Jan 052018
 
 January 5, 2018  Posted by at 10:30 am Finance Tagged with: , , , , , , , , ,  8 Responses »


GordonParks Place de la Concorde, Paris, France 1950

 

UPDATE: There still seems to be a problem with our Paypal widget/account that makes donating -both for our fund for homless and refugees in Greece, and for the Automatic Earth itself- hard for some people. What happens is that for some a message pops up that says “This recipient does not accept payments denominated in USD”. This is nonsense, we do. We notified Paypal weeks ago.

We have no idea how many people have simply given up on donating, but we can suggest a workaround (works like a charm):

Through Paypal.com, you can simply donate to an email address. In our case that is recedinghorizons *at* gmail *com*. Use that, and your donations will arrive where they belong. Sorry for the inconvenience.

 

 

 

Global Debt Hits Record $233 Trillion (BBG)
The Tsunami Of Wealth Didn’t Trickle Down. It Surged Upward – Buffett (CNBC)
Apple Says All Macs, iPhones and iPads Exposed to Chip Security Flaws (BBG)
2018 Economy Goes Cold – Inflation Hot – Danielle DiMartino Booth (USAW)
Inflation Risk May Shake Global Markets (BBG)
Economists Think Inflation Will Rise Sharply in 2018: They’re Wrong (Mish)
China Won’t Be Prioritizing Growth This Year – Andy Xie (CNBC)
‘Melt-Up’ Coinage Could Signal Last Hurrah For US Stock Market (G.)
US on The Cusp of Enjoying ‘Energy Superpower’ Status (CNBC)
A Good German Idea for 2018 (Varoufakis)
Monsanto Forecasts Profit Increase as Farmers Plant More Soy (BBG)
Greek State To Start Its Own E-auctions (K.)
Work To Improve Greek Island Centers For Refugees Moving Slowly (K.)
Oceanic ‘Dead Zones’ Quadruple In Volume In 50 Years (Ind.)
Iguanas Rain From Trees As Animals Struggle With US Cold Snap (G.)

 

 

Private debt is the one to watch. Up rapidly in Canada, France, Hong Kong, South Korea, Switzerland and Turkey. And Australia, New Zealand, Scandinavia, Holland.

Global Debt Hits Record $233 Trillion (BBG)

Global debt rose to a record $233 trillion in the third quarter of 2017, more than $16 trillion higher from end-2016, according to an analysis by the Institute of International Finance. Private non-financial sector debt hit all-time highs in Canada, France, Hong Kong, South Korea, Switzerland and Turkey. At the same time, though, the ratio of debt-to-GDP fell for the fourth consecutive quarter as economic growth accelerated. The ratio is now around 318%, 3 percentage points below a high set in the third quarter of 2016, according to the IIF. “A combination of factors including synchronized above-potential global growth, rising inflation (China, Turkey), and efforts to prevent a destabilizing build-up of debt (China, Canada) have all contributed to the decline,” IIF analysts wrote in a note. Yet the debt pile could act as a brake on central banks trying to raise interest rates, given worries about the debt servicing capacity of highly indebted firms and government, the IIF analysts wrote.

Read more …

Warren in praise of technology. Blind and boring. “This game of economic miracles is in its early innings. Americans will benefit from far more and better ‘stuff’ in the future.”

The Tsunami Of Wealth Didn’t Trickle Down. It Surged Upward – Buffett (CNBC)

Warren Buffett knows first hand the power of American capitalism. As the third richest person in the world, with a net worth of more than $86 billion, the octogenarian investor has personally benefited from it. And yet, in a piece penned for Time magazine, published Thursday, Buffett says there is a problem with that economic system, which made him a king: Many individuals suffer even as those at the top prosper wildly. He points to the Forbes 400, which lists the wealthiest Americans. “Between the first computation in 1982 and today, the wealth of the 400 increased 29-fold — from $93 billion to $2.7 trillion — while many millions of hardworking citizens remained stuck on an economic treadmill. During this period, the tsunami of wealth didn’t trickle down. It surged upward.”

America’s capitalist economy requires its winners not ignore the system’s faults, says Buffett. The market system has “left many people hopelessly behind, particularly as it has become ever more specialized. These devastating side effects can be ameliorated: a rich family takes care of all its children, not just those with talents valued by the marketplace,” writes Buffett. He also notes that, in particular, those workers replaced by technological advancements will be left behind. “This game of economic miracles is in its early innings. Americans will benefit from far more and better ‘stuff’ in the future. The challenge will be to have this bounty deliver a better life to the disrupted as well as to the disrupters,” Buffett writes. “And on this matter, many Americans are justifiably worried.”

In the long term, those technological advancements are a boon for the economy. But in the short term, they cause unemployment and anxiety for those who lose their jobs to automation and are left unemployed. To demonstrate his point, Buffett points to 1776, when the United States declared its independence, and the evolution of farming technology. “Replicating those early days would require that 80% or so of today’s workers be employed on farms simply to provide the food and cotton we need. So why does it take only 2% of today’s workers to do this job? Give the credit to those who brought us tractors, planters, cotton gins, combines, fertilizer, irrigation and a host of other productivity improvements,” writes Buffett.

“We know today that the staggering productivity gains in farming were a blessing. They freed nearly 80% of the nation’s workforce to redeploy their efforts into new industries that have changed our way of life.” Indeed, despite the warnings, Buffett is optimistic. “In 1776, America set off to unleash human potential by combining market economics, the rule of law and equality of opportunity. This foundation was an act of genius that in only 241 years converted our original villages and prairies into $96 trillion of wealth,” he says.

Read more …

Don’t be fooled: this is not a flaw, it’s a feature. It’ll be interesting to see how companies aim to fix a pretty much hardware feature with a software patch.

Apple Says All Macs, iPhones and iPads Exposed to Chip Security Flaws (BBG)

Apple said all Mac computers and iOS devices, like iPhones and iPads, are affected by chip security flaws unearthed this week, but the company stressed there are no known exploits impacting users. The company said recent software updates for iPads, iPhones, iPod touches, Mac desktops and laptops, and the Apple TV set-top-box mitigate one of the vulnerabilities known as Meltdown. The Apple Watch, which runs a derivative of the iPhone’s operating system is not affected, according to the company. Despite concern that fixes may slow down devices, Apple said its steps to address the Meltdown issue haven’t dented performance.

The company will release an update to its Safari web browser in coming days to defend against another form of the security flaw known as Spectre. These steps could slow the speed of the browser by less than 2.5 percent, Apple said in a statement posted on its website. Intel on Wednesday confirmed a report stating that its semiconductors contain a vulnerability based around a chip-processing technique called speculative execution. Intel said its chips, which power Macs and devices from other manufacturers, contain the flaw as well as processors based on ARM Holdings architecture, which is used in iOS devices and Android smartphones.

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Danielle DiMartino Booth seems like a smart person. But “We can have deflation and inflation at the same time.” is utter nonsense. If only because defining inflation without referencing money velocity is a useless exercise.

2018 Economy Goes Cold – Inflation Hot – Danielle DiMartino Booth (USAW)

“We have seen 24 consecutive back-to-back months when credit card spending has outpaced incomes. That tells you households are struggling to get by. This is not Yves Saint Laurent handbags and Jimmy Choo shoes. These are families who are using their credit cards to take care of the necessities, to fill up the gas tank, to buy groceries and fill up their refrigerator… We have seen month after month of subprime automobile delinquencies, and we are starting to see a big tic up in FHA mortgage delinquencies as well. …We are at almost 10% (delinquencies) of FHA mortgage loans. Underlying this sugar high that we will see from all of these hurricanes and rebuilding efforts and wildfires, underneath that, still waters run deep and the economy is not doing well. We are a consumption driven economy that is weakening underneath. The sugar high will absolutely wear off in 2018.”

What about the bond market in 2018? Booth says, “We have gone from $150 trillion (in global debt) in 2007 to $220 trillion and counting today. If you delude yourself into thinking a rising rate environment can be good when we have tacked on $70 trillion of debt in the last decade, you are fooling yourself. It is an accident waiting to happen, and anyone who doesn’t think that it will take the stock market down with it is more optimistic than I am by a country mile.” Booth says, along with a “bond market debacle,” the world will see inflation right along with it. Booth explains, “Look at lumber prices, look at the cost of packaging, plastics, raw materials, the producer price index… is at a six year high right now. It’s called the mother of all margin squeezes.

Companies are suffering. We have inflation. We have very real inflation, and it is hitting corporate America between the eyes. We have seen inflation happening, and we continue to see it happening… Rental inflation is off the scale…Inflation is up for 2018, and it has been up. We can have deflation and inflation at the same time. If all of this debt that has built up, especially for households, if they are allocating more of their income to servicing debt, then they have fewer dollars to spend on other things. So, you are going to have deflation and inflation at the same time.” What does the regular guy on the street do? Booth says, “Figure out a way to have exposure to precious metals. Put your bubble vision on mute. You do not have to be invested in the market. That is a fallacy. Take what you have and pay down your debts.”

Read more …

This whole discussion is vapid. Central banks have been trying in vain for over a decade to push up inflation, and now, overnight, they have not just succeeded, but overdone it?

Inflation Risk May Shake Global Markets (BBG)

Investors devoted to the idea that inflation will stay subdued should be worried. Worldwide data have recently made clear that producer-price increases have picked up steam. That’s led bond buyers to begin wagering that consumer inflation could be soon to follow, with U.S. breakeven rates above 2 percent in many tenors for the first time since March. The shift represents a sea change for investors who have grown complacent about the threat of rising prices over the past few years, when inflation was subdued by modest economic growth rates, suppressed wages and shifts in technology and demographics. While few are betting on runaway increases anytime soon, even a modest uptick in prices could have an outsize impact on sentiment and change the prevailing narrative.

“There is this idea that inflation is dead,” said Peter Boockvar, the chief financial officer at Fairfield, New Jersey-based Bleakley Financial Group. “But what we are beginning to see – such as in the purchasing managers index surveys – is a lot of talk about inflation pressures. For the markets, inflation is an under appreciated risk in 2018.’ The latest sign of prices pressures came Wednesday. U.S. manufacturing expanded in December at the fastest pace in three months, as gains in orders and production capped the strongest year for factories since 2004, the Institute for Supply Management said. The index of prices paid rose to 69 from 65.5 the month before.

