Oct 082016
 
 October 8, 2016  Posted by at 9:34 am Finance Tagged with: , , , , , , , , , ,  


DPC Royal Street, New Orleans 1900

US Consumer Borrowing Rises by Most in Nearly a Year (BBG)
US Consumer Credit Has Second Biggest Jump On Record (ZH)
US Payrolls Up 156K, Missing Expectations, Unemployment Rate Rises To 5.0% (ZH)
EU Leaders Line Up To Insist UK Will Pay A High Price For Brexit Stance (G.)
Worries Deepen That Globalization Is Hitting the Skids (WSJ)
Worries Grow That China Faces a Perilous Property Bubble (WSJ)
EU Imposes Import Duties Of Up To 73.7% On Cheap Chinese Steel (G.)
He’ll Likely Lose – But Trump Is The Final Warning To Elites (G&M)
Why Does This Happen on My Vacation? -The Trump Tapes (Scott Adams)
Hounds Hot On The Heels Of Poachers In Rhino Country (G.)
New Zealand Child Poverty A Source Of Deep Concern: UN (G.)
UN Watchdog Demands Saudis Stop Child Executions (AFP)

 

 

No deleveraging: Household debt rises 8.5% annualized.

US Consumer Borrowing Rises by Most in Nearly a Year (BBG)

Household borrowing increased in August at the fastest pace in almost a year, led by a jump in loans for school and automobile purchases. The $25.9 billion increase, or an annualized 8.5%, followed a revised $17.8 billion gain the prior month, Federal Reserve figures showed Friday. The median projection called for a $16.5 billion advance. Non-revolving credit, which includes car and educational loans, also posted the largest advance since September of last year. Steady hiring and income growth may be making Americans more willing to borrow, helping to sustain consumer spending and the economic expansion.

Non-revolving credit increased $20.2 billion, while revolving debt rose $5.6 billion during the month, the Fed’s report showed. Lending by the federal government, mostly for student loans, climbed $18.7 billion in August on an unadjusted basis as students prepared to return to school for the fall semester. The Fed’s consumer credit report doesn’t track debt secured by real estate, such as home equity lines of credit and home mortgages.

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Tyler on the household debt topic, delving a bit deeper, as in beyond seasonal adjustments.

US Consumer Credit Has Second Biggest Jump On Record (ZH)

It will likely not come as a big surprise that at a time when US personal savings are once again declining, perhaps as a result of soaring health insurance costs, that US consumers are forced to borrow increasingly more to make ends meet. And, as expected, the latest consumer credit report confirmed this, when moments ago the Federal Reserve announced that in August, total US credit surged by $25.9 billion on a seasonally adjusted basis, smashing expectations of a $16.5 billion increase, and the third biggest monthly jump since 2001.[..] what was perhaps most interesting is that on a non-seasonally adjusted basis, when removing the artificial Arima-X-13 seasonal factors, August consumer credit soared by a near record $46.8 billion, an absolute outlier month, and surpassed just once in history.

So for all those who, still, erroneous claim that US consumers are deleveraging, show them this chart, because the scramble if not so much into revolving debt then certainly into government-funded auto and student loans, is unlike anything ever seen. And speaking of just those two kinds of debt, here they are broken out: they have both never been higher.

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Last big jobs report before the elections (November’s will come too late to make much difference) is mixed, but certainly not very good.

US Payrolls Up 156K, Missing Expectations, Unemployment Rate Rises To 5.0% (ZH)

With Wall Street all bulled up on the economy, expecting a print of 175K while the whipser number was decidedly higher, and closer to 200K thanks to Goldman’s optimism, moments ago the BLS reported that in September the US created only 156K jobs, missing expectations, and down from the upward revised 167K in August, leaving the question of whether the Fed will hike imminently, unanswered. However, offsetting the September miss, last month’s disappointing print of 151K was revised to 167K. At the same time, the change in total nonfarm payroll employment for July was revised down from +275,000 to +252,000. With these revisions, employment gains in July and August combined were 7,000 less than previously reported.

Over the past 3 months, job gains have averaged 192,000 per month. The household survey employment number of 151.968MM was 354K bigger than last month, and pushed the annual increase higher by 2.0%, the biggest since March 2016. The unemployment rate, at 5.0%, and the number of unemployed persons, at 7.9 million, changed little in September, up 0.1% from August and the highest in 6 months. Both measures have shown little movement, on net, since August of last year. The participation rate rose by 0.1% t 62.9% as people not in the labor force declined by 207K.

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Which should make Britons very happy to leave that bunch of mobsters behind. Even if their own new ‘leaders’ are just as bad. But those you can vote out next time around.

EU Leaders Line Up To Insist UK Will Pay A High Price For Brexit Stance (G.)

Britain and the EU appear more bitterly divided over Brexit than at any time since the referendum, with European leaders ramping up their rhetoric after Theresa May signalled she would seek a clean break with the bloc. The prime minister’s Conservative conference speech, in which she indicated Britain would prioritise immigration control and restore the primacy of UK law to become an “independent, sovereign nation” without full access to the single market, drew a sharp response from continental capitals. In Paris, François Hollande said Britain must suffer the consequences of its decision. “The UK has decided to do a Brexit. I believe even a hard Brexit,” he said. “Well, then we must go all the way through the UK’s willingness to leave the EU. We have to have this firmness.”

If not, “we would jeopardise the fundamental principles of the EU”, the French president said on Thursday night. “Other countries would want to leave the EU to get the supposed advantages without the obligations.. There must be a threat, there must be a risk, there must be a price.” Hollande’s message was underlined on Friday by the president of the European commission, Jean-Claude Juncker, who said the 27 remaining member states must not give an inch in exit negotiations. “You can’t have one foot in and one foot out,” he said. “We must be unyielding on this point.” Britain risked “trampling everything that has been built” over six decades of European integration, he said.

In Berlin, Angela Merkel rammed home the same point. “If we don’t insist that full access to the single market is tied to complete acceptance of the four basic freedoms, then a process will spread across Europe whereby everyone does and is allowed what they want.”

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Turns out, globalization is just another religion. Hilarious that the CEO of United Parcel Service is quoted; yes, we understand they are all for ‘free’ trade, it’s what their business is based on.

Worries Deepen That Globalization Is Hitting the Skids (WSJ)

Global finance ministers and central bankers are descending on Washington this week with a central concern in mind: fear that the modern age of globalization is hitting a wall. Last year’s $646 billion in foreign direct investment in rich economies represents a 40% drop from the peak before the financial crisis. International lending, as measured by cross-border banking claims at the Bank for International Settlements, is down nearly $2.6 trillion, or 9%, over the past two years. International trade this year will grow at the slowest pace since 2007, according to the World Trade Organization, which has slashed its forecast for growth in global trade volumes to 1.7% in 2016 from a previous estimate in April of 2.8%.

Imports among the world’s 20 largest economies have fallen as a share of their GDP for four consecutive years, and growth in demand for shipping containers fell to 4% this year after four decades of double-digit expansion. As financial officials gather in the U.S. capital this week at semiannual meetings of the IMF and the World Bank, there is widespread concern that this global malaise could worsen if nations intentionally turn inward. Too many politicians are backing trade barriers in a misguided effort to boost national growth in the short term, said Roberto Azevedo, director general of the WTO. “The medicine that is being often prescribed is protectionism, and that is exactly the kind of medicine that is going to hurt the patient, not help him,” he said.

The head of the IMF, Christine Lagarde, also expressed concern over rising protectionism around the world, including in the U.S. “Curbing free trade would be stalling an engine that has brought unprecedented welfare gains around the world over many decades,” she said. The slower-than-expected economic activity is feeding a cycle of banks pulling back from international risk, companies hesitant to invest in new production, and governments issuing regulations—often linked to national security—favoring domestic producers. “Now that we’re in this 2% [growth] range in the U.S. and less than that in other countries, people are clinging more to the past and thinking more how to protect versus embracing the future,” said David Abney, CEO of United Parcel Service.

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“The reality speaks of morbid financial excess..” (BTW, two WSJ articles in a row that start with Worries, some that deepen, others grow -same thing)

Worries Grow That China Faces a Perilous Property Bubble (WSJ)

The latest buying frenzy began late last year, when Mr. Xi set a national goal of reducing the number of unsold homes in 2016. In the following months, cities rushed to relax home-purchase curbs that were put in place to discourage speculation during the last housing boom. Beijing also made it easier for homebuyers to access credit. The Chinese leadership’s hope was that modest borrowing by families and individuals would boost property sales and cut inventory, aiding related industries such as construction that, all told, account for about a fifth of China’s gross domestic product. It hasn’t gone as planned. Too much investment went into housing, economists say, aided by a series of central-bank easing measures since late 2014.

Government data show more than a third of new loans in the first half of 2016 went to housing. By comparison, an average 17.4% of new loans went to housing between 2010 and 2015, according to BNP Paribas. “The reality speaks of morbid financial excess,” said Harrison Hu at RBS. In July, six major cities showed home-price gains of more than 20% from the prior year; in August, 10 cities did. In the coastal city of Xiamen, prices skyrocketed 44.3%. Average new home prices across 70 Chinese cities in August rose far less, 7.5%, suggesting that many smaller cities are still struggling with too much inventory.

Chinese households’ leverage, meanwhile, is fast rising to dangerous levels. A study by China’s Haitong Securities shows that total home loans are expected to make up 30% China’s GDP this year, up from less than 20% three years ago. That is higher than Japan’s level during its property-bubble years in the late 1980s. One moderating factor: Most Chinese households pay down payments equal to about a third of the home’s value, making homeowners less vulnerable to price drops.

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Yeah, about that globalization thing… You know, protectionism and all that…

EU Imposes Import Duties Of Up To 73.7% On Cheap Chinese Steel (G.)

