. Money supply aggregates have been surging all this year in Europe and the US, setting a trap for a small army of hedge funds and ‘prop desks’ trying to squeeze a few last drops out of a spent deflation trade. “We we’re too dogmatic,” confessed one bond trader at RBS.

Data collected by Gabriel Stein at Oxford Economics shows that ‘narrow’ M1 money in the eurozone has been growing at a rate of 16.2pc (annualized) over the last six months. You do not have to be monetarist expert to see the glaring anomaly. Broader M3 money has been rising at an 8.4pc rate on the same measure, a pace not seen since 2008. Economic historians will one day ask how it was possible for €2 trillion of eurozone bonds – a third of the government bond market – to have been trading at negative yields in the early spring of 2015 even as the reflation hammer was already coming down with crushing force. “It was the greater fool theory. They always thought there would be some other sucker to buy at an even higher price. Now we are returning to sanity,” said Mr Stein.

Read more …

But setting up emerging markers for huge losses is something Wall Street can reap huge profits from.

Janet Yellen Gives Asia the Jitters (William Pesek)

Janet Yellen probably doesn’t think about Bangkok, Jakarta or Manila very often – the Federal Reserve chair has enough to worry about in Washington. But as she continues to ponder hiking interest rates, the frenetic selloffs in stock markets on the other side of the world should give her pause. Stock exchanges in emerging markets are on their longest losing streak since 1990; since a late-April high, the MSCI Southeast Asia Index has lost almost 9%. If Yellen is wondering whether the developing world is ready for a tightening of U.S. monetary policy, the answer from Asia has been a resounding no. Late last year, a tightening of 25 basis-points would probably not have posed any problems.

But, in the interim, China’s slowdown has darkened the global economic outlook (even as its own equity bourses continue to skyrocket). Selloffs in Indonesia, Malaysia, the Philippines, Thailand and elsewhere speak to the growing anxiety about the two biggest actors in the global economy. The most immediate worry is the trade shock emanating from China. Massive share rallies in Shanghai and Shenzhen are papering over a growing number of economic cracks in China, including deflation and weak household spending. Despite government pledges to achieve 7% growth, sliding commodity prices suggests Chinese growth is decelerating.

And MSCI’s decision not to include China in its indices is a reminder that Asia has been hitching its future on an economy that isn’t yet ready for prime time. Asia also worries that China’s problems will be exacerbated by the Fed. Monetary purists will be tempted to dismiss the argument out of hand – the Fed should focus on keeping the U.S. economy stable and healthy, because that’s ultimately in the best interests of everyone from Seoul to Sao Paulo. What this line of thinking misses, though, are the feedback effects created by Fed policy. As the dollar rises, it draws money away from the developing world – often violently so. Consider how a strong dollar helped precipitate Asia’s 1997-1998 crisis and Latin America’s a decade earlier.

Read more …

Well, it protects China’s grandmas from even bigger losses.

MSCI Backs Itself Into Corner On China Share Inclusion (Reuters)

MSCI’s decision to defer including Chinese shares in its emerging market benchmark share indexes for a second time may have trapped the index provider into making promises it can’t keep, both to Beijing and to its investor constituents. While both MSCI and Chinese state media spun the decision as a speed bump on the way to inevitable inclusion, which will allow and in some cases require foreign funds to buy into Chinese stocks, the agendas of Chinese bureaucrats and foreign institutional investors are much further apart than they seem. “With this announcement (MSCI has) further hemmed themselves in, as they’ve outlined exactly what China needs to do. And if China satisfies them, they’ll be within their rights to ask why MSCI hasn’t lived up to its side of the bargain,” said one source familiar with MSCI’s strategy.

MSCI’s says the process requires time. “It wouldn’t be a negative, it would simply be the recognition that this process needs to take its own pace,” said Remy Briand, MSCI managing director and global head of research, when asked whether there could be fallout for the company if it finds itself delaying inclusion again next year. The changes foreign fund managers want are not minor tweaks. MSCI’s clients want Beijing to open its capital accounts so they can reliably move their money in and out of China’s markets, but the economy is facing its slowest growth in decades, which has led to capital flowing out of the country.

Read more …

Is it QE? It’s swapping shadow bank debt for central bank debt, with a large difference in duration and interest rates.

