Sep 212017
 
 September 21, 2017  Posted by at 8:57 am Finance Tagged with: , , , , , , , , ,  3 Responses »
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Pablo Picasso Jacqueline in Turkish costume 1955

 

Yellen Brushes Aside Inflation ‘Mystery’ While Fed Eyes Rate Hike (BBG)
Federal Reserve Will Continue Cutting Economic Life Support (Smith)
What Shiller Says Is Preventing A 1929-Like Stock Market Crash (CNBC)
Stock Market Bubbles in Perspective (Ma)
We’re Officially In The 2nd-Largest Bull Market Since World War II (BI)
Who’s Pulling The Strings? (Ren.)
144 Years Ago A Panic Shut Down The Stock Market For The First Time (Cashin)
China’s Dangerous House Price Boom Is Spreading (BBG)
Japan’s “Deflationary Mindset” Grows (ZH)
Greece Considers Bond Swap As It Looks To Bailout Exit (R.)
Abbas Says Trump May Have Mideast ‘On the Verge’ of Peace Deal
4-6 Months To Restore Puerto Rico Electricity After Hurricane Maria (NBC)
Global Mass Extinction Set To Begin By 2100 (Ind.)

 

 

Inflation is arguably the Fed’s no. 1 concern left. Yellen admits they don’t know what it is or does, though. Still, decisions concerning billions and trillions are taken. No direction home.

Yellen Brushes Aside Inflation ‘Mystery’ While Fed Eyes Rate Hike (BBG)

Federal Reserve Chair Janet Yellen acknowledged that the fall in inflation this year was a bit of a “mystery” but suggested that the central bank was on course to raise interest rates again in 2017 nonetheless. She told reporters on Wednesday that the economy was robust enough to withstand further rate increases and an imminent reduction in the Fed’s $4.5 trillion balance sheet, as it exits from a crisis-era policy a decade after the onset of the Great Recession.“We continue to expect that the ongoing strength of the economy will warrant gradual increases” in rates, she told a press conference after the Federal Open Market Committee announced that it will slowly begin to pare its bond holdings next month. As expected, the target range for the federal funds rate was held at 1% to 1.25%. The central bank’s intention to press ahead with another rate hike this year and three more in 2018 caught investors by surprise, sending bond yields and the dollar higher.

The strategy represents a bit of a gamble because it risks cementing inflation permanently below the Fed’s 2% target. As measured by the personal consumption expenditures price index, inflation has ebbed this year even as the economy and the labor market have continued to improve. After briefly poking above 2% earlier this year, it fell to 1.4% in June and July. “I will not say that the committee clearly understands what the causes are of that,” Yellen, 71, said. While transitory forces such as a one-time cut in mobile-phone service charges were part of the story, they did not fully explain the shortfall, she said. The Fed chief though argued that the ongoing strength of the economy and the labor market would ultimately help lift inflation, while she kept open the possibility the central bank would alter course if that proved not to be the case.

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The Fed doesn’t serve the people. Never forget.

Federal Reserve Will Continue Cutting Economic Life Support (Smith)

First, let’s be clear, historically the Fed’s predictable behavior has been to skip major policy actions in September and then startle markets with renewed and aggressive actions in December. People placing bets on a Fed rate hike in September would look at this pattern and say “no way.” However, the narrative I see building in Fed rhetoric and in the mainstream media is that stock markets have become “unruly children” and that the Fed must become a “stern parent,” reigning them in before they are crushed under the weight of their own naive enthusiasm. In my view, the Fed will continue to do what it says it is going to do — raise interest rates and reduce and remove stimulus, and that the mainstream narrative will soon be adjusted to suggest that this is “necessary;” that stock markets need a bit of tough love.

If the Fed means to follow through with its stated plans for “financial stability” in markets, then the only measure that would be effective in shell-shocking stocks back to reality would be a surprise hike, a surprise announcement of balance sheet reduction or both at the same time If the Fed intends to continue cutting off life support to equities and bonds in preparation for a controlled demolition of the U.S. economy, then there is a high probability at the very least of a balance sheet reduction announcement this week with strong language indicating another rate hike in December. I also would not completely rule out a surprise rate hike even though September is usually a no-action month for central banks. This would fit the trend of central banks around the globe strategically distancing themselves from artificial support for the financial structure.

Last week, the Bank of England surprised investors with an open indication that they may begin raising interest rates “in the coming months.” The Bank Of Canada surprised some economists with yet another rate hike this month and mentions of “more to come.” The European Central Bank has paved the way for a tapering of stimulus measures according to comments made during its latest meeting early this month. And, the Bank of Japan initiated taper measures in July. Even Forbes is admitting that there appears to be a “coordinated tightening of monetary policy” coming far sooner than the mainstream expects. If you understand how the Bank for International Settlements controls policy initiatives of national central bank members, then you should not be surprised that central banks all over the world are pursuing the same actions and the same rhetoric. The only difference between any of them is the pace they have chosen in taking the punch bowl away from the party.

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Psychology and obesity. Gee, thanks Bob! Feel much more confident now.

What Shiller Says Is Preventing A 1929-Like Stock Market Crash (CNBC)

It’s a comparison no one wants to hear — that this stock market bears striking similarities to that of 1929. The observation is coming from Nobel Prize-winning economist Robert Shiller, who’s been arguing valuations are extremely expensive. But instead of predicting an epic stock market crash, he’s finding reasons to be optimistic. “The market is about as highly priced as it was in 1929,” said Shiller on Tuesday’s “Trading Nation.” “In 1929 from the peak to the bottom, it was 80% down. And the market really wasn’t much higher than it is now in terms of my CAPE [cyclically adjusted price-to-earnings] ratio. So, you give pause when you notice that.” In his first interview since penning an op-ed on Sept. 15 in The New York Times, the Yale University economics professor reiterated to CNBC that there’s one vital characteristic protecting investors from losing their nest eggs: Market psychology.

“It’s not just a matter of low interest rates, it’s something about the American atmosphere. It’s partly the Trump atmosphere. Investors love this. I can’t exactly explain – maybe it has something to do with prospective tax cuts. But I don’t think it’s just that. It’s something deeper, and it’s pushing the American market up,” he added. Unlike 1929, Shiller points out there’s not much talk about people borrowing exorbitant amounts of money to buy stocks. Plus, he notes there’s now more regulation. But don’t mistake the Yale University economics professor for a bull. “I don’t want to encourage people too much to put a lot into the most expensive market in the world,” said Shiller. “The U.S. has the highest CAPE ratio of 26 countries. We are number one.”

[..] Shiller may see red flags, but he isn’t ruling out a market that continues to churn out fresh records for months, if not years. “I wouldn’t call it healthy, I’d call it obese. But you know, some of these obese people live to be 100 years, so you never know,” said Shiller.

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Still feeling good, Shiller?

Stock Market Bubbles in Perspective (Ma)

A better type of average would be the median. It literally represents the middle of a sequence of ranked numbers. In most cases, it is not influenced by outliers. By using median (instead of mean) earnings, I refer to this valuation approach as the CAPME ratio. It currently shows the S&P Composite is not the second or third most expensive stock market cycle. This finding supports those who criticize the traditional CAPE ratio of overstating the valuation of the S&P Composite Index. The problem for critics though is using the CAPME ratio still shows the U.S. stock market is very expensive right now. In fact, it is the fourth most expensive, behind the stock market cycle that occurred during the Subprime Mortgage Bubble. Based on the data Professor Shiller uses, you can see this in the graph below that looks back 135 years.

You will notice in the graph above that the past 5 stock market bubbles were all valued at one point at more than 20-times median, annual, inflation-adjusted earnings. The valuation range of those peaks is wide though given the Tech Bubble was valued at more than 40-times at its peak. This makes the Tech Bubble potentially an outlier. Furthermore, all 5 stock market bubbles did not last long. They were fleeting. To put this all into perspective, consider these valuations by their percentile ranks. You can see this from the orange lines in the graph below. [It] shows the aforementioned 5 stock market cycles turned into bubbles when their CAPME valuation ratios reached a very high level of roughly the 90th percentile (red dotted line). In other words, these bubbles formed when their valuations were near or at the most expensive decile.

Investors beware: the valuation of the S&P Composite Index is currently ranked at the 94th percentile. This puts the U.S. stock market smack-dab at the heart of bubble territory. It has been argued lots that the high stock market valuation is justified by low interest rates. This argument does not work for me. Let me tell you why. Yields on 10-year U.S. treasury bonds in early-1941 were lower than they are now. Despite lower interest rates in early-1941, the stock market CAPME valuation ratio was quite low at that time ranking at around the 30th percentile. Furthermore, the amount of debt provided by stock brokers used to fuel the current stock market cycle is at a record level. This could prove problematic given bubbles driven by financial leverage are particularly dangerous.

The aforementioned 5 stock market cycles turned into bubbles when their CAPME valuation ratios reached the 90th percentile. The U.S. stock market is back there again. Its valuation is squarely in the middle of that very expensive decile looking back 135 years. The 5 previous instances of stock market bubbles suggest this will not end well. Bubbles never do, particularly ones driven by financial leverage.

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Whcih goes to show how easily markets are manipulated.

We’re Officially In The 2nd-Largest Bull Market Since World War II (BI)

We’re officially in the second-largest bull market since World War II. A week ago Monday, the S&P 500 index’s bull market became the second-best performing in the modern economic era. Stocks have climbed by about 270% from their March 2009 low over the past eight years, according to data from LPL Financial. Today’s bull market has eclipsed the 267% gain seen from June 1949 to August 1956. But the bull market from October 1990 to March 2000 remains in the top spot. “The logical question we continue to receive is: how much further can it go? We have an old bull market and an old expansion. When will the music stop?” Ryan Detrick, the senior market strategist for LPL Financial, wrote in commentary. “The current bull market is officially 101 months old, which might sound old (and it is), but remember that bull markets don’t die of old age, they die of excesses.”

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“The central bankers of the world have dumped $30 trillion into the global economy over the last eight years and we’ve got 2% growth and change..”

Who’s Pulling The Strings? (Ren.)

Feierstein cited the Resolution Trust debacle as an example of what should have happened. The Trust was declared insolvent as a consequence of the 1980s Savings and Loans Crisis and up to 300 bankers were jailed. “This is what should have happened this time around, instead of taking hundreds of trillions of dollars taxpayer’s money and placing the taxpayer at incredible peril and just added liquidity to the markets,” he said. “Giving more money to an insolvent institution is not the solution. You cannot pay your way out of debt with borrowed money. It’s not going to cure the underlying problem of insolvency.” This is why Feierstein refers to the entire global economy as a Ponzi scheme. “The amount of debt in the global financial system is a Ponzi scheme because the United States government has over $240 trillion in debt which is more than three times global GDP.

That’s the sum of all goods and services produced with zero consumption for three years. We’ll never pay out the debt that’s owed.” Feierstein says the government has tried to replace consumer demand with debt and printed money and consumers haven’t come back into the market. “That’s why we’ve got a huge government that thinks they can control everything and price action manipulating volatility to unrealistically low levels,” he said. “They think the consumer will eventually come back but they won’t because the jobs have disappeared and the unemployment rate which we’ve spoken about before is a lie. It’s not 4.3%, it’s closer to 20% because you’ve got people who aren’t participating in the workforce. And that’s probably over 100 million people in America.” Financial times journalist, Rana Foroohar says consumers are all tapped out.

“Credit is what we do to sort of keep middle class voters happy,” she said. “We’re tapped out.” The good news and the bad news is that when the next financial crisis comes the US government will not have as much firepower to throw at it. “The central bankers of the world have dumped $30 trillion into the global economy over the last eight years and we’ve got 2% growth and change,” she said. “It’s pathetic.” Feierstein said it is important to highlight how derivative products have contributed massively to this problem. “When I say there is too much leverage, basically derivative products allows financial institutions and investors to create 100 to 1 leverage. You put up $1 to control $100, or $500 dollars in assets. Think about that on a big scale. If you take $1 million you can control something worth $100 million, or even $500 million depending upon how you gear the leverage ratio.

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Art Cashin tells a story.

144 Years Ago A Panic Shut Down The Stock Market For The First Time (Cashin)

“[O]n Saturday, September 20, 1873, for the first time in its history, the NYSE closed in response to a panic. (The word circuit breaker had not been invented yet….er…..neither had circuits.) A week or more before, one of the most renowned firms in American finance and especially U.S. Treasury auctions came under a cloud of suspicion. The firm was Jay Cooke & Company. And, on most continents, it was seen as a key player. After all, its aggressive style had made it the key underwriter for the billions of Treasury bonds issued during and after the Civil War. (Contemporary competitors had shied back fearing that deficit spending had gotten out of control.) Anyway, the concern about in this key brokerage firm only confused the market at first. But as this day approached, there were hints that the problems would spread to other brokers. On the 18th, liquidation of equities showed up at the ‘first call.’

For most of its first century of existence, the NYSE was a ‘call market.’ The chairman, or other senior officer, would call out the name of one of the listed issues. Brokers who had an interest in that ‘issue’ would arise from their ‘seats’ and begin to bargain with any other brokers arisen from their ‘seats’. When transactions ended in that issue (assuming they were not all buyers), brokers returned to their ‘seats’ and the chairman called the next issue on the roll. When the last issue was called, the session officially ended. There were two sessions each day. […] So, here they were. Rumors surfaced that, perhaps some other brokers were involved and the first call on the 18th turned soft. The second call turned soggy. Prices were down and with no on-going after market; all you could do (as the banks did) is await the next call.

The morning call on the 19th was messy and the afternoon call was just a disaster. Outside, in a heavy rain, crowds gathered on Wall Street to withdraw securities and money from brokers. By the morning of the 20th anyone who was in the phone book (if there had been one at the time) was rumored to have been impacted by the problem. So, naturally the morning call on Saturday the 20th was a disaster. So much so that the Exchange opted to close until the crisis calmed (skipping the P.M. call). Close they did and for a lot more than one ‘call.’ But, but perhaps because banks and investors naturally needed some means of evaluating holdings, they reopened about ten days later. However, the rumors would not go away and liquidations and defaults continued. The history books call it the Panic of 1873. And, it put the American economy in a tailspin for years. (Nearly 10,000 businesses failed.)”

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Until recently, Chinese hardly borrowed at all. Now, debt is the only way to keep up.

China’s Dangerous House Price Boom Is Spreading (BBG)

Hefty mortgages have pushed up Chinese household debt, reducing their room for maneuver should income growth stall, according to recent research by Gene Ma, chief China economist at the Institute of International Finance in Washington. In general, it’s debt that’s the warning sign. As developers and households become more leveraged, the risk is that a price downturn doesn’t remain contained within the property market. “The high leverage will amplify the damage to the economy if a property bust happens,” said Bloomberg Intelligence economist Fielding Chen. “The shock wave will be passed onto the entire financial system, and losses will be greater,” he said. Once home prices tumble, about 40% of Chinese banks will be hit hard, according to a recent research note from Ping An Securities.

Analysts have argued that the debt load in the Chinese property market is far from a carbon copy of the situation in Japan’s bubble era before its bust in the 1990s, nor is it similar to the sub-prime crisis in the U.S. a decade ago. With down payment requirements of at least 20% for first purchases and as much as 70% for second homes, China’s household mortgages still stand at relatively safe levels, said Wang Qiufeng, an analyst at China Chengxin International in Beijing. Ping An Securities also argues that the odds of a property crash happening in the near term are very small. But as household debt-to-income ratios have risen almost to levels seen in advanced economies, the potential impact on the economy of a popping bubble would be considerable.

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Abenomics is (was) an attempt to force people into spending. That scares them into not spending. It doesn’t come any simpler.

Japan’s “Deflationary Mindset” Grows (ZH)

After being force-fed more stimulus than John Belushi, and endless rounds of buying any and every asset that dares to expose any cracks in the potemkin village of fiat folly, Japan remains stuck firmly in what Abe feared so many years ago – a “deflationary mindset.” As Bloomberg reports, cash and deposits held by Japanese households rose for 42nd straight quarter at the end of June as the nation’s consumers continued to favor saving over spending. The “deflationary mindset” that the Bank of Japan is battling to overcome was also evident in the money laying idle in corporate coffers, which stayed near an all-time high, according to quarterly flow of funds data released by the BOJ on Wednesday. Still, as Bloomberg optimistically notes, with the economy expanding much faster than its potential growth rate, greater inflationary pressures could be on the way, which may prompt a shift in behavior by consumers and companies… or not!

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Musical chairs.

Greece Considers Bond Swap As It Looks To Bailout Exit (R.)

Greece is considering swapping 20 small bond issues for four or five new ones, government sources said, as it prepares to exit its international bailout and resume normal financing operations. The country has been surviving on rescue funds since 2010 and is anxious to draw a line under its bailout phase next year. The government is considering a swap that would consolidate the secondary market into a few benchmark issues, replacing 20 separate bonds with a face value of around 32 billion euros, said officials familiar with the proposal. “We are planning to proceed with some debt management actions … to improve liquidity and tradeability,” one senior government official said. Officials said the move was still under discussion and did not say when it might happen, adding that bondholders had yet to be sounded out.

The 20 bonds were issued in 2012 in a voluntary scheme whereby private bondholders took a 53.5% haircut on their investments. It was the world’s biggest debt restructuring involving bonds with a total face value of 206 billion euros. Major holders included banks and pensions funds in Greece and abroad. Two years later in 2014, Greece made two forays as part of a plan to regain full bond market access. This time the plan is more modest but would represent a major step toward for bigger debt issues. Greece issued a five-year bond in July, and investors that bought the new bond are already making a profit of about 1.5% since the beginning of the year. Greece’s borrowing costs have fallen sharply this year back to pre-crisis levels, as investors see the prospect further bailouts diminishing as well as signs of economic improvement.

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Wouldn’t that be something.

Abbas Says Trump May Have Mideast ‘On the Verge’ of Peace Deal

Palestinian Authority President Mahmoud Abbas said Wednesday that President Donald Trump’s diplomatic efforts in the Mideast give him confidence that the region is “on the verge” of peace. Abbas said his government has met with U.S. diplomats more than 20 times since Trump took office in January. “If this is an indication of anything, it indicates how serious you are about peace in the Middle East,” Abbas said through a translator at a meeting with the U.S. president during the United Nations General Assembly in New York. “I think we have a pretty good shot, maybe the best shot ever,” Trump said. “I certainly will devote everything within my heart and within my soul to get that deal made.” “Who knows, stranger things have happened,” he added. “No promises, obviously.”

Trump met with Abbas two days after a similar meeting with Israeli Prime Minister Benjamin Netanyahu, where the U.S. president said he was hopeful Israelis and Palestinians would be able to come to a peace agreement during his presidency. The president recently dispatched his son-in-law and senior adviser, Jared Kushner, to the region in a bid to restart peace talks. Kushner was joined by Jason Greenblatt, the president’s envoy for Israeli-Palestinian peace, and deputy national security adviser Dina Powell. The White House is trying to take advantage of a period of relative calm following violent clashes earlier this summer over Israeli security arrangements at the Jerusalem shrine known to Jews as Temple Mount and to Muslims as Haram al-Sharif, said a senior administration official who requested anonymity to discuss the negotiations.

Trump has said he’s hopeful Kushner can help restart a peace process that has made little headway over the past 25 years. He made addressing the Israeli-Palestinian conflict an early priority, hosting both Abbas and Netanyahu at the White House during the opening months of his presidency and visiting Israel during his first international trip as president. The last round of U.S.-led talks, a pet project of former Secretary of State John Kerry, broke down three years ago amid mutual recriminations.

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How does a country, state, territory survive without power for half a year?

4-6 Months To Restore Puerto Rico Electricity After Hurricane Maria (NBC)

Hurricane Maria is likely to have “destroyed” Puerto Rico, the island’s emergency director said Wednesday after the monster storm smashed ripped roofs off buildings and flooded homes across the economically strained U.S. territory. Intense flooding was reported across the territory, particularly in San Juan, the capital, where many residential streets looked like rivers. The National Weather Service issued a flash flood warning for the entire island shortly after 12:30 a.m. ET. Yennifer Álvarez Jaimes, Gov. Ricardo Rosselló’s press secretary, told NBC News that all power across the island was knocked out. “Once we’re able to go outside, we’re going to find our island destroyed,” Emergency Management Director Abner Gómez Cortés said at a news briefing. [..] Maria, the strongest storm to hit Puerto Rico since 1928, had maximum sustained winds of 155 mph when it made landfall as a Category 4 storm near the town of Yabucoa just after 6 a.m. ET.

But it “appears to have taken quite a hit from the high mountains of the island,” and at 11 p.m. ET, it had weakened significantly to a Category 2 storm, moving away from Puerto Rico with maximum sustained winds of 110 mph, the agency said. [..] “Extreme rainfall flooding may prompt numerous evacuations and rescues,” the agency said. “Rivers and tributaries may overwhelmingly overflow their banks in many places with deep moving water.” San Juan San Juan Mayor Carmen Yulín Cruz told MSNBC that the devastation in the capital was unlike any she had ever seen. “The San Juan that we knew yesterday is no longer there,” Yulín said, adding: “We’re looking at four to six months without electricity” in Puerto Rico, home to nearly 3.5 million people. “I’m just concerned that we may not get to everybody in time, and that is a great weight on my shoulders,” she said.

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Nice math, but many questions.

Global Mass Extinction Set To Begin By 2100 (Ind.)

Planet Earth appears to be on course for the start of a sixth mass extinction of life by about 2100 because of the amount of carbon being pumped into the atmosphere, according to a mathematical study of the five previous events in the last 540 million years. Professor Daniel Rothman, co-director of MIT’s Lorenz Centre, theorised that disturbances in the natural cycle of carbon through the atmosphere, oceans, plant and animal life played a role in mass die-offs of animals and plants. So he studied 31 times when there had been such changes and found four out of the five previous mass extinctions took place when the disruption crossed a “threshold of catastrophic change”. The worst mass extinction of all – the so-called Great Dying some 248 million years ago when 96 per cent of species died out – breached one of these thresholds by the greatest margin.

Based on his analysis of these mass extinctions, Professor Rothman developed a mathematical formula to help predict how much extra carbon could be added to the oceans – which absorb vast amounts from the atmosphere – before triggering a sixth one. The answer was alarming. For the figure of 310 gigatons is just 10 gigatons above the figure expected to be emitted by 2100 under the best-case scenario forecast by the IPCC. The worst-case scenario would result in more than 500 gigatons. Some scientists argue that the sixth mass extinction has already effectively begun. While the total number of species that have disappeared from the planet comes nowhere near the most apocalyptic events of the past, the rate of species loss is comparable. Professor Rothman stressed that mass extinctions did not necessarily involve dramatic changes to the carbon cycle – as shown by the absence of this during the Late Devonian extinction more than 360 million years ago.

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Sep 182017
 
 September 18, 2017  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Pablo Picasso The old fisherman 1895

 

Muted Inflation A Trillion-Dollar Puzzle – BIS (R.)
Global Debt Underreported By $14 Trillion – BIS (ZH)
World’s Central Banks Can’t Ignore the Bitcoin Boom – BIS (BBG)
Dogecoin Creator On Cryptocurrencies: “Very Bubble. Much Scam. So Avoid.” (NYT)
The Future Of Cryptocurrency Is Not As It Seems (Eric Peters)
China’s $40 Trillion Banking System: “Largest Imbalances I’ve Ever Seen” (ZH)
Stockman: Trump’s Now ‘Blowing Kisses to Janet Yellen’
Spain’s Prosecutor Warns Over Catalonia Referendum As Leaflets Seized (R.)
After Single Payer Failed, Vermont Embarks On Big Health Care Experiment (WP)
Greek Government Told To Begin Online Auctions Or Face A Bank Bail-In (K.)
In Greece, Full-Time Work Is Not The Norm It Once Was (K.)
Hurricane Maria Heading For Caribbean (AFP)

 

 

Debt is the answer. They want you to think they don’t know that.

Muted Inflation A Trillion-Dollar Puzzle – BIS (R.)

The conundrum of stubbornly low inflation despite a pick-up in global growth and continued monetary stimulus is a “trillion dollar” question, the umbrella body for the world’s leading central banks said on Sunday. The Bank for International Settlements (BIS) said in its latest quarterly report that cheap borrowing rates and the rare simultaneous expansion of advanced and developing economies are driving financial markets higher, with signs of “exuberance” starting to re-emerge. U.S. corporate debt is much higher than before the financial crisis and a drop in the premiums investors demand for riskier lending has boosted sales of so-called covenant-lite bonds offering high yields. The BIS said this raises a question over the potential for another crisis if there is a significant rise in interest rates.

The body has called for a gradual return to higher rates, though central banks are being tentative because of persisting low inflation. “It feels like ‘Waiting for Godot’,” said Claudio Borio, the head of the monetary and economic department of the BIS, referring to a play in which the main characters wait for someone who never arrives. But the BIS says no one has yet worked out why inflation has remained so subdued while economies have approached or surpassed estimates of full employment and central banks have provided unprecedented stimulus. “This is the trillion-dollar question that will define the global economy’s path in the years ahead and determine, in all probability, the future of current policy frameworks,” Borio said. “Worryingly, no one really knows the answer.”

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The BIS is surprised by lack of inflation, or does it pretend that? And it’s also surprised by swaps and forwards? Really?

Global Debt Underreported By $14 Trillion – BIS (ZH)

In its latest annual summary published at the end of June, the IIF found that total nominal global debt had risen to a new all time high of $217 trillion, or 327% of global GDP…

… largely as a result of an unprecedented increase in emerging market leverage.

While the continued growth in debt in zero interest rate world is hardly surprising, what was notable is that debt within the developed world appeared to have peaked, if not declined modestly in the latest 5 year period. However, it now appears that contrary to previous speculation of potential deleveraging among EM nations, not only was this conclusion incorrect, but that developed nations had been stealthily piling on just as much debt, only largely hidden from the public eye, in the form of swaps and forwards.

According to a just released analysts by the Bank of International Settlements, “FX swaps and forwards: missing global debt?” non-banks institutions outside the United States owe large sums of dollars off-balance sheet through instruments such as FX swaps and forwards. The BIS then calculates what balance sheets would look like if borrowing through such derivative instruments was recorded on-balance sheet, as functionally equivalent repo debt, and calculates that the total “is of a size similar to, and probably exceeding, the $10.7 trillion of on-balance sheet dollar debt”, potentially as much as $13-14 trillion.

[..] “Every day, trillions of dollars are borrowed and lent in various currencies. Many deals take place in the cash market, through loans and securities. But foreign exchange (FX) derivatives, mainly FX swaps, currency swaps and the closely related forwards, also create debt-like obligations. For the US dollar alone, contracts worth tens of trillions of dollars stand open and trillions change hands daily. And yet one cannot find these amounts on balance sheets. This debt is, in effect, missing.”

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Who says they’re ignoring it? They’re frantically looking to control it.