The European Union has slapped tariffs of up to 73.7% on Chinese steel after manufacturers were forced to cut jobs due falling prices and demand for the material amid an influx of cheap imports from Asia. Thousand of job have already been lost in the steel industry in Britain in the last year with thousands more at risk as the sector remains under pressure. Industry leaders have partly blamed the squeeze on the sector on China’s dumping of cheap steel in Europe as it struggles to find buyers for its products domestically. The EU has agreed to impose import duties of between 13.2% and 22.6% on Chinese hot-rolled steel, which is used in pipelines and gas containers, and 65.1% and 73.7% on heavy plates, which are used in civil engineering projects.

The state of the steel industry became part of the debate about Britain’s future in the EU before the referendum in June, with Brexiters claiming that the country would be better able to protect workers and introduce tariffs on Chinese imports if it voted to leave. UK Steel, the industry trade body, welcomed the speed at which the new EU tariffs had been introduced but warned that the levy on hot-rolled steel was not high enough, which could hurt Port Talbot, the biggest steelworks in Britain. Dominic King, head of policy and external affairs at UK Steel, said: “The speed at which tariffs have been imposed on dumped steel from China by the EU is very welcome. However, while we hope the tariffs for heavy plate are robust enough to ensure free and fair trade, the proposed levels for hot-rolled steel are not high enough, which might encourage China to continue dumping it on to the EU market.”

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I don’t think Trump will lose. But good perspective, from Canada.

He’ll Likely Lose – But Trump Is The Final Warning To Elites (G&M)

Donald Trump will probably lose the election. But he is a final warning. Unless political elites of both the left and the right become more humble, unless they once again ask themselves how their agendas will play in Peoria, the next rough beast might slouch over the corpse of the republic. “Will it play in Peoria?” goes back to the days of vaudeville. The city of 115,000 in central Illinois was once considered the ultimate focus group, the embodiment of Middle America, the place to test a joke or a soda or a social policy to learn what white folks without a fancy degree thought of it. Back in the day, you knew better than to defy the settled judgment of this ultimate test market. You went as far as Peoria would let you, and no further.

But we grew impatient. You have to fight Jim Crow, whatever Peoria thinks. Free trade will lift most boats, even if it swamps a few. The environment is too precious, and at too much risk, to go slow. Lower taxes and less red tape will help the economy grow, even if it profits some more than others. The left wanted social justice, protection for minorities, a cleaner environment. The right wanted lower taxes and trade deals. Despite the rhetoric, each accommodated the other. Republicans left the Democrats’ progressive policies largely intact; Democrats learned to embrace, or at least reluctantly accept, globalization. And everybody knew what was really going on in Washington. A tax break for you. A subsidy for me. You take care of my client and I’ll take care of yours. Deal? Then let’s celebrate. We’ll expense it.

What did the guy on the line think about this? The wife at Wal-mart? The folks at the ball park? No one really cared. Yeah, politicians chased their vote. But respect them, even defer to their collective wisdom? Not so much. The accommodation between left and right started unravelling in the 1980s. The Bork confirmation. The Thomas confirmation. Contract with America. Impeaching Bill Clinton. Iraq. Obama. The Tea Party. Gay marriage. And now the Democrats want to replace a black president with a woman? A CLINTON? Meanwhile, Peoria is hurting. The city is home to Caterpillar. But the heavy-equipment giant has outsourced most of its work force overseas or to so-called right-to-work states.

But what does Washington care? The left worries more about combatting global warming than about blue-collar workers with bad backs and no jobs. The right promises to retrain them, but somehow never gets around to it. The laid-off boys in the bars of Peoria blame the illegals, the only ones even more voiceless than themselves. They seethe at the Wall Street suits who destroyed the economy and got off scot-free. And what the hell is transgender, anyway? They look at their daughter’s report card. She’s only getting Cs. What future is there for anyone who’s only getting Cs?

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How wrong is Dlibert’s alter ego? “It is fair to assume that Bill and Hillary are about to experience the worst weeks of their lives.”

Why Does This Happen on My Vacation? -The Trump Tapes (Scott Adams)

By now you know about the Access Hollywood recording in which Donald Trump said bad things eleven years ago. Many of my readers asked me to weigh in. I’ll give you my thoughts, in no particular order.

1. If this were anyone else, the election would be over. But keep in mind that Trump doesn’t need to outrun the bear. He only needs to outrun his camping buddy. There is still plenty of time for him to dismantle Clinton. If you think things are interesting now, just wait. There is lots more entertainment coming.

2. This was not a Trump leak. No one would invite this sort of problem into a marriage.

3. I assume that publication of this recording was okayed by the Clinton campaign. And if not, the public will assume so anyway. That opens the door for Trump to attack in a proportionate way. No more mister-nice-guy. Gloves are off. Nothing is out of bounds. It is fair to assume that Bill and Hillary are about to experience the worst weeks of their lives.

4. If nothing new happens between now and election day, Clinton wins. The odds of nothing new happening in that timeframe is exactly zero.

5. I assume that 75% of male heads of state, including our own past presidents, are total dogs in their private lives. Like it or not, Trump is normal in that world.

6. As fictional mob boss Tony Soprano once said in an argument with his wife, “You knew what you were getting when you married me!” Likewise, Trump’s third wife, Melania, knew what she was getting. It would be naive to assume Trump violated their understanding.

7. Another rich, famous, tall, handsome married guy once told me that he can literally make-out and get handsy with any woman he wants, whether she is married or not, and she will be happy about it. I doubted his ridiculous claims until I witnessed it three separate times. So don’t assume the women were unwilling. (Has anyone come forward to complain about Trump?)

8. If the LGBTQ community wants to be a bit more inclusive, I don’t see why “polyamorous alpha male serial kisser” can’t be on the list. If you want to label Trump’s sexual behavior “abnormal” you’re on shaky ground.

9. Most men don’t talk like Trump. Most women don’t either. But based on my experience, I’m guessing a solid 20% of both genders say and do shockingly offensive things in private. Keep in mind that Billy Bush wasn’t shocked by it.

10. Most male Hollywood actors support Clinton. Those acting skills will come in handy because starting today they have to play the roles of people who do not talk and act exactly like Trump in private.

11. I’m adding context to the discussion, not condoning it. Trump is on his own to explain his behavior.

12. Clinton supporters hated Trump before this latest outrage. Trump supporters already assumed he was like this. Independents probably assumed it too. Before you make assumptions about how this changes the election, see if anyone you know changes their vote because of it. All I have seen so far is people laughing about it.

12. I hereby change my endorsement from Trump to Gary Johnson, just to get out of the blast zone. Others will be “parking” their vote with Johnson the same way. The “shy Trump supporter” demographic just tripled.

13. My prediction of a 98% chance of Trump winning stays the same. Clinton just took the fight to Trump’s home field. None of this was a case of clever strategy or persuasion on Trump’s part. But if the new battleground is spousal fidelity, you have to like Trump’s chances.

14. Trump wasn’t running for Pope. He never claimed moral authority. His proposition has been that he’s an asshole (essentially), but we need an asshole to fight ISIS, ignore lobbyists, and beat up Congress. Does it change anything to have confirmation that he is exactly what you thought he was?

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Stop bombing teh Middle East and send your troops to protect Afrian wildlife. Much better use of force. May actually save mankind instead of destroying it.

Hounds Hot On The Heels Of Poachers In Rhino Country (G.)

“I am ready to die for conserving the rhino,” says Wisdom Makhubele. But the brave young ranger now has another weapon in the war against rhino poaching: the extraordinary nose of tracking hounds. The trained dogs can run poachers to ground far faster than people, sometimes even being set free in packs and followed from helicopters. The new canine training unit at the Southern African Wildlife College (SAWC), near Acornhoek, opened earlier this year and dogs have already brought armed poachers to heel in Kruger national park, the epicentre of the rhino poaching crisis. At least 6,000 African rhinos have been slaughtered by poachers since 2008, to fuel the soaring demand for its horn in Asia, where it is highly valued as a supposed tonic and status symbol.

The rhino poaching epidemic across Africa has exploded in recent years, with annual increases in killings every year since 2009: 1,338 were slaughtered in 2015. It was a hot topic at the major wildlife trade summit in Johannesburg this week, where an attempt by Swaziland to legalise rhino horn trade was defeated. South Africa hosts more than 90% of the 20,000 surviving white rhinos and almost half the 4,800 remaining black rhinos and saw a slight dip in the slaughter in 2015, the first decrease in nine years. Over 70% of the rhino kills occur in Kruger and a sign on the way into the park reads “Poachers will be poached”. Dogs have been used for camp security for years, but the escalating poaching crisis has found them a new role.

“They are awesome – they are instinctive to tracking,” says Johan van Straaten, manager of the dog unit, which has been funded by WWF Nedbank Green Trust. “All these dogs can track, it’s in their genes. But we train them to track the scent we want. These dogs are imprinted on human scent, like narcotics dogs are on drugs.” [..] Being a ranger in the war on poaching can be deadly – more than 1,000 rangers were killed around the world in the last decade and many more injured. The danger follows the rangers home too. “They are targets and their families can be targets, that’s for certain,” says van Straaten. Makhubele comes from a local village. “People there know me and some of them are poachers, but I am not afraid,” he says. “This [rhino population] is our legacy and we have to look after it.”

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New Zealanders must stand up against their government. It’s very much your shame too.

New Zealand Child Poverty A Source Of Deep Concern: UN (G.)

The UN has said in a damning report that it is deeply concerned about New Zealand’s persistently high rates of child poverty. Unicef says 300,000 children – a third of New Zealand’s child population – now live below the poverty line. This is a rise of 45,000 in a year. Government representatives travelled to Geneva last month to present the country’s progress on its commitment to protecting the rights of the child to the UN. The UN committee’s report acknowledges widespread public debate and media attention on child poverty in New Zealand, but expresses serious concern about the government’s failure to address the issue systematically.

“The committee is deeply concerned about the enduring high prevalence of poverty among children,” the report says, highlighting “the effect of deprivation on children’s right to an adequate standard of living and access to adequate housing, with its negative impact on health, survival and development, and education”. The report expresses particular concern about the number of Maori and Pasifika children living in deprived circumstances. Both groups are disproportionately represented in child poverty statistics.