China Approves Another 1 Trillion Yuan Local Debt Swap (WSJ)

China will let its cities and provinces issue another 1 trillion yuan ($161 billion) of bonds as it continues an effort to rev up the economy and help local governments refinance their hefty debt burdens. The move, which doubles the amount Beijing initially authorized, will help local governments refinance 1.86 trillion yuan in debt due this year, according to Xinhua. It said swapping 1 trillion yuan will save local governments about 50 billion yuan in annual interest payments. Like the previous issue, local governments can effectively swap the debt for loans from China’s central bank. But Chinese officials continued to contend that such swaps aren’t the equivalent of a common central-bank tool known as quantitative easing, in which central banks buy bonds as a way to inject money into the financial system.

The move, which was expected, underscores Beijing’s continued worries about slowing economic growth and mounting debt. China’s 7% first-quarter year-over-year growth rate was the slowest in six years, and recent trade and inflation data continue to point to soft domestic demand. China’s local governments had run up 17.9 trillion yuan of debt as of mid-2013, or $2.89 trillion at current exchange rates, according to the most recent official data. That was up sharply from negligible levels six years earlier. Much of the debt was from a massive stimulus push in the wake of the 2008 financial crisis. In recent years, China’s local governments circumvented rules that bar them from borrowing to fund the infrastructure and housing projects that have been essential in maintaining fast economic growth.

Read more …

A power game. Not that they want to. They were forced into it.

Greece is Playing an Ultimatum Game (Bloomberg)

Hence, another classic game – the ultimatum game – might provide a better analogy. In the game, a player receives some money — say, $100 — but can keep it only by convincing a second player to accept part of the sum. If both parties are interested solely in maximizing their financial well-being, the first player should be able to offer as little as $1. After all, for the second player, $1 is better than nothing. When real people play the game, though, that’s not how it works out. The second player tends to reject any offer less than $30, seeing it as insulting. As a result, neither player gets any money. The game reaches inside people and stirs up deep emotions, demonstrating that humans are not dispassionate economic calculators.

You can’t understand it without thinking about human perceptions of fairness, justice and honor. This seems to fit the current situation in Europe. The creditors think Greece, in a position of weakness, should be grateful for the relief they’ve offered and get on with economic reforms. After all, it’s better than nothing. Yet Greece, while recognizing the need for reform, sees that the creditors can afford to do more and feels insulted by the suffering it must endure. If necessary, the Greeks are ready to risk blowing up the euro to preserve their independence and dignity. From this perspective, it’s not really an economic confrontation at all.

The technicalities of funding mechanisms and repayment schedules are merely the instruments through which power is being exerted from one side and resisted from the other. So when Greek Prime Minister Alexis Tsipras called the creditors’ latest proposal “absurd,” it might have been because, from the broad perspective of human decency, it was absurd. And when Jean-Claude Juncker, the chief executive of the EU, reportedly refused to answer a subsequent phone call from Tsipras, he might have done so because he was completely flummoxed by Greece’s irrationality. The ultimatum game teaches us that the Greek standoff can’t be understood through the lens of economic rationality alone. Those who attempt to do so risk making a costly miscalculation.

Read more …

A staggered reform program and loan program may yet be a decisive move.

Markets Surge On Rumours Of German Compromise On Greece (Guardian)

Stock markets surged on Wednesday after reports of a German proposal to allow Greece to receive a drip-feed of loans in return for a staggered reform programme. The softening of the German stance towards Athens cheered investors keen to see a sustainable rescue of the debt-stricken country after more than four months of wrangling. According to the reports, the chancellor Angela Merkel is prepared to accept a much-reduced reform programme, slimmed down to just one or two areas as part of an initial package, to salvage a deal with Greece and prevent it exiting the eurozone. Shares on the FTSE 100 moved ahead 76 points or 1.1%, while the German Dax and French CAC jumped 2.4% and 1.75%, respectively.

The EC, the IMF and the ECB, which have lent Greece €240bn (£175bn) between them, had until recently demanded all-encompassing reforms in return for the last tranche of bailout funds worth €7.6bn. Bloomberg said it spoke to at least two German officials close to the bailout talks who described the compromise deal as a possible way to end the impasse between the radical leftist Greek government and its creditors. The report, later denied by the German government as official policy, followed statements by Merkel and the French president, François Hollande, that they were ready to meet Greece’s embattled prime minister, Alexis Tsipras, at a summit in Brussels. Merkel said a solution was possible as she arrived for a summit of EU and Latin American leaders, just hours after the EC dismissed the latest Athens plan, saying it failed to address the need for deep changes.