World’s Central Banks Can’t Ignore the Bitcoin Boom – BIS (BBG)

The world’s central banks can’t sit back and ignore the growth in cryptocurrencies as it could pose a risk to the stability of the financial system, according to the Bank for International Settlements. It said central banks will need to figure out whether to issue a digital currency and what its attributes should be, though the decision is most pressing in countries like Sweden where cash use is dwindling. Institutions need to take into account of not only privacy issues and efficiency gains in payment systems, but also economic, financial and monetary policy repercussions, the BIS said in its Quarterly Review. The analysis comes at the end of a rough week for digital currencies, with JPMorgan CEO Jamie Dimon calling bitcoin a “fraud” and China moving to crack down on domestic trading of cryptocurrencies.

But with bitcoin and others gaining in popularity as payment systems go mobile and investors pour in money, central banks are beginning to delve into them and their underlying blockchain technology, which promises to speed up clearing and settlements. At the Bank of England, Mark Carney has cited cryptocurrencies as part of a potential “revolution” in finance. To better understand the system, the Dutch central bank has created its own cryptocurrency, albeit for internal use only. U.S. officials are exploring the matter too, though in March Federal Reserve Governor Jerome Powell said there were “significant policy issues” that needed further study, including vulnerability to cyber-attack, privacy and counterfeiting.

According to the BIS, one option for central banks might be a currency available to the public, with only the central bank able to issue units that would be directly convertible with cash and reserves. There might be a greater risk of bank runs, however, and commercial lenders might face a shortage of deposits. Another question to be resolved would be the question of privacy.

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“It’s going to be like the dot-com bust, but on a much more epic scale.”

Dogecoin Creator On Cryptocurrencies: “Very Bubble. Much Scam. So Avoid.” (NYT)

Jackson Palmer no longer thinks it’s funny to imitate Doge, the internet meme about a Shiba Inu dog whose awe-struck expressions and garbled syntax (e.g. “Wow. So pizza. Much delicious.”) made him a viral sensation several years ago. But if he did, he might channel Doge to offer a few cautionary words for investors who are falling for cryptocurrency start-ups, Silicon Valley’s latest moneymaking craze: Very bubble. Much scam. So avoid. Mr. Palmer, the creator of Dogecoin, was an early fan of cryptocurrency, a form of encrypted digital money that is traded from person to person. He saw investors talking about Bitcoin, the oldest and best-known cryptocurrency, and wanted to find a way to poke fun at the hype surrounding the emerging technology. So in 2013, he built his own cryptocurrency, a satirical mash-up that combined Bitcoin with the Doge meme he’d seen on social media.

Mr. Palmer hoped to use Dogecoin to show the absurdity of wagering huge sums of money on unstable ventures. But investors didn’t get the joke and bought Dogecoin anyway, bringing its market value as high as $400 million. Along the way, the currency became a magnet for greed and attracted a group of scammers and hackers who defrauded investors, hyped fake products, and left many of the currency’s original backers empty-handed. Today, Mr. Palmer, 30, is one of the loudest voices warning that a similar fate might soon befall the entire cryptocurrency industry. “What’s happening to crypto now is what happened to Dogecoin,” Mr. Palmer told me in a recent interview. “I’m worried that this time, it’s on a much grander scale.”

[..] Mr. Palmer, a laid-back Australian who works as a product manager in the Bay Area and describes himself as “socialist leaning,” was disturbed by the commercialization of his joke currency. He had never collected Dogecoin for himself, and had resisted efforts to cash in on the currency’s success, even turning down a $500,000 investment offer from an Australian venture capital firm. [..] Mr. Palmer worries that the coming reckoning in the cryptocurrency market — and it is coming, he says confidently — will deter people from using the technology for more legitimate projects. “The bigger this bubble goes, the bigger negative connotation it’s going to have,” he said. “It’s going to be like the dot-com bust, but on a much more epic scale.”

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Peters is the CIO at One River Asset Management. “Once private markets perfect cryptocurrency technology, governments will commandeer it, killing today’s pioneers. Then with every cryptodollar, yen, euro and renminbi registered on their servers, they’ll have complete dominion over money, laundering, taxation.”

The Future Of Cryptocurrency Is Not As It Seems (Eric Peters)

“Any other thoughts on the matter?” he asked. We’d spent quite some time discussing Bitcoin, Ethereum, and copycat cryptocurrencies popping up faster than North Korean nukes. I mostly listened, he knew far more about the subject; blockchain, distributed ledgers, mining, halving, hash rates. Unlike the S&P 500 realized volatility’s collapse to 8%, these new creations are realizing at 90%. Which makes them attractive to day-traders, adrenaline junkies, who launched 100 crypto hedge funds just last month. It’s the millennial’s wild west. Like all generations, they’ve discovered a new frontier, with few rules, seedy saloons, gunfights, corpses. As our earthly unknowns disappear, we find new ones in the ether. Which is where money belongs; it’s not real, it’s an abstraction, an age-old illusion.

As a golden myth captured mankind’s imagination, we built our societies upon a rare yellow metal. For 2,500 years we fought, killed, conquered. Until governments tired of the arbitrary spending constraints imposed upon them by a scarce element. So they invented today’s fiction, a printed promise, fiat currency. Seigniorage is the difference between that currency’s market value and its cost of production – that spread is a source of vast wealth and power. And in all human history, not a single government has willingly forfeited such a thing. Nor will one ever. Only after a hyperinflationary depression, confronted with revolution, do governments sometimes relinquish their power to print (Zimbabwe most recently).

Consequently, the future of cryptocurrency is not as it seems. Once private markets perfect cryptocurrency technology, governments will commandeer it, killing today’s pioneers. Then with every cryptodollar, yen, euro and renminbi registered on their servers, they’ll have complete dominion over money, laundering, taxation. They’ll track every transaction. Imposing negative interest rates in an instant. There will be no hiding, no mattresses. And in a deflationary panic, they’ll instantaneously add an extra zero to every account, their own especially.

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“..we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.”

China’s $40 Trillion Banking System: “Largest Imbalances I’ve Ever Seen” (ZH)

KB: We’re in the such late stages of a game that is the largest global imbalance I’ve ever seen in my life. When you look at on balance sheet and off balance sheets, you look at on balance sheet in the banks, you look in the shadow banks. The number of total credit in the system, China is right at $40 trillion. Think about the number I just said. $40 trillion. And that’s using an exchange rate of call it 6.7 to the dollar, right? So it’s grown 1,000% in a decade. And we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.

RP: Where do you get the equity and liquid reserves from?

KB: Well, it’s the amount of equity in the banks of China. It’s right at about $2 trillion. So that’s kind of a stated number. The reserves is my own calculation, right? The Chinese magically have leveled their reserves out around $3 trillion, which happens to be the minimum level of IMF reserve adequacy as defined by the IMF rule.

RP: So what have they been doing now? So, they were under pressure, and then everything kind of eased off, I guess, as the dollar started weakening a bit.

KB: Yeah. Actually, they’ve done three things. Well, so four things have caused this, quote, easing off that you refer to. Three have been driven by SAFE and the PBOC, one that’s been driven by our illustrious Trump. So the first three are, number one, they essentially halted all cross-border M&A. So if you look at the parabola of M&A coming out of China from 2012 to 2016, it reached dizzying heights in 2016. In 2017, it’s like 15% of the 2016 number and no new deals being announced. Now, they’ll always be some outbound M&A that’s driven by really policy at the Communist Party level, right?

They’ll always buy copper mines in Uganda. They’ll always invest in ports in Greece. They’ll always do things that are from a strategic perspective and a policy perspective. The things that the Communist Party needs to procure resources for its people over the long-term. But when you look at the rampant M&A of money leaving China, they just put a halt to it in November of 2016. And the second thing they did was they made it impossible for multinational corporations to get their profits and or working capital out of China. And that’s something that has been a problem for a lot of the multinationals that do business in China.”

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Perma bear.

Stockman: Trump’s Now ‘Blowing Kisses to Janet Yellen’

Stockman: Trump’s ‘Done Nothing in Nine Months’ and Is Now ‘Blowing Kisses to Janet Yellen’ (Fox Business, September 15, 2017)

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EU, UN, US, nobody stands up for democracy. Revealing.

Spain’s Prosecutor Warns Over Catalonia Referendum As Leaflets Seized (R.)

Spanish authorities on Sunday pursued efforts to block an independence vote in Catalonia, seizing campaign materials as the chief prosecutor said jailing the region’s top politician could not be ruled out. The government in the northeastern region is intent on holding a referendum on October 1 that will ask voters whether they support secession from Spain, a ballot Madrid has declared illegal. In a raid on a warehouse in the province of Barcelona on Sunday, police confiscated around 1.3 million leaflets and other campaign materials promoting the vote issued by the Catalan government. The haul was the largest in a series of similar raids, the Interior Ministry said in a statement.

Spanish prosecutors, who have ordered police to investigate any efforts to promote the plebiscite, said last week that officials engaged in any preparations for it could be charged with civil disobedience, abuse of office and misuse of public funds. More than 700 Catalan mayors gathered in Barcelona on Saturday to affirm their support for it. Asked if arresting regional government head Carles Puigdemont was an option if preparations continued, Spain’s chief public prosecutor said in an interview: ”We could consider it because the principal objective is to stop the referendum going ahead. “I won’t rule out completely the option of seeking jail terms… It could happen under certain circumstances,” Jose Manuel Maza was quoted as also telling Sunday’s edition of newspaper El Mundo.

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Promising.

After Single Payer Failed, Vermont Embarks On Big Health Care Experiment (WP)

Doug Greenwood lifted his shirt to let his doctor probe his belly, scarred from past surgeries, for tender spots. Searing abdominal pain had landed Greenwood in the emergency room a few weeks earlier, and he’d come for a follow-up visit to Cold Hollow Family Practice, a big red barnlike building perched on the edge of town. After the appointment was over and his blood was drawn, Greenwood stayed for an entirely different exam: of his life. Anne-Marie Lajoie, a nurse care coordinator, began to map out Greenwood’s financial resources, responsibilities, transportation options, food resources and social supports on a sheet of paper. A different picture began to emerge of the 58-year-old male patient recovering from diverticulitis: Greenwood had moved back home, without a car or steady work, to care for his mother, who suffered from dementia. He slept in a fishing shanty in the yard, with a baby monitor to keep tabs on his mother.

This more expansive checkup is part of a pioneering effort in this New England state to keep people healthy while simplifying the typical jumble of private and public insurers that pays for health care. The underlying premise is simple: Reward doctors and hospitals financially when patients are healthy, not just when they come in sick. It’s an idea that has been percolating through the health-care system in recent years, supported by the Affordable Care Act and changes to how Medicare pays for certain kinds of care, such as hip and knee replacements. But Vermont is setting an ambitious goal of taking its alternative payment model statewide and applying it to 70% of insured state residents by 2022 which — if it works — could eventually lead to fundamental changes in how Americans pay for health care.

“You make your margin off of keeping people healthier, instead of doing more operations. This drastically changes you, from wanting to do more of a certain kind of surgery to wanting to prevent them,” said Stephen Leffler, chief population health and quality officer of the University of Vermont Health Network. Making lump sum payments, instead of paying for each X-ray or checkup, changes the financial incentives for doctors. For example, spurring the state’s largest hospital system to invest in housing. Or creating more roles like Lajoie’s, focused on diagnosing problems with housing, transportation, food and other services that affect people’s well-being.

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The Troika is in Athens to turn on the thumbscrews.

Greek Government Told To Begin Online Auctions Or Face A Bank Bail-In (K.)

The possibility that banks will need for a fresh recapitalization grows with every day the delay in the implementation of online property transactions drags on. This might lead to a deposit haircut, along with generating a major crisis in relations between the government and the country’s creditors. Creditor representatives are accusing the government of delay tactics, for party political purposes, in starting electronic auctions. This puts the sustainability of the credit system at risk as it denies them a crucial tool in efforts to tackle the problem of nonperforming loans (NPLs).

The creditors have explicitly warned Athens about the prospect of a new recapitalization and the risk of a bail-in for banks and their depositors unless the auctions proceed quickly, as their representatives told notaries and banks in Greece during the presentations of the auctions’ online platform, according to the president of the Notaries’ Association, Giorgos Rouskas. The creditors reacted strongly when told that the first online auctions would not take place before early 2018 even though during the second bailout review Athens had committed to start the auctions on September 1. The government claimed the system is in place but the law provides for a period of two months between the submission of an auction request and its realization.

Seeing that the government is again trying to renege on its commitments, the creditors put fresh pressure on Athens, which backed down and said the system may open in the coming days for banks, so that the first online auctions can take place by end-November. In an interview with Kathimerini, Rouskas stressed that “the online platform is ready and all technical tests have been completed.” The onus is therefore on the banks now, which Rouskas explains have to register the repeat auctions or any new ones in the system, being the party initiating the auctions. They will then get a date based on the new system. “We have prepared the platform. It is now up to the lender, be that a bank or a private individual, to issue a request for an online auction scheduling, which notaries are forced to follow. This has not happened yet, but I believe we are very close to its implementation,” said Rouskas.

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Why Greece will not recover. Money supply way down, money velocity way way down.

In Greece, Full-Time Work Is Not The Norm It Once Was (K.)

Official data by the Hellenic Statistical Authority point to an increase in employment by about 250,000 jobs in the last three years (from the second quarter of 2014 to this year’s Q2), but that is only part of the truth. The figures also reveal a constant decline in average salaries, an ongoing increase in the percentage of employed workers who earn less than 500 euros a month – at least one in four gets less than that amount – soaring temporary work (either due to project-specific hirings, subsidies being paid for a restricted period, or time contracts), and a rise in the rate of part-time employment.

Senior and top officials are no longer offered such handsome pay packages, the primary sector is being abandoned and any new enterprises that are being set up are mostly in the field of restaurants, hotels and retail stores. Greeks can only find jobs such as waiters, cleaners, maids or sales assistants, which as a rule are of a seasonal character and fetch a low salary. The 40-hour working week concerns ever fewer workers nowadays, and without the subsidies handed out by the Manpower Organization (OAED) and the increase in tourism flows the unemployment rate probably wouldn’t have declined at all.

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The season is far from over.

Hurricane Maria Heading For Caribbean (AFP)

Maria became a hurricane Sunday as it headed toward the storm-staggered eastern Caribbean with 75 mile (120 kilometer) per hour winds, the US National Hurricane Center said. Storm warnings and watches went up in many of the Caribbean islands still reeling from the destructive passage of Hurricane Irma earlier this month. As of 2100 GMT, Maria was a Category One hurricane, the lowest on the five point Saffir-Simpson scale, located 140 miles (225 kilometers) northeast of Barbados, the NHC said, bearing west-northwest at 15 miles (24 kilometers) an hour. “On the forecast track, the center of Maria will move across the Leeward Islands Monday night and then over the extreme northeastern Caribbean Sea on Tuesday,” it said.

Hurricane warnings were triggered for St Kitts, Nevis and Montserrat, while lesser ‘watches’ were issued for the US and British Virgin Islands where at least nine people were killed during Irma. A warning is typically issued 36 hours before the first occurrence of tropical storm-force winds while watches are issued 48 hours in advance. Tropical storm warnings were, meanwhile, issued for Martinique, Antigua and Barbuda, Saba and St Eustatius and St Lucia. Barbuda was decimated by Hurricane Irma September 5-6 when it made its first landfall in the Caribbean as a top intensity Category Five storm. The NHC said Maria could produce a “dangerous storm surge accompanied by large and destructive waves” that will raise water levels by four to six feet (1.2 to 1.8 meters) when it passes through the Leeward Islands.

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Aug 272017
 
 August 27, 2017  Posted by at 9:00 am Finance Tagged with: , , , , , , , , , ,  5 Responses »
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Elliott Erwitt Downtown Hat Shop Window, Pittsburgh 1950

 

Phillips Curve Doesn’t Help Forecast Inflation, Fed Study Finds (BBG)
Where Do Consumers Spend The Most Money? (Mish)
Should California Spend $3 Billion To Help People Buy Electric Cars? (LAT)
Tesla: A Canary in the Wall Street Coal Mine (Barron’s)
UK Labour Party Makes Dramatic Shift On Brexit And Single Market (G.)
Controlled Demolition (Jim Kunstler)
The War That Time Forgot (CP)
It’s Time To Accept Carbon Capture Has Failed (Conv.)
Industrial Farming Is Driving The Sixth Mass Extinction Of Life On Earth (Ind.)

 

 

The incompetence is deafening. Trillions have been washed away on the theory.

Phillips Curve Doesn’t Help Forecast Inflation, Fed Study Finds (BBG)

A fundamental relationship of mainstream economic theory at the heart of the Federal Reserve’s strategy for setting interest rates has been a poor guide for policy makers for at least three decades, according to a study by the Philadelphia Fed’s top-ranking economist. The paper, co-authored by Philadelphia Fed Director of Research Michael Dotsey, shows that forecasting models based on the so-called Phillips curve, which asserts a link between unemployment and inflation, don’t actually help predict inflation. “Our results indicate that monetary policymakers should at best be very cautious in their reliance on the Phillips curve when gauging inflationary pressures,” Dotsey and Philadelphia Fed economists Shigeru Fujita and Tom Stark wrote.

Their study is timely. Fed officials have been surprised by a deceleration in U.S. inflation over the past several months despite a continued decline in unemployment, the opposite of what the Phillips curve relationship would predict. Minutes of the last meeting of the central bank’s rate-setting Federal Open Market Committee in July revealed that “a few participants cited evidence suggesting that this framework was not particularly useful in forecasting inflation,” while “most participants thought that the framework remained valid.” If the majority view on the FOMC is that the Phillips curve framework is still valid, it implies that central bankers should continue raising interest rates with unemployment at a 16-year low, because they expect inflation will rise in the medium term even though prices pressures have been disappointingly soft.

Kansas City Fed President Esther George, who has been more forceful than many of her colleagues in recent years about the need to raise rates, lent support to that view on the sidelines of this week’s annual gathering of central bankers from around the world in Jackson Hole, Wyoming. “There may in fact be something wrong with the models, I don’t know, I think that continues to be a question that many economists are asking,” George said during a TV interview with Bloomberg’s Michael McKee that aired Thursday. Even so, she favors another rate increase this year.

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Cars + gasoline account for almost 30% of all spending. Crazy.

Where Do Consumers Spend The Most Money? (Mish)

In Dealers “Wildly Overweight” SUVs as Sales Slow, I commented “Vehicles account for 20% of retail spending. A crash or even a significant slowdown will impact retail sales and thus GDP.” A reader asked me how I calculated that. Let’s take a look. My number came from the latest Census Department Advance Retail Sales Report. Here are some charts I created from 7-month totals (January-July) 2017.

Key Points
• Motor vehicles and parts account for 21.18% of retail sales. Gasoline stations account for 7.94%. Together that adds up to 29.12%.
• Food and beverage stores (grocery and liquor stores) account for 12.62 percent of retail sales. Food services and drinking places (restaurants and bars) account for 12.14. The food and drink total is 24.76%.
• Nonstore retailers (think Amazon) account 10.39% of retail sales.

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Yeah, let’s subsidize the car culture.

Should California Spend $3 Billion To Help People Buy Electric Cars? (LAT)

Over seven years, the state of California has spent $449 million on consumer rebates to boost sales of zero-emission vehicles. So far, the subsidies haven’t moved the needle much. In 2016, of the just over 2 million cars sold in the state, only 75,000 were pure-electric and plug-in hybrid cars. To date, out of 26 million cars and light trucks registered in California, just 315,000 are electric or plug-in hybrids. The California Legislature is pushing forward a bill that would double down on the rebate program. Sextuple down, in fact. If $449 million can’t do it, the thinking goes, maybe $3 billion will. That’s the essence of the plan that could lift state rebates from $2,500 to $10,000 or more for a compact electric car, making, for example, a Chevrolet Bolt EV electric car cost the same as a gasoline-driven Honda Civic.

Already approved by several Senate and Assembly committees, the bill will go to Gov. Jerry Brown for his approval or veto if the full Legislature approves it by the end of its current session on Sept. 15. California aims to reduce greenhouse gas emissions by 2030 to a level 40% below what they were in 1990. “If we want to hit our goals, we’re going to have to do something about transportation,” said Assemblyman Phil Ting (D-San Francisco), sponsor of Assembly Bill 1184. Without a dramatic boost in subsidies, Ting said, the state risks falling short of Gov. Brown’s goal of 1.5 million zero-emission vehicles on California highways by 2025, and the California Air Resources Board’s goal of 4 million such cars by 2030. The bill is opposed by Republicans averse to taxpayer subsidies and even the Legislature’s own analysts have called it “duplicative,” “unclear” and “problematic.”

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“Once again, history and reality are replaced by dreams with little substance.”

Tesla: A Canary in the Wall Street Coal Mine (Barron’s)

Those who think today’s stock market is unlike that of 2000, when baseless enthusiasm pushed stocks up to wild valuations, only to collapse in subsequent years, should take another look. Do they remember counting eyeballs as a basis for value? Once again, history and reality are replaced by dreams with little substance. Tesla, in which I have a short position, is becoming the loudest canary in Wall Street’s coal mine. Tesla requires repetitive capital raises to fund persistent operating losses. This requires bullish analysts and holders to keep the stock aloft with projections of imagined earnings from future products, while they overlook existing businesses, which continue to lose vast sums of money. Morgan Stanley, one of Tesla’s major underwriters, has an analyst covering Tesla named Adam Jonas. Astonishingly, he raised his price target for the stock, despite recognizing the need to slash his earnings forecast.

In May, Jonas had estimated per-share losses (excluding stock-option expense) of $3.53 in 2017 and $1.14 in 2018, and a profit of $2.43 in 2019. His latest estimates: losses of $7.60 and $3.66, and a 2019 profit of $2.01. Raising the target price while more than doubling the company’s projected loss indicates the craziness of the times. Price targets are fantasies, discounting distant earnings estimates by analysts who show little accuracy in estimating only a year ahead. For most companies, profit is the major objective. Tesla is different because its founder is different. Elon Musk is driven by a mission to replace fossil fuels with renewable energy. Unlike companies seeking profit maximization by using patents to establish exclusive rights to products, Musk encourages competitors and has made virtually all of his patents available. Almost all auto companies have imminent plans to compete.

Tesla has been first-to-market in electric cars, but this in no way guarantees success, as competition and technological change are major challenges. Remember Atari, Blackberry, AOL, Napster, Netscape, and Palm? Musk is smart and imaginative, but none of his major companies are profitable. Tesla has been around for 14 years and has cumulatively lost more than $3.7 billion, despite the massive subsidies that it and its customers have received. SolarCity, also a beneficiary of alternative-energy subsidies, lost hundreds of millions of dollars before being bailed out by Tesla. As subsidies diminish, and competition emerges, profits will be even more elusive. Tesla tries to convey the illusion of inexhaustible demand for its cars, yet sales of the Model S and Model X have been flat for four quarters. Tesla’s rising inventory and shrinking deposits suggest declining demand.

Tesla claims to have more than 400,000 deposits for the Model 3, but these aren’t orders. They reflect a decision by potential buyers to get in line for a $7,500 tax credit at virtually no cost. Shifting $1,000 from a savings account into a refundable Tesla deposit costs only about $1 per year in lost interest. Fewer than 100,000 of these depositors will actually get full tax credits before Tesla consumes its allowable allotment of them. Its competitors will be able to offer such credits to prospective buyers, just as Tesla’s expire.

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Jockeying for votes?

UK Labour Party Makes Dramatic Shift On Brexit And Single Market (G.)

Labour is to announce a dramatic policy shift by backing continued membership of the EU single market beyond March 2019, when Britain leaves the EU, establishing a clear dividing line with the Tories on Brexit for the first time. In a move that positions it decisively as the party of “soft Brexit”, Labour will support full participation in the single market and customs union during a lengthy “transitional period” that it believes could last between two and four years after the day of departure, it is to announce on Sunday. This will mean that under a Labour government the UK would continue to abide by the EU’s free movement rules, accept the jurisdiction of the European court of justice on trade and economic issues, and pay into the EU budget for a period of years after Brexit, in the hope of lessening the shock of leaving to the UK economy.

In a further move that will delight many pro-EU Labour backers, Jeremy Corbyn’s party will also leave open the option of the UK remaining a member of the customs union and single market for good, beyond the end of the transitional period. Permanent long-term membership would only be considered if a Labour government could by then have persuaded the rest of the EU to agree to a special deal on immigration and changes to freedom of movement rules. The announcement, revealed in the Observer by the shadow Brexit secretary, Keir Starmer, means voters will have a clear choice between the two main parties on the UK’s future relations with the EU after a year in which Labour’s approach has been criticised for lacking definition and appeared at times hard to distinguish from that of the Tories.

The decision to stay inside the single market and abide by all EU rules during the transitional period, and possibly beyond, was agreed after a week of intense discussion at the top of the party. It was signed off by the leadership and key members of the shadow cabinet on Thursday, according to Starmer’s office.

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“..to reassure the masses that effective spells for favor of the Gods have been cast — except that in our civilization money is God.”

Controlled Demolition (Jim Kunstler)

This is the week-of-weeks when the official grand viziers of finance gather at Jackson Hole, Wyoming, to confab and interpret the lay of animal neck-bones and other auguries scattered in the sand, with the hope of steering the awesome powers of the universe this was or that as they affect the operations of money. The exercise is hardly different in function from the sort of rude ceremonials that took place on top of Sumerian ziggurats and Aztec temples — to reassure the masses that effective spells for favor of the Gods have been cast — except that in our civilization money is God. Or “money,” we should say, because the old definitions don’t fit so well anymore. It used to have a straightforward relationship with the work required to produce actual things of value, but those days are gone.

“Money” nowadays is a byproduct of wishful analytics and computer legerdemain seasoned with generous measures of fraud and larceny. This is a big problem when everything is measured in money and it becomes quite impossible to state with assurance what the value of money actually is. Obviously, you end up not knowing the value of anything. That’s the perilous situation the world faces. And since the USA is the straw the stirs the world’s drink — at least for now — the utterances emanating from Jackson Hole may determine which way that situation turns. We should suppose that the officers of the Federal Reserve are upright, well-intentioned, patriotic people. No doubt they think they are. But the perilous situation is largely one of their own making, and seems to be veering out of their control, and reputations are at stake.

Their task at this year’s Jackson Hole confab is to maintain the appearance of confidence in their own rituals. But with a kicker. That kicker is named T-r-u-m-p. This modern Balaam, riding the ass of the Deep State into wickedness, must be stopped, perhaps at all costs. On his way to the oval office last fall, Trump prophesied that the stock markets represented “one big, fat, ugly bubble.” That was an offense to the grand viziers, for whom the elevated stock market valuations stood as the main testament to their power and wisdom. In fact, it was the only testament, and a rather flimsy one. More recently, though, the wicked Trump changed his tune and declared that the tower of stock market exaltation was his own doing, setting himself up for the revenge of the grand viziers.