It calls for “urgent measures to address disparities in access to education, health services and a minimum standard of living for Maori and Pasifika children and their families” and says more effort should be invested in preserving Maori children’s cultural identity. The government of the National party is urged to take a systematic approach to tackling child poverty, and to establish a “national definition” to measure child poverty, something it has repeatedly refused to do. The Green party co-leader Metiria Turei welcomed the UN report. “The national government has repeatedly denied the seriousness of the problem and deserves the criticism it has received from the committee,” she said. “And that means thousands on NZ children are missing out on their chance for a decent life, especially Maori and Pasifika children.”

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What is more sickening, that the Saudis do this, or that we insist on continuing to call them our friends? “..the stoning, amputation and flogging of children..” does not belong in our world.

UN Watchdog Demands Saudis Stop Child Executions (AFP)

UN rights experts demanded Friday that Saudi Arabia immediately overturn laws allowing for the execution of children, and for punishments of minors including stonings, amputations and flogging. In a report on the plight of children in the wealthy Gulf state, a UN committee took Riyadh to task for allowing minors to be sentenced as adults, including to harsh corporal punishment and even the death penalty. The United Nations Committee on the Rights of the Child also criticised what it called Saudi Arabia’s systematic discrimination against girls, who are not considered full subjects, and who can be married off as early as nine years of age.

In its report, the committee expressed its “deepest concern” that Saudi Arabia “tries children above 15 years as adults and continues to sentence to death and to execute persons for offences that they allegedly committed when they were under the age of 18”. The committee, which is composed of 18 independent experts who monitor the implementation of the UN Convention on the Rights of the Child, pointed to a number of cases where minors had been sentenced to death. It said that at least four of the 47 people executed on January 2 this year were under 18 when they were sentenced to death.

And it demanded that Riyadh “immediately halt the execution” of those currently on death row who allegedly committed their crimes when they were minors, including Ali Mohammed Baqr al-Nimr, Abdullah Hasan al-Zaher, and Salman Bin Ameen Bin Salman Al-Qureish. Committee chairman Benyam Mezmur told reporters Saudi Arabia was only one of five countries, alongside China, Iran, Pakistan, and the Maldives, where child rights experts had ever needed to raise concerns about executions. “This is a very, very serious issue,” he said. The committee also demanded that Saudi Arabia immediately repeal laws permitting “the stoning, amputation and flogging of children”.

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Sep 082016
 
 September 8, 2016  Posted by at 9:27 am Finance Tagged with: , , , , , , , , , ,  Comments Off on Debt Rattle September 8 2016


Harris&Ewing The Post Office building in Washington DC 1911

US Recession Jitters Stoke Fears of Impotent Fed and Fiscal Paralysis (AEP)
One In Six Prime-Age American Men Has No Job (NPR)
GDP – Even Less Than Meets The Eye (720 Global)
It Won’t Be Long Now – The End Game Of Central Banking Is Nigh (Stockman)
China’s $1 Trillion Makeover Of Bloated SOEs Attracts Skeptics (BBG)
China’s Massive Infrastructure Investment Is A Model To Avoid (MW)
P2P Lenders Push Chinese Students To Borrow At Exorbitant Rates (BBG)
Collapse Of Hanjin Leaves $14 Billion Worth Of Goods Adrift (BBG)
EU Regulators: Bad Loans Are Systemic Challenge for European Banks (BBG)
America’s Quiet War on Cash (TAM)
FBI Records on Financial Crisis Requested by U.S. Lawmaker (BBG)
Clinton Foundation: False Philanthropy (Ortel)
Former Japan PM Accuses Abe Of Lying Over Fukushima (G.)

 

 

Picture of failure.

US Recession Jitters Stoke Fears of Impotent Fed and Fiscal Paralysis (AEP)

An ominous paper by the US Federal Reserve has become the hottest document in high finance. It was intended to reassure us that the world’s hegemonic central bank still has ample firepower to overcome the next downturn. But the author was too honest. He has instead set off an agitated debate, and rattled a lot of nerves. David Reifschneider’s analysis – ‘Gauging the Ability of the FOMC to Respond to Future Recessions’ – more or less concedes that the Fed has run out of heavy ammunition. The Federal Open Market Committee had to cut interest rates by an average of 550 basis points over the last nine recessions in order to break the fall and stabilize the economy. It could not possibly do so right now, or next year, or the year after.

QE in its current form cannot compensate, and nor can forward guidance. They are largely exhausted in any case. “One cannot rule out the possibility that there could be circumstances in the future in which the ability of the FOMC to provide the desired degree of accommodation using these tools would be strained,” he wrote. This admission is painfully topical as a plethora of data suggest that the US economy may have hit a brick wall in August. The ISM gauge of manufacturing plunged below the boom-bust line to 49.4, and the services index dropped to a six-year low, with new orders crashing nine points. My own tentative view is that these ISM readings are rogue surveys. The Atlanta Fed’s ‘GDPNow’ tracker points to robust US growth of 3.6pc in the third quarter. The New York Fed version is coming in at 2.8pc. 

Yet the US expansion is already long in the tooth after 87 months, and late-cycle chemistry is notoriously unpredictable. Warning signs certainly abound. Corporate profits have been slipping for six quarters, the typical precursor to an abrupt slump in business spending. “The only thing keeping the US out of recession is the US consumer. If consumption stalls then we really are in trouble,” says Albert Edwards from Societe Generale. I am willing to bet against him for now. The M1 money supply – often a good leading indicator – has picked up after a weak patch earlier this year and is now surging at a rate of 10.1pc. This pace would normally signal burst of torrid growth a few months later. It is in stark contrast to the monetary contraction before the Lehman crisis.

My presumption is that the day of reckoning has been pushed well into 2017, but in the dead of the night I have a horrible sweaty feeling that Mr Edwards may be right. It is not a time to be chasing stock markets already at vertiginous levels. The Reifschneider paper argues that the Fed can probably muddle through, so long as it succeeds in pushing interest rates back up to 3pc or so before the next recession hits. Even then it might have to launch a further $4 trillion of QE and stretch its balance sheet to a once unthinkable $8.5 trillion.

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” In the 1960s, nearly 100% of men between the ages of 25 and 54 worked..”

One In Six Prime-Age American Men Has No Job (NPR)

At 4.9%, the nation’s unemployment rate is half of what it was at the height of the Great Recession. But that number hides a big problem: Millions of men in their prime working years have dropped out of the workforce — meaning they aren’t working or even looking for a job. It’s a trend that’s held true for decades and has economists puzzled. In the 1960s, nearly 100% of men between the ages of 25 and 54 worked. That’s fallen over the decades. In a recent report, President Obama’s Council of Economic Advisers said 83% of men in the prime working ages of 25-54 who were not in the labor force had not worked in the previous year. So, essentially, 10 million men are missing from the workforce.

“One in six prime-age guys has no job; it’s kind of worse than it was in the depression in 1940,” says Nicholas Eberstadt, an economic and demographic researcher at American Enterprise Institute who wrote the book Men Without Work: America’s Invisible Crisis. He says these men aren’t even counted among the jobless, because they aren’t seeking work. Eberstadt says little is known about the missing men. But there are factors that make men less likely to be in the labor force — a lack of college degree, being single, or being black. So, why are men leaving? And what are they doing instead?

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“GDP as most commonly used can be a flawed measurement if one tries to infer that the size or growth of economic activity is well correlated to the prosperity of its people..”

GDP – Even Less Than Meets The Eye (720 Global)

The most common statistic used to measure the size and growth rate of a nation’s economy is Gross Domestic Product (GDP). However, GDP as most commonly used can be a flawed measurement if one tries to infer that the size or growth of economic activity is well correlated to the prosperity of its people. Consider China and the United States for example. The U.S. has a GDP of approximately $16.5 trillion and a population of roughly 325 million while China has a GDP of nearly $11 trillion and a population of approximately 1.4 billion.

One could say that China’s economy is about two-thirds the size of the U.S. economy, however when one considers how that activity is spread amongst the citizens, China’s economy is only one-seventh that of the U.S. Accordingly, Chinese citizens are clearly less productive and prosperous than U.S. citizens GDP per capita (per citizen), as demonstrated above, is a valid way to measure the efficiency of one nation’s economic output versus another and is also an important statistic to gauge the productivity and prosperity trends in one country. We have frequently shown the declining trend in secular GDP growth in charts like those shown below.

Above, GDP is plotted on an absolute basis and does not take into account the amount of economic activity or economic growth per person. Below, we show the ten-year growth rate of GDP per capita.

As one easily notices GDP on a per capita basis is more worrisome than when viewed on a total basis as in the first two graphs. The economic growth rate per person is currently below one half of one%. More concerning, it is below levels seen during the great financial crisis in 2008 and it is still trending lower. This graph confirms our macroeconomic concerns and helps explain, in part, why so many U.S. citizens feel like they are being left behind. Factor in that many of the economic spoils are not evenly distributed, as assumed in this analysis, but are largely accruing to the wealthy, and the problem only worsens. As such, the growing social anxiety and trend towards populism, be it conservative or liberal leaning, will not likely dissipate if the aforementioned economic trends continue.

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Centralization as a whole is going the way of the dodo.

It Won’t Be Long Now – The End Game Of Central Banking Is Nigh (Stockman)

As Contra Corner readers recognize the only consistent way forward for America at this late stage of the game is a return to free markets, fiscal rectitude, sound money, constitutional liberty, non-intervention abroad, minimalist government at home and decentralized political rule. Unfortunately, that is not about to happen any time soon—–even if by some miracle Donald Trump is elected President. But what the book does claim is that the tide is turning against the failed Wall Street/Washington bipartisan consensus. I call this insurrection the “revolt of the rubes” in Flyover America. This uprising against the rule of the financial and political elites has counterparts abroad among those who voted for Brexit in the UK, against Merkel in the recent German elections in her home state, and among the growing tide of anti-Brussels sentiment reflected in polls throughout the EC.