Read more …

Right wing Germany rears its ugly head once more.

Germany Against 3rd Greek Bailout Under Any Circumstances: BILD (Reuters)

The German government is against a third aid programme for Greece under any circumstances, even if there was an agreement between Athens and its international lenders on a cash-for-reforms deal, the German mass daily Bild reported on Thursday. Instead, the current second aid programme could be extended and be broadened with funds from other programmes such as the €10.9 billion that were originally designed to rescue Greek banks, but were not needed, the report said. However, this could only happen if Athens was willing to implement substantial reforms, it added. “We don’t want to make our people bleed just because the ones in charge in Greece are not doing their job,” the mass daily quoted a member of the government as saying.

German Chancellor Angela Merkel is facing growing opposition among her ruling conservatives to granting Greece any further bailout funds. Athens’ unwillingness to accept further economic reforms is turning a growing minority of Merkel’s own conservatives against the prospect of unlocking a final tranche of Greece’s second bailout or agreeing to a third aid programme. Greece’s EU/IMF lenders have asked Athens to commit to sell off state assets, enforce pension cuts and press on with labour reforms, two sources familiar with the plan told Reuters last week, demands that would cross the Greek government’s “red lines”. If Greece were to accept the plan, lenders would aim to unlock €10.9 billion in unused bank bailout funds that were returned to the European Financial Stability Fund. This would enable Greece to cover its financial needs through July and August, the sources have said.

Read more …

“A 2010 IMF staff position note described default on any debt in advanced economies as “unnecessary, undesirable and unlikely”, yet 18 months later the IMF advocated a 70% “haircut”..”

IMF’s ‘Never Again’ Experience In Greece May Get Worse (Reuters)

For the IMF, five years of playing junior partner in European bailouts for Greece has been a “never again” experience, and the worst may be yet to come. The global lender has lent far more to Athens than to any other borrower, contributing nearly one-third of the total €240 billion, with the rest coming from euro zone governments and the bloc’s rescue fund. But it has sat uncomfortably in the side-car of the Greek rescue. Called in by EU paymaster Germany to try to keep the European institutions and the Greeks honest, the Washington-based IMF has never had control of the program. Now Greece may be about to become the first European nation to default on the IMF, putting it in exclusive company with Zimbabwe and Argentina.

Athens postponed a €300 million installment due last week and bundled it with others due this month into a single €1.6 billion payment due to the IMF at the end of June. Greece has said it can only pay if it gets new funds from creditors or is allowed to sell more short-term debt to Greek banks, which in turn hinges on a stalled cash-for-reform deal. Critics say the IMF has damaged its credibility by going along with political fudges to keep Greece in the euro zone rather than insisting on write-offs, first by private creditors and now by European governments, to make its debt sustainable. “One of the most important lessons for the IMF from the Greek program should be that a multilateral institution should not institutionalize special interests of a subset of its membership,” said Ousmene Mandeng, a former IMF official who is now an economics adviser.

“The interest of the IMF is not necessarily aligned with the EU/ECB,” he said. In 2013, the IMF published a critical evaluation of its own role in the first Greek bailout in 2010, arguing that it should have insisted on a “haircut” on Greece’s debt to private creditors from the outset. Instead it went along with European governments frightened of a Lehman-style market meltdown and keen to shield their banks from losses. The report, compiled by Fund staff, said IMF officials had doubts about Greece’s ability to repay its loan at the time but agreed to the plan because of fears of contagion from Greece’s predicament affecting other European states.

A 2010 IMF staff position note described default on any debt in advanced economies as “unnecessary, undesirable and unlikely”, yet 18 months later the IMF advocated a 70% “haircut” on Greek government debt as a condition for continued involvement in lending to Athens. Now IMF chief Christine Lagarde is hinting that European governments need to give Greece debt relief to make the numbers add up, but since this is politically unacceptable in Germany, she has had to talk in code in public. “Clearly, if there were to be slippages from those (fiscal) targets, for the whole program to add up, then financing has to be considered,” Lagarde told a news conference last week.

Read more …

Tsipras can take this to the troika.