Since nothing else has worked so far to dislodge Trump from the White House, a tumbling tower of stocks might seal his fate. The tower has to fall anyway, lest the moiling masses of flyover America think about besetting Wall Street with pitchforks and torches. A controlled demolition might be just the thing to appease these suffering holders of three part-time jobs (if they are so lucky) who have stood by in wonder and nausea while a tiny fraction of the elite gather unto themselves all the dwindling riches of the realm — at least in paper securities denominated in US dollars — while the wicked Trump will be left to the jackals of the Deep State, to be torn apart with the 25th Amenedment.

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Elizabeth War(ren).

The War That Time Forgot (CP)

If it’s Independence Day, then you can count on John McCain to be bunkered down in a remote outpost of the Empire growling for the Pentagon to unleash airstrikes on some unruly nation, tribe or gang. This July the Fourth found McCain making a return engagement to Kabul, an arrival that must have prompted many Afghans to scramble for the nearest air raid shelter. From the press room at NATO command, McCain announced that “none of us could say we are on a course to success here in Afghanistan.” The senator should have paused for a reflective moment and then called for an end to the war. Instead, McCain demanded that Trump send more US troops, more bombers and more drones to terrorize a population that has been riven by near constant war since the late 1970s.

McCain’s martial drool is now as familiar as the opening notes to the “Law & Order” theme song. What may surprise some, however, is the composition of the delegation that signed up to travel on his frequent flier program, notably the presence of two Democratic Senators with soaring profiles: Sheldon Whitehouse and Elizabeth Warren. Whitehouse, the former prosecutor (aren’t they all?) from Rhode Island, has lately taken a star turn in the role of chief inquisitor of suspected Russian witches in the Senate intelligence committee hearings. Perhaps he finally located one selling AK-47s to the Taliban to replace the guns they’d gotten from the CIA. (We now know that it’s the Saudis–not the Russians–who have been covertly funneling money to the Taliban, though don’t expect the Trump to impose any sanctions on the Kingdom of the Head-choppers.)

For her part, Warren largely echoed McCain’s bellicose banter that Trump needs to double down militarily to finish off the Taliban, the impossible dream. No real surprise here. To the extent that she’s advanced any foreign policy positions during her stint in the senate, Warren has been a dutiful supplicant to the demands of AIPAC and the Council on Foreign Relations, rarely diverging from the neocon playbook for the global war on Islam. Warren’s Afghan junket is a sure sign of her swelling presidential ambitions. These days “national security” experience is measured almost exclusively by how much blood you are willing to spill in countries you know almost nothing about. It didn’t take long for Warren to matriculate to the company position.

[..] Nothing better illustrates the eclipse of US global power than the fact that Afghanistan refuses to be subjugated or even managed, despite 16 years of hard-core carnage. Since the first US airstrikes hit Kandahar in October 2001, more than 150,000 Afghan civilians have been killed. Still Afghanistan resists imperial dictates. Even after Obama’s shameful troop surge in 2010, an escalation that went almost unopposed by the US antiwar movement, the Taliban now retains almost as much control of the country as it did in 2001. And for that Afghanistan must be punished. Eternally, it seems.

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There’s always a new theory. Don’t let’s stop using as much of the stuff as we can.

It’s Time To Accept Carbon Capture Has Failed (Conv.)

For years, optimists have talked up carbon capture and storage (CCS) as an essential part of taking emissions out of electricity generation. Yes, build wind and solar farms, they have said, but they can t be relied on to produce enough power all the time. So we ll still need our fleet of fossil-fuel-burning power stations; we just need to stop them pumping carbon dioxide (CO2) into the atmosphere. Most of their emphasis has been on post-combustion capture. This involves removing CO2 from power station flue gases by absorbing them into an aqueous solution containing chemicals known as amines. You then extract the CO2 , compress it into a liquid and pump it into a storage facility the vision in the UK being to use depleted offshore oil and gas fields. One of the big attractions with such a system is it could be retrofitted to existing power stations.

But ten years after the UK government first announced a £1 billion competition to design CCS, we re not much further forward. The reason is summed up by the geologist Lord Oxburgh in his contribution to the government-commissioned report on CCS published last year: “There is no serious commercial incentive and it will stay that way unless the state demonstrates there is a business there.” The problem is that the process is costly and energy intensive. For a gas-fired power station, you typically have to burn 16% more gas to provide the capture power. Not only this, you end up with a 16% increase in emissions of other serious air pollutants like sulphur dioxide, nitrogen oxides and particulate matter. Concerns have also been expressed about the potential health effects of the amine solvent used in the carbon capture.

You then have to contend with the extra emissions from processing and transporting 16% more gas. And all this before you factor in the pipeline costs of the CO2 storage and the uncertainties around whether it might escape once you ve got it in the ground. Around the world, the only places CCS looks viable are where there are heavy state subsidies or substantial additional revenue streams, such as from enhanced oil recovery from oilfields where the COC is being pumped in. Well, say the carbon capture advocates, maybe another technology is the answer. They point to oxy-combustion, a system which is close to reaching fruition at a plant in Texas.

First proposed many years ago by British engineer Rodney Allam, this involves separating oxygen from air, burning the oxygen with the fossil fuel, and using the combustion products -water and CO2- to drive a high-pressure turbine and produce electricity. The hot CO2 is pressurised and recycled back into the burners, which improves thermal efficiency. It has the additional advantage that CO12 is also available at pressures suitable for pipeline transportation.

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Small is beautiful.

Industrial Farming Is Driving The Sixth Mass Extinction Of Life On Earth (Ind.)

Industrial agriculture is bringing about the mass extinction of life on Earth, according to a leading academic. Professor Raj Patel said mass deforestation to clear the ground for single crops like palm oil and soy, the creation of vast dead zones in the sea by fertiliser and other chemicals, and the pillaging of fishing grounds to make feed for livestock show giant corporations can not be trusted to produce food for the world. The author of bestselling book The Value of Nothing: How to Reshape Market Society and Redefine Democracy will be one of the keynote speakers at the Extinction and Livestock Conference in London in October. Organised by campaign groups Compassion in World Farming and WWF, it is being held amid rising concern that the rapid rate of species loss could ultimately result in the sixth mass extinction of life.

This is just one reason why geologists are considering declaring a new epoch of the Earth, called the Anthropocene, as the fossils of soon-to-be extinct animals will form a line in the rocks of the future. The last mass extinction, which finished off the dinosaurs and more than three-quarters of all life about 65 million years ago, was caused by an asteroid strike that sent clouds of smoke all around the world, blocking out the sun for about 18 months. Prof Patel, of the University of Texas at Austin, said: “The footprint of global agriculture is vast. Industrial agriculture is absolutely responsible for driving deforestation, absolutely responsible for pushing industrial monoculture, and that means it is responsible for species loss. “We’re losing species we have never heard of, those we’ve yet to put a name to and industrial agriculture is very much at the spear-tip of that.”

Speaking to The Independent, he pointed to a “dead zone” – an area of water where there is too little oxygen for most marine life – in the Gulf of Mexico that has grown to the same size as Wales because of vast amounts of fertiliser that has washed from farms in mainland US, into the Mississippi River and then into the ocean. “That dead zone isn’t an accident. It’s a requirement of industrial agriculture to get rid of the sh*t and the run-off elsewhere because you cannot make industrial agriculture workable unless you kick the costs somewhere else,” he said. “The story of industrial agriculture is all about externalising costs and exploiting nature.” “Extinction is about the elimination of diversity. What happens in Brazil and other places is you get green deserts — monocultures of soy and nothing else. “Various kinds of chemistry is deployed to make sure it is only soy that’s grown on these mega-farms. “That’s what extinction looks like. If you ever go to a soy plantation, animal life is incredibly rare. It’s only soy, there’s nothing there for anything to feed on.”

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Aug 262017
 
 August 26, 2017  Posted by at 7:40 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Vincent van Gogh Self-Portrait with Straw Hat Aug-Sep 1887

 

Draghi Warns Of Serious Risk To Global Economy From Rising Protectionism (CNBC)
Yellen and Draghi Both Defend Post-Crisis Financial Regulation (BBG)
Central Banks’ Pursuit Of Inflation Has Turned Sisyphean (CNBC)
IMF: We See A Broad-Based Global Recovery (CNBC)
Rickards: September Meltdown Ahead (DR)
Negative Interest Rates Have Come To America (Black)
Adults Take Over at Uber, Cost Cutting Starts (WS)
Sears Revenues to Hit Zero in 3 Years. But Bankruptcy First (WS)
Health-Care Costs Could Eat Up Your Retirement Savings (BBG)
Schaeuble Defends Tough Line On Greek Reforms (K.)
Minister: Young Greeks Fleeing A ‘Debt Colony’ (K.)

 

 

Only globalization can save you. In other news: all your base are belong to us.

Draghi Warns Of Serious Risk To Global Economy From Rising Protectionism (CNBC)

European Central Bank President Mario Draghi said protectionist policies pose a “serious risk” for growth in the global economy. At a gathering of central bankers, economists and others in Jackson Hole, Wyoming, on Friday, Draghi said the global economy is firming up. He told the audience in a speech that “a turn towards protectionism would pose a serious risk for continued productivity growth and potential growth in the global economy.” The comments come at a time when President Donald Trump is taking a hard look at the U.S.’s trade agreements around the world, pushing to reduce trade deficits and make conditions more favorable for American manufacturers.

Trump also came to office promising American business leaders he would break down regulations, which he said have constrained economic growth. The financial industry in particular seems poised to benefit if Obama-era regulations on banks and Wall Street get dismantled or diluted. On Friday, Draghi, a former Goldman Sachs executive, said “there is never a good time for lax regulation” especially because it can create incentives that lead to higher risk-taking. “By contrast, the stronger regulatory regime that we have now has enabled economies to endure a long period of low interest rates without any significant side-effects on financial stability, which has been crucial for stabilizing demand and inflation worldwide,” Draghi said. “With monetary policy globally very expansionary, regulators should be wary of rekindling the incentives that led to the crisis.”

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MO: make a godawful mess, then switch to being sensible.

Yellen and Draghi Both Defend Post-Crisis Financial Regulation (BBG)

The world’s two most powerful central bankers on Friday delivered back-to-back warnings against dismantling tough post-crisis financial rules that the Trump administration blames for stifling U.S. growth. ECB President Mario Draghi, speaking at the Federal Reserve’s annual retreat in Jackson Hole, Wyoming, said it was a particularly dangerous time to loosen regulation given that central banks are still supporting their economies with accommodative monetary policies. That warning followed earlier remarks by Fed Chair Janet Yellen, who offered a broad defense of the steps taken since the 2008 financial-market meltdown and urged that any rollback of post-crisis rules be “modest.” The combined effect was “a subtle shot across the bow of those who seek deregulation,” said Michael Gapen, chief U.S. economist at Barclays in New York.

The complementary speeches come at what may be the tail end of Yellen’s tenure at the Fed’s helm. President Donald Trump is not expected to reappoint her when her leadership term expires in February, according to economists surveyed by Bloomberg. Gapen said that by delivering overlapping messages, Yellen and Draghi could help amplify their points, but “in practice that’s not the agenda the Trump administration is likely to seek.” In a talk aimed broadly at defending the merits of globalization, Draghi said it’s crucial to make sure open policies on trade and global finance should be safeguarded with regulations designed to make globalization fair, safe and equitable. “We have only recently witnessed the dangers of financial openness combined with insufficient regulation,” Draghi said, referring to the global financial crisis of 2008-09.

Any reversal of the regulatory response to that crisis, he added, “would call into question whether the lessons of the crisis have indeed been learnt – and thus whether financial integration can still be considered safe.” That point was all the more important given that central banks are continuing to provide stimulus to their economies. “With monetary policy globally very expansionary, regulators should be wary of rekindling the incentives that led to the crisis,” Draghi said.

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Blind as bats.

Central Banks’ Pursuit Of Inflation Has Turned Sisyphean (CNBC)

Central banks globally have spent years fruitlessly trying to awaken long-dormant inflation, and some analysts say it’s time to stop trying. Anemic inflation has become a bugaboo for global central banks, with frequent mentions in the meeting minutes. It’s been a speed bump in the U.S. Federal Reserve’s path toward normalizing interest rates, with members voting at the July meeting to keep the current target rate in a 1% to 1.25% range. Minutes from that July decision show some policymakers were pushing for caution on rate hikes due to low inflation. The Fed’s target is for 2% inflation, and its preferred measure of inflation is at about 1.5%. It’s not limited to the U.S. by any stretch: Japan’s colossal struggle to goad inflation to life has been a stalemate at best. Since the Bank of Japan launched a massive quantitative easing program in 2013, the country has exited deflation.

But even the September 2016, introduction of a “yield-curve control” policy, seen by markets as essentially a “whatever it takes” stance on boosting inflation, hasn’t seemed to move the needle much. Japan’s core consumer price index, which includes oil products and excludes fresh food, rose 0.5% year-on-year in July, Reuters reported on Friday. That compared with the BOJ’s goal for inflation to meet or exceed its target of 2% “in a stable manner.” It also was oddly jarring compared with Japan’s economy growing a better-than-expected annualized 4% year-on-year in the April-to-June quarter. Some analysts have said the persistently low inflation was a signal that central banks shouldn’t be using inflation to guide monetary policy. “If we’ve got growth at trend, which most places appear to have, if we’ve got the unemployment rate at full employment, which most places appear to have, then we shouldn’t even worry about what inflation is doing,” Rob Carnell, head of research for Asia at ING, said recently.

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The future’s are so bright you just got to wear shades.

IMF: We See A Broad-Based Global Recovery (CNBC)

The global economy is doing well, the chief economist for the International Monetary Fund told CNBC on Friday. The IMF’s new forecast on the world’s economy is expected in about five weeks, Maury Obstfeld said. And while he wouldn’t divulge what that may be, he did say the organization “certainly” isn’t going to lower the number from its last projection. In July, the IMF forecast global economic growth of 3.5% for 2017 and 2.5% for 2018. “We see broad-based recovery. The importance is that it’s really broad-based in a way that it hasn’t been in a decade,” Obstfeld said in a “Closing Bell” interview from the sidelines of the Federal Reserve’s symposium in Jackson Hole, Wyoming.

That doesn’t mean there won’t be concerns ahead. While there are not any immediate downside risks, there are longer-term ones, he noted. “One risk is just continuing tepid growth. What we’re seeing now is a cyclical upswing, but potential growth remains slow,” Obstfeld said. “That brings with it political tensions which we’ve seen spilling over into protectionist rhetoric, for example.” Earlier Friday, ECB Mario Draghi told the audience at Jackson Hole that protectionist policies pose a “serious risk” for growth in the global economy. The comments come at a time when President Donald Trump has been scrutinizing U.S. trade agreements around the world in a push to reduce trade deficits and boost conditions for American manufacturers.

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Ice-9.

Rickards: September Meltdown Ahead (DR)

Jim Rickards joined Alex Stanczyk at the Physical Gold Fund to discuss current destabilizing factors that could drastically impact investors. During the first part of their conversation the economic expert delved into gold positioning for the future, the expanding threats from North Korea and liquidity in global markets. To begin Rickards’ was prompted on his latest analysis over North Korea and the international threat the country poses going forward. The currency wars expert urged, “The fact is, the threats from North Korea, even if not to the mainland, still threaten U.S territory. There are a lot of Americans living there. As this escalation continues in sequence the problem is not new.” “The threat of North Korea has been going on for decades and has escalated since the mid 1990’s. Bill Clinton and George W. Bush both offered sanctions relief for the country in exchange for program reductions.

The Obama administration essentially did nothing for eight years. I do think the Trump administration at least deserves credit for clarity.” “Trump has identified that he is not willing to negotiate to arrive at negotiations. They have indicated to North Korea that if the regime wishes to come to the table what the White House must see is a verified cessation of weapons programs. In exchange they could offer potential sanctions relief and even the possibility of integrating the North Korean economy into the global economy. The North Koreans are actually very rich in natural resources and could be a commodity driven exporter.” “The U.S is not going to be bullied. It will continue to operate in South Korea with joint military exercises. One by one the North Koreans have come to understand missile technology and it seems like they are within the final steps toward miniaturization of weapons.”

[..] The author of Road to Ruin highlighted the severity of the debt ceiling and what it means for the economy. Rickards went on, “There are two really big, but separate, deadlines converging on September 29th. The first is the debt ceiling. This has to deal with the borrowing authority of the U.S Treasury and to be able to pay the bills of the government.” “That authority includes the money to cover social security, medicare, medicaid, military and all of the operations within the budget. Until it is authorized, the Treasury is essentially running on fumes. They are running out of cash. They need Congress to authorize an increase in the debt ceiling so they can borrow money so they can pay for their bills. The problem is that Congress is not functional right now.”

[..] Rickards then turned to warn how liquidity can be frozen by governments. “In October 1987, the major U.S stock market, and in particular the Dow Jones, fell 22% in one day. That kind of a drop would be 4,000 Dow points. When I explain that move to investors they typically respond that there are measures in place to freeze the market and stop such a loss.” “My immediate reaction is, which makes you feel more concerned; thousand point drops, or a closed exchange? At least with a significant point drop you can still get out at a price. If you shut the market down, that’s Ice-9. My thesis is that if you shut down one market the demand for liquidity then just moves to another market, requiring another sector shutdown.”

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“..in principle there’s nothing wrong with paying a bank a reasonable fee to safeguard your money. But that’s not what banks do.”

Negative Interest Rates Have Come To America (Black)

Negative interest rates are particularly prominent in Europe. Starting back in 2014, the European Central Bank (ECB) slashed its main interest rate to below zero. One bizarre effect of this policy is that some banks have passed on these negative interest rates to their retail depositors. This trend has persisted across Europe, Japan, and many other parts of the world. Yet at least Americans were able to breathe a sigh of relief that negative interest rates hadn’t crossed the Atlantic. Well, that’s not entirely true. Recently I was reading through Bank of America’s most recent annual report; it’s filled with some shocking facts about the -real- level of wealth in the Land of the Free… which I’ll tell you more about next week. But here’s one of the things that caught my eye: Bank of America has $592.4 billion in deposits from retail customers, i.e. regular folks who bank at BOA.

And according to its annual report, BOA paid its retail depositors an average interest rate of 0.04% last year. Seriously. That’s a tiny, laughable amount of interest. But hey, at least it’s positive. That 0.04% average rate means the bank paid its retail depositors a total of $236 million in interest. Yet at the same time, Bank of America charged those very same retail depositors $4.1 BILLION in fees. So in total, small depositors forked over a net sum of $3.8+ billion to Bank of America last year for the privilege of holding their money at the bank. Based on the bank’s total consumer deposits of $592.4 billion, it’s as if the bank had charged its customers a negative interest rate of 0.64%. What’s the point? It’s one thing to pay fees to a bank that will safeguard your capital and act in the most conservative way possible.

People pay fees to storage companies to safeguard their wine collections, baseball card collections, all sorts of stuff. We even pay fees for safety deposit boxes to store important documents. So in principle there’s nothing wrong with paying a bank a reasonable fee to safeguard your money. But that’s not what banks do.

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It’s time for competition.

Adults Take Over at Uber, Cost Cutting Starts (WS)

[..] now the adults have taken over at Uber. And money has become an objective. A 14-member executive committee is running the show since there’s no CEO, no CFO, no number two behind the CFO, and no COO. A gaggle of other executives and managers left or were shoved out in the wake of scandals, chaos, and lawsuits. And the adults have decided to bring the expenses down. One of the steps is to unload Uptown Station. According to the San Francisco Business Times: The possible sale of Uptown Station means Uber can move the asset and development costs off its books, which could put it in a better financial position. That was a key motivator for exploring the sale, spokesperson MoMo Zhou told the Business Times. Uber was looking “to strengthen our financial position so we can better serve riders and drivers in the long term,” she said.

So they’re starting to concentrate their efforts and prioritize their spending where it matters: riders and drivers. In March already, Uber had decided to scale down its move to Uptown Station. Instead of migrating 2,500 to 3,000 employees into the building, it said it would move just a few hundred, and lease out the remaining space. Uber has booming sales – in Q2, “adjusted net revenue” soared by 118% year-over-year to $1.75 billion – but it also has booming expenses and losses, and sooner or later something has to give. In 2016, it booked an “adjusted” loss of $3.2 billion (not including interest, tax, employee stock compensation expenses, and other items). In the first two quarters of 2017, it booked an “adjusted” loss of $1.4 billion: $4.6 billion in “adjusted” losses in six quarters. It has $6.6 billion in cash. At this pace, it’ll be gone quickly.

Uber is now trying to cut its losses and reach profitability, a “person with knowledge of the matter” told the Business Times. And given the chaos surrounding Uber, it might be a better idea to concentrate employees in one place rather than scattering them all over the landscape. This comes after the adults have also decided to shut down Uber’s subprime auto leasing program that was started two years ago. “Xchange Leasing” put their badly paid drivers with subprime credit into new vehicles they couldn’t afford. The leases allowed drivers to put “unlimited miles” on their cars without consequences and return the cars after 30 days with two weeks’ notice. No one in the car business would ever offer this kind of lease. But the folks at Uber simply didn’t need to do the math. Uber invested $600 million in this program. Now the adults found out they’re losing $9,000 per car. With 40,000 cars in the fleet, it adds up in a hurry. So they decided to shut down that program.

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Sears is toast.

Sears Revenues to Hit Zero in 3 Years. But Bankruptcy First (WS)

In its fiscal year 2017, it already closed about 180 stores and expects to shutter an additional 150 stores in the third quarter. Those closings had been announced previously. But in its earnings release, it announced the closing of 28 more Kmart stores “later this year.” Liquidation sales will begin as early as August 31, it said. The rest of the plunge was caused by same-store sales (sales at stores open longer than one year) which dropped 11.5%. “Softness in store traffic” the company called it. But the trend is falling off a cliff: In Q2 2016, same-store sales had dropped “only” 5.2%. Now they’re plunging at more than double that rate. Despite the ceaseless corporate rhetoric of operational improvements, this baby is going down the tubes at an ever faster speed. How does that $4.37 billion in revenues stack up? They’re down by nearly two-thirds from Q2 2007. This is what the accelerating revenue shrinkage looks like:

[..] Over the past three years, the momentum of the revenue decline has accelerated sharply. Q2 revenues have plummeted from $8.0 billion in 2014 to $4.37 billion in 2017. A decline of $3.6 billion, or 45% in three years. This chart shows Q2 revenues from 2014 to 2017, with the trend line (purple) extended until it hits zero. This is the same track that Q1 revenues are on. As I’d postulated three months ago, at this rate, revenues of the once largest retailer in the US will be zero in three years, or by 2020. Zero is the inevitable result of a hedge-fund strategy of asset-stripping and cost-cutting at a retailer that had already been struggling before the takeover, and that now finds itself embroiled without effective online strategy in the American brick-and-mortar retail meltdown. But revenues won’t drop to zero. Sears won’t last that long.

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But who actually has the required $275,000? And what happens to those who don’t have it?

Health-Care Costs Could Eat Up Your Retirement Savings (BBG)

In a perfect world, the largest expenses in retirement would be for fun things like travel and entertainment. In the real world, retiree health-care costs can take an unconscionably big bite out of savings. A 65-year-old couple retiring this year will need $275,000 to cover health-care costs throughout retirement, Fidelity Investments said in its annual cost estimate, out this morning. That stunning number is about 6% higher than it was last year. Costs would be about half that amount for a single person, though women would pay a bit more than men since they live longer. You might think that number looks high. At 65, you’re eligible for Medicare, after all. But monthly Medicare premiums for Part B (which covers doctor’s visits, surgeries, and more) and Part D (drug coverage) make up 35% of Fidelity’s estimate.

The other 65% is the cost-sharing, in and out of Medicare, in co-payments and deductibles, as well as out-of-pocket payments for prescription drugs. And that doesn’t include dental care—or nursing-home and long-term care costs. Retirees can buy supplemental, or Medigap, insurance to cover some of the things Medicare doesn’t, but those premiums would lead back to the same basic estimate, said Adam Stavisky, senior vice president for Fidelity Benefits Consulting. The 6% jump in Fidelity’s estimate mirrors the average annual 5.5% inflation rate for medical care that HealthView Services, which makes health-care cost projection software, estimates for the next decade. A recent report from the company drilled into which health-care costs will grow the fastest.

It estimates a long-term inflation rate of 7.2% for Medigap premiums and 8% for Medicare Part D. For out-of-pocket costs, the company estimates inflation rates of 3.7% for prescription drugs, 5% in dental, hearing, and vision services, 3% for hospitals, and 3.4% for doctor’s visits and tests. Cost-of-living-adjustments on Social Security payments, meanwhile, are expected to grow by 2.6%, according to the HealthView Services report.

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“One day they will build a statue in my honor in Greece in a show of gratitude..”

Schaeuble Defends Tough Line On Greek Reforms (K.)

As Prime Minister Alexis Tsipras prepares to present a positive narrative at next month’s Thessaloniki International Fair about how the country is turning a corner ahead of the next review by international creditors in the fall, German Finance Minister Wolfgang Schaeuble has reportedly suggested that Athens should be grateful to him for his tough stance on economic reform and austerity. “One day they will build a statue in my honor in Greece in a show of gratitude for the pressure that I imposed in order for necessary reforms to be carried out,” the outspoken minister was quoted as saying by German newspaper Handelsblatt. According to the same newspaper, Schaeuble aims to turn the European Stability Mechanism into a European version of the IMF, one of Greece’s creditors.

The concept is that of a European monetary fund that would help eurozone states in financial crisis but subject to strict terms, such as those that underpinned the IMF’s support to Greece and other countries in recent years. Other ideas, such as the possibility of introducing growth-inducing measures in such countries, were reportedly rejected by Schaeuble. French President Emmanuel Macron meanwhile has suggested that the eurozone should have its own central budget which it could tap if necessary to support member-states in financial difficulty. He is also said to back the idea of a eurozone finance minister, another idea opposed by Berlin. Macron is due in Athens in the first week of September for an official visit that government sources hope will bolster Tsipras’s positive narrative while there are also signs that French firms might confirm their interest in investing in the Thessaloniki Port Authority.

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When you’re bled dry of your young and their energy, you’re not going to recover.

Minister: Young Greeks Fleeing A ‘Debt Colony’ (K.)

In comments to Skai TV on Friday, Deputy Education Minister Costas Zouraris said he understood why large numbers of young Greeks are abandoning the country for better employment opportunities abroad, noting that Greece is “a debt colony” that is “slightly worse” than India. “For now, it’s understandable that kids are saying they want to leave,” Zouraris told Skai. “Let’s hope they return because we are, as you know, bankrupt and a debt colony.” He added that the Greek state has invested about 1 million euros in its top graduates who are now leaving the country. “We are now giving this as a gift to foreign countries for a few years,” he said.