Needless to say, the political upheaval now underway is largely an inchoate reaction to the policy failures and arrogant pretensions of the establishment rulers. Like Donald Trump himself, it does not reflect a coherent programmatic alternative. But my contention is that liberation from our current ruinous policy regime has to start somewhere—and that’s why the Trump candidacy is so important. He represents a raw insurgency of attack, derision, impertinence and repudiation. If that leads to throwing out the beltway careerists, pettifoggers, hypocrites, ideologues, racketeers, power seekers and snobs who have brought about the current ruin then at least the decks will be cleared.

So doing, the Trump candidacy—win or lose—is paving the way for an honest debate about the Fed’s war on savers and wage earners, the phony Bubble Finance prosperity it has bestowed on the bicoastal elites and Imperial Washington’s delusionary addiction to debt, war and special interest racketeering. In addition to the political revolt of the rubes, the establishment regime is now imperiled by another existential threat. To wit, the world’s central bankers have finally painted themselves into the mother of all corners. Literally, they dare not stop their printing presses because the front-runners and robo-traders have taken them hostage. Recent developments at all three major central banks, in fact, provide powerful evidence that the end of the current Bubble Finance regime is near.

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Beijing control trumps efficiency, and that’s not going to change.

China’s $1 Trillion Makeover Of Bloated SOEs Attracts Skeptics (BBG)

To grasp the scale of the challenges facing Chinese leaders in revamping their sprawling and inefficient state-owned enterprises, consider this: The combined revenue of 100-plus government-owned firms, spanning from train makers to banks and power companies, rivals Japan’s entire $4.1 trillion economy. China’s SOE sector, traditionally a source of political patronage and economic power for the Communist Party, accounts for about 40% of China’s industrial assets and 18% of total employment, according to Bloomberg Intelligence economists Fielding Chen and Tom Orlik. These government creations are also dragging down growth, with their return on assets in 2015 estimated to be at 2.8%, versus 10.6% for private sector-firms.

Cutting SOEs down to size and improving their profitability is critical to President Xi Jinping and Premier Li Keqiang’s signature economic policy of rebalancing the $10 trillion economy away from an over-reliance on debt-fueled infrastructure investment and exports to one powered more by services and consumer spending. One strategy has been to embrace mergers – about $1 trillion of asset combinations have been announced since late 2014. The broad government sector overhaul adds up to a major triage effort, keeping healthy or strategic state firms like banks, energy and telecoms under tight control while orchestrating supersized consolidation among ailing giants in shipping, cement and metals to improve efficiency and slash over-capacity. Without a major overhaul, China’s low labor productivity growth – now less than a tenth of European, Japanese and U.S. levels – isn’t likely to improve.

[..] Despite the pressure to turn around, there are about 50 or so “too-big-to-fail” state enterprises in energy, technology and defense that are deemed to be so strategic that they will continue to receive generous government support, according to Lin Boqiang, director of Xiamen University’s energy economics research center. For the rest, Xi’s SOE makeover will be a gradual process with progress coming in fits and starts. Combing two inefficient firms doesn’t necessarily create a healthy one without some forceful leadership to eliminate overlap and excess capacity, as could be the case in the steel industry. “When you combine BaoSteel and Wuhan Steel, two companies thousands of kilometers apart, I’m not sure what they could do together that they couldn’t do separately,” according to Lardy.

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Too much wasted.

China’s Massive Infrastructure Investment Is A Model To Avoid (MW)

Some leading U.S. politicians and economists including President Obama have admired China’s massive investment in new transportation projects and wished America could do the same. Yet a new research paper suggests China’s approach is “a model to avoid” and one that could trigger a global crisis unless dramatically altered. In a paper, four professors at Oxford University assert that a majority of large Chinese investment projects over the past three decades have underestimated costs, failed to deliver the promised benefits and played a smaller role than conventional wisdom suggests in making the country more prosperous.

“China is not a model to follow for other economies – emerging or developed – as regards infrastructure investing, but a model to avoid,” wrote professors Atif Ansar, Bent Flyvbjerg, Alexander Budzier and Daniel Lunn. Many Western lawmakers and economists have long praised China’s investment in new roads, rail, bridges and airports as means to improve the nation’s growth and reduce unemployment. Some have also suggested authoritarian governments are better able than democracies to get projects off the ground. “How do we sit back and watch China and Europe build the best bridges and high-speed railroads and gleaming new airports, and we’re doing nothing?” Obama complained in a speech several years ago urging Congress to spend more on infrastructure.

Jim Millstein, a former Treasury Department official from 2009-2011, makes a similar argument Wednesday, in a Washington Post column. “A well-designed program of new infrastructure spending can be just the catalyst the U.S. economy needs to get out of its rut,” he argued. Yet the Chinese approach is much costlier and less beneficial than it appears, the researchers contend. In many cases projects are subject to special-interest manipulation, poorly designed or shoddily implemented to meet political edicts. Quality, safety and environmental issues are not uncommon and the Chinese government is heavy-handed when obtaining land, even displacing masses of citizens from seized homes and property.

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The power of shadow banks.

P2P Lenders Push Chinese Students To Borrow At Exorbitant Rates (BBG)

Across college campuses in China, a small army of marketers is recruiting students to borrow money at interest rates many times that charged by the nation’s banks. Those without a credit history or parental approval can borrow money to buy a smartphone, pay for holidays, or get the latest sneakers through a raft of apps such as Fenqile. The market leader, whose name literally means Happy Installment Payments, has 50,000 part-time marketers across more than 3,000 universities and proudly touts the slogan “Wait no more; love what I love.” Welcome to the regulatory gray area where peer-to-peer lending meets e-commerce in China.

In the last three years, tens of millions of students have taken out micro-loans with the tap of a button to buy things. Once just the realm of startups, the sector has attracted heavy hitters in China’s online industry, including Alibaba’s finance affiliate and JD.com, which are pouring hundreds of millions of dollars into the lending model. In a nation with 37 million college students, the market is expected to reach $15 billion, according to the Beijing-based market research firm Analysys. While traditional banks, the biggest of which are state-owned, have long been regulated, such peer-to-peer lenders have not, though Fenqile at least says it welcomes more oversight.

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Sounds like a huge global overcapacity. Which of course is in line with shrinking global trade.

Collapse Of Hanjin Leaves $14 Billion Worth Of Goods Adrift (BBG)

Suppliers to companies such as Nike Inc. and Hugo Boss AG are scrambling to ensure their T-shirts and sneakers reach buyers in time for the year-end holiday season after the collapse of Hanjin Shipping Co. left an estimated $14 billion worth of goods adrift. Esquel Group, a Hong Kong-based manufacturer for fashion brands including Nike, Hugo Boss and Ralph Lauren, is hiring truckers to move four stranded containers of raw materials to its factories near Ho Chi Minh City as soon as they can be retrieved from ports in China. Liaoning Shidai Wanheng, a Chinese fabrics importer and a supplier to Marks & Spencer, has made alternative arrangements for shipments that were scheduled with Hanjin.

“Our production lines are waiting,” said Kent Teh, who runs Esquel’s Vietnam business. “We potentially have to take airfreight to deliver the garment items to clients in the U.S. and U.K.” Apparel, handbags, televisions and microwave ovens are among goods stranded at sea after Korea’s largest shipping company filed for bankruptcy protection last week, setting off a series of events that roiled the global supply chain. A U.S. Court on Tuesday provided a temporary reprieve, which may help vessels call on ports such as Los Angeles without the fear of getting impounded. Any major bottlenecks ahead of Thanksgiving and Christmas could put a dent in the two-month shopping season, which netted some $626 billion of sales last year in the U.S.

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“The ratio varies widely, from close to 50% in Cyprus to around 1% in Sweden.” Italy is the big fish here.

EU Regulators: Bad Loans Are Systemic Challenge for European Banks (BBG)

European regulators are sounding the alarm about the persistence of bad loans weighing on the balance sheets of banks in the region. In a report Wednesday on financial risks, the European Union agencies that set rules and technical standards for banks, insurers and markets called for a joint effort to tackle non-performing loans. “Insufficiently addressed asset quality concerns and persistent high level of NPLs are a significant driver of uncertainty in the EU banking sector,” they said. “Given the widespread, and thus systemic, nature of the significant challenges related to NPL, European supervisors, regulators and legislators should consider pursuing a coordinated, articulated and more decisive approach to this matter.”

Supervisors such as the European Central Bank need to raise pressure on banks to account for and reduce NPLs “in a more proactive and bold fashion,” the report says. Banks should adopt “a conservative provisioning policy, a prudent valuation of loans and collateral” and commit “to a NPL resolution plan with time-bound targets.” [..] European banks have the highest ratio of bad loans among developed countries, and progress to lower the share has been slow. According to the report, 5.7% of all loans were overdue on average in the first quarter, more than three times the ratio in the U.S. or Japan. The ratio varies widely, from close to 50% in Cyprus to around 1% in Sweden. High NPL levels are a capital constraint, hurt profits and limit new lending, according to the agencies.

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In line with Nicole’s article series we’re currently running.

America’s Quiet War on Cash (TAM)

Government campaigns of intimidation – like the wars on drugs, terror, and poverty – have been used to extort the public for decades. Despite the previous failures of institutional “wars,” a new war on cash is being waged that threatens freedom in a more subversive way than ever before. Banks and governments around the world are cracking down on the use of paper money, and in turn, eliminating any anonymity left in the current system. Through strict rules on cash transactions and civil asset forfeiture laws, for example, the system has already instituted penalties for using cash. But as payments evolve into a purely digital network, the consequences of this new paradigm are being brought into the spotlight.