Ruling On Pension Cuts Will Cost Greek State €1.5 Billion (Kathimerini)

The government will have to find €1 to 1.5 billion to cover the cost of a Council of State decision published on Wednesday, which calls for pensioners in the private sector and at state-owned corporations (DEKOs) to have their retirement pay restored to 2012 levels. In a majority decision (14 vs 11), Greece’s highest administrative court judged the reduction to main and supplementary pensions legislated in late 2012 as being unconstitutional. The ruling affects some 800,000 pensioners who earned more than 1,000 euros a month. It is estimated the decision will lead to pensions between €1,000 and €1,500 rising by 5%, those between 1,500 and 2,000 increasing by 10% and those over 2,000 seeing a rise of 15%.

The court said the government should have carried out a study on the impact these cuts would have had on the pensioners affected. The Council of State, however, decided that pensions should not be restored retroactively apart from some 2,000 individual cases where pensioners appealed the reductions on their own. This means that, apart from the latter cases, the government will have to find a way to increase the pensions in question from this point on rather than find the funds to cover the income the pensioners lost as a results of the cuts over the last 2.5 years.

Read more …

And you find this out only now?

Growth, What Growth? Thatcherism Fails To Produce The Goods (Guardian)

Margaret Thatcher’s policies of privatisation, light-touch regulation and low income tax failed to boost growth, according to a new study that casts doubt on the merits of free market economies. In a wide-ranging analysis of Britain’s performance in the decades before and after 1979, economists at the University of Cambridge say the liberal economic policies pioneered by Thatcher have been accompanied by higher unemployment and inequality. At the same time, contrary to widespread belief, GDP and productivity have grown more slowly since 1979 compared with the previous three decades. Liberal market policies such as lower tariffs and income taxes, free movement of labour, limited legal immunity for trade unions, privatisation and light-touch business regulation “did not produce the goods” in terms of higher growth in GDP and productivity, according to Ken Coutts and Graham Gudgin at the Centre for Business Research at Cambridge Judge Business School.

“Those who believe in the free market economy must be able to show that economic performance after 1979 was better than it would have been under the ‘corporatist’ economic policies of earlier decades. The starting point in doing this should be to show that the actual performance was better than had been the case during the decades prior to 1979,” said Coutts and Gudgin. “The report shows that the most important economic indicators, including growth in GDP per head, were in fact no better in the post-1979 decades.” On the analysis, only one aspect of post-1979 policies actually boosted growth, but that came with grave consequences a few decades on in the shape of the financial crisis. “Financial liberalisation was the sole aspect of the liberal market reforms introduced into the UK, initially in 1971-73 and more consistently from 1979, which materially increased the rate of economic growth,” the paper said.

Read more …

High time for others to do the same.

Iceland’s Economy Recovered After It Jailed Bankers And Let Banks Go Bust (Ind.)

Iceland’s finance minister has announced a 39% tax on investors looking to take their money overseas. The country has imposed the tax to prevent it hemorrhaging money as it loosens bank laws imposed six years ago, when Iceland made the shocking decision to let its banks go bust. Iceland also allowed bankers to be prosecuted as criminals – in contrast to the US and Europe, where banks were fined, but chief executives escaped punishment. The chief executive, chairman, Luxembourg ceo and second largest shareholder of Kaupthing, an Icelandic bank that collapsed, were sentenced in February to between four and five years in prison for market manipulation. “Why should we have a part of our society that is not being policed or without responsibility?” said special prosecutor Olafur Hauksson at the time. “It is dangerous that someone is too big to investigate – it gives a sense there is a safe haven.”

While the UK government nationalised Lloyds and RBS with tax-payers’ money and the US government bought stakes in its key banks, Iceland adopted a different approach. It said it would shore up domestic bank accounts. Everyone else was left to fight over the remaining cash. It also imposed capital controls restricting what ordinary people could do with their money– a measure some saw as a violation of free market economics. The plan worked. Iceland took a huge financial hit, just like every other country caught in the crisis. This year the IMF declared that Iceland had achieved economic recovery ‘without compromising its welfare model’ of universal healthcare and education. Other measures of progress like the country’s unemployment rate, compare just as well with countries like the US.

Read more …

Sensible policies.