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Aug 252017
 
 August 25, 2017  Posted by at 8:30 am Finance Tagged with: , , , , , , , ,  6 Responses »
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Sergio Larraín Valparaiso Passage Bavestrello 1952

 

78% of Americans Live Paycheck To Paycheck (CNBC)
Systemic Banking Fraud Means Next Crisis Will Be Worse (Feierstein)
Did the Economy Just Stumble Off a Cliff? (CHS)
Central Bank Balance Sheets Are Headed for a Great Divergence (BBG)
Low World Inflation Dogs Central Bankers, Even As Economies Grow (R.)
Amazon’s Plans to Cut Food Prices Will Be a Headache for the Fed (BBG)
Has The Fed Completely Lost Control (Roberts)
No Alternative To Austerity? That Lie Has Now Been Nailed (G.)
Germany Slammed For Domestic Under-Spending (Ind.)
EU States Begin Returning Refugees To Greece As German Reunions Slow (G.)
Yemen: The War No One Is Allowed To Know About (NS)
3,700-Year-Old Babylonian Clay Tablet Just Changed The History of Maths (SA)
Hurricane Harvey Has All the Ingredients to Become a Monster (AP)

 

 

Forget about Jackson Hole. This is America.

78% of Americans Live Paycheck To Paycheck (CNBC)

No matter how much you earn, getting by is still a struggle for most people these days. 78% of full-time workers said they live paycheck to paycheck, up from 75% last year, according to a recent report from CareerBuilder. Overall, 71% of all U.S. workers said they’re now in debt, up from 68% a year ago, CareerBuilder said. While 46% said their debt is manageable, 56% said they were in over their heads. About 56% also save $100 or less each month, according to CareerBuilder. The job-hunting site polled over 2,000 hiring and human resource managers and more than 3,000 full-time employees between May and June.

Most financial experts recommend stashing at least a six-month cushion in an emergency fund to cover anything from a dental bill to a car repair — and more if you are the sole breadwinner in your family or in business for yourself. While household income has grown over the past decade, it has failed to keep up with the increased cost-of-living over the same period. Even those making over six figures said they struggle to make ends meet, the report said. Nearly 1 in 10 of those making $100,000 or more said they usually or always live paycheck to paycheck, and 59% of those in that salary range said they were in the red.

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“Someone once alerted me to the Bohica syndrome. Bohica? I asked.

He sneered: “Bend Over, Here It Comes Again.”

Systemic Banking Fraud Means Next Crisis Will Be Worse (Feierstein)

Henry Paulson. Hank. Remember him? Of the crisis in 2008, he said: “Where I come from, if someone takes a risk and they’re going to make the profit from that risk, they shouldn’t have the taxpayer pay for the losses.” Quite the wisdom one expects from the 74th US Secretary of the Treasury. Yet, as Paulson played pass the parcel with the rest of us, it was he who unwrapped the final layer when the music stopped, and discovered that the prize within was a grenade. Understandable, therefore, that he offered a second opinion somewhat in contrast to his first: “It’s better to have the taxpayer pay for the losses than have the United States of America become an economic wasteland. If the financial system collapses, it’s really, really hard to put it back together again.”

Well, it did, and it was. Two years after the fall of Lehman Brothers, former Federal Reserve chairman Alan Greenspan was still reflecting on the solution. “There are two fundamental reforms we need — to get adequate capital and… far higher levels of enforcements of… fraud statutes.” So what progress has been made in the efforts to reduce the risks of another crisis? Not enough. In a letter this year to Bank of England’s Governor, Mark Carney, (in his capacity as chairman of the Financial Stability Board), the Senior Supervisors Group reported that “firms’ progress toward consistent, timely, and accurate reporting of top counterparty exposures fails to meet supervisory expectations”. It said there is still too little reform, and too little essential knowledge of counterparty risk.

But what of Greenspan’s assertions of criminal behaviour in financial markets? Again, no change. Market manipulation is not a conspiracy theory. The Bank of Japan has manoeuvred its bond market to a point where bond futures no longer trade. Its interventions have distorted free-market pricing mechanisms to the point that risk is virtually impossible to quantify. But the most pressing concern is the behaviour of central banks, which had previously appeared a solid safe haven.

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Guess where the trillions went?!

Did the Economy Just Stumble Off a Cliff? (CHS)

The signs are everywhere for those willing to look: something has changed beneath the surface of complacent faith in permanent growth. This is more intuitive than quantitative, but my gut feeling is that the economy just stumbled off a cliff. Neither the cliff edge nor the fatal misstep are visible yet; both remain in the shadows of the intangible foundation of the economy: trust, animal spirits, faith in authorities’ management, etc. Since credit expansion is the lifeblood of the global economy, let’s look at credit expansion. Courtesy of Market Daily Briefing, here is a chart of total credit in the U.S. and a chart of the%age increase of credit. Notice the difference between credit expansion in 1990 – 2008 and the expansion of 2009 – 2017. Credit expanded by a monumental $40+ trillion in 1990 – 2008 without any monetary easing (QE) or zero-interest rate policy (ZIRP). The expansion of 2009 – 2017 required 8 long years of massive monetary/fiscal stimulus and ZIRP.

This chart of credit change (%) reveal just how lackluster the current expansion of credit has been, despite unprecedented trillions of stimulus pumped into the financial sector.

Back in the real world, have you noticed a slowing of animal spirits borrowing and spending? Have you tightened up your household budget recently, or witnessed cutbacks in the spending habits of friends and family? Have you noticed retail parking lots aren’t very full nowadays, and once-full cafes now have empty tables? According to the conventional economic statistics, everything’s going great: there are millions of job openings, unemployment is near historic lows, GDP is expanding nicely and of course, everyone’s favorite signifier of wonderfulness, the stock market, is hovering near all-time highs.

The possibility that the real economy just stumbled off a cliff creates instant cognitive dissonance, as the official narrative is the economy is expanding slowly but surely and everything is nominal: there’s plenty of everything, from oil/gas to consumer credit to jobs to student loans. Nonetheless, I feel a disturbance in the Force: once credit expansion slows or ceases, the economy will roll over into recession, as wages have been stagnant for the past 17 years, and the bottom 95% of households can only spend more if they borrow more.

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The Fed is going to raise rates as Japan and Europe continue to buy everything not bolted down? Boy, I’d like to see that happen…

Central Bank Balance Sheets Are Headed for a Great Divergence (BBG)

A brief convergence this year in the dollar value of the balance sheets of the Federal Reserve, the European Central Bank and the Bank of Japan has passed and the trio are now set to take very different paths. After all three touched $4.5 trillion in April, they’ve split, mostly due to a rally in the euro and strength in the yen. With expectations that Janet Yellen may begin whittling away at the Fed’s balance sheet in the next few months, and the BOJ set to carry on with its unprecedented asset purchases, the Japanese central bank may find itself carrying something approaching double the load of its American counterpart two years from now. The ECB’s picture is much more difficult to discern, and investors will be listening intently on Friday when Mario Draghi speaks at the annual Jackson Hole summit of central bankers in Wyoming. With Europe’s recovery gathering pace, officials may start talks this fall about a strategy for 2018 that could include gradually reducing net purchases to zero.

When it comes to the size of the balance sheets relative to the economies of the U.S., Europe and Japan, Haruhiko Kuroda’s BOJ is already the uncontested heavyweight, and will keep extending its lead. The BOJ doesn’t expect to hit its 2% inflation target until sometime around the fiscal year starting in April 2019, dictating the need for hefty asset purchases for years to come. This divergence has big implications for the central banks the next time crisis threatens the global economy. The Fed and the ECB are likely to have more room to dive back into asset purchases or cut interest rates, while the BOJ may find itself pinned down unless it can find a way out of its current predicament before the next problem comes along.

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Are central bankers really this dumb?

Low World Inflation Dogs Central Bankers, Even As Economies Grow (R.)

The world’s top central bankers gather in Jackson Hole, their confidence bolstered by a sustained return to economic growth that may eventually allow the European Central Bank and the Bank of Japan to follow the Federal Reserve in winding down their crisis-era policies. Yet in one key area, none of the world’s central banks has found the answer. Inflation remains well below their 2% targets, stoking a debate about whether they are missing signals of a less than healthy economy and the need for a slower path of “rate normalization”, or that they simply don’t understand how inflation works in a globalized world. In Japan, officials have researched behavioral causes, wondering whether businesses and families are just slower to react to economic signals than thought. European officials have blamed slow-moving union wage contracts and online shopping, while U.S. policymakers have cited a lengthy sequence of “one-offs” in pricing from oil to cellphones to prescription drugs.

In each case the response of policymakers has been the same: wait it out and talk confidently about inflation’s return, as the Fed has put it since 2013, over “the medium term”. “Yes, our models aren’t perfect… Certainly the fact that we have had some low inflation readings is something that we take very seriously,” said Cleveland Fed President Loretta Mester. Yet Mester is convinced the problem is not a weakening economy, but changes in how businesses set prices – a supply side issue she says leaves her comfortable pressing ahead with slow but steady interest rate increases. Not everyone is convinced by Mester’s approach. Concerns over the significance of a recent slide in inflation have renewed questions about whether a global tightening of monetary policy can proceed, with U.S. investors betting the Fed will have to hold off on more rate changes until later next year.

[..] The use of inflation targeting has been an important innovation in central banking, rooted in theories of how public expectations, central bank communication and other factors shape economic behavior. It was a recognition that how policymakers talked about inflation, and what households believed, would in part determine the outcome. But the developed world’s alignment around a 2% target has become a headache as much as a policy guide, with central banks trying to estimate and regulate something they acknowledge they don’t fully understand. Bank of Japan consultants have puzzled over whether people shop and save as if they fully see the future, or whether they look at the past and only slowly adapt to change. If the latter, then what central banks say is less important. [..] “Look, inflation is hard to forecast,” Mester said in an interview with Reuters, noting that the most elaborate models don’t do much better than simply saying inflation will be 2% and leaving it at that.

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Finance humor.

Amazon’s Plans to Cut Food Prices Will Be a Headache for the Fed (BBG)

Amazon’s plans to cut prices at Whole Foods is great news for shoppers, but not so much for Federal Reserve officials wondering whether they’ll ever hit their 2% inflation target. A low unemployment rate is supposed to boost inflation, or so the economic theory goes. One possible reason it’s not happening, according to the minutes of the central bank’s latest meeting in July: “Restraints on pricing power from global developments and from innovations to business models spurred by advances in technology.” Chicago Fed President Charles Evans earlier this month mused that “people are utilizing newer technologies, competition is emerging from unexpected places – not necessarily your nearest competitor but somebody else – and that could lead to reduced margins and downward price pressure for some period of time.”

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Many years ago.

Has The Fed Completely Lost Control (Roberts)

An interesting thing happened on the way to World Domination, uhh, I mean “Stability” – the data quit cooperating with the Federal Reserve’s carefully devised plan. Just recently the Federal Reserve quit updating their carefully constructed “Labor Market Conditions Index” which failed to support their ongoing claims of improving employment conditions. The chart below is the last iteration before it was discontinued which showed a clear deterioration in underlying strength.

The problem for the Fed in making the decision to discontinue their own Labor Market Conditions Index, which is likely providing a more accurate picture of the real conditions, is being forced to remain tied to an outdated U-3 employment index. As noted recently by Morningside Hill:

“There is sufficient evidence to suggest the Bureau of Labor Statistics (BLS) calculation method has been systemically overstating the number of jobs created, especially in the current economic cycle. Furthermore, the BLS has failed to account for the rise in part-time and contractual work arrangements, while all evidence points to a significant and rapid increase in the so-called contingent workforce as full-time jobs are being replaced by part-time positions, resulting in double and triple counting of jobs via the Establishment Survey. Lastly, a full 93% of the new jobs reported since 2008 and 40% of the jobs in 2016 alone were added through the business birth and death model – a highly controversial model which is not supported by the data. On the contrary, all data on establishment births and deaths point to an ongoing decrease in entrepreneurship.”

This last point was something I have addressed many times previously, the chart below shows the actual employment roles in the U.S. when stripping out the Birth/Death Adjustment model. With such a large overstatement of actual employment, the flawed model does support the idea of a tight labor market.

Unfortunately, despite arguments to the contrary, there is little support for why the bulk of Americans that should be working, simply aren’t.

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Not everyone is completely nuts.

No Alternative To Austerity? That Lie Has Now Been Nailed (G.)

Ever since the banks plunged the western world into economic chaos, we have been told that only cuts offer economic salvation. When the Conservatives and the Lib Dems formed their austerity coalition in 2010, they told the electorate – in apocalyptic tones – that without George Osborne’s scalpel, Britain would go the way of Greece. The economically illiterate metaphor of a household budget was relentlessly deployed – you shouldn’t spend more if you’re personally in debt, so why should the nation? – to popularise an ideologically driven fallacy. But now, thanks to Portugal, we know how flawed the austerity experiment enforced across Europe was. Portugal was one of the European nations hardest hit by the economic crisis. After a bailout by a troika including the IMF, creditors demanded stringent austerity measures that were enthusiastically implemented by Lisbon’s then conservative government.

Utilities were privatised, VAT raised, a surtax imposed on incomes, public sector pay and pensions slashed and benefits cut, and the working day was extended. In a two-year period, education spending suffered a devastating 23% cut. Health services and social security suffered too. The human consequences were dire. Unemployment peaked at 17.5% in 2013; in 2012, there was a 41% jump in company bankruptcies; and poverty increased. All this was necessary to cure the overspending disease, went the logic. At the end of 2015, this experiment came to an end. A new socialist government – with the support of more radical leftwing parties – assumed office. The prime minister, António Costa, pledged to “turn the page on austerity”: it had sent the country back three decades, he said. The government’s opponents predicted disaster – “voodoo economics”, they called it.

Perhaps another bailout would be triggered, leading to recession and even steeper cuts. There was a precedent, after all: Syriza had been elected in Greece just months earlier, and eurozone authorities were in no mood to allow this experiment to succeed. How could Portugal possibly avoid its own Greek tragedy? The economic rationale of the new Portuguese government was clear. Cuts suppressed demand: for a genuine recovery, demand had to be boosted. The government pledged to increase the minimum wage, reverse regressive tax increases, return public sector wages and pensions to their pre-crisis levels – the salaries of many had plummeted by 30% – and reintroduce four cancelled public holidays. Social security for poorer families was increased, while a luxury charge was imposed on homes worth over €600,000 (£550,000).

The promised disaster did not materialise. By the autumn of 2016 – a year after taking power – the government could boast of sustained economic growth, and a 13% jump in corporate investment. And this year, figures showed the deficit had more than halved, to 2.1% – lower than at any time since the return of democracy four decades ago. Indeed, this is the first time Portugal has ever met eurozone fiscal rules.

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But it’s about political power, not economics: “Germany has a bigger surplus even than China, they should spend it in the European economy.” By bleeding Europe dry, Germany expands its dominance.

Germany Slammed For Domestic Under-Spending (Ind.)

A Nobel economics laureate, Sir Christopher Pissarides, has hit out at Germany’s refusal to increase its domestic state spending in order to help entrench the eurozone’s recovery. Speaking at the Lindau meetings in Germany on Wednesday, Sir Christopher said that despite the bounce back in the single currency zone in recent months after years of crisis, the Continent’s largest economy was still exerting a damaging and unnecessary drag. “German fiscal policy is not at all what some countries still need,” he said, arguing that demand across the single currency zone was still too low. “Why is there no demand? Because of German fiscal policies! There is austerity, there is low infrastructure spending and therefore companies are hesitating [on] investment.” “Where is expansion going to come from? It’s going to come from the surplus countries spending more. Germany has a bigger surplus even than China, they should spend it in the European economy.”

The German government is running a fiscal budget surplus and its current account surplus (the difference between its total national spending and total national income) of $294bn in 2016 has drawn criticism from a host of economic bodies, including the IMF, for similar reasons as those advanced by Sir Christopher. Sir Christopher, who was awarded the Nobel in 2010 for his theoretical breakthroughs on labour market analysis, said that countries such as Spain had pushed through major and necessary job market reforms in 2010 and 2011 in the teeth of its sovereign debt crisis. The official headline Spanish unemployment rate currently stands at 17.3%, down from a 2013 peak of 27%. But Sir Christopher said it should be falling faster and that higher German state spending would help. “It’s certainly the case that if the European economy as a whole expanded faster we would see faster positive results from these [labour market] reforms,” he said.

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Completely nuts.

EU States Begin Returning Refugees To Greece As German Reunions Slow (G.)

European countries are poised to begin the process of returning refugees to Greece, as migrants seeking reunification with their family members – mostly in Germany – step up protests in Athens. In a move decried by human rights groups, EU states will send back asylum seekers who first sought refuge in Greece, despite the nation being enmeshed in its worst economic crisis in modern times. Germany has made nearly 400 resettlement requests, according to officials in Berlin and sources in Athens’ leftist-led government. The UK, France, the Netherlands and Norway have also asked that asylum seekers be returned to Greece. Greece’s migration minister told the Guardian the first returns were expected imminently.

“The paperwork has begun and we expect returns to begin over the next month,” said Yannis Mouzalas. “It will start with a symbolic number as an act of friendship [towards other EU nations]. Greece has already accepted so many [refugees], it has come under such pressure, that to accept more would be absurd, a joke if it weren’t such a tragedy.” Mouzalas said he had no idea where the returnees would be placed or whether they would ever leave Greece. “I don’t know where they will go. It could be Athens, it could be Thebes … they are accommodated in an apartment scheme,” he said. “Whatever [happens], conditions will be good, they have improved greatly and will meet EU criteria.”

[..] On Monday a reported 330 migrant arrivals were registered on Greece’s eastern Aegean isles, piling the pressure on overcrowded and vastly overstretched reception centres in Lesvos, Chios, Kos, Leros and Samos. An estimated 14,335 people are currently in limbo in accommodation centres on the Greek islands, according to figures released by the country’s interior ministry on Thursday. Conditions in the centres are described as deplorable, and protests and riots are commonplace. Human Rights Watch recently said self-harm and suicide attempts along with aggression, anxiety and depression were all on the rise. Local services complain about being unable to cope.

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Our friends and allies.

Yemen: The War No One Is Allowed To Know About (NS)

Ten thousand people have died. The world’s largest cholera epidemic is raging, with more than 530,000 suspected cases and 2,000 related deaths. Millions more people are starving. Yet the lack of press attention on Yemen’s conflict has led it to be described as the “forgotten war”. The scant media coverage is not without reason, or wholly because the general public is too cold-hearted to care. It is very hard to get into Yemen. The risks for the few foreign journalists who gain access are significant. And the Saudi-led coalition waging war in the country is doing its best to make it difficult, if not impossible, to report from the area. Working in Sana’a as a fixer for journalists since the start of the uprisings of the so-called Arab Spring in 2011 has sometimes felt like the most difficult job in the world.

When a Saudi-led coalition started bombing Yemen in support of its president, Abdrabbuh Mansour Hadi, in March 2015, it became even harder. With control of the airspace, last summer they closed Sana’a airport. The capital had been the main route into Yemen. Whether deliberately or coincidentally, in doing so, the coalition prevented press access. The media blackout came to the fore last month, when the Saudi-led coalition turned away an extraordinary, non-commercial UN flight with three BBC journalists on board. The team – including experienced correspondent Orla Guerin – had all the necessary paperwork. Aviation sources told Reuters that the journalists’ presence was the reason the flight was not allowed to land. The refusal to allow the press to enter Yemen by air forced them to find an alternative route into the country – a 13-hour sea crossing.

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Sorry, Greece… (btw, it took a century to figure this out)

3,700-Year-Old Babylonian Clay Tablet Just Changed The History of Maths (SA)

A Babylonian clay tablet dating back 3,700 years has been identified as the world’s oldest and most accurate trigonometric table, suggesting the Babylonians beat the ancient Greeks to the invention of trigonometry by over 1,000 years. The tablet, known as Plimpton 322, was discovered in the early 1900s in what is now southern Iraq, but researchers have always been baffled about what its purpose was. Thanks to a team from the University of New South Wales (UNSW) in Australia, the mystery may have been solved. More than that, the Babylonian method of calculating trigonometric values could have something to teach mathematicians today. “Our research reveals that Plimpton 322 describes the shapes of right-angle triangles using a novel kind of trigonometry based on ratios, not angles and circles,” says one of the researchers, Daniel Mansfield.

“It is a fascinating mathematical work that demonstrates undoubted genius.” Experts established early on that Plimpton 322 showed a list of Pythagorean triples, sets of numbers that fit trigonometry models for calculating the sides of a right-angled triangle. The big debate has been about what those triples were actually for. Are they just a series of exercises for teaching, for example? Or are they something more profound? Babylonian mathematics used a base 60 or sexagesimal system (like the minute markers on a clock face), rather than the base 10 or decimal system we use today. By applying Babylonian mathematical models, the researchers were able to show that the tablet would originally have had 6 columns and 38 rows. They also show how the mathematicians of the time could’ve used the Babylonian system to come up with the numbers on the tablet.

The researchers suggest that the tablet may well have been used by ancient scribes to make calculations for building palaces, temples, and canals. But if the new study is right, then the Greek astronomer Hipparchus, who lived about 120 BC, is not the father of trigonometry that he’s long been regarded as. Scholars date the tablet to around 1822-1762 BC. What’s more, because of the way the Babylonians did their maths and geometry, it’s the most accurate trigonometric table as well as the oldest. The reason is that a sexagesimal system has more exact fractions than a decimal system, which means less rounding up. Whereas only two numbers can divide 10 with nothing left over – 2 and 5 – a base 60 system has far more. Cleaner fractions means fewer approximations and more accurate maths, and the researchers suggest we can learn from it today.

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Don’t want to cry wolf, but.. Be safe!

Hurricane Harvey Has All the Ingredients to Become a Monster (AP)

Hurricane Harvey is following the perfect recipe to be a monster storm, meteorologists say. Warm water. Check. Calm air at 40,000 feet high. Check. Slow speed to dump maximum rain. Check. University of Miami senior hurricane researcher Brian McNoldy said Harvey combines the worst attributes of nasty recent Texas storms: The devastating storm surge of Hurricane Ike in 2008; the winds of Category 4 Hurricane Brett in 1999 and days upon days of heavy rain of Tropical Storm Allison in 2001. Rainfall is forecast to be as high as 35 inches through next Wednesday in some areas. Deadly storm surge — the push inwards of abnormally high ocean water above regular tides — could reach 12 feet, the National Hurricane Center warned, calling Harvey life-threatening. Harvey’s forecast path is the type that keeps it stronger longer with devastating rain and storm-force wind lasting for several days, not hours.

“It’s a very dangerous storm,” National Weather Service Director Louis Uccellini told AP. “It does have all the ingredients it needs to intensify. And we’re seeing that intensification occur quite rapidly.” Warm water is the fuel for hurricanes. It’s where storms get their energy. Water needs to be about 79 degrees (26 Celsius) or higher to sustain a hurricane, McNoldy said. Harvey is over part of the Gulf of Mexico where the water is about 87 degrees or 2 degrees above normal for this time of year, said Jeff Masters, a former hurricane hunter meteorologist and meteorology director of Weather Underground. A crucial factor is something called ocean heat content. It’s not just how warm the surface water is but how deep it goes. And Harvey is over an area where warm enough water goes about 330 feet (100 meters) deep, which is a very large amount of heat content, McNoldy said.

“It can sit there and spin and have plenty of warm water to work with,” McNoldy said. If winds at 40,000 feet high are strong in the wrong direction it can decapitate a hurricane. Strong winds high up remove the heat and moisture that hurricanes need near their center and also distort the shape. But the wind up there is weak so Harvey “is free to go nuts basically,” McNoldy said.

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Aug 172017
 
 August 17, 2017  Posted by at 9:02 am Finance Tagged with: , , , , , , ,  2 Responses »
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Laura Gilpin The Rio Grande 1947

 

The ‘Wall Of Worry’ That Stocks Have Climbed To Rally 271% Since 2009 (MW)
Global Negative-Yielding Debt Surges To Highest Since October (ZH)
The Fed Is Asking Questions, Not Providing Answers (BBG)
Fed Starts to Wonder If Cornerstone Inflation Model Still Works (BBG)
Goldman Sachs Is Infiltrating The Fed In Ways Most People Haven’t Noticed (BI)
Chinese Takeovers Of US Companies Plummet This Year (CNBC)
The World’s Most Ridiculous Constitutional Crisis (BBG)
Hell Hath No Fury Like An Australian Retiree Scorned (BBG)
Americans Are Rapidly Descending Into Madness (Krieger)
A Primer On Bitcoin: The Ultimate Fiat Currency (Lebowitz)
Spain Rescues 600 Migrants, Refugees In Busiest Day as 120 Drown (BBC)

 

 

Stocks have been disconnected from reality. But that can’t last.

The ‘Wall Of Worry’ That Stocks Have Climbed To Rally 271% Since 2009 (MW)

This may be the most sedated stock-market rally of our times. Even as tensions heightened between the U.S. and North Korea and violence broke out on the streets of Charlottesville, Va., stocks took the alarming news in stride, continuing to scale the “wall of worry” in defiance of doomsday predictions of an imminent selloff. “It seems like every day the headlines outside of the market get more and more frightening,” said Michael Batnick, director of research at Ritholtz Wealth Management, who illustrated the resilience of the market in the chart below. As the graph shows, since stocks bottomed in March 2009, the S&P 500 index has soared 271% to multiple records, meandering higher through the European debt crisis, Brexit, and the U.S. presidential election.

Batnick had originally published the chart in March but updated it Wednesday given the recent developments. “This year has been the perfect reminder that political volatility does not necessarily translate into the stock market, with this being the quietest year since 1965,” he said. The S&P 500’s daily trading range averaged 0.32% in the first half of the year, the narrowest in over half a century, underscoring the gap between market volatility and the political upheaval that has marked Trump’s presidency so far, according to Batnick.

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We can all figure what could happen if you throw $20 trillion or so into non-functional markets. Can we figure what happens when they start to function again?

Global Negative-Yielding Debt Surges To Highest Since October (ZH)

The market value of bonds yielding less than zero percent has jumped by a quarter over the past month to $8.68 trillion, the highest since October… which is odd given the mainstream narrative that everything is awesome and global growth is heading for escape velocity?

“probably nothing”

As Bloomberg notes, slower-than-forecast inflation data and haven demand on geopolitical risk have revived bond bulls around the world. With global borrowing costs already so low, central banks should be prepared to cut interest rates deep into negative territory in the next economic downturn, warn economists including Harvard professor Kenneth Rogoff.

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Oh well, it’ summer after all.