The ability to track, record, and mediate transactions of all individuals is a power dictators throughout history could have only dreamed of. Those who value privacy are turning to alternatives like cash, cryptocurrencies, and precious metals, but these directly threaten central bank dominance. This ongoing tug-of-war in financial innovation will determine whether we enter an age of individual empowerment or centralized enslavement. As mundane as it may seem, the main reason for this push to go cashless is directly tied to what world central banks are doing to prop up their economies. The manipulation of interests rates to zero or even negative has left central banks no ammunition to fight off the next recession. Without the ability to cut interest rates even further, stimulating economic growth is nearly impossible.

The decisions made in response to the 2008 crisis have led to a perverted environment in which customers could be charged just for holding money in their accounts. As long as individuals have the ability to move their funds into paper currency and escape the losses, banks are still limited to how far they can push the envelope. Regardless, the federal government continues to pressure banks into issuing “Suspicious Activity Reports” for withdrawals of even as little as $5,000. That amount will undoubtedly decrease if and when more people resort to stuffing cash under their mattresses.

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Perhaps a little late?

FBI Records on Financial Crisis Requested by U.S. Lawmaker (BBG)

FBI files on the firms that contributed to the 2008 financial crisis should be released to help the public understand why no senior executives were charged, a U.S. congressman from New Jersey said. Democrat Bill Pascrell asked FBI Director James Comey for witness interview transcripts, notes, reports and memos from the agency’s probes into the crisis, according to a letter dated Tuesday. Pascrell said the FBI initiated criminal inquiries into at least 14 companies as part of its investigation into the origins of the crisis, which was ignited when prices of subprime-mortgage bonds plummeted after home-loan defaults soared. “Here we are eight years later – do you think the public knows how this happened? Do you think the public knows all of the recommendations made to the Justice Department?” Pascrell said Wednesday in an interview.

“Why are Hillary Clinton’s e-mails any more important?” The FBI earlier this month released a summary investigation and interview with Clinton to provide context on its recommendation that the Justice Department not prosecute Clinton or her aides for using a private e-mail system. The Democratic presidential nominee was interviewed by FBI agents and federal prosecutors for 3 1/2 hours on July 2 in Washington. Pascrell, who sits on both the budget and ways and means committees, said in many cases it would be too late to bring legal actions. Releasing the information would increase transparency and provide a public service, he said.

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“..it is a case study in international charity fraud, of mammoth proportions…”

Clinton Foundation: False Philanthropy (Ortel)

To informed analysts, the Clinton Foundation appears to be a rogue charity that has neither been organized nor operated lawfully from inception in October 1997 to date–as you will grow to realize, it is a case study in international charity fraud, of mammoth proportions. In particular, the Clinton Foundation has never been validly authorized to pursue tax-exempt purposes other than as a presidential archive and research facility based in Little Rock, Arkansas. Moreover, its operations have never been controlled by independent trustees and its financial results have never been properly audited by independent accountants.

In contrast to this stark reality, Bill Clinton recently continued a long pattern of dissembling, likening himself to Robin Hood and dismissing critics of his “philanthropic” post-presidency, despite mounting concerns over perceived conflicts of interest and irregularities. Normally, evaluating the efficacy of a charity objectively is performed looking closely into hard facts only -specifically, determining whether monies spent upon “program service expenditures” actually have furthered the limited, authorized “tax-exempt purposes” of entities such as the Bill, Hillary, and Chelsea Clinton Foundation, its subsidiaries, its joint ventures, and its affiliates (together, the “Clinton Charity Network”).

But, popular former presidents of the United States retain “bully pulpits” from which they certainly can spin sweet-sounding themes to a general audience and media that is not sufficiently acquainted with the strict laws and regulations that do, in fact , tether trustees of a tax-exempt organization to following only a mission that has been validly pre-approved by the Internal Revenue Service, on the basis of a complete and truthful application. This Executive Summary carries forward a process of demonstrating that the Clinton Foundation illegally veered from its IRS-authorized mission within days of Bill Clinton’s departure from the White House in January 2001, using publicly available information which, in certain cases, has been purposefully omitted or obscured in disclosures offered through the Clinton Foundation website, its principal public portal.

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Fukushima is too big to be papered over. But that’s all that happens.

Former Japan PM Accuses Abe Of Lying Over Fukushima (G.)

Japan’s former prime minister Junichiro Koizumi has labelled the country’s current leader, Shinzo Abe, a “liar” for telling the international community that the situation at the wrecked Fukushima Daiichi nuclear power plant is under control. Koizumi, who became one of Japan’s most popular postwar leaders during his 2001-06 premiership, has used his retirement from frontline politics to become a leading campaigner against nuclear restarts in Japan in defiance of Abe, a fellow conservative Liberal Democratic party (LDP) politician who was once regarded as his natural successor. Abe told members of the International Olympic Committee (IOC) in Buenos Aires in September 2013 that the situation at Fukushima Daiichi nuclear power plant was “under control”, shortly before Tokyo was awarded the 2020 Games.

IOC officials were concerned by reports about the huge build-up of contaminated water at the Fukushima site, more than two years after the disaster forced the evacuation of tens of thousands of residents. “When [Abe] said the situation was under control, he was lying,” Koizumi told reporters in Tokyo. “It is not under control,” he added, noting the problems the plant’s operator, Tokyo Electric Power (Tepco), has experienced with a costly subterranean ice wall that is supposed to prevent groundwater from flowing into the basements of the damaged reactors, where it becomes highly contaminated. “They keep saying they can do it, but they can’t,” Koizumi said. He went on to claim that Abe had been fooled by industry experts who claim that nuclear is the safest, cleanest and cheapest form of energy for resource-poor Japan.

“He believes what he’s being told by nuclear experts,” Koizumi said. “I believed them, too, when I was prime minister. I think Abe understands the arguments on both sides of the debate, but he has chosen to believe the pro-nuclear lobby.” After the Fukushima crisis, Koizumi said he had “studied the process, reality and history of the introduction of nuclear power, and became ashamed of myself for believing such lies”. [..] Koizumi, 74, has also thrown his support behind hundreds of US sailors and marines who claim they developed leukaemia and other serious health problems after being exposed to Fukushima radiation plumes while helping with relief operations

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Aug 302016
 
 August 30, 2016  Posted by at 8:19 am Finance Tagged with: , , , , , , , , , ,  


Wynand Stanley Ice-packed Buick motor stunt, San Francisco 1922

Banks Get Ready For ‘Economic Nuclear Winter’ (CNBC)
The “Devastating” Truth Behind America’s Record Household Net Worth (ZH)
We Have Passed The Peak Of The Bubble (Maloney)
Oil Discoveries at 70-Year Low (BBG)
House Price Gloom In Canada A Lesson For Australia (AFR)
Unemployed Italians Lead Europe in Abandoning Job Hunt (BBG)
Apple Facing Back Taxes Running Into Billions Over Ireland Deal (G.)
Life After Community Death: A Food Bank (G.)
Judge: Kim Dotcom Can Livestream Legal Fight Against The US (AP)
60% Of South Asia’s Groundwater Too Contaminated To Use (AFP)
China Regulator To Curb News That Promotes ‘Western Lifestyles’ (R.)
EU Seeks To Protect Greek Statistics Office From Its Own Government (BBG)
Greek GDP Contraction In First Half 2016 Was Worse Than Thought (Kath.)
Turkey Warns Refugee Deal To Collapse Unless EU Grants Visa-Free Travel (Kath.)
6,500 Migrants Rescued Off Libya Coast Overnight By Italian Coastguard (AFP)

 

 

Beautiful Brexit as the bubble burster.

Banks Get Ready For ‘Economic Nuclear Winter’ (CNBC)

The first half of 2016 has been a roller-coaster for financial markets. A combination of uncertainties surrounding the U.K.’s vote to leave the European Union and weaker-than-expected corporate earnings results across the region means a tough second half looms. European banks, in particular, have had a very tough six months as the shock and volatility around Brexit sent banking stocks south. Major European banks like Deutsche Bank and Credit Suisse saw their shares in free-fall after the referendum’s results were announced. In the U.K., RBS was the worst-hit, with its shares plunging by more than 30% since June 24. The current uncertainty over when the U.K. will start the process of quitting the EU has banks on tenterhooks. But a source told CNBC that banks are “preparing for an economic nuclear winter situation.”

Speaking on the condition of anonymity due to the sensitive nature of the topic, a source from a major investment bank told CNBC that financial services firms have put together a strategy in place that takes into account the worst-case scenario that could happen by the end of this year. “This could mean triggering Article 50, referendum in other European nations leading to a break-up of the euro or sterling hitting below $1.20 or lower. The banks are ready for anything now,” the source said. The source further explained that the challenge in 2016 is nothing compared to when the Lehman Brothers collapsed in 2008 and the banking sector is this time a lot more resilient. “Markets hate uncertainty and the events this year have unfortunately created a lot of mystery around what is going to happen next.”

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It’s all a bubble.

The “Devastating” Truth Behind America’s Record Household Net Worth (ZH)

Every quarter, as part of its Flows of Funds statement, the Fed releases a detailed breakdown of America’s assets and liabilities, of which the most interesting section is the one dealing with US household wealth and debt, and most importantly, their net worth. The last such release in June showed that as of March 31, total US household assets rose decidedly above $100 trillion, hitting an all time high $102.6 trillion, offset by $14.5 trillion in liabilities, resulting in $88.1 trillion in household net worth. It is worth noting that of this $100+ trillion in assets, 69% was in the form of financial assets (stocks, mutual funds, pensions, deposits, etc), and only $31.5 trillion was real, tangible assets including $26 trillion worth of real estate.

[..] as Pedro da Costa points out, when one looks beneath the surface, a “devastating” picture emerges: US inequality like no-one has seen it before. To help with this peek behind the scenes, we look at the latest, just released CBO report on Trends in Family Wealth, which shows that far from equitable, US wealth has never been so skewed. The picture in question:

Here are the CBO report’s summary findings: In 2013, aggregate family wealth in the United States was $67 trillion (or about four times the nation’s gross domestic product) and the median family (the one at the midpoint of the wealth distribution) held approximately $81,000, the Congressional Budget Office estimates. For this analysis, CBO calculated that measure of wealth as a family’s assets minus its debt. CBO measured wealth as marketable wealth, which consists of assets that are easily tradable and that have value even after the death of their owner. Those assets include home equity, other real estate (net of real estate loans), financial securities, bank deposits, defined contribution pension accounts, and business equity. Debt is nonmortgage debt, including credit card debt, auto loans, and student loans, for example.