Factories across the globe have warned they are finding it increasingly hard to keep up with demand, potentially forcing them to raise prices as the world economy looks set to enjoy its strongest year since 2011. Purchasing Managers Indexes published Tuesday from countries including China, Germany, France, Canada and the U.K. all pointed to deeper supply constraints.

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Mish is one of the few who still understand the issue. Yes, it’s about definitions. But that doesn’t mean any definition is as as good as the next one.

Economists Think Inflation Will Rise Sharply in 2018: They’re Wrong (Mish)

Reason Number Five – Money Velocity This reason I found in a Tweet by LizAnn Sonders.

Money Velocity Rebuttal: A three month average vs a six month average offset by 21 months seems like a lot of curve fitting. Here is a Tweet Reply by Martin Pelletier that makes sense to me.

By the way, let’s look at what we are talking about here in actual terms instead of percentage increases.

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Beijing telegraphing lower growth.

China Won’t Be Prioritizing Growth This Year – Andy Xie (CNBC)

China’s fears of a financial crisis will spur Beijing to keep the country’s growth target in check, a widely followed China expert said Friday. “Their top priority is to prevent a financial crisis, so the government is looking for any pockets (of risk) that might be a trigger,” independent economist Andy Xie told CNBC’s “Squawk Box.” Chinese authorities have been cracking down on money fleeing the country and warning on “gray rhinos,” which are risks that could potentially be solved but have been unaddressed so far. “The government does not view growth as the top priority right now — we have to take the government’s word at face value. The government is worried about financial risk,” Xie added.

China will keep its target for economic growth at “around 6.5%” in 2018, unchanged from last year, Reuters reported on Thursday, citing unnamed policy sources. The world’s second-largest economy has been fighting debt for years, but with little success so far as it balances economic stability against fallout from a sharp deceleration. There have also been difficulties with the political buy-in for the debt crackdown. That’s been especially true down the Communist Party pecking order as many local governments still need to hit growth targets. “It takes time to filter down the ranks. Most government officials still don’t believe in the new direction,” said Xie.

However, unlike officials in previous administrations, Xie said current ones are likely to be changed if they don’t agree with the current economic direction, so the government will have more power to push through its agenda. Policies are working toward that direction, with higher interbank interest rates that will remain at elevated levels for the foreseeable future, Xie added. China is also looking to further slow money supply growth in 2018 after it already slowed to the all-time low around 9% in November 2017. With China likely headed toward a money supply growth rate of 7 to 8% in the next few years, it will be a “very different situation” for the economy, said Xie.

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A bit more on Jeremy Grantham: “Keep an eye on what the TVs at lunchtime eateries are showing..”

‘Melt-Up’ Coinage Could Signal Last Hurrah For US Stock Market (G.)

Welcome to the world of “melt-up”, a phrase we could be hearing a lot in coming months. It describes the idea that the US stock market, despite currently looking absurdly expensive by traditional yardsticks, could be set for one last euphoric hurrah before the inevitable crash happens. There are a couple of reasons why the “melt-up” theory may not be as wacky as it sounds. First, it comes from Jeremy Grantham, an investor who has rightly earned a reputation for knowing how to read financial bubbles. He dodged the end-of-the-century dotcom bubble and the 2007-09 blowup in the US housing market – two of the best calls anybody could have made in the past 20 years. Grantham’s default setting, as you would expect, tends to be bearish, or at least cautious. If he’s talking melt-up, that’s newsworthy.

Besides, GMO, the Boston-based fund management group he founded, manages $75bn of assets – he’s a player. A second reason is that Grantham is certainly not arguing that shares are cheap. “We can be as certain as we ever get in stock market analysis that the current price is exceptionally high,” he states. Instead, his melt-up thinking is driven by a “mish-mash of statistical and psychological factors based on previous eras”. On the statistical side, he points out that the global economy is in sync, profit margins are fat and president Trump’s corporate tax cuts could make them even fatter and “perhaps provide the oomph to keep stock prices rising”. Then there’s the fact that the current strength in the stock market is fairly broad-based. In past bubbles, the end was nigh when gains were concentrated in an increasingly small collection of “winners”.

The likes of Apple are roaring this time, but the same divergence has not occurred – yet. For “touchy-feely” evidence of excess about to appear, Grantham looks at media coverage. US newspapers and TV stations are getting interested in financial markets (with bitcoin, “a true, crazy mini-bubble of its own”, to the fore) but not yet with the wild obsession of the frenzied dotcom years. “Keep an eye on what the TVs at lunchtime eateries are showing,” he says.

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So much for OPEC cuts.

US on The Cusp of Enjoying ‘Energy Superpower’ Status (CNBC)

The U.S. is well-placed to join the likes of Saudi Arabia and Russia as one of the world’s leading energy powerhouses, an analyst said Thursday. “There is a big shift in market structure taking place and I think, so far, it really hasn’t got the attention it deserves. The U.S. is emerging as, not only a military and economic superpower, but as an energy superpower,” Martin Fraenkel, president at S&P Global Platts, told CNBC. “We are expecting that by 2020, the U.S. is going to be one of the top 10 oil exporters in the world,” he added. In recent years, America’s unprecedented oil and gas boom has been driven by one factor above all others — and that’s shale.

The so-called shale revolution could help to alleviate Washington’s reliance on foreign oil, including from turbulent Middle Eastern states, while also helping to export to more countries around the world. In November, the International Energy Agency (IEA) projected a dramatic increase in shale production could transform the U.S. into the world’s largest exporter of liquefied natural gas by the mid-2020s. The same forecast also predicted that the U.S. would likely notch another milestone a couple of years later. The Paris-based organization said that by the late-2020s, the U.S. would begin to ship more oil to foreign markets than it imports. “This is a big, big shift in the dynamics of energy markets and, in my view, will be a shift in geopolitical markets as well,” Fraenkel said.

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Not sure Germany and France are too likely to philosophize their dominance away.

A Good German Idea for 2018 (Varoufakis)

No god is necessary, no moralizing is required, to demonstrate our duty to tell the truth. Practical reasoning is all it takes: A world where everyone lies is one in which human rationality, which depends entirely on language, dies. So it is our rational duty to tell the truth, regardless of the benefits lying might bring in practice. Applied to market societies, Kant’s idea yields fascinating conclusions. Strategic reductions in price to undercut a competitor pass the test of rational duty (as long as prices do not fall below costs). After all, producing maximum quantities at minimum prices is the holy grail of any economy. But strategic reductions of wages to ever lower levels (the Uberization of society) cannot be rational, because the result would be a catastrophic collapse, owing to disappearing aggregate demand.

Turning to Europe, Kant’s principle implies important duties for governments and polities. And Germany and France would be held to be in dereliction of their duties to a functioning Europe. If Germany’s current-account surpluses, currently running at 9% of GDP, were universalized, with every member state’s government, private sector, and households net savers, the euro would shoot through the roof, destroying most of Europe’s manufacturing. Equally, universalized Greco-Latin deficits would turn Europe into a basket case.

The trick, and our rational duty, is to embrace policies and to build institutions that are consistent with balanced trade and financial flows. Put differently, authentic German rectitude cannot be achieved without a form of redistribution that is bound to clash with the interests of, say, a French or a Greek oligarchy too lazy to come to terms with its own unsustainability. A critic of this German idea for reforming Europe might credibly ask why anyone should do their rational duty, rather than remain on the time-honored path of narrow self-interest? The only sound answer is: because there is no truly rational alternative. Or, rather, the alternatives are all cant.

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We’re running out of time to block Monsanto.

Monsanto Forecasts Profit Increase as Farmers Plant More Soy (BBG)

Everything’s pointing to another year of growth for U.S. seed giant Monsanto. Pretax earnings in the fiscal year through August are expected to increase, the company said Thursday is its first-quarter earnings statement. Commodity prices have stabilized from the free-fall of recent years, with corn prices starting 2018 at the same price they began 2017. Like last year, farmers are expected to buy the most expensive, newest hybrid seeds, and companies won’t have to slash prices to keep customers. Prices “are challenging for growers, but when the environment is stable, they can figure out how to operate in that environment,” Brett Wong at Piper Jaffray & Co., said by phone. “The industry has stabilized and there’s good demand for new products.”

While the company isn’t providing detailed guidance for full-year earnings, as its $66 billion takeover by Germany’s Bayer is still pending, Monsanto will be helped by growth in its soybean business. U.S. farmers are planting the crop more than ever, devoting as many acres to the oilseed as they will to corn. Adoption of Xtend, the company’s new herbicide system for soy, is expected to double in acreage this year. South American farmers are also buying more of the company’s Intacta-branded soybean seeds, which are resistant to caterpillars, and at higher prices, Christopher Perrella, a Bloomberg Intelligence analyst, said in a note last month. Recent U.S. tax reform legislation will have a positive impact on Monsanto’s effective tax rate in fiscal 2019, the company said. Early estimates are that the rate for the current financial year shouldn’t be more than 30%, and could be lower.

Monsanto expects the Bayer deal to close in early 2018, with about half of regulatory approvals secured so far. It also said its digital agriculture platform, Climate FieldView, was on 35 million paid acres last year, and expects the total to grow to 50 million acres. Roundup, Monsanto’s blockbuster herbicide, is also making a comeback. The price of glyphosate, the active ingredient in the weedkiller, is rebounding faster than expected as Chinese producers of generic brands cut output due to environmental restrictions, Don Carson, an analyst at Susquehanna Financial Group, said in a note. The increase for gross profit in 2018 for the company’s unit that produces glyphosate will exceed $1 billion for the first time in three years, according to Carson.

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The Greek state is in a very bad position to auction off properties.

Greek State To Start Its Own E-auctions (K.)

The Greek state is planning to launch its own online auctions – to be conducted according to properties’ market value – with a legislative intervention that will bring the country in line with its commitments to international creditors. The Finance Ministry is expected to presents lawmakers with the relevant clause by the end of the month – along with dozens of other pending prior actions – so that the state’s online auctions can begin in February or early March at the latest. In any case, as of the first quarter of the new year homes, land plots, stores and corporate buildings owned by state debtors will go under the hammer at market rates, which tend to be far below the taxable ones, known as “objective values,” as dictated by the law.