The Fed Is Asking Questions, Not Providing Answers (BBG)

The Federal Reserve is either lucky or clever. By signaling that it won’t touch interest rates again until December, it’s bought itself time to have a longer – and much needed – conversation about inflation. Good. There are very legitimate doubts that traditional models explain what’s happening or, rather, what’s not happening. Minutes of the Federal Open Market Committee’s July meeting show a growing debate about inflation and why it’s retreating, instead of advancing, in the face of 4.3% unemployment. The central bank is puzzled that prices have been soft for several months. In the absence of any real inflation pressure, the Fed might be reasonably expected to take a break from raising rates while it got a handle on what’s happening. By acting in March and June and hinting that September will be about balance sheet reduction, the Fed gave itself some wiggle room.

Policy makers basically have until December to either see inflation head back toward their 2% target or figure out how to respond if it doesn’t behave. There’s a meeting scheduled for late October, but the Fed’s historical aversion to moving in the absence of new forecasts and a press conference effectively rules out a surprise then. Delaying until December gives officials at least four more months of inflation data. Most still see it returning to its target, in keeping with traditional economic models. And to be fair, as I have written, this isn’t exclusively an American phenomenon. Inflation is weak in Europe and Japan despite a pronounced pickup in growth. (It’s above target in the U.K.; Brexit complicates that particular picture.) But the U.S. is still the world’s largest economy, and the Fed is still the world’s de facto central bank.

The country’s financial markets dwarf others despite frequent predictions of decline. How this inflation mystery ends will matter greatly. What if the book doesn’t have an end? The minutes show some self-doubt starting to creep in alongside the confidence of the majority: Most participants indicated that they expected inflation to pick up over the next couple of years from its current low level and to stabilize around the Committee’s 2% objective over the medium term. Many participants, however, saw some likelihood that inflation might remain below 2% for longer than they currently expected, and several indicated that the risks to the inflation outlook could be tilted to the downside. The account of the July conclave even suggested some heretical questioning of the link between very low unemployment and wages and inflation. The majority are still wedded to the traditional models.

Until we start to see a convincing swing back to the Fed’s target of 2%, we will probably see more of this public questioning of assumptions. Something less contentious was skepticism about the prospects for large-scale fiscal stimulus, the domain of Congress and the White House. A few participants at the Fed meeting doubted it would happen and, if it did, they suspected the boost would be less than might have once been anticipated. That observation went unchallenged. Stay tuned for the last day of August. That’s when the Commerce Department publishes closely watched inflation figures. Enjoy the debate.

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Over 1000 utterly useless PhD economists work for the Fed. The world doesn’t behave like my models do!

Fed Starts to Wonder If Cornerstone Inflation Model Still Works (BBG)

Federal Reserve officials are looking under the hood of their most basic inflation models and starting to ask if something is wrong. Minutes from the July 25-26 Federal Open Market Committee meeting showed a revealing debate over why the economy isn’t producing more inflation in a time of easy financial conditions, tight labor markets and solid economic growth. The central bank has missed its 2% price goal for most of the past five years. Still, a majority of FOMC participants favor further rate increases. The July minutes showed an intensifying debate over whether that is the right policy response. “These minutes to me were troubling,” said Ward McCarthy, chief financial economist at Jefferies in New York. “They don’t have their confidence in their policy decisions; and they don’t have confidence that they can provide the right kind of guidance.”

The FOMC tried hard to avoid that kind of message. In several passages, the minutes asserted that “most” officials were sticking with a forecast that higher inflation would eventually show up. However, the debate over resource slack models and whether standard data sources were telling them the whole story also showed convictions about their forecast are fraying. Price indexes have shown unusual inertia even as the U.S. unemployment rate has fallen, matching a 16-year low of 4.3% in July. The U.S. consumer price index rose 1.7% for the 12 months ending July, while the Fed’s preferred measure, which is tied to consumption, rose 1.4% in June. Another gauge calculated by the Dallas Fed, which trims index outliers to highlight the underlying price trend, rose 1.7% for the 12 months ending June.

That was the same as May, which was down from 1.74% in April. The minutes said “a few” officials described resource slack models as “not particularly useful” while “most” thought the framework was valid. The committee also pondered a number of theories as to why inflation wasn’t responding to tightening labor resources, such as “the possibility that slack may be better measured by labor market indicators other than unemployment.” “It is a battle between data and theory,” said Ethan Harris, head of global economic research at Bank of America in New York.

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A silent coup.

Goldman Sachs Is Infiltrating The Fed In Ways Most People Haven’t Noticed (BI)

Since when do underlings get to chime in on who their next boss should be? That’s just what William Dudley, president of the Federal Reserve Bank of New York, did in an interview with AP this week. His fairly strong recommendation of Gary Cohn, Donald Trump’s economic advisor and apparent favorite, was especially egregious since Cohn is former president at Goldman Sachs, where Dudley essentially spent most of his career as chief economist and partner. The Fed’s chairperson is appointed by the president of the United States. Dudley should stick to monetary policy and regulating big banks. As a matter of central bank independence and integrity, he has no business opining on future candidates.

As Bloomberg’s veteran Fed watcher, Rich Miller, put it: “It’s rare for Fed officials like Dudley to comment publicly on such personnel matters because they usually want to avoid doing anything that might be seen as undermining the central bank’s political independence.” “AP: On a personal level, Gary Cohn has been mentioned as potentially a Fed Chair if Yellen were not to be reappointed or declined. Did you work with Gary Cohn at Goldman Sachs? What is your impression of him as a potential Federal Reserve Chair? DUDLEY: I don’t want to evaluate the various candidates for the Federal Reserve, except to say that I think Gary is a reasonable candidate. He knows a lot about financial markets. He knows lots about the financial system. I don’t think you have to have a PhD in Economics, which I have, to be a Chair of the Fed or Governor or a President of one of the Federal Reserve Banks. I think it’s important to have a committee that has diversity. That has different backgrounds and perspectives. So I think Gary’s a reasonable candidate.

[..] Despite the clear conflict, he apparently sees nothing wrong with recommending Cohn while saying nothing to praise his current boss, Fed Chair Janet Yellen, who is also supposedly in the running for reappointment (but not really, it’s just another Trump reality TV suspense stunt). Dudley then coyly declines to discuss other names being floated for the post. Dudley has crossed a line, although it’s not a new one for his institution. The New York Fed was home to one of the financial crises most blatant conflicts of interest, and it’s all related to how Dudley was hired to head it in the first place.

This is what happened: Stephen Friedman was chairman of the New York Fed at the height of the crisis — but at the same time he was a member of Goldman Sachs’ board of directors. He also held a significant financial stake in the megabank, even as he was involved in the bank bailout negotiations. Yes, really (The New York Fed is supposed to play a pivotal role in regulating Wall Street). And here’s the kicker: The Fed’s board granted Friedman a waiver to buy Goldman stock just as prices had hit bottom and the central bank was stepping in to make all the banks, including Goldman, whole on their misguided bets on housing and related assets. Friedman was eventually pressured to step down, but that’s about it. In his role as NY Fed board chair, Friedman got to pick its next president. Who did he run with? Bill Dudley.

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it’s about foreign reserves.

Chinese Takeovers Of US Companies Plummet This Year (CNBC)

As the Trump administration looks to take a tougher stance against Beijing, Chinese investments in the U.S. have more than halved this year, according to Dealogic. “Amid growing regulatory scrutiny of China outbound M&A targeting the U.S., volume has seen a 65% year-on-year decline in 2017 year-to-date,” Nicholas Farfan and Karl But of Dealogic Research said in an Aug. 8 note. “In comparison, such deals peaked at $65.2 billion last year, with high-profile deals including HNA’s acquisition of 25% of Hilton Worldwide.” “With tightening restrictions, Chinese buyers may look to stop pursuing or shelve potential acquisitions in the U.S.,” the note said. The pressure and uncertainty are coming from both countries. On Beijing’s side, authorities are reportedly targeting some of the largest Chinese dealmakers to try to keep capital from fleeing the country and contributing to yuan weakness.

On the American side, reports indicate the Committee on Foreign Investment in the United States is looking to use national security concerns to prevent more Chinese purchases of U.S. firms, especially in technology. Anecdotally, Gregory Husisian, chair of the export controls and national security group at law firm Foley & Lardner, noted that an increasing number of clients are concerned about working with Chinese buyers due to the potential for regulatory intervention. The dealmaking industry could also suffer some significant business setbacks. The Dealogic analysts estimate about $9.7 billion in pending Chinese deals to buy U.S. firms could fall under regulatory scrutiny, potentially putting $75 million in advisor fees at risk.

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Baffling. They really don’t seem to know their own laws. Which might be a problem if you’re in government?!

The World’s Most Ridiculous Constitutional Crisis (BBG)

Australia’s parliament is in the grip of the world’s most ridiculous constitutional crisis. The situation threatens the country’s democratic process, which is reason enough for politicians and courts to work to unpick it. More importantly, though, it raises questions the rest of the world would do well to ponder. Over the past month, five members of Australia’s 226-member parliament have admitted that they may have unwittingly held dual citizenship – a condition that, under Australia’s 1900 constitution, disqualifies them from political office in Canberra. The latest blow on Monday ensnared Deputy Prime Minister Barnaby Joyce, putting into jeopardy the government’s one-seat majority in the governing House of Representatives. Joyce’s father was born in New Zealand in 1924. As a result, Kiwis officially consider him one of their own.

Journalists and political staffers have launched a hunt to see who will fall next. The country’s justice minister Michael Keenan took to social media Thursday to confirm he renounced his British citizenship 13 years ago, after the Sydney Morning Herald reported that he may have been a dual citizen. In total, 13 senators and 11 House members were born overseas, equivalent to about 17% and 7.3% of the respective chambers. More may be caught, like Joyce, as a result of their parentage. With both chambers finely-balanced between parties – and renouncing foreign citizenship, in many cases, a long and complex process – the crisis could hamstring the government’s ability to pass legislation. Australia has one of highest proportions of foreign-born residents among democratic countries. Nearly half of permanent residents are first- or second-generation migrants, with about 28% born overseas and 21% having at least one foreign-born parent.

About 4.6% were, like me, born in the U.K.; another 2.6% in China, Hong Kong and Macau, plus 2.2% from New Zealand and 1.9% from India. More than 27% of the population speaks a language other than English at home. That’s a vast population whose ability to serve in parliament is potentially restricted. There are so many different regulations around the world that it’s not always obvious to individuals which countries might claim them as citizens. Larissa Waters, a Greens senator who was born in Winnipeg but has lived in Australia since infancy, quit last month after discovering that a Canadian law that entered into force when she was seven days old meant Canada still considered her a citizen. A week later, Australia’s then-Resources Minister Matthew Canavan was caught out after discovering his mother had once sought Italian citizenship for herself and for him. “Until last week I had no suspicion I could be an Italian citizen,” he wrote on Twitter. “I was not born in Italy and have never been to Italy.”

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Your pension has left the building. Those are its foorprints over there.

Hell Hath No Fury Like An Australian Retiree Scorned (BBG)

Hell hath no fury like an Australian retiree scorned.Shares in the country’s giant phone company Telstra fell as much as 12% after it announced annual results Thursday, wiping off some A$6.2 billion ($4.9 billion) of value. The reason for this massive hissy fit was a cut to Telstra’s historically lavish dividend policy. Investors who’ve been scraping by on payouts equivalent to about 100% of underlying earnings will in future have to subsist on a mere 70% to 90%. Why should Telstra shareholders be so sensitive about dividends, especially as net income came in ahead of analyst estimates at A$3.89 billion? The answer lies in the nature of Australia’s equity market, and in particular the 1.1 million retirees managing their own investments via self-managed superannuation funds.

Helped by years of tax breaks and laws mandating that companies fund their employees’ retirement savings, Australia’s gray army has built up a A$648 billion piggy bank. The A$340 billion they have in equities and investment funds is equivalent to a fifth of the benchmark S&P/ASX 200 index, and their might is such that some analysts, such as Credit Suisse’s Hasan Tevfik, argue they’ve distorted the investment priorities of the wider market. Retirees’ love of a household-name stock that provides a steady income without the fuss of buying or selling helps explain the Australian share market’s obsession with dividend yield. There’s certainly something unusual in the water: Of the 42 companies in developed markets with dividend yields above 5% and market capitalizations above $10 billion, 11 are Australian, according to data compiled by Bloomberg.

In some ways, this trend is a favorable one. Australia’s big four retail banks and Macquarie, which all meet the key criteria of familiarity and generous payouts, trade on some of the highest price-book multiples in the world. As a result, when they want to raise equity capital – as they all did in 2015, to the tune of an aggregate A$18.5 billion – it works out rather cheap. Still, Telstra’s experience is a lesson that playing footsie on dividends can be a dance with the devil. Its desire to hold back just a thin slice of earnings alongside a 70% to 90% payout ratio would be considered reasonable in most markets. Chinese companies are notoriously stingy, as Gadfly’s Shuli Ren wrote this week. Among major equity indexes, only the U.K. boasts ratios on a par with Australia’s; the Shanghai Composite rarely turns more than a third of earnings into dividends.

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No kidding. Conversation is impossible just when it’s most needed.

Americans Are Rapidly Descending Into Madness (Krieger)

I don’t live in an echo chamber, partly because there aren’t enough people out there who think like me, but also because I constantly and intentionally attempt to challenge my worldview by reading stuff from all over the political map. I ingest as much as I can from a wide variety of intelligent sources, picking and choosing what makes sense to me, and then synthesizing it the best I can. Though I’m certainly grounded in certain key principles, my perspective on specific issues remains malleable as I take in additional information and perspectives. I try to accept and acknowledge my own ignorance and view life as a journey of constant mental, emotionally and spiritual growth. If I’m not growing my capacity in all of those realms until the day I die, I’m doing it wrong. Life should be seen as a battle against one’s own ignorance, as opposed to an obsession with the ignorance of others.

You can’t legislate morality, nor can you legislate wisdom. The only way the world will improve on a long-term sustainable basis is if more of us get wise. That’s a personal journey and it’s our individual duty to accept it. While I’m only in control of my own behavior, this doesn’t mean that the behavior of others is irrelevant to my life. Unfortunately, what I see happening to the population of America right now seems very troublesome and foreboding. What I’m witnessing across the board is hordes of people increasingly separating themselves into weird, unthinking cults. Something appears to have snapped in our collective consciousness, and many individuals I used to respect (on both sides of the political spectrum) are becoming disturbingly polarized and hysterical. People are rapidly morphing into radicalized mental patients.

What’s worse, this environment is providing a backdrop for the most destructive people of my lifetime – neoconservatives and neo liberals – to preen around on corporate media as “the voices of reason.” This is one of the most perverse and dangerous side-effects of the current political climate. If in your disgust with Trump, you’re willing to run into the cold embrace of these destroyers of the middle class and the Middle East, you’ll get what you deserve. In contrast, if we really want to deal with our very real and very systemic problems, the last thing we need is a population-level mental breakdown that leads to a longing for the criminally destructive political status quo, yet that’s exactly what seems to be happening.

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Every single Bitcoin transaction uses as much energy as 15 UK households do daily. Whatever you think about crypto, that is a problem no matter what.

A Primer On Bitcoin: The Ultimate Fiat Currency (Lebowitz)

Cryptocurrency is an independent, digital currency that uses cryptology to maintain privacy of transactions and control the creation of the respective currency. While not recognized as legal tender, cryptocurrencies are becoming more popular for legal and illegal transactions alike. Bitcoin (BTC), developed in 2009, is the most popular of the cryptocurrencies. It accounts for over half the value of the more than 750 cryptocurrencies outstanding. In this article we refer to cryptocurrencies generally as BTC, but keep in mind there are differences among the many offerings. Also consider that, while BTC may appear to be the currency of choice, Netscape and AOL shareholders can tell you that early market leadership does not always translate into future market dominance.

Before explaining how BTC is created, acquired, stored, used and valued, it is vital to understand blockchain technology, the innovation that spawned BTC. [..] Blockchain is an open database or book of records that can store any kind of data. A blockchain database, unlike all other databases, is stored real time and is accessible for anyone to view its complete history of data. The term block refers to a grouping of transactions, while chain refers to the linkages of the blocks. When a BTC transaction is completed BTC “miners” work to solve the cryptology algorithm that will enable them to link it to the chain of historical transactions. As a reward for being the first to solve the calculation, the miner receives “newly minted” BTC. As the chain grows, the effort needed to solve and verify the algorithms increase in complexity and demand greater computing power. As an aside consider the following statement by Bitcoin Watch (courtesy Goldman Sachs):

“BTC worldwide computational output is currently over 350 exaflops – 350,000 petaflops – or more than 1400 times the combined capacity of the top 500 supercomputers in the world.”

Needless to say, a tremendous amount of computing resources and energy are being used by BTC miners, and it is still in its infancy. Could these resources be better employed in other industries, and if so, how much productivity growth is BTC leeching from the economy? The takeaway is that blockchain is an open, real-time database that provides anonymity to its users. It is not controlled or regulated (yet) by any government. BTC miners, driven by the incentive to earn BTC, and fees at times, verify and authenticate the database. Blockchain technology is incredibly powerful and will likely revolutionize data management regardless of whether cryptocurrencies thrive or disappear.

New Bitcoins are created as payment to BTC miners that solve the aforementioned calculations that verify transaction data and link it to the blockchain. This ingenious reward system incentivizes miners to compete to perform these calculations, enabling the blockchain to exist. Currently there are approximately 16 million bitcoins outstanding out of a proposed limit of 21 million. As the blockchain grows, the calculations required to mine BTC and add to the chain become more complex, making each bitcoin harder and more costly to earn than the prior one.

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The value of life, all life. must trump all else. Or else.

Spain Rescues 600 Migrants, Refugees In Busiest Day as 120 Drown (BBC)

Spain’s coastguard says it has rescued 600 migrants crossing from Morocco in a 24-hour period amid a spike in the number of migrant arrivals. The rescued migrants were in 15 vessels including toy paddleboats and a jet ski and included 35 children and a baby. The UN says more than 9,000 people have arrived in Spain so far this year – three times as many as the previous year. More than 120 people are believed to have drowned attempting the crossing. The increase in crossings means Spain could overtake Greece this year in the number of migrants arriving by sea, the UN’s International Organization for Migration (IOM) said earlier this month.

Most are sailing across the 12km (seven-mile) Strait of Gibraltar and many are choosing cheap, child-sized paddle boats without motors that allow them to bypass people smuggling networks and their fees. Some migrants are using social media to contact the Spanish authorities and inform them of their location once they are in territorial waters, the BBC’s Gavin Lee in the Spanish city of Tarifa says. However, a much larger number – nearly 100,000 – have crossed from Libya to Italy since the start of the year. The IOM says 2,242 people have died on that route. In June, about 5,000 people were rescued in one day in the Mediterranean off Libya, Italian coastguards said.

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Aug 042017
 
 August 4, 2017  Posted by at 8:34 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Acropolis and Temple of Jupiter Olympus Athens 1862

 

Australia Slams the Brakes on Property Investment (BBG)
Toronto Home Prices Suffer Worst Monthly Decline in 17 Years (BBG)
Toronto Housing Market Implodes: Prices Plunge Most On Record (ZH)
Euro Junk Bonds and “Reverse Yankees” Go Nuts (WS)
Global Inflation Hits Lowest Level Since 2009 (WSJ)
Japan Buries Our Most-Cherished Economic Ideas (BBG)
Britain’s Finance Sector Will Double In Size In 25 Years – Mark Carney (G.)
London’s “Land Banking” Ventures Expose Startling Wealth Inequality (O.)
Russian Ban On Turkish Tomatoes Bears Domestic Fruit (R.)
Trump Will Now Become the War President (Paul Craig Roberts)
IMF Admits Disastrous Love Affair With Euro and Immolation Of Greece (Tel)
Why Have No IMF Officials Been Prosecuted For Malpractice In Greece? (Bilbo)

 

 

It’s just words. The illusion of well-managed control. When property goes down, and it must at some point, it will take the entire Australia economy down with it.

Australia Slams the Brakes on Property Investment (BBG)

One of the key engines of Australia’s five-year housing boom is losing steam. Property investors, who have helped stoke soaring home prices in Australia, are being squeezed as regulators impose restrictions to rein in lending. The nation’s biggest banks have this year raised minimum deposits, tightened eligibility requirements and increased rates on interest-only mortgages – a form of financing favored by people buying homes to rent out or hold as an investment. Australia’s generous tax breaks for landlords, combined with record-low borrowing costs, have made the nation home to more than 2 million property investors. Demand from those buyers has contributed to a bull run that has catapulted Sydney and Melbourne into the ranks of the world’s priciest property markets. Now, signs are emerging that the curbs are starting to deter speculators – and home prices are finally starting to cool. [..]

The biggest banks have hiked rates on interest-only mortgages by an average of 55 basis points this year, according to Citigroup [..] ..property auction clearance rates in Sydney have held below 70% in seven of the past eight weeks, compared to as high as 81% in March before the curbs were imposed. And investor loans accounted for 37% of new mortgages in May, down from this year’s peak of 41% in January. That’s helping take the heat out of property prices, particularly in Sydney, the world’s second-most expensive housing market. Price growth in the city slowed to 2.2% in the three months through July, down from a peak of 5% earlier this year, CoreLogic said Tuesday. In Melbourne, rolling quarterly price growth has eased to 4.2%. “There have been some signs that conditions in the Sydney and Melbourne markets have eased a little of late,” the Reserve Bank of Australia said on Friday.

Now, with costs increasing, and price growth slowing, property may lose some of its luster as an investment asset. [That] changes “reduce investors’ ability to pay, and means they have to pay owner-occupier values rather than investor values,” said Angie Zigomanis, senior manager, residential property, at BIS Oxford Economics in Melbourne. The restrictions will take “some of the bubble and froth” out of the market, he said, forecasting median Sydney house prices will decline 5% by the end of mid-2019 as investors retreat.

[..] banks may need to get even tougher on lending standards in order to meet the regulator’s order to restrict interest-only loans to 30% of new residential loans by September. Interest-only loans are seen as more risky because borrowers aren’t paying down any principal and may look to sell en-masse if property prices decline.

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Bubble? Nah…

Toronto Home Prices Suffer Worst Monthly Decline in 17 Years (BBG)

The benchmark Toronto property price, which tracks a typical home over time, dropped 4.6% to C$773,000 ($613,000) from June. That’s the biggest monthly drop since records for the price index began in 2000, according to Bloomberg calculations, and brings prices down to roughly March levels. Prices are still up 18% from the same month a year ago, according to the Toronto Real Estate Board. Transactions tumbled 40% to 5,921, the biggest year-over-year decline since 2009, led by detached homes. The average price, which includes all property types, rose 5% to C$746,218 from July 2016. That compares with a 17% increase at this time last year.

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“..transactions tumbled 40.4%..”

Toronto Housing Market Implodes: Prices Plunge Most On Record (ZH)

Until mid 2017, it appeared that nothing could stop the Toronto home price juggernaut:

And yet, In early May we wrote that “The Toronto Housing Market Is About To Collapse”, when we showed the flood of new home listings that had hit the market the market, coupled with an extreme lack of affordability, which as we said “means homes will be unattainable to all but the oligarchs seeking safe-haven for their ‘hard’-hidden gains, prices will have to adjust rather rapidly.”

Exactly three months later we were proven right, because less than a year after Vancouver’s housing market disintegrated – if only briefly after the province of British Columbia instituted a 15% foreign buyer tax spooking the hordes of Chinese bidders who promptly returned after a several month hiatus sending prices to new all time highs – just a few months later it’s now Toronto’s turn. On Thursday, the Toronto Real Estate Board reported that July home prices in Canada’s largest city suffered their biggest monthly drop on record amid government efforts to cool the market and the near-collapse of Home Capital Group spooked speculators. The benchmark Toronto property price, while higher 18% Y/Y, plunged 4.6% to C$773,000 ($613,000) from June. That was biggest monthly drop since records for the price index began in 2000, and brought prices down in the metro area to March levels.

More troubling than the price drop, however, was the sudden paralysis in the market as buyers and sellers violently disagreed about fair clearing prices and transactions tumbled 40.4% to 5,921, the biggest year-over-year decline since 2009, led by the detached market segment.

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Wolf Richter with a good example of just how detructive Draghi’s -and other central bankers’- QE really is. The bonds may go nuts, but Draghi IS nuts. Or rather, Europeans are nuts not to stop him.

Euro Junk Bonds and “Reverse Yankees” Go Nuts (WS)

The ECB’s efforts to buy corporate bonds as part of its stupendous asset buying binge has not only pushed a number of government bond yields below zero, where investors are guaranteed a loss if they hold the bond to maturity, but it has also done a number – perhaps even a bigger one – on the euro junk-bond market. It has totally gone nuts. Or rather the humans and algorithms that make the buying decisions have gone nuts. The average junk bond yield has dropped to an all-time record low of 2.42%. Let that sink in for a moment. This average is based on a basket of below investment-grade corporate bonds denominated in euros. Often enough, the issuers are junk-rated American companies with European subsidiaries – in which case these bonds are called “reverse Yankees.”

These bonds include the riskiest bonds out there. Plenty of them will default, and losses will be painful, and investors – these humans and algos – know this too. This is not a secret. That’s why these bonds are rated below investment grade. But these buyers don’t mind. They’re institutional investors managing other people’s money, and they don’t need to mind. [..] The average yield of these junk bonds never dropped below 5% until October 2013. In the summer of 2012, during the dog days of the debt crisis when Draghi pronounced the magic words that he’d do “whatever it takes,” these bonds yielded about 9%, which might have been about right. Since then, yields have plunged (data by BofA Merrill Lynch Euro High Yield Index Effective Yield via St. Louis Fed). The “on the Way to Zero” in the chart’s title is only partially tongue-in-cheek:

The chart below gives a little more perspective on this miracle of central-bank market manipulation, going back to 2006. It shows the spike in yield to 25% during the US-engineered Financial Crisis and the comparatively mild uptick in yield during the Eurozone-engineered debt crisis:

How does this fit into the overall scheme of things? For example, compared to the US Treasury yield? US Treasury securities are considered the most liquid and the most conservative investments. They’re considered as close to a risk-free financial instrument as you’re going to get on this earth. Turns out, from November 2016 until now, the 10-year US Treasury yield has ranged from 2.14% to 2.62%, comfortably straddling the current average euro junk bond yield of 2.42%.

If you want to earn a yield of about 2.4%, which instrument would you rather have in your portfolio, given that both produce about the same yield, and given that one has a significant chance of defaulting and getting you stuck with a big loss, while the other is considered the safest most boring financial investment out there? The answer would normally be totally obvious, but not in the Draghi’s nutty bailiwick. That this sort of relentless and blind chase for yield – however fun it may be today – will lead to hair-raising losses later is a given. And we already know who will take those losses: The clients of these institutional investors, the beneficiaries of pension funds and life insurance retirement programs, the hapless owners of bond funds, and the like.

In terms of the broader economy: When no one can price risk anymore, when there’s in fact no apparent difference anymore between euro junk bonds and US Treasuries, then all kinds of bad economic decisions are going to be made and capital is going to get misallocated, and it’s going to be Draghi’s royal mess.