But to get to the stunning punchline, one has to read The section on How Is the Nation’s Wealth Distributed? Here is the answer: In 2013, families in the top 10% of the wealth distribution held 76% of all family wealth, families in the 51st to the 90th percentiles held 23%, and those in the bottom half of the distribution held 1%. Average wealth was about $4 million for families in the top 10% of the wealth distribution, $316,000 for families in the 51st to 90th percentiles, and $36,000 for families in the 26th to 50th percentiles. On average, families at or below the 25th percentile were $13,000 in debt.

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“These people are just absolutely dangerous. They are going to drag the entire world economy down.”

We Have Passed The Peak Of The Bubble (Maloney)

What the central banks are doing has never worked and they keep on trying – you just hit that nail a little bit harder each time because it isn’t working. They have these theories and they think that the theory is correct that this – and no matter what the results are they say well, we just didn’t do enough of it. Japan has been trying this for 30 years now and it hasn’t worked. These people are just absolutely dangerous. They are going to drag the entire world economy down. You talked about the helicopter money that is now happening in Europe and so on. That is going to be coming to the United States soon. Coming to a Central Bank near you. It always has damaging results. They don’t look at this. It is a huge wealth transfer.

The immorality of an entity and everywhere I go I take a look at – when I would go speak in Singapore or Australia, New Zealand, Malaysia, Colombia, Peru doesn’t matter – Russia – everywhere I go I take a look, I go on the websites of the central bank for that country and I start gathering information. I haven’t found a central bank that is part of the government. They are all private. Here is a private entity that is allowed to create currency and now they are buying bonds from corporations? They can buy stocks. When they write a check and they buy something, currency is created and it enters circulation. A very large portion of it is Fanny Mae and Freddy Mac stuff. It is the mortgage backed securities. And so that means that they own real estate. This private corporation is able to counterfeit and purchase real estate legally. The morality of this is insane.

Keynesian economics isn’t even remotely plausible. But it’s what is taught all over the world. They don’t understand fundamental economics. This is the problem that we have: all economies on the planet are being run by economists that don’t understand economics. The purchasing power that is contained in currency is basically the agreement that we have as a society that we are all going to use that currency and we trust that currency and we store hours of our lives. We trade hours of our lives for currency. We work. That is the purchasing power. Then that currency measures the goods and services in a society. The true wealth.

They think that they can actually print wealth. When they print new units of currency, the only way it can get purchasing power is the moment that it is spent in the circulation – it has to steal it from somewhere else because it is empty when it comes into existence. There is no work that went into it. There are no hours of life traded for it. There is no product or service that it represents until it is spent in circulation and then it steals that purchasing power from all other units of currency. It is fraud. It is theft. They can’t actually stimulate an economy. All they can do is warp it. They can steal purchasing power from some areas of the economy and transfer it to another area of the economy pushing that area into a bubble. It is very, very disruptive.

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“EIA estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026. “ I do not.

Oil Discoveries at 70-Year Low (BBG)

Explorers in 2015 discovered only about a tenth as much oil as they have annually on average since 1960. This year, they’ll probably find even less, spurring new fears about their ability to meet future demand. With oil prices down by more than half since the price collapse two years ago, drillers have cut their exploration budgets to the bone. The result: Just 2.7 billion barrels of new supply was discovered in 2015, the smallest amount since 1947, according to figures from consulting firm Wood Mackenzie. This year, drillers found just 736 million barrels of conventional crude as of the end of last month. That’s a concern for the industry at a time when the U.S. EIA estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026.

While the U.S. shale boom could potentially make up the difference, prices locked in below $50 a barrel have undercut any substantial growth there. New discoveries from conventional drilling, meanwhile, are “at rock bottom,” said Nils-Henrik Bjurstroem at Oslo-based consultant Rystad Energy. “There will definitely be a strong impact on oil and gas supply, and especially oil.” Global inventories have been buoyed by full-throttle output from Russia and OPEC. They’ve flooded the world with oil despite depressed prices as they defend market share. But years of under-investment will be felt as soon as 2025, Bjurstroem said. Producers will replace little more than one in 20 of the barrels consumed this year, he said.

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We rapidly get used to seeing bubbles as new normal.

House Price Gloom In Canada A Lesson For Australia (AFR)

A commodity economy with record-breaking property prices, fuelled by ultra-low interest rates and Chinese buyers, raises taxes on foreign homebuyers. While the scenario is eerily similar to Australia, it is actually Canada and early signs are the property market is rapidly cooling. The unravelling could offer insight for Australians contemplating the state of the expensive local real estate market. A record one in five Canadians expect house prices to fall. The number of property price pessimists has nearly doubled since a 15% foreign buyer tax on Vancouver homes took effect on August 2. In the first two weeks since the tax came into effect, home sales fell 51% in the metropolitan area, the Real Estate Board of Greater Vancouver said.

Nanos Research chairman Nik Nanos told The Australian Financial Review that real estate was the “canary in the mine” for the Canadian economy and the foreign acquirer tax has had an immediate “chill” effect on confidence. “If we see a significant slide in confidence in real estate there will be an immediate negative knock-on effect on the Canadian economy because right now there is no energy [oil] economy to fall back on,” he said. The price of Canada’s biggest export, oil, has crashed over the past two years, much like iron ore and coal prices in Australia. Like Sydney and Melbourne, real estate prices in Canada’s most-liveable cities have surged in recent years.

A combination of low borrowing costs, strong demand, limited housing supply because of red tape and, anecdotally, foreign buyers mainly from China seeking to park their money in perceived safe havens offshore, pushed up values. Vancouver house prices soared 30% in the year ended May 31, and prices shot up 15% in Canada’s biggest city of Toronto. The median price for detached houses in Vancouver jumped to $C1.6 million.

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And you think this Union can stay together?

Unemployed Italians Lead Europe in Abandoning Job Hunt (BBG)

Going from the final quarter of 2015 through March of this year, 37% of unemployed Italians gave up their job search, while only 13% landed new work and a full half found their status unchanged. On the opposite end of the scale, very few Greeks – just 1% – gave up their job hunt while only 4% found new employment in the economically hard-pressed nation.

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Deductible from its US taxes.

Apple Facing Back Taxes Running Into Billions Over Ireland Deal (G.)

Apple could face back taxes running into billions with the European commission expected to rule against the company on Tuesday over its arrangements with the Irish government. A ruling by Margrethe Vestager, the European competition commissioner, could make Apple liable for billions of euros. Irish officials expect the commission to declare the arrangements unlawful under state aid rules. A decision against Apple and Ireland after a two-year investigation would rebuff US efforts to persuade the commission to drop its interest amid warnings about retaliation from Washington. The commission has been investigating whether Apple’s tax deals with Ireland, which have allowed the company to pay very little tax on income earned throughout Europe, amounted to state aid.

The commission opened a formal inquiry in September 2014 after publishing preliminary findings suggesting deals between Apple and Ireland in 1991 and 2007 involved state aid that was incompatible with the EU’s internal market. Apple and Ireland have denied repeatedly that they have a special deal. Tim Cook, Apple’s chief executive, has called the investigation “political crap” and said his company and Ireland would appeal against a ruling that Apple received state aid. The investment bank JP Morgan has warned that if the commission requires Apple to retroactively pay the Irish corporate tax rate of 12.5% on the pre-tax profits it collected via Ireland it could cost the company as much as $19bn.

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Of course I can’t read a story like this about a food bank in Britain without thinking about the project you and I are supporting in Greece -all over Greece. Where conditions are much worse still. I hope the Brits who read this realize that.

Life After Community Death: A Food Bank (G.)

I never expected to leave a food bank feeling optimistic. To visit a kitchen serving hundreds of free summer-holiday meals to kids who might otherwise go hungry – and come away pondering the lessons Westminster, and especially Jeremy Corbyn’s Labour party, should learn. But then, until last week, I hadn’t met the two women who run the Neo cafe. To understand what an achievement Neo is, you have to see what it’s up against. There’s the area, for a start: Birkenhead, now practically a byword for social deprivation. In parts of this town the life expectancy for baby boys is lower than in North Korea. Since the Brexit vote there’s been a boom in hand-waving commentary on “left-behind” Britain.

The columnists and studio guests should come here for a day, and see what their talking points look like as lived experience. Industrial decline? The once great shipbuilder Cammell Laird still clings on, but many of the other big employers have been wiped out. Insecure work? The usual features of an exploitative jobs market are all present, from zero-hours contracts and temp agencies to, most of all, low wages. And of course austerity, from benefit sanctions to multimillion pound cuts at Wirral council. Impose such conditions on a family and you create misery. Push them across an entire community and you get breakdown.

Widespread economic insecurity produces social instability. Relationships fail. Colin, a twentysomething on temp work, describes how his partner had to move out because “I couldn’t make my pay packet feed two”. Stop-start work makes planning budgets hard enough – it makes planning families impossible. Neighbours move in then move out, so you never know who’s living next door – and you’d all rather leave. One grandmother, Wendy, remembers how she cried on being offered a council house in Rock Ferry, the patch of town that’s home to Neo. Then Anne and Trish chip in with other problems: druggies and no-go areas, so that a kid from this estate can’t go to that one. Here, the horizons have shrunk so far that the neighbourhood can seem like a trap.

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Good. Let’s hear it.