Iceland: The Economy That Came In From The Cold? (Independent)

There are dangers in opening up. The country’s central bank says the book value of the assets of the failed banks that are denominated in Icelandic krona is about 500 billion krona (£2.47bn), roughly equal to a quarter of the country’s GDP. “The danger is capital flight and a consequent fall of the value of the krona,” said Thorolfur Matthiasson, economics professor at the University of Iceland. “That would be tantamount to October 2008, bringing back bad memories for ordinary people and possibly making most businesses unsustainable due to balance-sheet problems.” New legislation will impose a one-off 39% financial levy on the total assets of failed banks, raising $5.1bn, in order to help the country weather the blow of withdrawals. As an alternative, the foreign creditors can do a deal with the failed banks’ boards by the end of the year to surrender an equivalent portion of their claims.

Yet it is impossible to be sure whether this will be enough. Iceland’s Prime Minister, Sigmundur David Gunnlaugsson, sounded nervous yesterday as he advised foreign hedge funds that had snapped up distressed Icelandic banking assets after the bust not to sue over the tax. The unspoken fear is that aggressive foreign hedge funds will drag Iceland through the courts, as they did with Argentina, inflicting further economic damage in the process. Yet there are also reasons to believe things could turn out better than this for Iceland. Along with the creditors, the country itself suffered grievously in the crisis. The economy was sent spinning into depression and living standards collapsed. Many Icelanders – who had borrowed from their banks in foreign currencies such as Swiss francs to take advantage of lower interest rates – were forced into bankruptcy.

GDP contracted by 12% and Reykjavik was forced to call in the IMF for assistance. But the Icelandic economy has recovered surprisingly strongly since 2010. The massive devaluation of the krona against the dollar and the euro helped. There has been a big boost from tourism. Fishing has also boomed. An estimated one in 84 fish caught worldwide is now scooped out of the water by Icelandic trawlers. Unemployment, which spiked to 9% at the worst of the crisis, is now back down to 5%. In domestic currency terms the economy has recovered roughly to its pre-crisis peak. GDP is projected by the IMF to grow by a reasonable 3.5% this year. The current account, which was in deficit to the tune of a whopping 25% of GDP in 2009, is now in surplus.

Read more …

The glimmer is gone.

The New Currency Trade: Short The Kiwi (CNBC)

Currency analysts are betting on continued declines for the New Zealand dollar as officials fight to boost growth in a country that was heralded 2014’s rockstar economy. The Kiwi sank over 2% to a near five-year low of 70 U.S. cents Thursday after the Reserve Bank of New Zealand (RBNZ) lowered the benchmark cash rate by 25 basis points for the first time in four years. “Today’s announcement is significant for NZD because it marks the beginning of what could turn into a more prolonged easing cycle. Desynchronization of monetary policy should not only drive NZD/USD below 70 cents but take it lower against many other major currencies,” said Kathy Lien at BK Asset Management. Indeed, chances for parity with the Australian dollar, a popular call this year, are now over, noted Evan Lucas at IG.

RBNZ Governor Graeme Wheeler also left the door open to future cuts should economic data weaken further, adding that the currency remains overvalued despite a 17% fall against the greenback over the past year. The move surprised many economists who expected the bank to hold fire following consecutive hikes throughout 2014; the RBNZ was the first central bank in the developed world to increase rates after the global financial crisis. It’s likely to hit 68 U.S. cents over the next one to two months, warned Jonathan Cavenagh, senior FX strategist for Asia at Westpac Institutional Bank. “Given the RBNZ signaled it wasn’t done with one cut, the market will get quite aggressive with its rate outlook, leaving the Kiwi vulnerable to more downside.”

Read more …

Big shift. But conventional players will seek to invade.

Trends Show Crowdfunding To Surpass Venture Capital in 2016 (Forbes)

By 2016 the crowdfunding industry is on track to account for more funding than venture capital, according to a recent report by Massolution*. Just 5 years ago there was a relatively small market of early adopters crowdfunding online to the tune of a reported $880M in 2010. Fast forward to today and we saw $16 Billion crowdfunded in 2014, with 2015 estimated to grow to over $34 Billion. In comparison, the VC industry invests an average of $30 Billion each year. Meanwhile, the crowdfunding industry is doubling or more, every year, and is spread across several types of funding models including rewards, donation, equity, and debt/lending.