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Hint for central bankers: look at money velocity. People don’t spend, they borrow. Keyword: debt.

Global Inflation Hits Lowest Level Since 2009 (WSJ)

Inflation in the Group of 20 largest economies fell to its lowest level in almost eight years in June, deepening a puzzle confronting central banks as they contemplate removing post-crisis stimulus measures. The OECD said Thursday that consumer prices across the G-20—the countries that accounts for most of the world’s economic activity—were 2% higher than a year earlier. The last time inflation was lower was in October 2009, when it stood at 1.7%, as the world started to emerge from the sharp economic downturn that followed the global financial crisis. The contrast between then and now highlights the mystery facing central bankers in developed economies as they attempt to raise inflation to their targets, which they have persistently undershot in recent years.

According to central bankers, inflation is generated by the gap between the demand for goods and services and the economy’s ability to supply them. As the economy grows and demand strengthens, that output gap should narrow and prices should rise. Right now, the reverse appears to be happening. Across the G-20, economic growth firmed in the final three months of 2016 and stayed at that faster pace in the first three months of 2017. Growth figures for the second quarter are incomplete, but those available for the U.S., the eurozone and China don’t point to a slowdown. Indeed, Capital Economics estimates that on an annualized basis, global economic growth picked up to 3.7% in the three months to June from 3.2% in the first quarter.

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At what point are mainstream economists going to admit they have no clue as to what’s going on? It all sounds like if reality doesn’t fit their models, something must be wrong with reality.

Japan Buries Our Most-Cherished Economic Ideas (BBG)

Japan is the graveyard of economic theories. The country has had ultralow interest rates and run huge government deficits for decades, with no sign of the inflation that many economists assume would be the natural result. Now, after years of trying almost every trick in the book to reflate the economy, the Bank of Japan is finally bowing to the inevitable. The BOJ’s “dot plot” shows that almost none of the central bank’s nine board members believe that the country will reach its 2% inflation target. Accordingly, the bank has pushed back the date at which it expects to hit its 2% target. That’s a little comical, since by now it should be fairly obvious that the date will only get pushed back again and again. If some outside force intervenes to raise inflation to 2%, the BOJ will declare that it hit the target, but it’s pretty clear it has absolutely no idea how to engineer a deliberate rise in inflation.

The bank will probably keep interest rates at zero indefinitely, but if decades of that policy haven’t produced any inflation, what reason is there to think that decades more will do the trick? Some economists think more fiscal deficits could help raise inflation. That’s consistent with a theory called the “fiscal theory of the price level,” or FTPL. But a quick look at Japan’s recent history should make us skeptical of that theory – even as government debt has steadily climbed, inflation has stumbled along at close to 0%. Japan’s situation should also give pause to economists who want to resurrect the idea of the Phillips Curve, which purports to show a stable relationship between unemployment and inflation. Japan’s persistently low inflation comes even though essentially everyone in Japan who wants a job has one.

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Yeah sure, and then double again the next 25 years.

Britain’s Finance Sector Will Double In Size In 25 Years – Mark Carney (G.)

The governor of the Bank of England has predicted that the financial sector could double in size to be 20 times as big as GDP within the next 25 years, but warned that the government must hold its nerve and resist pressure to water down regulation after Brexit. Speaking to the Guardian to mark the 10th anniversary of the start of the global financial crisis in August 2007,[..] eant repeating the risky speculation of a decade ago. Carney dismissed suggestions that London could become a financial centre with only light-touch regulation – often dubbed Singapore-on-Thames – in order to attract business after the UK left the EU. He said the size of the financial sector would increase relative to the size of the economy if things went according to plan after Brexit and that meant there could be no going back to the lax regime that existed before 2007.

The Bank, he said, was aware that “we have a financial system that is ten times the size of this economy … It brings many strengths, it brings a million jobs, it pays 11% of tax revenue, it is the biggest export industry by some token … All good things. But it’s risky”. He went on: “We have a view… that post-Brexit the level of regulation will be at least as high as it currently is and that’s a level that in many cases substantially exceeds international norms. “There’s a reason for that, because we’re not going to to go the lowest common denominator in a system that is 10 times size of GDP. If the UK financial system thrives in a post-Brexit world, which is the plan, it will not be 10 times GDP, it will be 15 to 20 times GDP in another quarter of century because we will keep our market share of cross-border capital flows. Well then you really have to hold your nerve and keep the focus.”

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I told you: feudal. UK needs full reset.

London’s “Land Banking” Ventures Expose Startling Wealth Inequality (O.)

No place is feeling the bite of the UK housing crisis quite as savagely as London. While homelessness, social housing heartbreak and painfully high housing costs reveal the harsh reality of living in Britain’s capital, empty property numbers in London stand at their highest level in 20 years. Who are the culprits? Many would argue it’s the billionaires, whose “land banking” ventures are becoming ever more profitable. At a time when wealthy people purchase property and leave it empty, only to make a huge profit when they sell their investment, ordinary citizens are living in the throes of a 21st century housing crisis that is crippling the capital. Recent government figures show around 1.4 million homes have been lying vacant in the UK for at least six months – the highest level of “spare” homes in two decades.

At the same time, London has witnessed a staggering 456% increase in “land banking” over the last 20 years. Kensington and Chelsea – London’s richest borough, where the Grenfell Tower tragedy took place – has the highest number of empty homes. Land banking in London has long been exploited by the super-rich. In 2014, one-third of the mansions stood empty on Bishops Avenue, a single street in north London that has been dubbed “Billionaires Row,” which ranked as the UK’s second most expensive street with an estimated £350 million worth of empty properties. The famous row of mansions – believed to be owned by members of the Saudi royal family – has stood virtually unused since being bought by investors between 1989 and 1993.

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Putin says he likes globalization, but his country increasingly takes care of itself. The sanctions work to strengthen Russia, the opposite of what America hopes to achieve. Hopefully Russia doesn’t turn tomatoes into some large industrial thing.

Russian Ban On Turkish Tomatoes Bears Domestic Fruit (R.)

A ban on Turkish tomato imports that was motivated by geopolitics has inspired Russia to become self-sufficient in tomato production, a windfall for companies who invested in the technology that would increase year-round production. Russia has been ramping up production of meats, cheese and vegetables since it banned most Western food imports in 2014 as a retaliatory measure for sanctions meant to punish Russia’s support of rebels in eastern Ukraine and annexation of Crimea. After Turkey shot down a Russian jet near the Syrian border in November 2015, Moscow expanded the ban to include Turkish tomatoes, for which Russia was the biggest export market. Ties between Ankara and Moscow have since largely normalized but the ban remains in place and may not be lifted for another three to five years, officials have said.

That may be too late for Turkish exporters if Russian efforts to ramp up domestic production bear fruit. Greenhouse projects being built with state support are key to Russia’s plans to become self-sufficient for its 144 million population by 2020, industry players, analysts and officials say. Although Russia only imports about 500,000 tonnes of the 3.4 million tonnes of tomatoes consumed annually, the country’s notoriously harsh winters have limited its ability to ramp up to full capacity, IKAR agriculture consultancy said. Currently only 620,000 tonnes of production comes from “protected ground”, or greenhouses, IKAR said. The remainder comes from “open ground” productive only from June to September, and most of that comes from private plots maintained and used by individual families or sold at local farmers’ markets.

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This is what I wrote the other day I fear will happen if Americans don’t stop the demonization of Trump. Really, you should all think again, or you’ll find yourself in a war that nobody can oversee.

Trump Will Now Become the War President (Paul Craig Roberts)

President Trump has been defeated by the military/security complex and forced into continuing the orchestrated and dangerous tensions with Russia. Trump’s defeat has taught the Russians the lesson I have been trying to teach them for years, and that is that Russia is much more valuable to Washington as an enemy than as a friend. Do we now conclude with Russia’s Prime Minister Dmitry Medvedev that Trump is washed up and “utterly powerless?” I think not. Trump is by nature a leader. He wants to be out front, and that is where his personality will compel him to be. Having been prevented by the military/security complex, both US political parties, the presstitute media, the liberal-progressive-left, and Washington’s European vassals from being out front as a leader for peace, Trump will now be the leader for war. This is the only permissible role that the CIA and armaments industry will permit him to have.

Losing the chance for peace might cost all of us our lives. Now that Russia and China see that Washington is unwilling to share the world stage with them, Russia and China will have to become more confrontational with Washington in order to prevent Washington from marginalizing them. Preparations for war will become central in order to protect the interests of the two countries. The situation is far more dangerous than at any time of the Cold War. The foolish American liberal-progressive-left, wrapped up as they are in Identity Politics and hatred of “the Trump deplorables,” joined the military/security complex’s attack on Trump. So did the whores, who pretend to be a Western media, and Washington’s European vassals, not one of whom had enough intelligence to see that the outcome of the attack on Trump would be an escalation of conflict with Russia, conflict that is not in Europe’s business and security interests.

Washington is already raising the violence threshold. The same lies that Washington told about Saddam Hussein, Gadaffi, Assad, Iran, Serbia and Russia are now being told about Venezuela. The American presstitutes duly report the lies handed to them by the CIA just as Udo Ulfkotte and Seymour Hersh report. These lies comprise the propaganda that conditions Western peoples to accept the coming US coup against the democratic government in Venezuela and its replacement with a Washington-compliant government that will permit the renewal of US corporate exploitation of Venezuela.

As the productive elements of American capitalism fall away, the exploitative elements become its essence. After Venezuela, there will be more South American victims. As reduced tensions with Russia are no longer in prospect, there is no reason for the US to abandon its and Israel’s determination to overthrow the Syrian government and then the Iranian government. The easy wars against Iraq, Libya, and Somalia are to be followed by far more perilous conflict with Iran, Russia, and China This is the outcome of John Brennan’s defeat of President Trump.

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Two pieces on the IMF’s own internal report.

IMF Admits Disastrous Love Affair With Euro and Immolation Of Greece (Tel)

The IMF’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory. This is the lacerating verdict of the IMF’s top watchdog on the fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions. “Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located” It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking breakdown in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation.

The report by the IMF’s Independent Evaluation Office (IEO) goes above the head of the managing director, Christine Lagarde. It answers solely to the board of executive directors, and those from Asia and Latin America are clearly incensed at the way European Union insiders used the fund to rescue their own rich currency union and banking system. The three main bailouts for Greece, Portugal and Ireland were unprecedented in scale and character. The trio were each allowed to borrow over 2,000pc of their allocated quota – more than three times the normal limit – and accounted for 80pc of all lending by the fund between 2011 and 2014. In an astonishing admission, the report said its own investigators were unable to obtain key records or penetrate the activities of secretive “ad-hoc task forces”. Mrs Lagarde herself is not accused of obstruction.

“Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located. The IEO in some instances has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff,” it said. “The IMF remained upbeat about the soundness of the European banking system… this lapse was largely due to the IMF’s readiness to take the reassurances of national and euro area authorities at face value..” [..] “Before the launch of the euro, the IMF’s public statements tended to emphasise the advantages of the common currency,” it said. Some staff members warned that the design of the euro was fundamentally flawed but they were overruled.

[..] In Greece, the IMF violated its own cardinal rule by signing off on a bailout in 2010 even though it could offer no assurance that the package would bring the country’s debts under control or clear the way for recovery, and many suspected from the start that it was doomed. The organisation got around this by slipping through a radical change in IMF rescue policy, allowing an exemption (since abolished) if there was a risk of systemic contagion. “The board was not consulted or informed,” it said. The directors discovered the bombshell “tucked into the text” of the Greek package, but by then it was a fait accompli.

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Bill Mitchell read the whole thing.

Why Have No IMF Officials Been Prosecuted For Malpractice In Greece? (Bilbo)

I have just finished reading the 474-page Background Papers that the IEO released in 2016 and which formed the basis of its June 2016 Evaluation Report – The IMF and the Crises in Greece, Ireland, and Portugal. It is not a pretty story. It seems that the incompetence driven by the blind adherence to Groupthink that the earlier Reports had highlighted went a step further into what I would consider to be criminality plain and simple. The IEO found that IMF officials and economists violated the rules of their own organisation, hid documents, presumably to hide their chicanery and generally displayed a high level of incompetence including failing to under the implications of a common currency – pretty basic errors, in other words. The IEO Report sought to evaluate: “… the IMF’s engagement with the euro area during these crises in order to draw lessons and to enhance transparency..”

The period under review was 2010 to 2013, which covered the “2010 Stand-By Arrangement with Greece, the 2010 Extended Arrangement with Ireland, and the 2011 Extended Arrangement with Portugal.” The IEO noted that the IMF involvement with the Troika was quite different to its normal operations. 1. “the euro area programs were the first instances of direct IMF involvement in adjustment programs for advanced, financially developed, and financially open countries within a currency union”. 2. “they involved intense collaboration with regional partners who also were providing conditional financial assistance, and the modality of collaboration evolved in real time.” 3. “the amounts committed by the IMF … were exceptionally large … exceeded the normal limits of 200% of quota for any 12-month period or 600% cumulatively over the life of the program. In all three countries, access exceeded 2,000% of quota.”

So one would think that the IMF would have exercised especial care and been committed to transparency, given that for the “financial years 2011-14, these countries accounted for nearly 80% of the total lending provided by the IMF”. It didn’t turn out that way. Interestingly, the IEO for all its independence was set upon by “several Executive Directors and other senior IMF officials” at the outset of the evaluation process (when establishing the Terms of Reference), who claimed that the 2012 Bailout was just a “continuation of the 2010 SBA” and so it was not possible to evaluate them separately. In other words, the IMF was trying to close down assessment of its activities.

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 December 21, 2016  Posted by at 9:47 am Finance Tagged with: , , , , , , , ,  1 Response »
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Laurits Andersen Ring At Breakfast 1898

Most Expensive Housing Ever: A 1% Mortgage Rate Surge Changes Everything (MH)
This Christmas Americans Will Spend An Average Of $422 Per Child (EC)
Ray Dalio Says Animal Spirits Under Donald Trump Just Getting Started (F.)
Someone Has to Tell The Fed Inflation Is Not Accelerating (CEPR)
Brace Yourself For Italy’s Bankruptcy (Gavekal)
Italy Bank Rescue Won’t Fill $54 Billion Hole in Balance Sheets (BBG)
Top French Banks Sue ECB To Reduce Capital Demands (R.)
Spanish Banks Lose EU Case on Mortgage Interest Repayments (BBG)
India’s Small Businesses Facing ‘Apocalypse’ (G.)
Let The Yuan Fall Or Not? Beijing’s Big Burning Currency Question (SCMP)
Yuan Bears Strike as Capital Outflows Override PBOC (BBG)
To Problems With China’s Financial System, Add the Bond Market (NYT)
China’s Anticorruption Drive Ensnares the Lowly and Rattles Families (WSJ)
Smog Refugees Flee Chinese Cities As ‘Airpocalypse’ Blights Half A Billion (G.)
Obama Invokes 1953 Law To Indefinitely Block Arctic, Atlantic Drilling (CNBC)

 

 

Income vs prices has never been more expensive. There’s much more in Hanson’s article.

Most Expensive Housing Ever: A 1% Mortgage Rate Surge Changes Everything (MH)

BUILDER HOUSES: The average $361k builder house requires nearly $65k in income assuming a 4.5% rate, 20% down, and A-grade credit. Problem is, 20% + A-credit are hard to come by. For buyers with less down or worse credit, far more than $65k is needed. For the past 30-YEARS income required to buy the average priced house has remained relatively consistent, as mortgage rate credit manipulation made houses cheaper. Bottom line: Reversion to the mean can occur through house price declines, credit easing, a mortgage rate plunge to the high 2%’s, or a combination of all three. However, because rates are still historically low and mortgage guidelines historically easy, the path of least resistance is lower house prices.

The following chart compares Bubble 1.0 (2004 and 2006) to Bubble 2.0 on an apples-to-apples basis using the popular loan programs of each era. Bottom line: Builder prices are up 19% from 2006 but the monthly payment is 43% greater and annual income needed to qualify for a mortgage 83% more.

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‘T is the season to be plastic.

This Christmas Americans Will Spend An Average Of $422 Per Child (EC)

For many Americans, the quality of Christmas is determined by the quality of the presents. This is especially true for our children, and some of them literally spend months anticipating their haul on Christmas morning. I know that when I was growing up Christmas was all about the presents. Yes, adults would give lip service to the other elements of Christmas, but all of the other holiday activities could have faded away and it still would have been Christmas as long as presents were under that tree on the morning of December 25th. Perhaps things are different in your family, but it is undeniable that for our society as a whole gifts are the central feature of the holiday season. And that is why so many parents feel such immense pressure to spend a tremendous amount of money on gifts for their children each year.

Of course this pressure that they feel is constantly being reinforced by television ads and big Hollywood movies that continuously hammer home what a “good Christmas” should look like. Once again in 2016, parents will spend far more money than they should because they want to make their children happy. According to a brand new survey from T. Rowe Price, parents in the United States will spend an average of 422 dollars per child this holiday season… “More than half of parents report they aim to get everything on their kids’ wish lists this year, spending an average of $422 per child, according to a new survey from T. Rowe Price.” To me, that seems like a ridiculous amount of money to spend on a single child, but this is apparently what people are doing.

But can most families really afford to be spending so wildly? Of course not. As I have detailed previously, 69% of all Americans have less than $1,000 in savings. That means that about two-thirds of the country is essentially living paycheck to paycheck. So all of this reckless spending brings with it a lot of additional financial pressure. But because we are a “buy now, pay later” society, we do it anyway. We are willing to mortgage a little bit of the future in order to have a nice Christmas now. Another new survey has found that close to half the country feels “pressure to spend more than they can afford during the holiday season”…

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Possible only -beyond short term- with Fed money. Animal spirits sounds cute, but all investors have is money based on ultra cheap rates.

Ray Dalio Says Animal Spirits Under Donald Trump Just Getting Started (F.)

During the dark days of the financial crisis Ray Dalio, head of the world’s largest hedge fund Bridgewater Associates, published papers and YouTube seminars to describe the forces that drive the economy and explain why severe cycles like the credit collapse occur. The effort was intended to guide productive responses to the implosion of Wall Street, which crippled Main Street, and avert policies that could diminish a recovery. With the Dow Jones Industrial Average nearing a record 20,000, unemployment below 5% and the U.S. economy in the seventh year of a recovery, Dalio’s tomes on ‘how the economic machine works’ aren’t as top of mind as they once were. But that’s not to say Dalio, one of Wall Street’s weightiest hedge fund investors, has lost interest in the subject.

On Tuesday morning, Dalio published a monthly update that indicates he believes the U.S. economy is poised for a sudden and dramatic shift under President-elect Donald Trump. If the economic machine is presently churning along in a steady but somewhat muted recovery from the Great Recession, Dalio believes it may kick into overdrive as Trump implements a pro-business agenda that could stimulate the animal spirits of investors and businesses across United States. “[T]he Trump administration could have a much bigger impact on the US economy than one would calculate on the basis of changes in tax and spending policies alone because it could ignite animal spirits and attract productive capital,” Dalio states in a post published to LinkedIn. He adds, “regarding igniting animal spirits, if this administration can spark a virtuous cycle in which people can make money, the move out of cash (that pays them virtually nothing) to risk-on investments could be huge.”

Dalio believes Trump has staffed his administration with business-people who will be inclined to take quick action on perceived drags on the economy, whether that involves taxation, regulation or labor laws. What’s also clear is Dalio believes there are presently major impediments to the economy that need to be lifted. “This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers,” says Dalio. The Trump administration “wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power,” he adds [..] “A pro-business US with its rule of law, political stability, property rights protections, and (soon to be) favorable corporate taxes offers a uniquely attractive environment for those who make money and/or have money. These policies will also have shocking negative impacts on certain sectors,” Dalio says, without describing in more detail the winners and losers.

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The ongoing confusions about what inflation is. One key rule: if spending doesn’t rise, and by a lot, there will be no inflation. There may be higher prices for some things, but that’s not the same. And where could higher spending come from when 2/3 of Americans don’t even have $1000 saved for an emergency?

Someone Has to Tell The Fed Inflation Is Not Accelerating (CEPR)

The Federal Reserve Board raised interest rates last week and seem poised to do so again in the not distant future. The rationale is that the economy is now near or at full employment and that if job growth continues at its recent pace it will lead to a harmful acceleration in the inflation rate. We have numerous pieces raising serious questions about whether the labor market is really at full employment, noting for example the sharp drop in employment rates (for all groups) from pre-recession levels and the high rate of involuntary part-time employment. But the story of accelerating inflation is also not right. This is particularly important, since John Williams, the president of the San Francisco Fed, cited accelerating inflation as a reason to support last week’s rate hike, and possibly future rate hikes, in an interview in the New York Times.

Williams has been a moderate on inflation, so there are many members of the Fed’s Open Market Committee who are more anxious to raise rates than him. A close look at the data does not provide much evidence of accelerating inflation. The core PCE deflator, the Fed’s main measure of inflation, has risen 1.7% over the last year, which is still under the 2.0% target. This target is an average, which means that the Fed should be prepared to allow the inflation rate to rise somewhat above 2.0%, with the idea that inflation will drop in the next recession. Anyhow, the 1.7% rate is slightly higher than a low of 1.3% reached in the third quarter of 2015, but it is exactly the same as the rate we saw in the third quarter of 2014. In other words, there has been zero acceleration in the rate of inflation over the last two years.

Furthermore, even this modest acceleration has been entirely due to the more rapid increase in rent over the last two years. The inflation rate in the core consumer price index, stripped of its shelter component, actually has been falling slightly over the last year. It now stands at 1.1% over the last year. It is reasonable to pull shelter out of the CPI because rents do not follow the same dynamic as most goods and services. In fact, higher interest rates, by reducing construction, are likely to increase the pace of increase in rents rather than reduce them.

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Italy’s banks are about to do the country in.

Brace Yourself For Italy’s Bankruptcy (Gavekal)

Matteo Renzi has joined a long line of Italian prime ministers who failed to “reform” their country. This is another way of saying that he could not wave a magic wand and make Italy competitive with Germany. The grim reality is that no Italian leader stood a chance of changing their country once the fateful decision was made to peg its currency to Germany’s. At the time of the euro’s launch in 1999, I argued that the risk profile of Italy would change from being an economy where there was a high probability of many currency devaluations to the certain probability of eventual bankruptcy. Sadly, that moment is not so far away.

The chart below tells the story of Italy’s recent economic history in two parts, namely, (i) March 1979 to March 1999, and (ii) March 1999 to the present. Italy joined the Exchange Rate Mechanism in 1979 at 443 lira per deutschemark, yet by 1990 frequent devaluations meant that rate had slid to about 750 lira. By the early 1990s, the Bundesbank was overseeing a newly unified German monetary system and in order to fight inflation it had driven real interest rates to 7%. By September 1992 the stresses on the system caused the UK, Sweden and Italy to exit the ERM, which meant another huge currency devaluation, pushing the lira as low as 1250 against the deutschemark, but delivering a huge tourist boom to boot.

Still, from 1979 to 1998 Italian industrial production outpaced that of Germany by more than 10%, while Italian equities outperformed German equivalents by 16% (this indicates that Italian firms were earning a higher return on invested capital than those in Germany). Then came the euro. By 2003 it was clear that Italy was uncompetitive and subsequently, Italian equities have underperformed German equities by -65%, reversing the previous half century’s pattern when Italian equities outperformed on a total return basis. Similarly, since 2003 Italian factory output has lagged Germany’s by 40%.

The diagnosis is simply that Italy has become woefully uncompetitive, and as a result, is not solvent. This much is clear from the perilous state of its banking system, which is always the outcome when banks lend to firms that have been rendered uncompetitive by some reckless central banker. Short of imposing Greek-style slavery on Italy, there is not much hope of solving the problem, but I rather doubt that the Italian electorate will be as patient as its neighbours across the Ionian sea.

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Let Beppe Grillo have a go at this. What does Italy have to lose?

Italy Bank Rescue Won’t Fill $54 Billion Hole in Balance Sheets (BBG)

Italian banks need at least €52 billion ($54 billion) to clean up their balance sheets, much more than the rescue package proposed Monday by the government. The shortfall is an estimate of how much lenders would have to increase loan-loss provisions to allow for the sale of bad debt. It includes the 8 billion euros of provisions UniCredit has said it will add before selling €18 billion of its worst loans and uses that ratio as a proxy for the gap at other banks. The total also includes the 5 billion euros Banca Monte dei Paschi di Siena has been struggling to raise in recent months. The Italian government asked parliament this week to increase the public borrowing limit by as much as €20 billion to potentially backstop Monte Paschi and other lenders.

The rescue package needs to be closer to €30 billion to solve Italy’s bad-debt crisis, according to Paola Sabbione at Deutsche Bank. That conclusion assumes UniCredit and some other lenders can raise about €20 billion through capital markets, asset sales and profit retention – leaving the government to fill the rest of the €52 billion hole. “Some of the publicly traded banks can probably raise some of the funds needed for a cleanup, including Monte Paschi,” said Sabbione, who has covered Italian banks for the past decade. “So the government would have to plug in the rest. But still, at this level, it won’t do the full job.” UniCredit, the nation’s largest lender, plans to increase loan-loss provisions to 75% for nonperforming loans with the lowest chances of recovery and 40% for two other categories considered less dire.

The increased writedowns will help the Milan-based lender sell about a third of its bad loans to asset manager Fortress Investment. UniCredit is planning to raise €13 billion of new equity funding to cover the increased provisions as well as other restructuring costs and to improve its capital ratio. The company’s shares have jumped 15% since the Dec. 13 announcement, giving analysts confidence the bank will have little trouble tapping investors for the funds. Italian banks had €356 billion of bad loans at the end of June and €165 billion of provisions against them, according to the latest Bank of Italy data. To get the worst category to 75% provisioning and the rest to 40%, as UniCredit is doing, would take €52 billion.

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French banks in turn are heavily into Italian banks. Just like they were into Greek banks, but they dodged that one when their political clout made the EU shift their burden onto the Greek pople. Will Italy let them do the same?

Top French Banks Sue ECB To Reduce Capital Demands (R.)

France’s top lenders are suing the ECB to get an exemption from holding capital against deposits parked with a state-owned fund, the most high-profile challenge to supervision from Frankfurt to date. As well as providing euro zone banks with funding, the ECB has been their main regulator for the past two years, tasked with ending cozy relationships between the industry and national authorities that contributed to the financial crisis. The Frankfurt-based institution has been sued repeatedly over its bond-buying programs and by smaller banks seeking to escape its supervision. But this is the first case brought by major banks in the euro zone and is a rare confrontation between France’s financial elite and the ECB’s supervisory board, led by the former head of France’s own banking regulator, Daniele Nouy.