Judge: Kim Dotcom Can Livestream Legal Fight Against The US (AP)

Internet entrepreneur Kim Dotcom will be allowed to livestream his legal bid to halt his extradition to the United States, a New Zealand judge ruled Tuesday. Dotcom and three of his colleagues are appealing a December lower-court decision which allows them to be extradited to the U.S. to face conspiracy, racketeering and money-laundering charges. If found guilty, they could face decades in jail. Dotcom’s lawyer Ira Rothken told AP he was pleased with the decision. “It provides everybody in the world with a seat in the gallery of the New Zealand courtroom,” Rothken said. “It’s democracy at its finest.” Rothken said the livestreaming would begin Wednesday on YouTube. He said there would be a 20-minute delay to prevent any evidence that was protected by the court from becoming public. The appeal is expected to last six weeks.

Justice Murray Gilbert, the New Zealand judge hearing the appeal, had asked other media about Dotcom’s request and didn’t receive any objections. Rothken said the U.S. had opposed the plan on the basis it could taint a potential jury pool and could cede court control over evidence. December’s lower-court ruling came nearly four years after the U.S. shut down Dotcom’s file-sharing site Megaupload, which prosecutors say was widely used by people to illegally download songs, television shows and movies. Megaupload was once one of the internet’s most popular sites. Prosecutors say it raked in at least $175 million and cost copyright holders more than $500 million. But Dotcom and colleagues Mathias Ortmann, Bram van der Kolk and Finn Batato argue they can’t be held responsible for people who chose to use the site for illegal purposes.

Rothken said the lower-court judge made an error of law in his ruling, and that broad safe-harbor provisions protect internet service providers from the types of charges his clients face.

Read more …

750 million people. Add China’s polluted water, and you get well over a billion.

60% Of South Asia’s Groundwater Too Contaminated To Use (AFP)

60% of the groundwater in a river basin supporting more than 750 million people in Pakistan, India, Nepal and Bangladesh is not drinkable or usable for irrigation, researchers have said. The biggest threat to groundwater in the Indo-Gangetic Basin, named after the Indus and Ganges rivers, is not depletion but contamination, they reported in the journal Nature Geoscience. “The two main concerns are salinity and arsenic,” the authors of the study wrote. Up to a depth of 200m (650ft), some 23% of the groundwater stored in the basin is too salty, and about 37% “is affected by arsenic at toxic concentrations”, they said.

The Indo-Gangetic basin accounts for about a quarter of the global extraction of groundwater – freshwater which is stored underground in crevices and spaces in soil or rock, fed by rivers and rainfall. Fifteen to twenty million wells extract water from the basin every year amid growing concerns about depletion. The new study – based on local records of groundwater levels and quality from 2000 to 2012 – found that the water table was in fact stable or rising across about 70% of the aquifer. It was found to be falling in the other 30%, mainly near highly populated areas.

Read more …

Xi trying to assert power he doesn’t have.

China Regulator To Curb News That Promotes ‘Western Lifestyles’ (R.)

China will crack down on social and entertainment news that promotes improper values and “Western lifestyles”, the country’s broadcasting regulator said, the latest effort at censorship in an already strictly regulated media environment. President Xi Jinping has embarked on an unprecedented drive to censor media that do not reflect the views of Communist Party leaders. Authorities have already issued rules limiting “foreign-inspired” television shows and put tougher penalties on the spread of rumors via social media. Social and entertainment news must be dominated by mainstream ideologies and “positive energy”, the official Xinhua news agency said late on Monday, citing the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT).

News content should not make improper jokes, defile classics, or “express overt admiration for Western lifestyles”, the regulator said in a circular, according to Xinhua. “They should also avoid putting stars, billionaires or Internet celebrities on pedestals”, and not advocate overnight fame or hype family disputes, Xinhua said. China’s legislature this week is also reviewing a draft law that would require film industry workers to maintain excellent “moral integrity”, after recent cases in which celebrities had been arrested for drug offences and prostitution, Xinhua said in a separate report. Xi has been explicit that media must follow the party line, uphold the correct guidance on public opinion and promote “positive propaganda”. The term “positive energy” is a catch phrase that has been favored by China’s propaganda and internet authorities under Xi, referring to content that is morally uplifting and patriotic.

Read more …

A curious case of Brussels intervention. There’s nary a soul in Greece who doubts that Georgiou greatly exaggerated the Greek budget deficit in 2009 in order to make an EU bailout inevitable. Now the EU wants to label Greece’s scrutiny of this as “political interference in administrative matters”. But matters such as these can be investigated in simple ways: an objective look at the numbers. That’s not politics, but accounting. Thing is, if Georgiou did this, it was in collusion with the EU.

EU Seeks To Protect Greek Statistics Office From Its Own Government (BBG)

Greece’s finance chief said the next international aid payout to the country may be delayed as the European Union stepped up warnings about domestic political meddling in the Greek state. Finance Minister Euclid Tsakalotos raised the possibility of the government in Athens failing to qualify on time for a €2.8 billion disbursement due in September from the euro area. That’s what remains of a €10.3 billion tranche that finance ministers approved in principle three months ago. “If there is a delay, it’ll be days not weeks,” Tsakalotos told Bloomberg News in Brussels on Monday before a meeting with EU Economic Affairs Commissioner Pierre Moscovici. “Part of the reason for the meeting is to discuss the process to ensure there aren’t delays.”

Slipping timetables have been a regular feature of loan payouts to Greece since it first turned to the euro area and the IMF for a rescue in 2010. Now in it’s third bailout, the country faces continued creditor warnings about backsliding on overhauls that are a condition for aid. The European Commission sent the latest salvo to Athens, saying on Monday that criticism of the former head of Greece’s statistical agency by allies of Prime Minister Alexis Tsipras risks undermining the credibility of Greek fiscal data. The commission, the EU’s executive arm, said the Greek government must push ahead under its aid program with commitments to curb political interference in administrative matters.

“The commission has long urged the implementation of the pillar of the program related to the modernization of the Greek state and public administration,” Margaritis Schinas, chief spokesman at the 28-nation body, told reporters in Brussels. “This also includes the need to depoliticize the Greek administration.” The political controversy centers on Andreas Georgiou, who faces felony charges in Greece for reporting a 2009 budget deficit that was more than five times the EU limit and that unleashed the euro-area debt crisis. The EU has vouched for data submitted by the Hellenic Statistical Authority under Georgiou from 2010 to 2015 and validated by EU statistics office Eurostat.

Greek Minister of State Nikos Pappas, Tsipras’s closest aide, asked publicly in early August whether Georgiou inflated the spending gap to force the country into a rescue. Avgi, a newspaper affiliated with Tsipras’s anti-austerity Syriza party, labeled Georgiou an “executioner” in an Aug. 4 editorial.

Read more …

And the Troika ensures it can only go downhill from here.

Greek GDP Contraction In First Half 2016 Was Worse Than Thought (Kath.)

The contraction of the Greek economy in the first half of the year has turned out to be greater than originally estimated. The revised data released on Monday by the Hellenic Statistical Authority (ELSTAT) recorded a bigger drop in GDP on an annual basis, which will make it even more difficult for the government to meet the fiscal targets set for this year. Using previously unavailable data, ELSTAT has now calculated that first quarter GDP declined by 1% and not 0.8% year-on-year, while in the April-June period it fell by 0.9% and not 0.7% as originally thought.

That was the fourth consecutive quarter with a GDP contraction. Consumer spending fell 1.9% in the second quarter on an annual basis, exports of goods and services contracted 11.4% (with goods increasing 2.98% and exports dropping 26.5%), while imports declined 7.1%. Gross capital investments posted a 7% increase. On a quarterly basis, consumer expenditure dropped 0.2% from the first quarter, investment rose 1%, exports fell 1% and imports shrank 0.4%, ELSTAT data showed.

Read more …

Any attempt at granting visa-free travel now would break up the EU.

Turkey Warns Refugee Deal To Collapse Unless EU Grants Visa-Free Travel (Kath.)

In an interview with Kathimerini published on Tuesday, Turkish Foreign Minister Mevlut Cavusoglu has warned the EU that if it doesn’t grant Turkish citizens via-free travel to Europe by October “at the latest,” then Ankara will not continue implementing a deal struck in March with Brussels to stem the flow of migrants to Europe. “Despite the fact that irregular migration in the Aegean is now under control, we do not see the EU keen on delivering its promises,” he said, insisting that Turkey cannot continue on its own to stop irregular migration toward the EU while the latter does not assume its obligations. “We expect visa liberalization for Turkish citizens at the latest in October 2016,” said Cavusoglu, who was on an unofficial visit to Crete yesterday and held talks with his Greek counterpart Nikos Kotzias, stressing the potential to further develop Greek-Turkish relations.

Visa liberalization was one of the conditions set by Turkey to sign up to the agreement, which was criticized by human rights groups, to stop the influx of migrant arrivals to Europe which reached more than a million last year. “We did our share in this cooperation… We have prevented new loss of lives and crushed migrant smuggling rings.” The EU missed a deadline late June for the granting of visa-free travel for Turks, saying it had not met all 72 pre-conditions set by Brussels to grant visa-fee travel. The EU also demanded Ankara review its anti-terrorism law. Ankara refused, saying it is critical in its fight against Islamic State and Kurdish militants.

Read more …

Numbers are rising again. This will stop only when we stop bombing and squeezing these people.

6,500 Migrants Rescued Off Libya Coast Overnight By Italian Coastguard (AFP)

Around 6,500 migrants were rescued off the coast of Libya, the Italian coastguard said, in one of its busiest days of life-saving in recent years. Dramatic images of one operation showed about 700 migrants crammed onto a fishing boat, with some of them jumping off the vessel in life jackets and swimming towards rescuers. A five-day-old baby was among those rescued along with other infants and was airlifted to an Italian hospital, according to Doctors Without Borders (MSF), which took part in operations.

“The command centre coordinated 40 rescue operations” that included vessels from Italy, humanitarian organisations as well as the EU’s border agency Frontex, saving 6,500 migrants, the coastguard wrote on Twitter. “We’ve been particularly busy today,” a spokesman for the Italian coastguard told AFP. On Sunday more than 1,100 migrants were rescued in the same area. The total number of arrivals in Italy this year now stands at 112,500, according to the UN’s refugee agency and the coastguard, slightly below the 116,000 recorded by the same point in 2015.