And now under new laws enacted in 2013, equity crowdfunding has sprung forth as the newest category of crowdfunding and is further accelerating this growth and disruption. If we look at what is driving this growth and change… we see that the collaborative economy has brought new disruptive models to giant existing industries like real estate and transportation, leveraging automation and the internet to create massively scalable businesses. he World Bank estimated that crowdfunding would reach $90 Billion by 2020. If the trend of doubling year over year continues, we’ll see $90 Billion by 2017. To put that in perspective, venture capital averages roughly $30 Billion per year and in 2014 accounted for roughly $45 Billion in investment, whereas angel capital averages roughly $20 Billion per year invested.

Equity crowdfunding, the newest category of crowdfunding, opened up publicly in September of 2013 under Title II of the JOBS Act and, while restricted to accredited investors only, has grown to an estimated $1 Billion invested online. In 2015 the estimate is for over $2.5 Billion to be invested through equity crowdfunding. If equity crowdfunding doubles every year like the rest of crowdfunding has, then it could reach $36 Billion by 2020 and surpass venture capital as the leading source of startup funding.

Read more …

“Microfinance has become a socially acceptable mechanism for extracting wealth and resources from poor people.”

The Microfinance Delusion: Who Really Wins? (Hickel)

What’s so fascinating about the microfinance craze is that it persists in the face of one unfortunate fact: microfinance doesn’t work. Of course, there are some lovely anecdotes out there about the transformative power of micro-loans, but as David Roodman from the Center for Global Development put it in his recent book, “The best estimate of the average impact of microcredit on the poverty of clients is zero.” This is not a fringe opinion. A comprehensive DFID-funded review of extant data comes to the same conclusion: the microfinance craze has been built on “foundations of sand” because “no clear evidence yet exists that microfinance programmes have positive impacts.” In fact, it turns out that microfinance usually ends up making poverty worse.

The reasons for this are fairly simple. Most microfinance loans are used to fund consumption – to help people buy the basic necessities they need to survive. In South Africa, for example, consumption accounts for 94% of microfinance use. As a result, borrowers don’t generate any new income that they can use to repay their loans so they end up taking out new loans to repay the old ones, wrapping themselves in layers of debt. When micro-loans are used to fund new businesses, budding entrepreneurs tend to encounter a lack of consumer demand. After all, their potential customers are poor and low on cash, and what little money they do have gets spent on basic goods that tend already to be available. In this context, new businesses end up displacing already-existing ones, yielding no net increase in employment and incomes.

And that’s the best of the likely outcomes. The worst – and much more likely – is that the new businesses fail, which then leads, once again, to vicious cycles of over-indebtedness that drive borrowers even further into poverty. This demand-side problem can be stated quite simply: poor people don’t have enough money. Apparently we need expensive research studies to point this out. The only consistent winners in the microfinance game are the lenders, many of whom charge exorbitant interest rates that sometimes reach up to 200% per annum. In the past we would have called such people loan sharks, but today they’re called microfinance providers, and they crown themselves with the moral halo that this term carries. Microfinance has become a socially acceptable mechanism for extracting wealth and resources from poor people.

Read more …

The New York Times works with Wikileaks?!

US Shifts Stance on Big Pharma in TPP Talks (NY Times)

Facing resistance from Pacific trading partners, the Obama administration is no longer demanding protection for pharmaceutical prices under the 12-nation Trans-Pacific Partnership, according to a newly leaked section of the proposed trade accord. But American negotiators are still pressing participating governments to open the process that sets reimbursement rates for drugs and medical devices. Public health professionals, generic-drug makers and activists opposed to the trade deal, which is still being negotiated, contend that it will empower big pharmaceutical firms to command higher reimbursement rates in the United States and abroad, at the expense of consumers.

“It was very clear to everyone except the U.S. that the initial proposal wasn’t about transparency. It was about getting market access for the pharmaceutical industry by giving them greater access to and influence over decision-making processes around pricing and reimbursement,” said Deborah Gleeson, a lecturer at the School of Psychology and Public Health at La Trobe University in Australia. And even though the section, known as the transparency annex, has been toned down, she said, “I think it’s a shame that the annex is still being considered at all for the TPP”.