The lawsuits have been brought by BNP Paribas, Societe Generale, Credit Agricole, Credit Mutuel, Groupe BPCE and La Banque Postale over the past few weeks, filings with the European Court of Justice show. Sources with direct knowledge of the cases told Reuters the banks are protesting the ECB’s demand that they set aside capital against special deposits they have with state investment institution Caisse des Dépôts et Consignations (CDC). The legal action comes amid heightened tension between banks and the ECB, which is inundating the financial sector with excess cash to try to stimulate growth while charging banks for depositing it with the central bank overnight. “You are seeing banks more and more go to court to challenge the supervisor,” a senior legal source said. “Years ago that was unthinkable.”

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So, Italy, France and Spain too, all have severely troubled banks.

Spanish Banks Lose EU Case on Mortgage Interest Repayments (BBG)

Competition watchdogs won a partial victory at the EU’s top court over their attempt to force Spanish banks to pay back millions of euros in tax breaks for the acquisition of stakes in foreign firms, Bloomberg News reports. Lenders, including Banco Popular Espanol SA and Banco Bilbao Vizcaya Argentaria SA, may have to give back billions of euros to mortgage customers after a ruling by the court.

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Over 6 weeks later, “India’s Reserve Bank has issued around 1.7 billion new notes, with less than one-third the value of what was removed..”

India’s Small Businesses Facing ‘Apocalypse’ (G.)

India’s vast informal economy has been reeling since 8 November, the morning after India’s prime minister, Narendra Modi, announced the sudden voiding of the country’s two most-used bank notes. It is the largest-scale financial experiment in Indian history: gutting 14 trillion rupees – 86% of the currency in circulation – from the most cash-dependent major economy in the world. More than a month on, India’s Reserve Bank has issued around 1.7 billion new notes, with less than one-third the value of what was removed. The sixth-largest economy in the world is running on 60% less currency than before. Lines outside banks continue to stretch, and India’s small business lobby says its members are facing an “apocalypse”. But Modi insists he isn’t done.

Initially intended to flush out the “black money” said to be hoarded by elites and criminals, the government now frames demonetisation as the first step in a “cashless” revolution to shift the billions of transactions undertaken each day in India online – and onto the radar of tax authorities. This week, labour minister Bandaru Dattatreya announced it would soon be mandatory for employers to pay their staff into bank accounts, a hugely ambitious step in a country where as many as 90% of workers are paid in cash. Already struggling, businessmen such as Sharma are dreading the prospect of more enforced digital migration. “How do you think I can pay the workers with a cheque if they don’t have a bank account?” he asks, in a tiny office thick with incense smoke. “And it takes three days to clear a cheque. What will they eat during those days?”

His reasons are not just altruistic. Apart from potentially raising his tax bill – in a country where just 1% pay income tax – paying salaries electronically would mean giving staff Delhi’s mandated minimum wage, currently 9,724 rupees (£114) per month for unskilled workers. “Right now no one pays the minimum wage that the government decides,” Sharma says. “It will only make things expensive: we will charge the customer.” Outside his workers’ earshot, he adds: “If someone is doing the work of Rs.2000, why should we pay them Rs.15,000?” But workers too are wary of the big push online. Tens of millions of Indians have been given zero-deposit bank accounts in the past two years under a government scheme to boost financial inclusion. But even after demonetisation prompted a rush of new deposits, 23% of the accounts still lie empty.

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Stuck. A large depreciation would be too costly, but keeping it high would eat up foreign reserves.

Let The Yuan Fall Or Not? Beijing’s Big Burning Currency Question (SCMP)

As the Chinese yuan keeps weakening against the dollar, a question is becoming acute for Beijing: should China let the market take its course and permit a deep currency fall or should it keep burning its foreign exchange reserves to support the currency’s value? The debate over what Beijing should do about its currency is heating up as regulators’ ambiguity over the question is becoming costly and unsustainable, particularly since the Federal Reserve raised interest rates. Against Beijing’s desire for a “controllable” depreciation, the government is losing control over capital flight, depleting foreign exchange reserve stockpile at an alarming speed, and failing to convince investors that there is “no fundamental basis for the continuous depreciation”.

Yu Yongding, a renowned Chinese economist who sat on the central bank’s monetary policy committee when the yuan was revalued in July 2005, said it was time for Beijing to reconsider the matter. “The fear of the yuan’s depreciation has become a burden for us,” Yu told a forum over the weekend. Yu, who for years has called for liberalizing the yuan’s exchange rate over years, said China should give up foreign exchange interventions and safeguard its foreign exchange reserves so that China will “have sufficient ammunition” for future rainy days. While Yu’s view is not in line with Beijing’s current policy, it is winning academic support. Xu Sitao, the China chief economist at Deloitte, an auditing firm, said “the best strategy is to let the yuan fall in full, and the worst strategy is slowly depleting foreign exchange reserves”.

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“The currency is facing a triple whammy of accelerating capital outflows, faster U.S. interest-rate increases and concerns over domestic financial markets..”

Yuan Bears Strike as Capital Outflows Override PBOC (BBG)

China’s renewed efforts to curb declines in its currency are doing little to dissuade yuan bears. Traders have turned increasingly negative amid tighter liquidity, sending bets for further losses soaring. The gap between forward contracts wagering on the offshore yuan a year from now versus its current level is heading for a record monthly jump, just as the extra cost for options to sell the currency against the dollar hit a six-month high relative to prices for contracts to buy. The currency is facing a triple whammy of accelerating capital outflows, faster U.S. interest-rate increases and concerns over domestic financial markets as liquidity tightens.

Strategists say its weakening, set to be the biggest this year in more than two decades, may accelerate as the government restores the annual quota for citizens to convert yuan holdings into foreign exchange. President-elect Donald Trump has also threatened to slap 45% tariffs on China’s imports to the U.S. “Bears are adding positions because expectations for the yuan to depreciate are getting stronger and stronger,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “The pressures will likely continue and could get even worse, considering capital outflows and concerns on the reset of individuals’ conversion quota.”

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..in China, state-run banks are by far the main source of funding. Shadow banks.

To Problems With China’s Financial System, Add the Bond Market (NYT)

Chinese officials cheered on the country’s stock market when it reached heady new highs, offering hope that it could become a new source of money to fix China’s economic problems. Then, last year, the market crashed. Now another fast-growing part of China’s vast and increasingly complicated financial market is showing signs of distress: its $9 trillion bond market. Prices for government and corporate bonds have tumbled over the past week, a sell-off that continued on Tuesday. The situation has spooked investors, prompting the government to temporarily restrain some trading and to make emergency loans to struggling financial institutions. The price drops have resulted in higher borrowing costs at a time when more Chinese companies need the money to cope with slowing economic growth. Yields reached new highs again on Tuesday.

In part, China is reacting to financial shifts across the globe. With the Federal Reserve raising short-term interest rates and many expecting the presidency of Donald J. Trump to lead to heavier government spending, investors worldwide are selling bonds. But China is struggling with its own balancing act. The Chinese bond slump also stems from Beijing’s efforts to wring excess money from its financial system and to stop potential bubbles that may lurk in shadowy, hard-to-track corners of its economy. Should it continue with those efforts, bonds could fall further. “The adjustment has not yet finished,” said Miao Zuoxing, a partner at the FXM Brothers Fund. “It will continue and normalize until money is put where the government can see it.”

[..] China has particular reason to worry. As the world’s second-largest economy, after the United States, it relies on a rickety financial system that is mired in debt and susceptible to hidden stresses. Higher overseas interest rates could also prompt more Chinese investors to move their money out of the country, either to chase higher returns elsewhere or to avoid what some see as China’s growing problems. In the mature financial system of the United States, businesses have plenty of ways to get money. They can borrow from a bank, raise money selling stocks or bonds, or seek funds directly from any number of investors.

But in China, state-run banks are by far the main source of funding. That helped power the country’s economic rise, but it also led to loans going to politically connected borrowers rather than to where the economy needed it most. That is one reason the Chinese economy is now stuck with more steel, glass, cement and auto factories than it needs. Particularly in the past two years, China has taken steps to encourage the development of robust stock and bond markets as well as private lenders, needing a way to ensure the flow of money was being directed by profit-minded investors rather than politicians and their allies at state-owned banks.

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Heavy fisted. It’s all history has taught.

China’s Anticorruption Drive Ensnares the Lowly and Rattles Families (WSJ)

When Liu Chongfu returned home to his pig farm in December 2014 after months in detention, he was haunted by what he had done. Under interrogation, he later told his family, he falsely admitted to bribing government officials. Back home, released without being charged, Mr. Liu had nightmares and splitting headaches. His conscience weighed on him, his family said. So he publicly recanted in March 2015. In a written statement sent to the court, he said interrogators had deprived him of sleep and threatened his family to extract a phony confession that helped send four other men to prison. In his statement, also posted online, he said he lied “because they forced me to where there was no other way than death. I didn’t want to die.”

President Xi Jinping has called his anticorruption campaign, one of the leader’s defining initiatives, a “life or death” matter. It is among the most popular elements of his administration, given how corruption has been endemic in China and how it threatens to undermine confidence in Communist Party control. Since the campaign began in 2013, its reach has allowed Mr. Xi to root out resistance to his rule and secure party control over a society that is more prosperous and demanding. Mr. Liu’s confession and retraction suggest a dark side to Mr. Xi’s efforts. Families around China say overzealous authorities have forced confessions, tortured suspects and made improper convictions.

The farmer tried to retract his confession before, while still in detention. “I cannot violate my conscience to do this,” he told his interrogators, according to his statement, a transcript of a video he made with his lawyer. He knew it would send innocent officials to jail, he said, and that “the real tragedy is still to follow.” The four were convicted anyway.

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“I finally saw the blue sky. It was wonderful!”

Smog Refugees Flee Chinese Cities As ‘Airpocalypse’ Blights Half A Billion (G.)

Tens of thousands of “smog refugees” have reportedly fled China’s pollution-stricken north after the country was hit by its latest “airpocalyse” forcing almost half a billion people to live under a blanket of toxic fumes. Huge swaths of north and central China have been living under a pollution “red alert” since last Friday when a dangerous cocktail of pollutants transformed the skies into a yellow and charcoal-tinted haze. Greenpeace claimed the calamity had affected a population equivalent to those of the United States, Canada and Mexico combined with some 460m people having to breathe either hazardous pollution or heavy levels of smog in recent days.

Lauri Myllyvirta, a Beijing-based Greenpeace activist who has been chronicling the red alert on Twitter, said that in an attempt to shield his lungs he was avoiding going outside and using two air purifiers and an industrial grade dust mask “that makes me look like Darth Vader”. “You just try to insulate yourself from the air as much as possible,” said Myllyvirta, a coal and air pollution expert. Others have simply opted to flee. According to reports in the Chinese media, flights to some pollution-free regions have been packed as a result of the smog. Ctrip, China’s leading online travel agent, said it expected 150,000 travellers to head abroad this month in a bid to outrun the smog. Top destinations include Australia, Indonesia, Japan and the Maldives.

Jiang Aoshuang, one of Beijing’s “smog refugees”, told the state-run Global Times she had skipped town with her husband and 10-year-old son in order to spare their lungs. Jiang’s family made for Chongli, a smog-free ski resort about three hours north-west of the capital, only to find it packed with other fugitives seeking sanctuary from the pollution. “It really felt like a refugee camp,” she was quoted as saying. Yang Xinglin, who also fled to Chongli, said she had requested time off from her job at a state-owned real estate firm so she did not have to inhale the smog. “You ask me why I left Beijing? It’s because I want to live,” Yang, 27, told the Guardian.

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But why in the last few days of an 8-year term?

Obama Invokes 1953 Law To Indefinitely Block Arctic, Atlantic Drilling (CNBC)

President Barack Obama on Tuesday moved to indefinitely block drilling in vast swaths of U.S. waters. The president had been expected to take the action by invoking a provision in a 1953 law that governs offshore leases, as CNBC previously reported. The law allows a president to withdraw any currently unleased lands in the Outer Continental Shelf from future lease sales. There is no provision in the law that allows the executive’s successor to repeal the decision, so President-elect Donald Trump would not be able to easily brush aside the action. Trump has vowed to open more federal land to oil and natural gas production in a bid to boost U.S. output. Obama on Tuesday said he would designate “the bulk of our Arctic water and certain areas in the Atlantic Ocean as indefinitely off limits to future oil and gas leasing, though the prospects for drilling in the affected areas in the near future were already questionable.

The lands covered include the bulk of the Beaufort and Chukchi seas in the Arctic and 31 underwater canyons in the Atlantic. The United States and Canada also announced they will identify sustainable shipping lanes through their connected Arctic waters. Canada on Tuesday also imposed a five-year ban on all oil and gas drilling licensing in the Canadian Arctic. The moratorium will be reviewed every five years. “These actions, and Canada’s parallel actions, protect a sensitive and unique ecosystem that is unlike any other region on earth,” Obama said in a statement. “They reflect the scientific assessment that, even with the high safety standards that both our countries have put in place, the risks of an oil spill in this region are significant and our ability to clean up from a spill in the region’s harsh conditions is limited.”

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Mar 222016
 
 March 22, 2016  Posted by at 8:59 am Finance Tagged with: , , , , , , , , , ,  6 Responses »
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NPC Ford Motor Co., McReynolds & Sons garage, L Street, Washington DC 1926

US Existing Home Sales Tumble 7.1% In Warning For Housing Market (Reuters)
Companies Haven’t Fudged Their Numbers This Much Since 2009 (Yahoo)
Beware of Draghi Dropping Hints (FT)
Central Banks Creep Toward Uncomfortable Role as Central Planners (WSJ)
The ECB and The Mississippi Company Bubble (Macleod)
Germany Must Leave Eurozone To Save It: Mervyn King (CNBC)
Government Debt Could Bring China’s Credit Party To A Halt (MW)
China’s Debt Burden Is Only Going To Get Bigger (BV)
Home Is Where the Inflation Is (BBG)
Get Ready For An Australian Recession By 2017 (Steve Keen)
Regulator Warns Canadian Banks on Oil and Gas Reserves (WSJ)
Petrobras Posts Record $10 Billion Loss (Reuters)
Erdogan To Include Journalists, Politicians in ‘Terrorist’ Definition (Ind.)
The Uses of Disorder (Jim Kunstler)
Carbon Emission Release Rate ‘Unprecedented’ In Past 66 Million Years (G.)
The EU’s Deal With Turkey Is a No-Win Situation (Fortune)
Greece Appeals For EU Logistics Aid For Migrant Deal To Work (Reuters)
EU Rights Chief Demands More Protection For Refugees (AP)
Greece Sets Up Detention Camps As Refugee Deal Hits Delays (AP)

The US will keep doing what it can to prop up this bubble.

US Existing Home Sales Tumble 7.1% In Warning For Housing Market (Reuters)

U.S. home resales fell sharply in February in a potentially troubling sign for America’s economy which has otherwise looked resilient to the global economic slowdown. The National Association of Realtors said on Monday existing home sales dropped 7.1% to an annual rate of 5.08 million units, the lowest level since November. Sales have been volatile and prone to big swings up and down in recent months following the introduction in October of new mortgage regulations, which are intended to help homebuyers understand their loan options and shop around for loans best suited to their financial circumstances. February’s decline weighed on investor sentiment, with the S&P 500 stock index falling after the data was released. Sales fell across the country, including a 17.1% plunge in the U.S. Northeast.

Economists had forecast home resales decreasing 2.8% to a pace of 5.32 million units last month. Sales were up 2.2% from a year ago. The median price for a previously owned home increased 4.4% from a year ago to $210,800. The housing report runs counter to data showing strong job growth and a stabilization of factory output, which had taken a hit from weaker demand overseas and a strong U.S. dollar. Housing continues to be supported by a tightening labor market, which is starting to push up wage growth, boosting household formation. But a relative dearth of properties available for sale remains a challenge. “Finding the right property at an affordable price is burdening many potential buyers,” said NAR economist Lawrence Yun.

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Beware when accountants become society’s most creative people.

Companies Haven’t Fudged Their Numbers This Much Since 2009 (Yahoo)

Almost all of the companies in the S&P 500 have announced their quarterly earnings, and now Wall Street’s number crunchers are finalizing their conclusions as to what actually happened during the last three months of 2015. Unfortunately, it’s become an increasingly challenging task to understand the true financial performance of the big publicly traded companies because of the widening of something called the “GAAP gap.” Don’t worry: this topic isn’t as scary a concept as it sounds. In a nutshell, there’s a standard known as generally accepted accounting principles, or GAAP, which encourages some uniformity in how companies will report financial results. Unfortunately, the strict standards of GAAP often force companies to report big one-time, non-recurring items that will distort quarterly earnings, in turn making them a poor reflection of underlying operations.

And so, many companies will make adjustments for these items and separately report adjusted or non-GAAP financial results. All of that’s well and good. But there’s an unsettling trend we’ve been witnessing: the gap between GAAP and non-GAAP numbers is widening. Specifically, this “GAAP gap” is widening in such a way that more and more costs and expenses are being removed to make underlying profits look higher. “The gap between GAAP (reported) and pro forma (adjusted) EPS continued to widen in 4Q, with the GAAP/Pro forma ratio of 0.74 still at its most extreme levels since 2009,” Bank of America Merrill Lynch’s Savita Subramanian said on Monday. “Trailing four-quarter (2015) GAAP EPS came in at $87 vs. $118 for pro forma EPS.”

It’s jarring to hear that any metric has returned to levels last seen during the financial crisis. Unfortunately, it’s hard to conclude what the implications are here because the issues are tied to just a few industries that are facing their own unique issues. “As was the case last quarter, the chief contributor to “GAAP gap” has been Energy asset impairments/write-downs, followed by M&A costs within Health Care,” Subramanian continued. “The Energy sector alone contributed to nearly half of the “GAAP gap” this quarter.” While this is certainly a top worth keeping an eye on, it would probably be a mistake to jump to any sweeping conclusions about the market and the economy. “We found that while a widening GAAP gap is not a leading indicator of a market downturn, companies with increasing deviations tend to systematically underperform the market,” Subramanian said.

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One day we’ll understand just how crazy this is.

Beware of Draghi Dropping Hints (FT)

It is a risky game, taking central bankers at their word. Investors should be wary of what central bankers appear to be saying or signalling. Like some politicians, economists and even journalists, they often change their mind. Mario Draghi, the president of the ECB, is a case in point. Don’t be fooled by Mr Draghi when he signals that interest rates have been cut as low as they can go, as he did at the ECB’s March policy meeting. After reducing the deposit rate to minus 0.4%, he could not have been clearer when he said: “We don’t anticipate that it will be necessary to reduce rates further.” Although he kept the option of further cuts open, he outlined his unease about negative rates and their impact on the region’s commercial banks. Consequently, some investors and commentators think interest rates have hit their floor in the euro zone.

But Mr Draghi has made similar assertions after cutting rates before. In June 2014, he reduced rates to minus 0.1% and said: “For all practical purposes we have reached the lower bound.” In September 2014, he dropped rates to minus 0.2% and said: “We are at the lower bound where technical adjustments are not going to be possible any longer.” There is an obvious pattern. Mr Draghi signals the floor has been reached, only to change his mind later. The likely reason for his “no lower” signals is that he does not want to scare markets. Bank stocks, bonds and credit default swaps, which are a kind of insurance against default, have all been rocked by worries about negative rates and their impact on the banking business. There are also concerns for banks in euro zone countries such as Austria, Portugal and Spain, where mortgage rates could go negative in the event of the ECB cutting further, as these mortgages are linked to euro zone money market rates.

In other words, banks in Austria, Portugal and Spain may end up paying customers for lending to them, which would be bad news for their balance sheets. The Bank for International Settlements warned in a report this month that there was great uncertainty over the potential for deeper cuts into negative territory. However, “Life Below Zero”, a research paper by HSBC, the bank, suggests that the ECB could cut rates much further. It says that the Swiss National Bank currently operates the most negative rate of all the world’s leading central banks (minus 0.75%). If the costs incurred by Swiss banks were applied to the euro zone banking system, then the ECB’s deposit rate would be much more negative, at minus 1.8%. The ECB could also tier rates. At the moment, the ECB charges about 90% of its bank reserves at negative rates.

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“It’s capitalism with Chinese characteristics.”

Central Banks Creep Toward Uncomfortable Role as Central Planners (WSJ)

Are central banks heading back to an era of rationing money? The question may sound daft when policy makers are pumping gushers of cash into several of the world’s major economies. But as the central banks become more desperate to boost inflation and growth, they are starting to break one of the modern tenets of the profession by funneling that cash directly to what they regard as “good” uses. The past two weeks brought interventions by the Bank of Japan and ECB, which would have been unthinkable just a few years ago. The Bank of Japan’s conditions for companies to qualify for exchange-traded funds it would like to buy sound like they come from a well-meaning government minister, not a monetary authority concerned about overall growth and inflation.

Companies could qualify by offering an “improving working environment, providing child-care support, or expanding employee-training programs.” The central bank wants financiers to create a new breed of ETFs it would like to buy. The ETFs would hold only shares of companies that are increasing capital spending, expanding spending on research and development or boosting what the Bank of Japan calls “human capital.” The latter means pay raises for staff, taking on more people or improving human resources. All these are eminently reasonable things to demand of companies, especially Japanese firms. All would probably be good for the economy, too. However, they have nothing to do with monetary policy. The basic aim of central banks is to adjust the overall economy while leaving the market and government to decide the best use of capital, decisions that are inherently political.

The problem, as Neal Soss, vice chairman of research at Credit Suisse, puts it, is “these are very, very challenging times for the economic orthodoxy,” and if governments won’t step up with an expansionary fiscal policy, central banks have little choice but to fill the gap. To be fair, Bank of Japan Gov. Haruhiko Kuroda is hardly drawing up a Soviet-style five-year plan. Only ¥300 billion ($2.7 billion) a year will be spent “with the aim of supporting firms that are proactively investing in physical and human capital.” The worry is that the Bank of Japan has only just begun. “It’s a massive politicization of credit: Here are the legitimate things for lending, and here are the illegitimate things,” said Russell Napier, an independent strategist and author of “Anatomy of the Bear,” a study of 70,000 Wall Street Journal articles during major bear markets. “It’s capitalism with Chinese characteristics.”

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It’s awfully similar indeed. So why do we allow it to happen?

The ECB and The Mississippi Company Bubble (Macleod)

Last week, the ECB extended its monetary madness, pushing deposit rates further into negative figures. It is extending quantitative easing from sovereign debt into non-financial investment grade bonds, while increasing the pace of acquisition to €80bn per month. The ECB also promised to pay the banks to take credit from it in “targeted longer-term refinancing operations”. Any Frenchman with a knowledge of his country’s history should hear alarm bells ringing. The ECB is running the Eurozone’s money and assets in a similar fashion to that of John Law’s Banque Generale Privée (renamed Banque Royale in 1719), which ran those of France in 1716-20. The scheme at its heart was simple: use the money-issuing monopoly granted to the bank by the state to drive up the value of the Mississippi Company’s shares using paper money created for the purpose.

The Duc d’Orleans, regent of France for the young Louis XV, agreed to the scheme because it would provide the Bourbons with much-needed funds. This is pretty much what the ECB is doing today, except on a far larger Eurozone-wide basis. The need for government funds is of primary importance today, as it was then. In Law’s day, France did not have a central bank, such as the Bank of England, managing the issue of government debt, let alone a functioning government bond market. The profligate spending of Louis XIV had left the state three billion livres in debt, which was the equivalent of 1,840 tonnes of gold. This was about 85% of the world’s estimated gold stock at that time, at the livre’s conversion rate into Louis d’Or. John Law would almost double that by June 1720, with unbacked livre notes issued by his bank.

Today, the assets being overvalued for the governments’ benefit are government bonds themselves, but the principal is the same. There is no need to use a separate, Mississippi-style vehicle, because there is a fully functioning government bond market. Banque Generale created the bank credit for France’s upper and middle classes to buy Mississippi Company shares, driving up the price and making yet higher prices a certainty. Law had set up a money-making machine for those with a modicum of wealth, but the ten% down-payment required to subscribe for Mississippi shares made speculation available to the servant classes as well. The result was virtually everyone in Paris was caught up in the speculative fever, and Mississippi shares increased from the 15 livres deposit to 18,000 livres fully paid at the peak in June 1720. The term “millionaire” dated from that time.

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Simplistic. if Germany goes, so must Holland. And Austria. And then Belgium. France.

Germany Must Leave Eurozone To Save It: Mervyn King (CNBC)

Germany has grown too powerful and should leave the euro zone in order to save the union, former Bank of England Governor Mervyn King said Monday. “That would be the best way forward, and I would hope that many of my American friends would stop pushing the Europeans to throw money at the problem and say we must make the euro successful,” he told CNBC’s “Squawk Box.” The tragedy of the euro zone, said King, is that Germany entered the project in a bid to bind itself into Europe so that no European country would ever again fear the country’s power. But now Germany is more powerful economically and politically than it was when the euro was adopted, he said. Germany also sacrificed the Deutsche mark in the process, “the one really successful symbol of post-war German reconstruction,” he said.

While the United States, the U.K., and some European countries need to export and invest more while consuming less, Germany and China need to spend more and export less, King said. “Unless we’re prepared to tackle that problem head-on, which will involve some restructuring of the economy, then we shall just continue down this path of ever-lower rates and no growth,” he said. Last week, European Central Bank President Mario Draghi warned European leaders that monetary policy alone would not be enough to jump-start the economy and that governments needed to do their job by pushing through structural reforms. “I made clear that even though monetary policy has been really the only policy driving the recovery in the last few years, it cannot address some basic structural weaknesses of the euro zone economy,” Draghi told reporters.

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It’s just a matter of what comes first: run out of credit or run out of growth. Since ever more credit is needed to produce one ‘unit’ of growth, diminishing returns rule the day.

Government Debt Could Bring China’s Credit Party To A Halt (MW)

China’s economy may have run out of growth before it ran out of credit, but no one told its companies. One of the biggest China puzzles today is the seemingly never-ending ability of its corporates to access new supplies of credit, without running into trouble or someone saying no. Some analysts warn that we are looking in the wrong place for distress; it could be building in the government bond market. This year, China’s easy money policy has been most graphically on display through an unprecedented overseas buying spree by its companies. The latest Chinese company throwing its checkbook around is insurer Anbang with a $13.1 billion cash offer for Starwood Hotels and Resorts. Earlier ChemChina broke China’s record for outbound merger and acquisition activity with an offer to buy Syngenta in cash for $44.1 billion.

In fact, in the first three months of this year, China outbound M&A activity has rocketed to $102.7 billion, almost equal to the record total of $107.5 billion for the whole of 2015, according to data from Dealogic. Heavily geared balance sheets appear no hindrance to connected mainland companies being able to access funding. On Monday, Shanghai shares rallied after more, cheaper money was promised to China’s brokers for margin financing. Yet it was possible to detect a hint of caution from the central bank governor at the weekend after the chorus of upbeat commentaries on the economy from China’s leaders in recent weeks. Zhou Xiaochuan said that “lending as a share of [gross domestic product], especially corporate lending as a share of GDP, is too high” and also that a high leverage ratio is more prone to macroeconomic risk.