Ministry officials say the state will use the same platform as the one used by banks or other private creditors, arguing that there is no reason to create a separate system. It is noted that the state did not conduct a single auction in 2017, while in 2016 there were just 11 conventional auctions – all requested by the debtors themselves so they could pay off their arrears to tax authorities. However, one ministry official expressed concerns about the impending state auctions, arguing that the state comes low in the ranking of creditors – as others take precedent – and that tax authorities have a slew of other procedures for collecting debts, such as the ongoing repayment programs and the most recent out-of-court settlement plan for debts of up to 50,000 euros.

He added that after the above clause is ratified, the government will have to decide on the policy the state will follow in the auctions. Each of its 4 million debtors will have to be judged separately and according to their property assets, as “owning a house in Kolonos is very different to having one in Kolonaki,” he said, referring to one poor and one affluent Athens neighborhood. The official also expressed reservations over the result of the state’s initiative to push for auctions where several other creditors are likely to secure more benefits by ranking higher on the creditor list.

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Playing off one group of people against the next.

Work To Improve Greek Island Centers For Refugees Moving Slowly (K.)

Efforts to improve living conditions at reception centers for migrants on the islands of the eastern Aegean are progressing slowly amid continuing resistance from locals toward expanding facilities to accommodate hundreds of new arrivals from neighboring Turkey. On Tuesday alone, 196 undocumented migrants reached Aegean islands from Turkey, being sent to reception centers that are already cramped. On Lesvos and Chios, the facilities are hosting more than double the number of people they were designed to hold: 7,520 and 2,063 respectively. Hundreds of migrants have been transferred from the island facilities to less crowded camps on the mainland but, as the pace of arrivals is faster than that of the transfers and conditions remain substandard at the island camps.

The general secretary for migration policy, Miltiades Klapas, traveled to Chios on Wednesday to inspect progress in the erection of prefabricated buildings around the island’s main reception center to host scores of asylum seekers sleeping in tents. A total of 50 structures were sent to the island before the holidays but, by Wednesday, only eight had been set up. Works to upgrade the electricity and drainage systems for the accommodation are also dragging. A key reason for the delays is the continuing objection of local authorities to the presence of thousands of undocumented migrants on the island. The municipality of Chios has appealed to the Greek justice system, seeking the evacuation of the Vial reception center.

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Ten-fold in coastal regions.

Oceanic ‘Dead Zones’ Quadruple In Volume In 50 Years (Ind.)

The volume of water in the world’s oceans that is totally devoid of oxygen has more than quadrupled over the past 50 years, according to a new study. Over the past half century, the open ocean has lost around 2% of its dissolved oxygen, vital for sustaining fish and other marine life. There has also been a ten-fold increase in low oxygen sites, known as “dead zones”, in coastal regions during this period. Oxygen saturation is a major limiting factor that affects ocean productivity, as well as the diversity of creatures living in it and its natural geochemical cycling. The new study, published in the journal Science, represents the most comprehensive view yet of ocean oxygen depletion.

Pollution and climate change both play significant roles in depleting the ocean’s oxygen levels and the authors emphasise the role humans must play in addressing these issues. “Oxygen is fundamental to life in the oceans,” said lead author Dr Denise Breitburg, a marine ecologist with the Smithsonian Environmental Research Centre. “The decline in ocean oxygen ranks among the most serious effects of human activities on the Earth’s environment.” [..] In dead zones oxygen levels tend to be so low that any animals living there suffocate and die. As a result, marine creatures avoid these areas, resulting in their habitats shrinking. Even in areas where oxygen depletion is less severe, smaller decreases in oxygen levels can impact animals in various non-lethal ways such as stunting their growth and hindering reproduction.

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Just for the headline.

Iguanas Rain From Trees As Animals Struggle With US Cold Snap (G.)

As New Englanders bundle up and hunker down to ride out the “bomb cyclone” that is currently hammering the eastern United States with freezing temperatures, heavy winds and snow, they can take comfort in one thing: at least it’s not raining iguanas. That’s the situation in Florida, where unusually cold temperatures have sent the green lizards tumbling from their perches on trees – a result of the cold-blooded creatures basically shutting down when it gets too chilly. The iguanas are likely not dead, experts say, but merely stunned and will reanimate when they warm up. Iguanas aren’t the only species struggling to cope with the cold snap. In Texas, the temperature in the waters of the Gulf of Mexico has dipped low enough to cold-stun sea turtles, causing them to float to the surface where they are vulnerable to predators.

The National Park Service had rescued 41 live but freezing turtles by midday Tuesday. Meanwhile on Massuchusetts’ Cape Cod, the Atlantic White Shark Conservancy has reported the strandings of three thresher sharks. Two of the sharks were likely suffering from “cold shock”, the group said, while the third had frozen solid. “A true sharkcicle!” the group wrote on Facebook. Even animals that seem particularly well-suited to frigid temperatures are feeling the chill. The Calgary Zoo announced Sunday that it was moving its king penguins inside amid -13F (-25C) temperatures. King penguins are native to the subantarctic islands surrounding Antarctica. And a group of snowmobilers in Canada rescued a bull moose buried in 6ft of snow.

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Oct 202017
 
 October 20, 2017  Posted by at 7:54 am Finance Tagged with: , , , , , , , , ,  1 Response »


René Magritte Youth 1924

 

Fed Flunks Econ 101: Understanding Inflation (MW)
Meet The Bears Predicting Stock Market Doom (CNN)
Catalan Groups Call For Mass Withdrawal Of Money From Bank ATMs (CN)
The World’s Largest ICO Is Imploding After Just 3 Months (ZH)
Scandal-Hit Nissan Suspends All Production For Japan Market (AFP)
End Of Australia Auto-Making Sector As Holden Closes Doors (AFP)
Top Startup Investors See Mounting ‘Backlash’ Against Tech (R.)
Native American Tribe Holding Patents Sues Amazon And Microsoft (R.)
Putin Slams West for Lack of Respect and Broken Trust (BBG)
Ditch Neoliberalism To Win Again, Jeremy Corbyn Tells EU’s Center-Left (Ind.)
Merkel Comes to May’s Aid on Brexit (BBG)
Italian Regions To Vote In Europe’s Latest Referendums On Autonomy (G.)
Greece Plans Billion Euro Handout For The Poor (R.)
Tensions Rise On Aegean Islands As Migrants Continue To Arrive (K.)
Global Pollution Kills Millions, Threatens ‘Survival Of Human Societies’ (G.)

 

 

As I’ve said 1000 times.

Fed Flunks Econ 101: Understanding Inflation (MW)

The Federal Reserve’s illusive quest to achieve 2% inflation over the medium term is becoming a long-term problem. The institutional anxiety over the chronic inflation undershoot is evident in daily news stories, Fed speeches and the increased focus in internal discussions, as reflected in the minutes of the Sept. 19-20 meeting of the Federal Open Market Committee (FOMC). One doesn’t have to read between the lines to appreciate the degree to which policy makers fear the onset of the next recession without adequate “room” to lower interest rates. Hence, normalizing interest rates is “on track,” as the headline above noted, even though the relationship — between unemployment and inflation — is decidedly off track.

So what gives? The persistence of sub-2% inflation in the face of nine years of near-zero interest rates and an economy at what is perceived to be full employment has led to an array of silly explanations, embarrassing excuses and a host of pseudo-theories. Just maybe the Fed’s internal guidance system is flawed. The inverse correlation between unemployment and wages in the U.K. from 1861 to 1957 initially observed by New Zealand economist A.W. Phillips has morphed into a model of causation for Fed chief Janet Yellen and the current crop of U.S. policy makers. It’s not clear why. Just eyeballing the graph of the Fed’s preferred inflation measure and the civilian unemployment rate, one might conclude that the relationship broke down in the 1970s and has yet to reassert itself. Is a half-century malfunction enough to declare a theory null and void?

One would think so. Yet the notion of cost-push inflation as (supposedly) expressed by Phillips Curve lives, although faith in it has started to wane, even among ardent devotees like labor-economist Yellen. Instead, we are confronted with headlines such as, “Nobody seems to know why there is no inflation.” Really? Have they all forgotten Milton Friedman’s axiom that inflation is always and everywhere a monetary phenomenon? When the central bank creates more money than the public wants to hold, people spend it. The increased demand for goods and services eventually exceeds the economy’s ability to produce or provide them. The result is higher economy-wide prices, or inflation.

That isn’t happening, not just in the U.S. but across the globe. For all the sturm und drang about the Fed debasing the dollar and sowing the seeds of the next great inflation, the public’s demand for money has increased. The increased desire to hold cash and checkable deposits has risen to meet the increased supply. Velocity, or the rate at which money turns over, has plummeted.

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“.. it’s central banks that typically end the party. And central banks are telling you it’s last call.”

Meet The Bears Predicting Stock Market Doom (CNN)

The red-hot stock market may continue its rapid ascent, especially if Trump delivers his promise for “massive” corporate tax cuts. And even if not, healthy economic fundamentals and corporate profits should continue to support stocks. Nonetheless, some bears are fighting the herd mentality on Wall Street by warning of serious trouble brewing just beneath the surface of the stock market. These market skeptics are reassured by the fact that betting against stocks wasn’t popular in 2007, either. “The best time to be a bear is the loneliest time,” Jesse Felder, a money manager and founder of The Felder Report, told CNNMoney. Here are some of the red flags these bears are warning about, including similarities between now and 30 years ago:

In 2007 and 2008, Chris Cole presciently bet that market volatility would skyrocket to levels no one had seen before. He took those crisis-era winnings and started Artemis Capital, a hedge fund that has amassed $210 million. Today, the stock market is unusually quiet. The VIX, a popular barometer of market fear, recently hit a record low. Cole thinks it’s a mirage, partly because popular trading strategies allow investors to bet on the low volatility itself. All those bets lead to even lower volatility – until something unexpected happens, like suddenly higher interest rates. “Any shock to the system could cause this to unravel in the opposite direction, where higher volatility drives higher volatility,” Cole told CNNMoney. “This is a massive risk to the system. The only thing we’re missing is a fire.” [..] “This is a disaster waiting to happen,” said Cole. “In the event there is a fire, this can cause a massive explosion.”