The annex, which covers pharmaceutical and medical devices, is the latest document obtained by The New York Times in collaboration with the watchdog group WikiLeaks, and it was released before the House vote on whether to give President Obama expanded powers to complete the Trans-Pacific Partnership. The Senate has already approved legislation giving the president trade promotion authority, or fast-track power that would allow him to complete trade deals without the threat of amendments or a filibuster in Congress. A House vote on final passage of the bill, now expected on Friday, appears extremely close. [..]

Jay Taylor, vice president for international affairs for Pharmaceutical Research and Manufacturers of America, said penetrating the opaque process for getting a drug considered for a national health system, then listed as available and properly priced, is central to free trade for drug makers. “It is market access,” he said. That is particularly true for the Pacific accord, he said, because one of the countries, New Zealand, has a powerful system for holding down drug costs — and keeping drug makers in the dark. New Zealand’s health system has been held up as a model for the Pacific region, a prospect the pharmaceutical industry does not relish.

Read more …

“..the vote had to be delayed because there were too many proposed amendments.”

TTIP Vote Postponed As European Parliament Descends Into Panic (Independent)

An historic vote on the biggest trade deal ever negotiated between the EU and the US has had to be postponed after the European Parliament descended into chaos. European MPs were due to vote on the Transatlantic Trade and Investment Partnership on Wednesday. But the vote had to be delayed because there were too many proposed amendments. “It’s panic in parliament,” Yannick Jadot, a Green MEP from France, told AFP. Ministers have disagreed over a controversial dispute mechanism that some fear would allow big companies to bypass national courts to resolve disputes with investors. Socialist groups in the European Parliament reportedly blocked the dispute mechanism on Tuesday, which resulted in the vote being postponed.

Brussels had suggested a separate investment court to resolve disputes but lawmakers in the US have insisted that this is unnecessary. David Cameron has claimed that signing the deal would add £2 billion to the UK economy every year. But the plan has been violently opposed by campaign groups across Europe that fear it would be at the expense of national services and social and environmental welfare. On Wednesday Ukip MEPs led a protest against TTIP in the European Parliament, but their efforts were ignored because the session had already closed. TTIP negotiations were initiated by Europe to speed economic recovery. Commentators have said the US is growing tired of constant delays to an agreement. “It’s now very much up to EU to decide if they want this agreement. The patience of the US is running out,” Hosuk Lee-Makiyama, director of European Centre for International Political Economy, told The Independent.

Read more …

” It would be worse than anything ever known — and it could happen in and to our generation.”

Maybe WWIII Won’t Occur, But The Damages Are Already Horrible (Zuesse)

Why is there not, in Europe, a huge movement to abandon NATO, and to kick out the U.S. military? Whom is the U.S. ‘defending’ Europeans from, after the Warsaw Pact ended in 1991? Why did not Gorbachev demand that NATO disband when the Warsaw Pact did — simultaneous (instead of one-sided) disbanding of the Cold War, so that there would not become the foundation for international fascism to arise to conquer Russia (first, to surround it by an expanding NATO — and ultimately via TPP & TTIP), in the aftermath? Why is there not considerable public debate about these crucial historical, cultural, and economic, matters? Why is there such deceit, which requires these massive questions to be ignored so long by ‘historians’?

How is it even possible for the world to move constructively forward, in this environment, of severe censorship, in the media, in academia, and throughout ‘the free world’? Why is there no outrage that the Saudi and other Arabic royals fund islamic jihad (so long as it’s not in their own countries) but America instead demonizes Russia’s leaders, who consistently oppose jihadists and jihadism? Why are America’s rulers allied with the top financiers of jihad? Why is that being kept so secret? Why are these injustices tolerated by the public? Who will change this, and how? When will that desperately needed change even start? Will it start soon enough? Maybe WW III won’t occur, but the damages are already horrible, and they’re getting worse. This can go on until the end; and, if it does, that end will make horrible look like heaven, by comparison. It would be worse than anything ever known — and it could happen in and to our generation.

Read more …

How true.

US Draws EU Into Russia Crusade, Against Our Interests – Ex-French PM (RT)

The US is drawing European states into a “crusade” against Russia, which goes against Europe’s interests, former French Prime Minister Francois Fillon has said. Speaking to French media, he stressed that Europe now is dependent on Washington. “Today, Europe is not independent… The US is drawing us [the EU] into a crusade against Russia, which contradicts the interests of Europe,” Fillon told the BFMTV channel. The ex-French prime minister, who served in Nicolas Sarkozy’s government from 2007 till 2012, lashed out at Washington and its policies. Washington, Fillon said, pursues “extremely dangerous” policies in the Middle East that the EU and European states have to agree with. He accused German intelligence of spying on France “not in the interests of Germany but in the interests of the United States.”