Corporate gearing in China is now widely estimated at some 160% of GDP. It is these kinds of concerns that have led Moody’s to downgrade the outlook on China’s sovereign rating at the beginning of March. Other analysts are also turning their attention to central government debt — which has long been viewed as manageable — as these funding needs could emerge as a new fault line of distress. Societe Generale said in a new report the government bond market faces an unprecedented supply glut due to combined local and central government bond issuance. As the market has yet to factor in this exponential growth in government paper, it could lead to disruption, which could potentially spill over into the corporate bond market, they warn.

The upswing in issuance is due to an expanded local government debt swap program (where bad loans from special funding vehicles were swapped for debt) and central and local government fiscal deficits. In total, SG calculates this year could see a total net issuance of 7.58 trillion yuan, up by 2.66 trillion yuan from 2015. And this paper will keep coming. The latest audit report put the amount of local government debt eligible for being swapped into bonds at a massive 15.4 trillion yuan.

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Until it no longer can.

China’s Debt Burden Is Only Going To Get Bigger (BV)

China’s debt burden is only going to get bigger. Total borrowing has grown rapidly to reach about 250% of GDP last year, raising concerns about runaway credit. But pressure to meet unrealistic economic growth targets will delay any sustained effort to bring debt back down. The government’s latest five-year plan highlights the dilemma. Prime Minister Li Keqiang pledged that the world’s second-largest economy will expand by at least 6.5% a year, in real terms, until 2020. Meanwhile, planners expect total “social financing” – a broad measure of private sector credit – to grow by 13% in 2016 alone. So even if inflation reaches the optimistic target of 3%, debt will outstrip nominal GDP.

Extend those trends, and borrowing will hit about 290% of annual output by 2020. Central bank Governor Zhou Xiaochuan has expressed concerns about rising corporate debt levels but there’s little sign that China is reining in credit. Banks extended new loans worth 3.5 trillion yuan ($540 billion) in the first two months of 2016, a third more than in the same period of last year. Meanwhile, Chinese companies are using domestic debt to help finance an overseas M&A binge which totals nearly $100 billion this year, according to ThomsonOne. Though a healthier stock market would allow corporations to deleverage by issuing more equity, the collapse of last year’s bubble has made investors understandably skittish.

The government could perhaps take on a greater burden: official borrowing was about 44% of GDP last year, according to Breakingviews calculations based on data from the Bank for International Settlements. That’s well below the level in developed countries. However, this excludes borrowing by state-owned entities and local governments. Moody’s puts these contingent liabilities at between 50 and 70% of GDP. That leaves consumers, whose borrowings are just 39% of GDP. So households have plenty of scope to load up on mortgages and credit cards. A consumer credit boom might help deliver growth targets while also shifting the economy towards greater consumption. Whoever does the borrowing, however, debt levels will keep rising. As in the rest of the world, deleveraging will have to wait.

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More or less correct.

Home Is Where the Inflation Is (BBG)

The U.S. Federal Reserve has had a tough time getting inflation back up to desired levels. There’s one area, though, where it may be having a bigger effect than some of its major foreign counterparts: house prices. Comparing house prices across borders can be a fraught enterprise, given the idiosyncratic nature of housing markets and statistics. That said, after the U.S. housing bust tanked the global economy, the Bank for International Settlements started collecting and publishing data for a large number of countries. Though still imperfect, the data allow for some rough comparisons. The latest numbers, updated Friday, show the U.S. on a run: Over the year through September 2015, house prices exceeded consumer-price inflation by 5.9% – more than in the euro area, Japan or the U.K.

That put them up almost 15% in inflation-adjusted terms since the economy hit bottom in mid-2016, just short of the U.K. Although many factors can affect house prices, much of the difference is probably attributable to central-bank policy – pushing up house prices, after all, is one of the goals of monetary stimulus. The Fed and the Bank of England moved quickly and decisively to push down short-term and long-term interest rates in 2009 and beyond, while the ECB was relatively slow to respond to economic malaise and the Bank of Japan had already used much of its ammunition (though Japan’s demographics play a role, too).

The question, then, is whether higher house prices will do any good. In the short term, they increase inequality, because the benefit accrues to relatively wealthy property owners and raises the bar for poorer folks who want to own. The expectation is that this wealth effect will translate into greater spending and investment that will benefit everyone. There are some signs that may be happening – the U.S. economy is certainly doing better than the euro area’s. Still, real median household income – though rising – only slightly exceeds its pre-recession level. Price gains are undoubtedly a relief for millions of U.S. homeowners who came out of the crisis owing more on their mortgages than their houses were worth. Now the rest of the economy just has to catch up.

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I’m sure Steve will come back to the BIS source data, this time for other countries.

Get Ready For An Australian Recession By 2017 (Steve Keen)

For the last 25 years, Australian politicians of both Liberal and Labor hue have been able to brag that, under their stewardship, Australia has avoided a recession. Those bragging rights are about to come to an end. During the life of the next Parliament -and probably by 2017- Australia will fall into a prolonged recession. Whichever party is in opposition at the time will blame the incumbent, but in reality this recession has been set up by the sidestep both parties have used to avoid downturns for the past quarter century: whenever a crisis has loomed, they’ve avoided recession by encouraging the private sector to borrow and spend.

The end product of that is starkly evident in a new database on private and government debt published by the Bank of International Settlements. Australia’s most famous recession sidestep was during the GFC, when it was one of only two countries in the OECD to avoid experiencing two consecutive quarters of negative GDP growth (the other country was South Korea). Since then, the private sectors of the advanced countries have collectively de-levered, reducing their debt levels from about 170 to 160% of GDP. Australia, in stark contrast, has levered up. Our private debt to GDP ratio is now more than 20% higher than when the GFC began, and more than 50% higher than in the USA (see Figure 1).

This credit sidestep has worked because the extra debt-financed expenditure lifted aggregate demand and income well above what it would have been in the absence of a debt binge (see Figure 2).

Unfortunately for Australia’s next Prime Minister, there are two catches to this trick. The obvious catch is that getting that much extra demand out of credit necessarily increases debt much faster than it increases income — hence the runaway ratio of debt to GDP shown in Figure 1 —and this can’t go on forever. The less obvious one is that when debt is at stratospheric levels that apply in Australia today, total demand falls even if the debt ratio merely stabilises. The logic is pretty simple: your spending in a year is the total of what you earn plus what you borrow, and the same maths applies to the economy as a whole. If nominal GDP grows this year at the 2.8% rate it has averaged for the last five years, then GDP in 2016 will be roughly $1,634 billion. If private debt continues to grow at its average rate of 6.9% per year, it will reach $3,414 billion —an increase of $220 billion over the year.

Total private sector demand (which is spent on both goods and services and asset purchases) will be $1,855 billion. What about 2017, if private debt grows at the same rate as GDP itself, so that the debt ratio stabilises? Then GDP will be $1,680bn, and private debt will rise from $3,414bn to $3,509bn — an increase of just $96bn over the year (compared to $220bn the year before). The sum of the two will be $1,775bn — 4.3% less than the year before. This is the inevitable debt crunch coming Australia’s way, but conventional economists are oblivious to this danger because they’ve brainwashed themselves to ignore private debt as just a “pure redistribution”, to quote Ben Bernanke. This deluded textbook thinking is why Bernanke didn’t see the GFC coming.

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But American banks’ exposure is much higher.

Regulator Warns Canadian Banks on Oil and Gas Reserves (WSJ)

Canada’s banking regulator is urging the country’s major banks to review their accounting practices to ensure they have sufficient reserves as the commodity-price collapse takes a toll on the economy. The Office of the Superintendent of Financial Institutions wants lenders to scrutinize their collective allowances, reserve funds that act as cushions to absorb potential future loan losses, the regulator’s chief said in an interview. “We want them to take a good look at their accounting practices,” said Superintendent of Financial Institutions Jeremy Rudin. “They should support loss-absorbing capacity and the ability to manage through difficult times in general,” he added.

The regulator is giving the country’s six biggest banks this guidance on their accounting as they face mounting criticism from some analysts that they haven’t amassed enough reserves to cover soured loans to the energy sector. That criticism was a recurring theme during calls following their fiscal first-quarter results, in which many banks warned of rising provisions for credit losses but assured investors their rainy-day cushions were adequate. Canadian bank shares have tumbled over the past year as the price of oil has collapsed, but the S&P/TSX Composite Bank Index is now up about 16.77% from its low in February, reflecting a rebound in oil. Still, oil prices remain an overhang for banks, underscoring the size of the energy industry in the Canadian economy and concerns that lenders will eventually be stung by higher loan losses.

Energy loans totaled 49.7 billion Canadian dollars ($38.2 billion) for the country’s six biggest banks during the November-to-January quarter, according to a report by TD Securities. Bank of Nova Scotia, Canada’s third-largest bank by assets, has the biggest direct oil and gas exposure at 3.6% of total loans. Some analysts are skeptical about the lenders’ reserving practices in part because U.S. banks, including J.P. Morgan and Wells Fargo, have set aside millions more for their reserves as they brace for bigger energy-related losses.

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Brazil is a game of dominoes.

Petrobras Posts Record $10 Billion Loss (Reuters)

Brazil’s state-controlled oil company Petrobras posted its biggest-ever quarterly loss on Monday after booking a large writedown for oil fields and other assets as oil prices slumped and refinery projects faltered. Petróleo Brasileiro as the company at the epicenter of Brazil’s massive corruption scandal is commonly known, had a consolidated net loss of 36.9 billion reais ($10.2 billion) in the fourth quarter, according to a securities filing. The bigger-than-expected shortfall was 48% larger than the 26.6 billion-real loss a year earlier, the previous record. It also turned the company’s full-year 2015 result, which was positive through September, into a full-year loss. For a second year in a row, CEO Almir Bendine said, Petrobras will not pay dividends to either its government or non-government investors and it plans to make no bonus payments to employees.

The result caught analysts and investors by surprise. The largest fourth-quarter loss expected in a Reuters survey of analysts was 9.7 billion reais. Petrobras common shares fell 5.5% in after-hours electronic trading in New York, after the results were released. The red ink at Petrobras was driven by a 46% decline in the price of benchmark Brent crude oil, a drop that has driven up losses and caused writedowns throughout the global oil industry. Of the 46.4 billion reais written off in the quarter, 83% was for oil fields. A year earlier, writedowns were also the cause of Petrobras losses, although they were largely related to the giant price-fixing, bribery and political kickback scandal that has roiled the company and help fuel calls for the impeachment of Brazilian President Dilma Rousseff.

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Who needs enemies with friends like…

Erdogan To Include Journalists, Politicians in ‘Terrorist’ Definition (Ind.)

Turkey’s President Tayyip Erdogan has claimed the definition of a terrorist should be changed to include their “supporters” – such as MPs, civil activists and journalists. It comes after three academics were arrested on charges of terrorist propaganda after publicly reading out a declaration that reiterated a call to end security operations in the south-east of Turkey, a predominantly Kurdish area. Mr Erdogan has said the academics will pay a price for their “treachery”. A British national was also detained on Tuesday despite having ordered the arrests, after he was found with pamphlets printed by the Kurdish linked People’s Democratic Party (HDP). “It is not only the person who pulls the trigger, but those who made that possible who should also be defined as terrorists, regardless of their title,” President Erdogan said on Monday, adding that this could be a journalist, an MP or a civil activist.

His comments came the day after a suicide bomb attack in the country’s capital of Ankara killed at least 34 people and wounded 125 others when a car bomb was detonated near a main square in the Kizilay neighbourhood. Violent action between the government and the PKK – which is being blamed by authorities for the Ankara bombing – has reached its worst level for 20 years since fighting restarted last July. Hundreds of civilians, militants and security forces have been killed since the summer. President Erdogan has already threatened the future of Turkey’s highest court after it ruled that holding two journalists in pre-trial detention was a violation of their rights to freedom of expression. The journalists, Cumhuriyet newspaper editor Can Dundar and Ankara bureau chief Erdem Gul, were arrested on charges of revealing state secrets and attempting to overthrow the government. They reportedly face calls for multiple life sentences from prosecutors and will stand trial later in March.

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“It would be an awesome and wondrous event if the nation landed on November 8 with both parties in complete disarray..”

The Uses of Disorder (Jim Kunstler)

Many thoughtful and patriotic citizens entering the Kubler-Ross free-fire zone of desperate bargaining with reality are at work attempting to chart an orderly course around the Godzilla-like figure of Trump looming outside the desecrated once-shining city of American democracy. I doubt there is such an orderly way through this political bad weather. When storms hit, things break up. It can be argued endlessly whether times produce the man or vice versa, but except in the most schematic and wishful sense, is there any question that Donald Trump is unfit for the office he’s seeking? Personally, I am tortured by the question: why him? Why this vulgarian who can’t string together two sequentially coherent thoughts? Are there in this land of 320 million-plus people no other men or women with comfortable fortunes and better minds bold enough to take on the matrix of mafias running our affairs into the ground? Apparently not.

Then there is the question — only nascently theoretical at this point — of where such an orderly course of decision and action might lead this country. For Trump, it seems to be a restoration of the 1950s, when armies of “breadwinner” factory workers churned out cornucopias of Maytag washers and Zenith black-and-white televisions, and the less numerous Wogs of the outside world busied themselves with basket-weaving, and Atoms For Peace would make electric power “too cheap to meter,” and popular entertainment came in the chaste form of Dinah Shore urging the upward-aspiring masses to “see the USA in your Chevrolet!” That was, of course, the time of Trump’s childhood (and my own), and if there is anything more certain than night following day, it is that America is not going back to that sunny moment.

Trump and I are way past done growing up as human organisms and America is done growing as a techno-industrial political economy. People decline and die and are replaced by new people, and political economies wither and morph into sets of new activities and relations. The forces of history want to take us to this new disposition of things, and just about everything on the American scene these days is a manifestation of resistance to that journey. The destination is a much re-scaled and down-scaled edition of daily life in a de-globalized economy, with far fewer luxuries and a greater demand for earnestness, purposeful work, generosity-of-spirit, and plain dealing. These are not qualities exhibited by Trump, who represents only the poorly-articulated and grandiose wish to “make America great again.”

The institutional collapse of the Republican Party is in full swing now thanks to Trump. By the way, it could easily be matched by an equally brutal collapse of the Democratic Party if the head of the FBI makes any criminal referrals in the matter of the Clinton Foundation’s entanglements in official State Department business via an email slime trail. It would be an awesome and wondrous event if the nation landed on November 8 with both parties in complete disarray and more than a couple of rump factions posting candidates with dubious legitimate credentials to stand for election. In over two hundred years we have not seen a national election postponed, or canceled.

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Not since the dinosaurs died off. [..] “at the start of the PETM, no more than 1bn tonnes of carbon was being released into the atmosphere each year. In stark contrast, 10bn tonnes of carbon are released into the atmosphere every year by fossil fuel-burning and other human activity.”

Carbon Emission Release Rate ‘Unprecedented’ In Past 66 Million Years (G.)

Humanity is pumping climate-warming carbon dioxide into the atmosphere 10 times faster than at any point in the past 66m years, according to new research. The revelation shows the world has entered “uncharted territory” and that the consequences for life on land and in the oceans may be more severe than at any time since the extinction of the dinosaurs. Scientists have already warned that unchecked global warming will inflict “severe, widespread, and irreversible impacts” on people and the natural world. But the new research shows how unprecedented the current rate of carbon emissions is, meaning geological records are unable to help predict the impacts of current climate change. Scientists have recently expressed alarm at the heat records shattered in the first months of 2016.

“Our carbon release rate is unprecedented over such a long time period in Earth’s history, [that] it means that we have effectively entered a ‘no-analogue’ state,” said Prof Richard Zeebe, at the University of Hawaii, who led the new work. “The present and future rate of climate change and ocean acidification is too fast for many species to adapt, which is likely to result in widespread future extinctions.” Many researchers think the human impacts on the planet has already pushed it into a new geological era, dubbed the Anthropocene. Wildlife is already being lost at rates similar to past mass extinctions, driven in part by the destruction of habitats. “The new results indicate that the current rate of carbon emissions is unprecedented … the most extreme global warming event of the past 66m years, by at least an order of magnitude,” said Peter Stassen, a geologist at the University of Leuven in Belgium, and who was not involved in the work.

The new research, published in the journal Nature Geoscience, examined an event 56m years ago believed to be the biggest release of carbon into the atmosphere since the dinosaur extinction 66m years ago. The so-called Palaeocene–Eocene Thermal Maximum (PETM) saw temperatures rise by 5C over a few thousand years. But until now, it had been impossible to determine how rapidly the carbon had been released at the start of the event because dating using radiometry and geological strata lacks sufficient resolution. Zeebe and colleagues developed a new method to determine the rate of temperature and carbon changes, using the stable isotopes of oxygen and carbon. It revealed that at the start of the PETM, no more than 1bn tonnes of carbon was being released into the atmosphere each year. In stark contrast, 10bn tonnes of carbon are released into the atmosphere every year by fossil fuel-burning and other human activity.

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“Franck Düvell is an associate professor and senior researcher at The University of Oxford’s Centre on Migration, Policy and Society.”

The EU’s Deal With Turkey Is a No-Win Situation (Fortune)

As of this year, 2.7 to 3.5 million Syrians, Iraqis, Afghans, and others have escaped to Turkey from the various evils and conflicts in the region, while 1 million moved on to the European Union. Policy failed to prevent this, and the EU is now entrenched in a moral panic over what is equivalent to a mere 0.2% of the population. Its recent deal with Turkey to send back irregular migrants in exchange for visa-free travel and billions in aid is not only a human rights violation, but could turn out to be a total PR stunt. The primary root of the refugee crisis stems back to the conflicts in Syria, Iraq, and Afghanistan. But a secondary root lies in the lack of access to protection in the countries outside of the EU. Notably in Turkey, non-Syrians have to wait eight years for asylum interviews, Syrians only get temporary protection, and access to regular employment and social services is restricted for both groups.

They endure severe poverty and years in limbo. Meanwhile, the continuation of the flow is partly driven by women and children following their husbands who made the journey last year. Until the summer of 2015, the EU failed to agree on preventive policies, and Turkey bemoaned that it was left alone with the refugee crisis while failing to stop the outflow. Meanwhile, the EU kept relatively quiet, embracing an almost laissez faire attitude. But then numbers exploded and borders were practically overrun, eventually collapsing under the sheer weight of the number of people. In some incidences, refugees protested, occasionally hurling stones, replicating the actions during the Arab Spring and once more demonstrating for human dignity. Their suffering added a Ghandi-esc dimension to their claims. Human agency supported by a myriad of facilitators proved stronger than state policy.

The EU-Turkey “deal” refers to stopping and returning “irregular migrants” and “migrants not in need of international protection” in exchange for refugees to be resettled from Turkey. But 85% of all arrivals are from countries with many refugees, so the numbers affected would be comparably small. But then it also lists Syrians, hence refugees, to be returned. So far, Turkey has already struggled to stop the outflow within the limits of the law, and now turns to violent and illegal measures. The deal is thus inconsistent—and in case refugees are returned—highly legally questionable. The deal is also practically questionable. Which border gates will be used? Are there ferries, planes, and busses available to ship tens of thousands of people back to Turkey? Where will the returned be kept? How will their human dignity be secured?

How will the people who are resettled in exchange from Turkey to Europe be selected? Does Turkey have the political will and capacity to prevent human rights violations like destitution, or to change its legislation and extent refugee status to non-Europeans? In order to make the deal work, Turkey would (a) need to grant a refugee status that complies with EU and international law, and (b) rapidly develop and, more importantly, implement an integration strategy that could justify containing and simultaneously convincing refugees to stay in Turkey. And in the EU, many political parties and several governments need to drop their objections to visa liberalization for Turkey. And Member states that have so far refused to resettle refugees would need to change their position. All of this seems rather unrealistic.

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Insane that this was not done BEFORE the deal was signed.

Greece Appeals For EU Logistics Aid For Migrant Deal To Work (Reuters)

Greece appealed to EU partners on Monday for logistical help to implement a deal with Turkey meant to stem an influx of migrants into Europe, as people – many unaware of the tough new rules – continued to come ashore on Greek islands. Economically battered Greece, for months at the epicenter of Europe’s biggest migrant crisis since World War Two, is struggling to mount the massive logistics operation needed to process asylum applications from the many hundreds of migrants still arriving daily along its shoreline. Turkish officials arrived on the Greek island of Lesvos on Monday to help realize the deal, which requires new arrivals from March 20 to be held until their asylum applications are processed and for those deemed ineligible to be sent back to Turkey from April 4 onwards.

“We must move very swiftly and in a coordinated manner over the next few days to get the best possible result,” Greek Prime Minister Alexis Tsipras said after meeting EU Migration Commissioner Dimitris Avramopoulos in Athens. “Assistance in human resources must come quickly.” Under the EU-Turkey roadmap agreed last Friday, a coordination structure must be created by March 25 and some 4,000 personnel – more than half from other European Union member states – deployed to the islands by next week. Avramopoulos said France, Germany and the Netherlands had already pledged logistics and personnel. “We are at a crucial turning point … The management of the refugee crisis for Europe as a whole hinges on the progress and success of this agreement,” he said.

However, on Monday, the day after the formal start of an agreement intended to close off the main route through which a million refugees and migrants arrived in Europe last year, authorities said 1,662 people had arrived on Greek islands by 7 a.m. (0500 GMT), twice the official count of the day before.

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Too late.

EU Rights Chief Demands More Protection For Refugees (AP)

The Council of Europe commissioner for human rights is calling for additional measures to protect the rights of migrants now that a deal has been reached by the EU and Turkey. Nils Muiznieks said the deal’s legal and procedural safeguards should apply to all people – not just Syrians – reaching Greece or any EU country. Such safeguards should likewise extend to anyone who is returned to Turkey. He also called on Greece and Turkey to limit the use of detention of migrants to “exceptional” cases and take steps to ensure there are no collective returns. Muiznieks described the deal, which officially came into effect on Sunday, as “just a patch to plug one of the holes in the highly dysfunctional approach of European states to migration.”

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People come to you for help and you lock them up?!

Greece Sets Up Detention Camps As Refugee Deal Hits Delays (AP)

Greece detained hundreds of refugees and migrants on its islands Monday, as officials in Athens and the European Union conceded a much-heralded agreement to send thousands of asylum-seekers back to Turkey is facing delays. Migrants who arrived after the deal took effect Sunday were being led to previously open refugee camps on the islands of Lesbos and Chios and held in detention, authorities on the islands said. EU countries are trying to avoid a repeat of the mass migration in 2015, when more than a million people entered the bloc. Most were fleeing civil war in Syria and other conflicts, traveling first to Turkey and then to the nearby Greek islands in dinghies and small boats. Efforts to limit migration have run into multiple legal and practical obstacles.

Under the deal, Greek authorities will detain and return newly arrived refugees to Turkey. The EU will settle more refugees directly from Turkey and speed up financial aid to Ankara. The two sides, however, are still working out how migrants will be sent back. “We are conscious of the difficulties,” EU Commission spokesman Margaritis Schinas said in Brussels. “And we are working 24-7 to make sure that everything that needs to be in place for this agreement to be implemented soon is happening.” Commission officials said support staff needed to implement the deal -including hundreds of translators and migration officers- would not start arriving until next week. Returns, they said, cannot start until Greece changes its law to recognize Turkey as a “safe country” for asylum applications.

The human rights group Amnesty International sharply criticized the plan. “Turkey does not offer adequate protection to anyone,” Iverna McGowan, the head of Amnesty’s EU office, told The Associated Press, accusing Turkey of routinely forcing Syrians back across the border.

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Sep 162015
 
 September 16, 2015  Posted by at 10:13 am Finance Tagged with: , , , , , ,  6 Responses »
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NPC Fire at S. Kanns warehouse, Washington, DC 1908

It’s highly amusing to read all the ‘expert’ theories on a Federal Reserve hike or no hike tomorrow, but it’s also obvious that nobody really has a clue, and still feel they should be heard. Don’t know if that’s so smart, but I guess in that world being consistently wrong is not that big a deal.

Thing is, US economic numbers are so ‘massaged’ and unreliable, the Fed can pick whichever way the wind blows to argue whatever decision it makes. As long as jobs numbers get presented for instance without counting the 90-odd million Americans who are not in the labor force, and a majority of new jobs are waiters, just about anything goes in that area. Numbers on wages are just as silly.

And people can make inflation a big issue, but hardly anyone even knows what inflation is. Wonder if the Fed does. It had better, because if you don’t look at spending, prices don’t tell you a thing. They surely must look at velocity of money charts from time to time?!

The biggest thing for the Fed might, and perhaps must, be the confidence factor. It’s been talking about rate hikes for so long now that if it decides to leave rates alone, it will only create more uncertainty down the road. Uncertainty about the economy (no hike would suggest a weak economy), and also about its own capabilities.

If all you have is talk, people tend to take you a lot less serious. Moreover, the abject -and grossly expensive- failure of the Chinese central bank to quiet down its domestic stock markets has raised questions about the omnipotence of all central banks.

This morning’s spectacle of a 5% rise in Shanghai in under an hour near the close no longer serves to restore confidence, it further undermines it. Beijing doesn’t seem to get that yet. But the Fed might.

No rate hike is therefore an enormous potential threat to Fed credibility. And that’s a factor it may well find much more important than a bunch of numbers it knows are mostly fake anyway. It has for years been able to fake credibility, but that is no longer all that obvious. And delaying a hike will certainly not boost that credibility.

Sure, volatility is an issue too, but volatility won’t go down on a hike delay. It’ll simply continue – and perhaps rise- until the next meeting. There’s nothing to gain there.

Besides, don’t let’s forget how crazy it is that the entire financial world is dead nervous ahead of a central bank meeting, even as everyone knows it’s all just about a decision on a very small tweak in rates.

Yellen et al are very aware of the risks of that, even if they love the limelight it brings. All that attention tells people, meeting after meeting, that the US economy is not functioning properly, no matter what the official statements say.

There are ‘experts’ talking about the dangers of emerging markets if the Fed votes Yes on a hike, but those markets are not even part of its mandate. if Yellen thinks something can be gained from pushing emerging markets and currencies down further, she’ll do just that.

Still, all this is just pussyfooting around the bush. The Fed may have noble mandates to help the real economy, but it will in the end always decide to do what’s best for Wall Street banks. And these banks could well make a huge killing off a rate hike.

They can profit from trouble and volatility in emerging markets as well as domestic markets, provided they’re well-positioned. Given that they’ve had ample time, and it’s hard to answer the question who else is in a good position, we may have an idea which wind the wind will blow.

Increasing credibility for the Fed and increasing profits for Wall Street banks. Might be a winning combination. And if Yellen is realistic about the potential for a recovery in the American economy, why would she not pick it?