Kyle Bass, founder of Hayman Capital Management, is also having a flashback to 30 years ago. “If you look at the all of the different constituencies of the market today, it resembles the portfolio insurance debacle of 1987 on steroids,” Bass told Real Vision TV in an interview released on Wednesday. Bass fears that, once stock prices decline 4% to 5%, that will quickly morph into a 10% to 15% plunge. He isn’t sure about timing, but pointed to geopolitical trouble and central banks as potential triggers. “Buckle up, because I think you’re going to see a pretty interesting air pocket. And I don’t think investors are ready for that,” he said.

Peter Boockvar, chief market analyst at The Lindsey Group, predicts the “overvalued” stock market will run into serious trouble as central banks hit the brakes on the stimulus measures they used to prop up economies after the crisis. He pointed to the Federal Reserve shrinking its balance sheet and the European Central Bank slowing its bond purchases. “Historically speaking, central banks put us into recessions and bear markets. The same will happen this time,” Boockvar said. He estimates that central banks will be pumping $1 trillion less money into markets. “The liquidity spigot is going to be dripping instead of flowing. That’s a really big deal,” said Boockvar. He conceded that stocks could run higher before eventually reversing. “When it happens, I’m not sure,” Boockvar said. “But it’s central banks that typically end the party. And central banks are telling you it’s last call.”

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Chaos.

Catalan Groups Call For Mass Withdrawal Of Money From Bank ATMs (CN)

Civil society organizations in Catalonia call for a mass withdrawal of money from bank ATMs on Friday at 8am in order to pressure the Spanish government. Organizers don’t especify how much money should be taken out nor what to do with it. The action targets the five main banks in Catalonia: Caixa Bank, Sabadell, Bankia, BBVA and Santander. Organizers call on clients of Caixa Bank and Sabadell to show their disagreement with the banks’ recent decision to move their headquarters out of Catalonia due to the escalating political crisis between governments in Barcelona and Madrid.

This is the first “direct and peaceful” action organized by Crida per la Democràcia (Call for Democracy). This is an umbrella group which includes among others the two main pro-independence organizations in Catalonia: the Catalan National Assembly (ANC) and Òmnium Cultural. The mass withdrawal is also aimed at condemning the imprisonment of ANC and Òmnium presidents, Jordi Sánchez and Jordi Cuixart, held in custody on sedition charges since Monday.

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All’s not well in crypto land.

The World’s Largest ICO Is Imploding After Just 3 Months (ZH)

Earlier this summer, Tezos smashed existing sales records in the white-hot IPO market after the company’s pitch to build a better blockchain for cryptocurrencies made it one of the buzziest ICOs in the world. As we noted at the time, the company capitalized on that buzz by courting VC firms and other institutional investors with a $50 million token pre-sale. After the company opened up selling to the broader public, demand soared as investors greedily bought up tokens in spite of glitches that threatened to derail the sale early on. By the end of its weeks-long token sale in July, Tezos had sold more than $230 million. Now, Tezos is proving that authorities in the US and China were on to something when they decided to crack down on the ICO market, which has become a cesspool of fraud and abuse.

To wit, the company’s management revealed this week that progress on its vaunted product has stalled as it has struggled to recruit engineering talent, and an acrimonious dispute between several of the company’s leading figures has spilled out into the open. As WSJ’s Paul Vigna reports, “a battle between the founders of the company and the head of the Swiss foundation they installed to give it more independence has put most trading of Tezos coins on ice, possibly until early next year.” The shakeup started after Tezos founders Arthur and Kathleen Breitman reported the delays in a blog post published Wednesday. But even more alarming, the pair accused Johann Gevers, the head of a Swiss foundation which oversees their funds, of attempting to overpay himself using the massive pot of investor capital – despite the fact that the company will likely blow through its promised deadline of allocating tokens to buyers by December (the tokens have yet to be created).

In early September we became aware that the president of the Tezos Foundation, Johann Gevers, engaged in an attempt at self-dealing, misrepresenting to the council the value of a bonus he attempted to grant himself. We have been working with the Tezos foundation to resolve the matter and have advocated for his removal from the foundation council. We are confident in the council’s ability to handle this sensitive matter with care and diligence. In the meantime, Johann’s operational role in the foundation has been suspended, pending an investigation by the council’s auditor. The news sent Tezos futures contracts trading on BitMex, an exchange known for its cryptocurrency futures products, tumbling more than 50% as traders unwound bets the project would be launched before the end of the year, as Bloomberg pointed out.

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The final nail in the Made in Japan coffin.

Scandal-Hit Nissan Suspends All Production For Japan Market (AFP)

Nissan said Thursday it was suspending all production destined for the local market, as Japan’s number-two automaker grapples with a mounting inspection scandal that has already seen it recall some 1.2 million vehicles. “Nissan decided today to suspend vehicle production for the Japan market at all Nissan and Nissan Shatai plants in Japan,” it said in a statement, referring to an affiliate. The announcement comes weeks after the company announced the major recall as it admitted that staff without proper authorisation had conducted final inspections on some vehicles intended for the domestic market before they were shipped to dealers. On Thursday, it said a third-party investigator found the misconduct had continued at three of its six Japanese plants even after it took steps to end the crisis.

“Nissan regards the recurrence of this issue at domestic plants – despite the corrective measures taken – as critical,” it said. “The investigation team will continue to thoroughly investigate the issue and determine measures to prevent a recurrence.” Nissan president Hiroto Saikawa offered a blunt assessment, saying that “old habits” were to blame. “You might say it would be easy to stop people who are not supposed to inspect from inspecting,” he told reporters Thursday. “But we are having to take (new measures) in order to stop old habits that had been part of our routine operations at the factories.”

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Lost skills.

End Of Australia Auto-Making Sector As Holden Closes Doors (AFP)

The last car rolled off the production line of Australian automaker Holden on Friday, marking the demise of a national industry unable to stand up to global competition. The closure of the Elizabeth plant in South Australia is the end of an era for Holden, which first started in the state as a saddlery business in 1856 and made the nation’s first mass-produced car in 1948. The brand has long been an Australian household name, with 1970s commercials singing that “football, meat pies, kangaroos and Holden cars” were part of the nation’s identity. “I feel very sad, as we all do, for it’s the end of an era, and you can’t get away from the emotional response to the closure,” Prime Minister Malcolm Turnbull told Melbourne radio station 3AW on Friday.

Holden was marketed as “Australia’s Own Car” and became a symbol of post-war prosperity Down Under despite being a subsidiary of US giant General Motors. At its peak in 1964, Holden employed almost 24,000 staff. But just 950 were able to watch the final car leave the factory floor Friday. “There are a number of people who have been here since the seventies and today will be a very emotional day for some people and a very sad day,” Australian Manufacturing Workers Union state secretary John Camillo told reporters. The union blamed the federal government for causing the closure by withdrawing support to the auto sector. The death of the industry was always on the cards after subsidies were cut off in 2014. Some Aus$30 billion (US$24 billion) in assistance was handed out between 1997 and 2012, according to the government’s Productivity Commission.

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The rich get scared. It’s about power as much as money.

Top Startup Investors See Mounting ‘Backlash’ Against Tech (R.)

Two of the technology industry’s top startup investors took to the stage at a conference on Wednesday to decry the power that companies such as Facebook had amassed and call for a redistribution of wealth. Bill Maris, who founded Alphabet’s venture capital arm and now runs venture fund Section 32, and Sam Altman, president of startup accelerator Y Combinator, said widespread discontent over income inequality helped elect U.S. President Donald Trump and had put wealthy technology companies in the crosshairs. “I do know that the tech backlash is going to be strong,” said Altman. “We have more and more concentrated power and wealth.” The market capitalization of the so-called Big Five technology companies – Alphabet, Apple, Amazon, Microsoft and Facebook – has doubled in the last three years to more than $3 trillion.

Silicon Valley broadly has amassed significant wealth during the latest tech boom. Altman and Maris spoke on the final day of The Wall Street Journal DLive technology conference in Southern California. Facebook’s role in facilitating what U.S. intelligence agencies have identified as Russian interference in last year’s U.S. presidential election is an example of the immense power the social media company has amassed, the investors said. “The companies that used to be fun and disruptive and interesting and benevolent are now disrupting our elections,” Maris said.

Altman said people “are understandably uncomfortable with that.” Altman, who unequivocally rebuffed rumors that he would run for governor of California next year, said he expects more demands from both the public and policy makers on data privacy, limiting what personal information Facebook and others can collect. Maris said regulators would have good cause to break up the big technology companies. “These companies are more powerful than AT&T ever was,” he said. [..] Altman and Maris offered few details of how to accomplish a redistribution of wealth. Maris proposed shorter term limits for elected officials and simplifying the tax code. Altman has advocated basic income, a poverty-fighting proposal in which all residents would receive a regular, unconditional sum of money from the government.

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Curious legal battle.

Native American Tribe Holding Patents Sues Amazon And Microsoft (R.)

A Native American tribe sued Amazon.com and Microsoft in federal court in Virginia on Wednesday for infringing supercomputer patents it is holding for a technology firm. The Saint Regis Mohawk Tribe was assigned the patents by SRC Labs LLC in August, in a deal intended to use the tribe’s sovereign status to shield them from administrative review. SRC is also a plaintiff in the case. The tribe, which would receive a share of any award, made a similar deal in September to hold patents for Allergan on its dry eye medicine Restasis. SRC and Allergan made the deals to shield their patents from review by the Patent Trial and Appeal Board, an administrative court run by the U.S. patent office that frequently revokes patents.

The tribe would get revenue to address environmental damage and rising healthcare costs. Companies sued for patent infringement in federal court often respond by asking the patent board to invalidate the asserted patents. Both Microsoft and Amazon have used this strategy to prevail in previous disputes. A federal court in Texas separately invalidated Allergan’s Restasis patents on Monday. The company responded that it would appeal that ruling.Allergan’s deal with the tribe has drawn criticism from a bipartisan group of U.S. lawmakers, some of whom have called it a “sham.” Missouri Senator Claire McCaskill on Oct. 5 introduced a bill to ban attempts to take advantage of tribal sovereignty.