Fillon pointed out that Washington is pressurizing Germany to concede to Greece and find a compromise. He noted the “American justice system” often interferes with the work of “European justice systems.” “Europe is not independent,” the ex-PM said, calling for “a broad debate on how Europe can regain its independence.” This, however, would not be possible if Europe goes ahead and signs the TTIP, a proposed EU-US treaty, which has drawn much criticism for its secretiveness and lack of accountability. “I am definitely against signing this agreement [TTIP] in the form in which it is now,” he added.

Read more …

In the next step of its campaign to look ridiculous (after yesterday’s ignorant Francesco Giavazzi rant on Greece), the FT has a poll on something it simply made up.

Poll Highlights Divisions Among Public On Tackling Ukraine Crisis (RT)

Barely half of voters in Nato states would support a military response to an attack on an alliance member, according to a 10-country survey that highlights divisions on how to respond to Russia and the Ukraine crisis. The outbreak of war in Ukraine last year has brought mistrust between Russia and the west to cold-war levels, with the public in Nato countries blaming Moscow for the violence and the Russian public rallying behind Vladimir Putin, their president. Yet the poll, based on more than 11,000 interviews in 10 countries and conducted by the Pew Research Centre, showed the limits of European public tolerance for an escalation in military support for Ukraine, or indeed for standing by the Nato commitment to mutual defence.

Fewer than half of respondents in the UK, Poland, Spain, France, Italy and Germany would back using force to help defend a Nato ally that was under military threat from Russia. But in most countries more than two-thirds thought the US would use military force in such an event, although in Poland just 49% thought Washington would intervene. The findings highlight political vulnerabilities that Nato officials fear Russia seeks to exploit, aiming to aggravate divisions on European measures against Russia such as sanctions while instilling doubts about the Nato alliance. Some of the starkest differences of opinion within the alliance are between the US and Germany. Almost two-thirds of Americans support Ukrainian membership of Nato compared with about a third of Germans. While 46% of Americans back sending arms to Ukraine, just 19% of Germans do.

Read more …

Short term.

Why Our Brains Don’t Process The Gravest Threats To Humanity (Brian Merchant)

Our brains are incredible little mushboxes; they are unfathomably complex, powerful organs that grant us motor skills, logic, and abstract thought. Brains have bequeathed unto we humans just about every cognitive advantage, it seems, except for one little omission: the ability to adequately process the concept of long-term, civilization-threatening phenomena. They’ve proven miracle workers for the short-term survival of individuals, but the human brain sort of malfunctions when it comes to navigating wide-lens, slowly-unfurling crises like climate change. Humans have, historically, proven absolutely awful, even incapable, of comprehending the large, looming—dare I say apocalyptic?—slowburn threats facing their societies.

“Our brain is essentially a get-out-of-the-way machine,” Daniel Gilbert, a professor of psychology at Harvard says in his university’s (decidedly less flashy) version of a TED talk. “That’s why we can duck a baseball in milliseconds.” That is, our brain seems to be programmed to react best to hard, certain information—threats that unfold over generations fail to trigger our reactionary instincts. “Many environmentalists say climate change is happening too fast,” Gilbert says. “No, it’s happening too slowly. It’s not happening nearly quickly enough to get our attention.” It’s an unfortunate quirk of human psychology; it’s allowed us to outwit and outplay most other species around the globe—we’re smarter, more resourceful, more conniving—but it might also come to mean we won’t outlast them.

There are currently a host of very real, very pressing, and very long-simmering crises on our plates; climate change, sure, but also biggies like mass extinction and biodiversity loss and ocean acidification, which will take up to many decades before they become full-blown, civilization-threatening calamities. That’s why I’ve always bristled a bit at the post-colon header of Jared Diamond’s great book, Collapse: How Societies Choose to Fail or Succeed. What society, comprised of humans capable of abstract thought, with fully developed brains, would actively choose to fail? “It’s been a good run, but seeing as how I am exhausted from all this rapaciousness and decadence, I hereby opt to Fall” -the Roman Empire. .

Read more …