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“The biggest mistake our country made was that we put too much trust in you; and your mistake was that you saw this trust as a lack of power and you abused it..”

Putin Slams West for Lack of Respect and Broken Trust (BBG)

President Vladimir Putin has yet to declare his candidacy for re-election next year, but on Thursday the outlines of his campaign were clear, beginning from his strongest suit as the man who restored power and respect to Russia. Putin spent much of his address to an annual gathering of foreign-policy specialists from Russia and abroad recounting his country’s perceived humiliation following the collapse of the Soviet Union, singling out the West and the U.S. for special criticism. “The biggest mistake our country made was that we put too much trust in you; and your mistake was that you saw this trust as a lack of power and you abused it,’’ he said during a question-and-answer session that was carried on national television. What was needed, he said, was “respect.’’

In its portrayal of the U.S., “it was the most negative speech Putin has given’’ at the annual Valdai Club meeting, said Toby Gati, a former U.S. National Security Council and State Department official who is a regular at the event. At the same time, the Russian leader appeared to leave a door open to a rapprochement with U.S. President Donald Trump, saying that he, too, deserved respect as the elected choice of the American people. [..] Even during the Cold War, the U.S. and the Soviet Union had always treated each other with respect, said Putin, lamenting how the Russian flag was recently torn from the country’s consulate in California. “Respect has been the underbelly of the whole conference,’’ said Wendell Wallach, chairman of technology and ethics studies at Yale University.

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The only leftist in Europe left standing. Oh irony.

Ditch Neoliberalism To Win Again, Jeremy Corbyn Tells EU’s Center-Left (Ind.)

Jeremy Corbyn has warned centre-left parties across Europe that they must follow his lead and abandon the neoliberal economics of the imagined “centre ground” if they want to start winning elections again. The Labour leader was given a hero’s welcome at the Europe Together conference of centre-left parties in Brussels, where he was introduced as “the new Prime Minister of Britain” and received two standing ovations from a packed auditorium. Continental centre-left leaders are looking to Mr Corbyn’s Labour as a model to reinvigorate their movement. Across Europe from France to Germany, Austria to Netherlands, and Spain to Greece, once powerful social-democratic parties have been reduced to a shadow of their former selves – with Labour a notable exception.

Mr Corbyn said low taxes, deregulation, and privatisation had not brought prosperity for Europe’s populations and that if social democratic parties continued to endorse them they would continue to lose elections. He berated the longstanding leadership of the centre-left, telling delegates from across the EU: “For too long the most prominent voices in our movement have looked out of touch, too willing to defend the status quo and the established order. “In a desperate attempt to protect what is seen as the centre-ground of politics: only to find the centre ground has shifted or was never where the elites thought it was in the first place.” Citing the rise of the far-right in countries like Austria and France, Mr Corbyn said the abdication of the radical end of politics by the left had created space for reactionary parties.

“Our broken system has provided fertile ground for the growth of nationalist and xenophobic politics,” he said. “We all know their politics of hate, blame and division and not the answer, but unless we offer a clear and radical alternative of credible solutions for the problem we face, unless we offer a chance to change the broken system, and hope for a more prosper future we are clearing the path for the extreme right to make even more far-reaching inroads into our communities. Their message of fear and division would become the political mainstream of our discourse. But we can offer a radical alternative, we have the ideas to make progressive politics the dominant force of this century. But if we don’t get our message right, don’t stand up for our core beliefs, and if we don’t stand for change we will founder and stagnate.”

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Does Angela not like what Corbyn has to say?

Merkel Comes to May’s Aid on Brexit (BBG)

German Chancellor Angela Merkel offered Theresa May the political cover she’s been asking for to take further steps in Brexit talks, calling on both sides to move so that a deal can be reached by year-end. The U.K. prime minister signaled she’s willing to offer more on the divorce bill, according to a U.K. official. May urged leaders at a European summit to help her find a deal she could sell to skeptics at home, and her counterparts responded with words of encouragement – though no concrete concessions. Merkel said there’s “zero indication” that Brexit talks won’t succeed and she “truly” wants an agreement rather than an “unpredictable resolution.” She welcomed the concessions May made in a landmark speech in Florence last month and said she’s “very motivated” to get talks moved on from the divorce settlement to trade by December.

“Now both sides need to move,” she told reporters after hearing May speak at dinner, in a shift of rhetoric for the EU side, which has previously insisted that it’s up to the U.K. alone to make the next move. [..] he chancellor’s upbeat tone on Brexit was in marked contrast to Germany’s portrayal in the U.K. media as the principle obstacle to Britain’s attempts to shift negotiations onto trade and a transition period. In reality, Merkel has rarely commented on Brexit in the past two months or more as she fought for re-election to a fourth term. Even when she has weighed in, the chancellor tended to adopt a matter-of-fact approach that stuck to the facts. “So what I heard today was a confirmation of the fact that, in contrast to what you hear in the British press, the process is moving forward step by step,” Merkel said. “You get the impression that after a few weeks you already have to announce the final product, and I found that – to be very clear – absurd.”

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it’s not about borders, but about decentralizing power. Unstoppable.

Italian Regions To Vote In Europe’s Latest Referendums On Autonomy (G.)

Two of Italy’s richest regions are holding referendums on greater autonomy on Sunday, in the latest push by European regions to wrest more power from the centre. Lombardy and Veneto, between them home to a quarter of Italy’s population, are seeking semi-autonomy, giving them more control over their finances and administration. Although legally non-binding, the exercise is the latest ripple in a wave of votes on greater autonomy across Europe in recent years, from Scotland in 2014 to Brexit last year and Catalonia in September. Although both regions have in the past campaigned for complete independence from Rome, their leaders have made it clear the ballots are about autonomy and not secession.

Some insight into the dynamics can be gleaned from the example of Sappada, a mountainous town in Veneto that straddles the regional border with Friuli-Venezia Giulia. A skiing and hiking paradise, the town is on the verge of becoming the first in Italy to switch regions to become part of Friuli-Venezia Giulia, one of Italy’s five semi-autonomous regions. The plan was approved by the Italian government in September after a lengthy bureaucratic process. “The reasons for people wanting to be part of Friuli are varied: we have our own dialect, which originates from German, and culturally we feel closer to Friuli,” Manuel Piller Hoffer, the mayor of Sappada, told the Guardian. “But the main one is economic: living next door to a semi-autonomous region, people see advantages that they don’t have. They see finances being controlled better, a better health service and sustainable investments being made – they see a better standard of living.”

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Do you need to call it a ‘handout’, Reuters?

Greece Plans Billion Euro Handout For The Poor (R.)

Greece plans to offer handouts worth 1 billion euros to poor Greeks who have suffered during the seven-year debt crisis after beating its budget targets this year, the government said on Thursday. Greece expects to return to nearly 2% growth this year and achieve a primary surplus – which excludes debt servicing costs – of 2.2% of GDP, outperforming the 1.75% bailout target. “The surplus outperformance which will be distributed to social groups that have suffered the biggest pressure during the financial crisis, will be close to 1 billion euros,” government spokesman Dimitris Tzanakopoulos told reporters. It is not yet clear who would be eligible for what the leftist-led government calls a “social dividend.” Hundreds of thousands of Greeks have lost their jobs during a six-year recession that cut more than a quarter of the country’s GDP.

With unemployment 21.3% and youth unemployment at 42.8% many households rely on the income of grandparents – although they have lost more than a third of the value of their pensions since 2010, when Athens signed up to its first international bailout. The government will make final decisions in late November, once it gets full-year budget data, Tzanakopoulos said. Greece’s fiscal performance this year and its 2018 budget is expected to be discussed with representatives from its European Union lenders and the International Monetary Fund next week when a crucial review of its bailout progress starts. Tzanakopoulos reiterated that Athens aims to wrap up the review as soon as possible, ruling out new austerity measures.

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We’re really going to see this play out all over again?

Tensions Rise On Aegean Islands As Migrants Continue To Arrive (K.)

As dozens of migrants continue to land daily on the shores of eastern Aegean islands, and tensions rise in reception centers, local communities are becoming increasingly divided over growing migrant populations. A total of 438 people arrived on the islands aboard smuggling boats from Turkey in the first three days of the week, with another 175 people arriving on the islet of Oinousses yesterday morning. The latter were transferred to a center on nearby Chios which is very cramped with 1,600 people living in facilities designed to host 850. The situation is worse on Samos, where a reception center designed to host 700 people is accommodating 2,850.

The Migration Ministry said around 1,000 migrants will be relocated to the mainland next week. But island authorities said that this will not adequately ease conditions at the overcrowded facilities. Samos Mayor Michalis Angelopoulos on Thursday appealed for European Union support during a meeting of regional authority officials in Strasbourg. He said the Aegean islands “cannot bear the burden of the refugee problem which is threatening to divide Europe.” There are divisions on the islands too. On Sunday rival groups are planning demonstrations on Samos – far-right extremists to protest the growing migrant population and leftists to protest the EU’s “anti-migrant” policy.

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When you think money is more valuable than life.

Global Pollution Kills Millions, Threatens ‘Survival Of Human Societies’ (G.)

Pollution kills at least nine million people and costs trillions of dollars every year, according to the most comprehensive global analysis to date, which warns the crisis “threatens the continuing survival of human societies”. Toxic air, water, soils and workplaces are responsible for the diseases that kill one in every six people around the world, the landmark report found, and the true total could be millions higher because the impact of many pollutants are poorly understood. The deaths attributed to pollution are triple those from Aids, malaria and tuberculosis combined. The vast majority of the pollution deaths occur in poorer nations and in some, such as India, Chad and Madagascar, pollution causes a quarter of all deaths. The international researchers said this burden is a hugely expensive drag on developing economies.

Rich nations still have work to do to tackle pollution: the US and Japan are in the top 10 for deaths from “modern” forms of pollution, ie fossil fuel-related air pollution and chemical pollution. But the scientists said that the big improvements that have been made in developed nations in recent decades show that beating pollution is a winnable battle if there is the political will. “Pollution is one of the great existential challenges of the [human-dominated] Anthropocene era,” concluded the authors of the Commission on Pollution and Health, published in the Lancet on Friday. “Pollution endangers the stability of the Earth’s support systems and threatens the continuing survival of human societies.”

Prof Philip Landrigan, at the Icahn School of Medicine at Mount Sinai, US, who co-led the commission, said: “We fear that with nine million deaths a year, we are pushing the envelope on the amount of pollution the Earth can carry.” For example, he said, air pollution deaths in south-east Asia are on track to double by 2050. Landrigan said the scale of deaths from pollution had surprised the researchers and that two other “real shockers” stood out. First was how quickly modern pollution deaths were rising, while “traditional” pollution deaths – from contaminated water and wood cooking fires – were falling as development work bears fruit. “Secondly, we hadn’t really got our minds around how much pollution is not counted in the present tally,” he said. “The current figure of nine million is almost certainly an underestimate, probably by several million.”

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Sep 272017
 
 September 27, 2017  Posted by at 1:31 pm Finance Tagged with: , , , , , , , ,  8 Responses »


Fan Ho Construction 1952

 

You would think, certainly if you were as naive and innocent as I am, that when you get offered the job of Chair of the Federal Reserve, you must be sure, before accepting, that you have the credentials and the knowledge required. If you don’t, it looks as if you don’t take the job seriously. Janet Yellen, who’s been Chair since January 2014, doesn’t seem to agree.

In a speech Tuesday for the National Association for Business Economics Yellen ‘honestly’ admitted that she doesn’t understand inflation, control of which is the Fed’s no.1 task (it’s debatable whether that’s a good idea). She doesn’t understand a bunch of other issues either. Those are her own words, not mine. Here are these own words:

“My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation..”

Clear enough, you would think. But she didn’t offer her resignation. And for an important post like Fed chair, that is a major problem. As she undoubtedly does. So why is she keeping her job? Doesn’t she realize that when you don’t understand the issues you deal with, you’re prone to make disastrous mistakes?

Yellen and her colleagues work with models, and the models are wrong. The Fed’s predictions for things like inflation are ridiculously off, all the time. That may be news to her, but it’s old hash for many people in her field. So that she’s surrounded solely by people who don’t understand these things either is not an excuse.

So what does she expect now? That she will start to understand them all of a sudden, after years and years of not being able to? That reality will change to comply with her models? We can discount the option that she will suddenly begin using entirely different models, they’re all she has. But what then?

Under her predecessor Ben Bernanke, who never conceded he had no idea either but still didn’t, the Fed lowered interest rates to near zero Kelvin and bought trillions of dollars in bonds and securities. Now Yellen for some reason thinks it’s time to get rid of the stuff.

But on what basis does she make such a decision, if she self-admittedly doesn’t even understand the fundamental forces in play? How is that different from handing a box of matches to a 3-year old? Isn’t she really simply an academic dropped in a casino? From CNBC:

Yellen said a regular pace of rate hikes ahead is likely still warranted, though Fed officials are looking closely at the assumptions underlying those projections. While conceding that the Fed may need to slow the removal of accommodation, she also said the central bank “should also be wary of moving too gradually.”

There comes a point when naive innocent me starts asking: what does that even mean? Rate hikes are warranted but we don’t know why? Accommodative policies have been going too fast but they shouldn’t be too slow? Based on what? It can only be based on models that have proven faulty, can’t it, because they have no others.

 

Here are a few pointers for the occupants of the Marriner S. Eccles Federal Reserve Board Building. Inflation is money velocity multiplied by money and credit supply. MV = PY. M is money supply, V is velocity, P is price level and real GDP is Y.

Velocity of money means consumer spending. 70% of US GDP is consumer spending. But American consumers are neck deep in debt and have very little money left to spend. Much of what they spend, they must borrow.78% of Americans live paycheck to paycheck. So forget about money velocity.

 

 

Moreover, as for the Fed’s second mandate after inflation, full employment, they don’t get that one either. They seem to act on the presumption that any one job is just like the other. And then bleat: “My colleagues and I may have misjudged the strength of the labor market”.

But America has turned into a nation where the gig economy (the natural successor to first the knowledge economy, then the service economy), waiters, greeters and people working 3 jobs just to make ends meet have become the norm. When in the present circumstances you claim to have almost ‘achieved’ full employment, as Yellen and the Fed do, you must really be blind as a bat.

The other side of the equation is money supply. Interestingly, the Fed has issued tons of it, but handed it all to its owner banks. If they had spent it inside the economy itself, we could have been looking at a whole other picture. If those trillions would have gone to investment, manufacturing etc., instead of propping up banks and companies buying their own shares, Yellen might have actually seen some inflation.

If Americans have no money to spend, there can not be inflation. Simple. But the same stupid faulty predictions just keep coming:

 

 

So why is anybody still paying attention to Janet Yellen? Well, because she has her finger on the biggest financial trigger on the planet. No matter how shaky and uneducated that finger may be. Or do we pay attention exactly because we know what’s behind that shaky finger? Do we all put everything on red just because grandma does it too?

The craziest thing of all is that in reactions in the media to Yellen’s speech, she’s praised for admitting she has no clue what she’s doing. That takes the cake. And eats it too. Praised for admitting you’re terribly unfit for your job. That’s just great. That’s Bizarro world.

It’s well past best before time to get rid of Janet Yellen, and all the intellectual but idiots who work at the Fed. What is it, 1,000 PhDs, or was that 10,000? But the only thing that makes any real sense of course, the only thing that can save the nation, is to get rid of the Fed and its braindead mandates, interests and occupants altogether.

Hedgeye got this one painfully right:

 

 

And yeah, I know Yellen could be fired too if she doesn’t resign, but with Goldman Sachs all over the White House, what are the odds? And who would come in when she goes? She’s ideal, who’s going to get angry at a barely 5′ grandmother even is she clearly out of her depth and league?

 

 

Sep 272017
 
 September 27, 2017  Posted by at 8:46 am Finance Tagged with: , , , , , , , ,  2 Responses »


Edward Hopper Night windows 1928

 

Yellen Concedes Inflation Models Could Be Off “In Some Fundamental Way” (BBG)
Fed’s Beautiful Model in Pictures (Mish)
The Law Strangling Puerto Rico (NYT)
US Housing Market “Unhealthy And Mismatched With Today’s Buyers” (CNBC)
Home Prices, Sales In Beijing Are Falling Fast (BI)
China Still Stocking Up On Metals And Credit – Beige Book (CNBC)
China Tells Entrepreneurs They Must Put Patriotism Over Profit (BBG)
Macron Lays Out Vision For ‘Profound’ Changes In EU (G.)
Uber’s New ‘Good Cop’ Tack Will Face Test in US City Tussles (BBG)
Hedge Fund Paulson & Co Declares War On Poor Gold Mining Returns (R.)
The Case For The 3-Hour Workday (BI)
Spain Deploys Ever More Police To Prevent Catalan Independence Vote (G.)
Banned West Papua Independence Petition Handed To UN (G.)
Zealandia Drilling Reveals Secrets Of Sunken Lost Continent (G.)

 

 

If she knows she’s always wrong, why doesn’t she resign?

Yellen Concedes Inflation Models Could Be Off “In Some Fundamental Way” (BBG)

Janet Yellen still has faith, but she’s open to converting. In a wide-ranging speech on inflation, the Fed chair wrestled with an issue that’s flummoxing policy makers everywhere: Why is inflation not only low, but in some instances going south? At this point in an expansion that’s lasted the better part of a decade and has returned jobless levels to pre-recession levels, leading economic models would ordinarily tell us to expect inflation to rise. Kudos to her for admitting the uncertainty. The question is one of the pre-eminent themes of the modern economic era. It’s perhaps fitting she air the issues not in a political environment like Congress or the Federal Open Market Committee, which calls for decisions, but in what might be her last address to the National Association for Business Economics.

Yellen conceded that some assumptions about how the modern economy works could be wrong. She is not operating on the premise that they are wrong, but she is prepared to entertain the prospect. She did so in a very rational way, and she urged no sharp about-turns in policy. If officials’ understanding of the link between inflation and the labor market and, more broadly, inflation itself, ends up being flawed, then there is an obligation to recalibrate policy. Neither Yellen nor the FOMC are there yet. And to be clear, the committee still believes inflation will again start to edge up and stabilize around the Fed’s 2% target. Under that scenario, a bit more tightening of policy is required. Not a ton, and the steps should be gradual. As they have been.

If the scenario proves off, then think again. As Yellen said in her remarks, a couple of things could be at work in explaining the bad behavior of inflation. For one, it’s not necessarily that the model linking low unemployment with wages and inflation is wrong; it may be that in the post-recession world the jobless level at which inflation kicks in could be lower. (The jobless rate in the U.S. now is 4.4%.) But it’s also plausible that policy makers misunderstand inflation on a more fundamental level. “Our framework for understanding inflation dynamics could be misspecified in some fundamental way, perhaps because our econometric models overlook some factor that will restrain inflation in coming years despite solid labor market conditions,” Yellen said.

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Amen.

Fed’s Beautiful Model in Pictures (Mish)

Pictures say more than words, especially when it comes to Fed hubris. Two pictures make the case.

 

Don’t worry. That the Fed is consistently wrong on growth and inflation is purely transitory.

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“..if the Jones Act did not exist, then neither would the public debt of Puerto Rico.”

The Law Strangling Puerto Rico (NYT)

Hurricane Maria was the most powerful storm to hit Puerto Rico in more than 80 years. It left the entire island without electricity, which may take six months to restore. It toppled trees, shattered windows, tore off roofs and turned streets into rivers throughout the island. President Trump declared that “Puerto Rico was absolutely obliterated” and issued a federal disaster declaration. But the United States needs to do more. It needs to suspend the Jones Act in Puerto Rico. After World War I, America was worried about German U-boats, which had sunk nearly 5,000 ships during the war. Congress enacted the Merchant Marine Act of 1920, a.k.a. the Jones Act, to ensure that the country maintained a shipbuilding industry and seafaring labor force. Section 27 of this law decreed that only American ships could carry goods and passengers from one United States port to another.

In addition, every ship must be built, crewed and owned by American citizens. Almost a century later, there are no U-boats lurking off the coast of Puerto Rico. The Jones Act has outlived its original intent, yet it is strangling the island’s economy. Under the law, any foreign registry vessel that enters Puerto Rico must pay punitive tariffs, fees and taxes, which are passed on to the Puerto Rican consumer. The foreign vessel has one other option: It can reroute to Jacksonville, Fla., where all the goods will be transferred to an American vessel, then shipped to Puerto Rico where — again — all the rerouting costs are passed through to the consumer. Thanks to the law, the price of goods from the United States mainland is at least double that in neighboring islands, including the United States Virgin Islands, which are not covered by the Jones Act.

Moreover, the cost of living in Puerto Rico is 13% higher than in 325 urban areas elsewhere in the United States, even though per capita income in Puerto Rico is about $18,000, close to half that of Mississippi, the poorest of all 50 states. This is a shakedown, a mob protection racket, with Puerto Rico a captive market. The island is the fifth-largest market in the world for American products, and there are more Walmarts and Walgreens per square mile in Puerto Rico than anywhere else on the planet. A 2012 report by two University of Puerto Rico economists found that the Jones Act caused a $17 billion loss to the island’s economy from 1990 through 2010. Other studies have estimated the Jones Act’s damage to Puerto Rico, Hawaii and Alaska to be $2.8 billion to $9.8 billion per year. According to all these reports, if the Jones Act did not exist, then neither would the public debt of Puerto Rico.

[..] Food costs twice as much in Puerto Rico as in Florida. Jones Act relief will save many Puerto Ricans — especially children and seniors — from potential starvation. Jones Act relief will also enable islanders to find medicine, especially Canadian pharmaceuticals, at lifesaving rates. And it will give islanders access to international oil markets — crucial for running its electric grid — devoid of a 30% Jones Act markup. And suspending or repealing the law is crucial to the arduous rebuilding process ahead. In one town alone, 70,000 people were evacuated because of a failing dam. Jones Act relief will enable residents to buy materials, rebuild their homes and prevent an explosion of homelessness.

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Either prices fall or sales do. People can’t afford homes anymore.

US Housing Market “Unhealthy And Mismatched With Today’s Buyers” (CNBC)

From a broad view, the U.S. housing market looks very healthy. Demand is high, employment and wages are growing, and mortgage rates are low. But the nation’s housing market is assuredly unhealthy; in fact, it is increasingly mismatched with today’s buyers. While the big numbers don’t lie, they don’t tell the real truth about the affordability and availability of U.S. housing for the bulk of would-be buyers. First, several reports out this week point to both continued heat in home values as well as pushback from homebuyers. Prices remain nearly 6% higher than they were a year ago, nationally, with some local markets seeing double-digit annual price gains. Those prices are being driven by a severe lack of supply at the low end of the market, which is where the most demand exists. That means lower-priced homes are seeing bigger price gains than higher-priced homes because of the competition.

At the same time, sales are falling, again, because there are too few homes on the low end, and the homes that are available are very expensive. “It sets up a situation in which the housing market looks largely healthy from a 50,000-foot view, but on the ground, the situation is much different, especially for younger, first-time buyers and/or buyers of more modest means,” wrote Svenja Gudell, chief economist at Zillow in a response to the latest home-price data. “Supply is low in general, but half of what is available to buy is priced in the top one-third of the market.” Supply on the low end is tight because during the housing crash investors large and small bought hundreds of thousands of foreclosed properties and turned them into rentals. There are currently 8 million more renter-occupied homes than there were in 2007, the peak of the housing boom, according to the U.S. Census.

Investors could take the opportunity of high prices and high demand to sell these properties, but today’s high rents offer them better returns. Low supply of homes for sale might also seem like a great opportunity for the nation’s homebuilders. Yes, they went through an epic housing crash, but they have since consolidated market share and righted their balance sheets. Homebuilders are simply not building enough inexpensive houses that the market needs. [..] Just 2% of newly built homes sold in August were priced under $150,000, and just 14% priced under $200,000. Compare that with the existing home market, where more than half of homes sold in August were priced under $250,000.

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“..a sharp reduction in property sales which tumbled 73.7% from the same quarter a year earlier.”

Home Prices, Sales In Beijing Are Falling Fast (BI)

According to the Caixin website, citing data from the research arm of 5I5J Group, the average price of existing homes in Beijing fell 5%, continuing the slide that began in the June quarter. The fall corresponded with a sharp reduction in property sales which tumbled 73.7% from the same quarter a year earlier. According to survey, turnover alone fell 43.7% in the quarter to 2.06 million units based on measurements using online contracts, the lowest quarterly total since 2015. The sharp decline in turnover and prices follows a series of measures introduced by Beijing’s municipal government to quash speculative activity in the city’s property market. Since October last year, it has raised borrowing costs and minimum downpayment requirements for mortgages for second homes.

It has also introduced requirements for non-local buyers to provide tax or social security payment records for at least 60 consecutive months and increased scrutiny on “strategic divorces” as ways to squeeze speculation out of the market, said Caixin. “In the spirit of central government’s directive that ‘homes are for living in, not speculating on,’ the real estate market in Beijing will continue to be under tight control, thus the existing home market in Beijing is likely to remain tepid in the near term,” Hu Jinghui, vice president of 5I5J Group’s research arm, told Caixin. The measures introduced in Beijing mirror similar efforts from authorities in other large cities to curb rapid price growth seen since the middle of 2015. Previously limited to large tier-one cities initially, restrictions on both buyers and sellers have been rolled out across an increasing number of centres in recent months, including in smaller cities, in an attempt to limit speculators from moving from one market to another.

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Deleveraging is just a word.

China Still Stocking Up On Metals And Credit – Beige Book (CNBC)

The China-driven surge in commodity prices could soon come to an end, according to a private survey of Chinese businesses. Contrary to “markets’ unremitting faith in the Chinese government campaign to combat” oversupply in metals, “firms are saying quite the opposite. For the sixth quarter in a row, coal, aluminum, steel, and copper each saw capacity rise on net,” according to the China Beige Book’s early brief of third-quarter data released Tuesday. “Sector-wide growth took a dive across the board—revenue, profits, output, export orders, volumes, hiring, capex, borrowing, wages, and sales prices,” the report said. The China Beige Book is a quarterly survey of Chinese companies in an attempt to present a more accurate picture of growth. Many question the accuracy of most Chinese government data, since officials may have incentive to inflate or deflate the figures they report in order to show compliance with central policy.

“There has been for the past year and a half a desire to not think too much about China,” Leland Miller, chief executive officer of China Beige Book, told CNBC. “I think you’re at a point right now where there’s been a complacency on the part of the Chinese economy that is lending itself to unrealistic expectations about the economy that are not going to be met.” Copper prices have rallied more than 25% this year to a three-year high on bets for stronger global growth, primarily out of the world’s second-largest economy, China. But the metal has since come off those levels to trade about 16.5% higher for the year. Morgan Stanley echoed some of the China Beige Book’s concern in a Monday report.

“So in fact, the strongest price performances of 2017 (aluminium, zinc, lead, copper, nickel, alumina, iron ore) are based on either China’s reform-based supply shocks or global currency trades – not a sustained improvement in demand growth,” equity strategist Tom Price and a team of analysts said. They have negative price forecasts on aluminum, copper, iron ore and steel. In its third-quarter survey of 3,300 firms and 160 bankers across 34 industries, the China Beige Book also found that companies borrowed at the second-highest rate in four years, contrary to widespread beliefs that China is reducing its use of credit to fuel growth. “Most of the year when the Chinese government has been talking about deleveraging that has not been evidenced in China Beige Book data,” Miller said. “At least part of the time corporations have had even easier access to capital and even when conditions have been tightening it has not contributed to deleveraging or slower deleveraging.”

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Yeah, the US should do the same.

China Tells Entrepreneurs They Must Put Patriotism Over Profit (BBG)

The Chinese government underlined that patriotism is a core element of entrepreneurship, with official media saying it had for the first time defined what enterprise means for the world’s second-biggest economy. The joint statement issued late Monday by the Communist Party’s Central Committee and the State Council urged entrepreneurs to advance patriotism and professionalism, as well as innovation and social responsibility. It called for stronger party guidance of entrepreneurs and for them to endorse party leaders. It also promised to create a environment where they can thrive. The guideline “has defined the core meaning of Chinese entrepreneurship under the new era,” with being patriotic and professional core components, the official Xinhua News Agency said. It’s the first edict “of its kind that focused on entrepreneurial spirit” and is intended “to spur market vitality,” Xinhua said.

The call for patriotic entrepreneurs underscores the trend of emphasizing the national missions of both private and state-run businesses under President Xi Jinping, who has sought to shore up the state sector and build “national champions.” It reflects internal concern about capital outflows and acquisitions, which have put downward pressure on the yuan in recent years. “Key elements of the document relate to the phenomenon of Chinese firms going on massive overseas shopping sprees,” said Han Meng, a senior researcher at the Chinese Academy of Social Sciences Institute of Economics in Beijing. “If not reined in, this could hurt China’s economic base. Patriotic entrepreneurs are those who can do more to benefit the domestic economy and society.”

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Great time to call for more centralization.

Macron Lays Out Vision For ‘Profound’ Changes In EU (G.)

The French president, Emmanuel Macron, has set out his plans for a “profound transformation” of the EU with deeper political integration to win back the support of disgruntled citizens, but suggested a bloc moving forward at differing speeds could become somewhere the UK may “one day find its place again”. Macron, a staunchly pro-European centrist who came to power in May after beating the Front National’s Marine Le Pen, pleaded for the EU to return to its founders’ “visionary” ideas, which were born out of the disaster of two world wars. In what was hailed on Tuesday as one of the most pro-European speeches by an EU leader in years, he spoke up for common EU policies on defence, asylum and tax, called for the formation of European universities, and promised to play Ode to Joy, the EU anthem, at the Paris Olympics in 2024.

He said time was running out for the EU to reinvent itself to counter the rise of far-right nationalism and “give Europe back to its citizens”. With Brexit looming, Macron warned the rest of Europe against the dangers of anti-immigrant nationalism and fragmentation. “We thought the past would not come back … We thought we had learned the lessons,” he told a crowd of European students at Sorbonne University in Paris. Days after a far-right party entered the German parliament for the first time in 70 years, Macron said an isolationist attitude had resurfaced “because of blindness … because we forgot to defend Europe. The Europe that we know is too slow, too weak, too ineffective”.

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Uber will leave Canadian province of Québec in October.

Uber’s New ‘Good Cop’ Tack Will Face Test in US City Tussles (BBG)

Uber is testing out a new conciliatory tone in London, where officials said they wouldn’t renew the ride-hailing service’s operating license. It’s going to have ample opportunity to see if that approach will work in the U.S. San Francisco’s city attorney is investigating whether Uber Technologies Inc. is a public nuisance. In New York, officials are mulling ways to tighten controls on ride-hailing, including requiring a quarter of all trips come with wheelchair-accessible vehicles. And Seattle has passed an ordinance to make it easier for Uber drivers to unionize. “Uber is at a turning point with big-city governments,” Jon Orcutt, director of communications and advocacy for the TransitCenter, said of Uber and other ride-sharing companies. “London’s action to threaten to withdraw their license really could turn the corner in a more normal regulatory situation for Uber.”

London officials said Friday the city would not renew Uber’s operating license, which is set to expire Sept. 30, because it isn’t “fit and proper to hold a private hire operator license.” The city cited a failure to do sufficient background checks on drivers, report crimes and a program called “Greyball” used to avoid regulators. In response, newly minted Chief Executive Officer Dara Khosrowshahi released an open letter Monday apologizing “for the mistakes we’ve made” and acknowledging that the company “got things wrong along the way” during its rapid growth. London is a critical global market for Uber, which could encourage the company to make regulatory concessions to remain on the streets, Orcutt said. That stands in contrast with the company’s sharp-elbowed approach under co-founder and former CEO Travis Kalanick.

Uber ruffled feathers in city halls in several major U.S. cities that struggled to corral the company during its growth. It raised the ire of local officials and incumbent taxi drivers by compiling a track record of skirting traditional taxi-industry regulations and refusing to share trip data and other records sought by city officials. San Francisco City Attorney Dennis Herrera in July requested court orders for Uber and competitor Lyft Inc. to hand over years worth of records after the companies refused to comply with an earlier subpoena for the records. Herrera’s office is investigating whether the companies and their estimated 45,000 drivers in the city are creating a public nuisance, a finding that could subject the companies to civil monetary penalties and expose them to court injunctions restricting their operations in the city.

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Wait. If the mines don’t function, gold gets scarcer, right?

Hedge Fund Paulson & Co Declares War On Poor Gold Mining Returns (R.)

New York-based Paulson & Co, led by longtime gold bull John Paulson, called on Tuesday for the world’s biggest investors in gold-mining stocks to form a coalition to tackle miners’ “dreadful” performance. Speaking at the Denver Gold Forum, the industry’s top annual event, Paulson & Co partner Marcelo Kim launched the blistering attack on the sector, saying the hedge fund was looking for fellow founding members for a body to speak out on issues including high executive pay, cozy board appointments and value-destroying mergers and acquisitions. “If we don’t do anything to change, then as investors we will continually be disappointed with shareholder returns and the industry will slowly dig itself into a hole of irrelevance and oblivion,” Kim told a packed room of delegates.

The “shareholders’ gold council” would focus solely on the gold sector, issuing vote recommendations to shareholders on issues including company takeovers and chief executive officer pay, Kim said. He said that fellow large sector investor, Tocqueville, had endorsed the council idea. Average total shareholder returns from gold mining investments, including world No.1 producer Barrick, are a negative 65% since 2010 over a period when the CEOs of 13 of the largest companies have cumulatively received $550 million in pay, Kim said. In that time, the gold price rose by 20% and the price of oil, a major input cost for miners, fell by 28%, he said. Since 2010, the industry has written off $85 billion due to overpaying for acquisitions and massive cost overruns on mine builds, he said.

Amongst large producers, the weakest performer was Canadian miner Eldorado, which had destroyed shareholder value through M&A, he said. Eldorado could not immediately be reached for comment. Not all gold miners had performed poorly, Kim said, singling out Africa-focused Randgold as a role model. Shareholders have no one to blame but themselves for rubber stamping mergers, CEO pay packages and board appointments, Kim said, adding that there was little industry engagement with company boards or activism.

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Lack of focus.

The Case For The 3-Hour Workday (BI)

Over the course of an eight-hour workday, the average employee works for about three hours — two hours and 53 minutes, to be more precise. The rest of the time, according to a 2016 survey of 1,989 UK office workers, people spend on a combination of reading the news, browsing social media, eating food, socializing about non-work topics, taking smoke breaks, and searching for new jobs (presumably, to pick up the same habits in a different office). The research has been clear for awhile that long workdays hardly get the best from people. Some research has found people can only concentrate for about 20 minutes at a time. One study found people struggled to stay on task for more than 10 seconds.

Toward the end of the day, performance begins to flatline or even worsen, K. Anders Ericsson, an expert on the psychology of work, said. “If you’re pushing people well beyond that time they can really concentrate maximally, you’re very likely to get them to acquire some bad habits,” Ericsson told Business Insider in 2016. Ericsson is the foremost expert on the topic of building expertise. He’s made a career out of studying the most successful people on Earth, and figuring out what exactly helps them rise so high. Turns out the mantra “practice makes perfect” is true, but only if people engage in a certain kind of practice known as “deliberate practice.” Experts don’t spend hours upon hours honing their craft, Ericsson has found. They spend a few hours at a time purposefully trying to improve, and then they stop.

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A very tense weekend is coming.

Spain Deploys Ever More Police To Prevent Catalan Independence Vote (G.)

Police will be deployed at polling stations to prevent people from voting in the Catalan independence referendum, the Spanish government has confirmed. Although the Catalonia regional government has insisted the unilateral poll will go ahead on Sunday, the Spanish government has vowed to stop the vote, which it says is a clear violation of the constitution. Spain’s constitutional court has suspended the legislation underpinning the referendum while it rules on its legality. A spokesman for the Spanish government’s Catalan delegation said on Tuesday that the region’s prosecutor had ordered the Mossos d’Esquadra, Catalonia’s police force, to take control of polling booths and identify those in charge. “The order has been conveyed and it will be executed with all normality,” he said.

The Spanish government said the steps it had taken over the past week, including raiding Catalan government offices, arresting 14 officials and seizing almost 10m ballot papers, meant the vote could not take place. “Today we can affirm that there will be no effective referendum in Catalonia,” the Spanish government’s representative in Catalonia, Enric Millo, told reporters on Tuesday. “All the referendum’s logistics have been dismantled.” In an order to police issued on Monday, the prosecutor’s office said it would take the names of anyone participating in the vote and confiscate relevant documents. Anyone in possession of the keys or entrance codes to a polling booth could be considered a collaborator to crimes of disobedience, misuse of office and misappropriation of funds, the order said.

However, despite the words and actions of the Spanish government, not to mention the deployment of thousands of extra police officers to Catalonia, the regional government is adamant that the referendum cannot be stopped. Catalonia’s regional president, Carles Puigdemont, has accused the Spanish prime minister, Mariano Rajoy, of acting “beyond the limits of a respectable democracy” in his efforts to prevent the referendum. He has also compared the Spanish government’s behaviour to the repression of the Franco era and said it is only serving to drive more Catalans towards independence.

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People want to be independent all over.

Banned West Papua Independence Petition Handed To UN (G.)

A petition banned by the Indonesian government, but bearing the signatures of 1.8 million West Papuans – more than 70% of the contested province’s population – has been presented to the United Nations, with a demand for a free vote on independence. Exiled West Papuan independence campaigner Benny Wenda presented the bound petition to the UN’s decolonisation committee, the body that monitors the progress of former colonies – known as non-self-governing territories – towards independence. The petition was banned in the provinces of Papua and West Papua by the Indonesian government, and blocked online across the country, so petition sheets had to be “smuggled from one end of Papua to the other”, Wenda told the Guardian from New York.

Independence campaigners have been jailed and allegedly tortured in Papua for opposing the rule of Indonesia, which has controlled Papua (now Papua and West Papua) since 1963. Those signing the petition risked arrest and jail. “The people have risked their lives, some have been beaten up, some are in prison. In 50 years, we have never done this before, and we had to organise this in secret,” Wenda said. “People were willing to carry it between villages, to smuggle it from one end of Papua to the other, because this petition is very significant for us in our struggle for freedom.”

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Atlantis down under.

Zealandia Drilling Reveals Secrets Of Sunken Lost Continent (G.)

The mostly submerged continent of Zealandia may have been much closer to land level than previously thought, providing pathways for animals and plants to cross continents from 80m years ago, an expedition has revealed. Zealandia, a for the most part underwater landmass in the South Pacific, was declared the Earth’s newest continent this year in a paper in the journal of the Geological Society of America. It includes Lord Howe Island off the east coast of Australia, New Caledonia and New Zealand. On Wednesday researchers shared findings from their two-month-long expedition, one of the first extensive surveys of the region, announcing fossil discoveries and evidence of large-scale tectonic movements.

“The discovery of microscopic shells of organisms that lived in warm shallow seas, and spores and pollen from land plants, reveal that the geography and climate of Zealandia was dramatically different in the past,” said Prof Gerald Dickens of Rice University. Researchers drilled more than 860 metres below the sea floor in six different sites across Zealandia. The sediment cores collected showed evidence of tectonic and ecological change across millions of years. “The cores acted as time machines for us, allowing us to reach further and further back in time,” said Stephen Pekar, a researcher on board the scientific drilling vessel, in August. “As one scientist put it: ‘We are rewriting the geologic and tectonic history of Zealandia at this drill site.’”

The 5 million sq km continent, roughly the size of the Indian subcontinent, is believed to have separated from Australia and Antarctica, as part of Gondwana, about 80m years ago. On Wednesday Prof Rupert Sutherland from New Zealand’s Victoria University said the expedition had discovered “big geographic changes”. “[The research] has big implications for understanding big scientific questions, such as how did plants and animals disperse and evolve in the South Pacific? The discovery of past land and shallow seas now provides an explanation: there were pathways for animals and plants to move along.”

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Sep 212017
 
 September 21, 2017  Posted by at 8:57 am Finance Tagged with: , , , , , , , , ,  3 Responses »


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 »


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 »


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 »


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 »


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 »


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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