Read more …

Nov 202014
 
 November 20, 2014  Posted by at 10:10 pm Finance Tagged with: , , , , , , ,  


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

It’s funny how things roll at times. When I wrote yesterday’s Making Money While The World Burns, and quoted Hugh Hendry, one of my heroes – well, close, he’s not Ali, but I love the man for his brain -, I hesitated, but thought his words were a great way to start a discussion on what people do when faced with certain conundrums. I certainly never meant to attack Hugh, though words can always be construed to mean things they were not meant to mean.

David Stockman picked up the essay (Jim Kunstler told me to use that word) and retitled it Making Money While The World Burns – The Troubling Case Of Hugh Hendry. Bless David for all the great work he does, and I would never even suggest he shouldn’t add that bit, that’s entirely his prerogative, but I myself would never call Hugh Hendry a ‘troubling case’.

I merely wanted to get a discussion going, and maybe to get people thinking about what they choose and why. Not to judge anyone, who am I to do that, but to get people to ask why they act the way they do, and what it is that makes them tick.

If I would want to judge anyone, it would be the politicians and central bankers who pretend they serve the public and then turn on a dime and screw that same public. Hugh Hendry doesn’t pretend to be anything he’s not. However, I can still ask questions about why he chooses to do what he does, and use that as a mirror, for lack of a better term, to gauge where I stand, what I think, and put that out there for my readers.

But I’m not Hugh Hendry, I’m not a hedge-fund manager, and I don’t morally judge people or tell them what to do and what not. That would be like starting a religion, separating right from wrong for other people, and I have no design on that. I’ll admit I thought about that religion thing in the past, but that was because it seemed the greatest way to get girls, not because I want to tell anyone what to think or do. As things went, I started a band, and that worked just fine, thank you very much.

Short story long, Zero Hedge’s Tyler Durden today posted a video and text excerpts of Hugh explaining his mindset, and included snippets of my ‘essay’, saying “Raúl Ilargi Meijer has a different perspective on Hendry’s change of tack”. And I don’t even know that I do. I’m just less focused on the short term, and the potential financial profits involved, than Hugh is. As I said yesterday, I think about the 50% increase in homeless kids in the States and the 50%+ jobless rates in southern Europe, and wonder if that justifies the drive for monetary profits.

But that’s just me. And I find it curious enough that that moral divide is never being breached in all the stuff I read every single day. It seems so obvious to ask that question. But that’s not the same as saying I judge Hugh Hendry, or anyone else, for not bringing it up, let alone living up to any conclusions I draw from it for myself. If there’s anything we need around here, it’s independent minds and neurons, not identical replicas.

So, Hugh talks about how he was a ‘bear’ and saw the error of his ways and is now a bull. But that’s just in as far as his ‘duties’ towards his hedge-fund clients are concerned. It doesn’t say anything about his longer term expectations. Which, I venture, have not changed, but merely been relocated to more remote locations of his – pretty brilliant – mind. And the gist of my question is, I guess, how other people process that short vs longer term divergence, if they are smart enough to see what Hugh does.

What Hugh Hendry implies that he got ‘wrong’ is that a few years ago, he saw, and understood, what was happening, and acted on it. And it’s not that he misunderstood, but that his acting on it did not garner the short-term profits he claims he’s tasked with making – as a fund manager -.

Because the financial system – as Hugh knows – may be screwed three ways to Sunday, but central banks have prevented it from showing its – fatal – injuries, by dressing it in layer upon layer of gauge and band-aids made of and paid for by the real economy’s present and – especially – future wealth and labor.

In the end that means you’re making money off of other people’s misery, be it in the present or the future. And that is a stark choice. In my view. If an economy stops growing, the only profit opportunities left involve taking something away from someone. Obviously, there’s tons of people who’ll swear our economy is still growing, but they’ll find neither yours truly nor Hugh Hendry in their camp.

Here’s Tyler Durden’s piece, with Hugh Hendry video and partial transcript:

Hugh Hendry Live 1: “It Felt Like The Sun Only Rose To Humiliate Me”

In the first of three interviews with MoneyWeek’s Merryn Somerset Webb, Hugh Hendry, manager of the Eclectica Fund, talks about what it takes to be a good hedge fund manager – and how he learned to stop worrying and love central banks. Key excerpts (click link above for full transcript):

MSW: What makes a successful hedge-fund manager and whether you are, under that definition, a successful manager.

Hendry: I think I’ve always answered that question by relating back to the ability to conceive of a contentious posture. I think if I was to quote from Fight Club, I think there’s a famous saying “Would you rather…” my children would say ,“Would you rather upset God or have God just ignore you?” There’s a degree to which being a successful macro-manager is upsetting, not only God, but to the rest of the world, if you will. By being out there with the articulation of qualitatively intelligent argument, which just isn’t shared by the majority. But which can stand the test of time and come to actually define the future. That is what global macro is all about.

With regard to language the notion of ‘bullish’ and ‘bearish’, I think, does an injustice to the complexity of the arguments that are necessary to construct a global macro hedge fund. I think if I had my time again, I would have been saying that we’re actually, perhaps, guilty of the misconstruing of a bull market in equities, for what is actually the ongoing degradation in the soundness of the fiat monetary system. I think that’s what I was trying to say.

MSW: You had given in to a bull market that you had refused to accept previously.

Hendry: The last time I was really angry was late 2010-2011. Where the market, in its wisdom, had yet to configure the changing economic landscape, and it was perceiving that the economy in Europe and elsewhere was recovering. I thought that was just insane, that we weren’t capturing the kind of deflationary zeitgeist that was approaching. I have to say when I look back in the last three years it feels as if the sun only rose each day to humiliate me after that point.[..]

But the mea culpa, that I think is very necessary in that I found myself unable to forgive the Federal Reserve and the other central banks for, if you will, bailing out Wall Street from the excess of 2008. I just couldn’t get over it. I luxuriated in the polemics of Marc Faber and James Grant and Nassim Taleb, in our own country, Albert Edwards, et al. I luxuriated as they ranted and it was fine for them to rant. But I am charged with the responsibility of making money and not being some moral guardian and certainly not a moral curmudgeon. I had to get over that. So again, back to my infamous letter of last year.

That was cathartic for me to say “You know what? I get it.” I think if we’re going to try and explain the qualitative arguments behind why we are more receptive to the notion of not only left tails where markets can fall, but the right-hand tail of the expression, where markets can actually continue to rise if not to accelerate. [..] So I really feel very, very isolated from their view of the world. Arguably, we’re talking about the here and now and the future’s a long time. But in the future, I’m sure our paths can converge once more.

MSW: Why do you think that [macro funds] as whole is failing to make money? What’s going on there?

Hendry: I can reflect on my own difficulties, if you will. What I’ve found is that macro is distinguished, I believe, by superior risk control. It’s almost analogous to a disaster insurance programme. In 2008, all the good macro managers, they made you money. That’s what you pay them for. The world became profoundly unsettling and you cashed in your insurance policy. Today, I question the relevancy of that disaster insurance. In a world where the central banks seem to have your back, seem to be underwriting risks and global asset prices, do you require that intense scrutiny of risk?

MSW: So your basic point here is that if the central banks have your back, there’s no need to have the same kind of risk controls that you used to have.

Hendry: There is less need. Less need. I tell you, I was at a conference with some of the great and the good global macro managers in September in New York and I asked them all the question, “If the S&P is down 12% what do you do? Are you selling more or are you buying?” Guess what? They’re all buying. So the central banks have created a behavioural tic which is becoming self-reinforcing and I believe we saw another manifestation of that behaviour in October.

But Raúl Ilargi Meijer has a different perspective on Hendry’s change of tack…

Hendry, I think, is as bearish (or negative) about the – future of the – world as he has been for a long time, only he’s decided to see things from his fund manager point of view, and to ride the crest of the waves the central banks have tsunamied towards our shores. He’s chosen to make a buck off of them waves, even as he’s aware of the damage they’ll will do once they hit land. In the exact same way as a surfer who sees a tsunami as merely a set of great waves to ride on. And, no value judgment involved, but that’s not what I see.

He sees the world going to hell in a handbasket (and Hendry recognizes that very much, that’s not why he shifted gears from bear to bull) and his response is to grab as much money and wealth as he can (for his investors … ). [..]

Hugh Hendry sees the world in an extremely bearish way, he sees hell, the handbasket, brimstone and far worse. But he wants to profit – in name of his investors (?!) – from the very mechanism that drives the world there: the power central banks and governments have been allotted, and the way they use it to protect the interests of investors, banks, insurance companies and uber rich individuals, all at the expense of booting the 90% who make up the real world and the real economy, ever deeper into the mud.

Seeking to profit from that is a choice. Hendry makes it, and so do many others, even many inside the 90%. Who mistakenly dream they’ll be able to hold on to those profits (they’ll wake up yet, and wish they had before). The whole idea of scraping out what you can before the tsunami hits is not my thing.

I don’t think Hugh Hendry and I see the world through hugely different eyes at all. It’s just that since I don’t have uber rich clients I tell myself I need to make even richer, I have the liberty to wonder what Hendry’s choices mean for the bottom layers of society. And yes, I also think that societies cease to function if the poor get too poor. Not very Hobbesian or Darwinian, am I?

By all means, let’s keep the conversation going, and let everyone decide for him-her-self where (s)he stands. Hugh Hendry thinks in money terms, and I tend to feel that’s a waste of a brilliant mind. But that’s not a judgment. It’s merely a question. And a pretty well defined one at that: Is a brilliant mind better engaged making money for the rich or trying to alleviate the sorrows of the poor? I can’t answer that for you.

Nov 192014
 
 November 19, 2014  Posted by at 11:07 pm Finance Tagged with: , , , , ,  


DPC Launch of battleship Georgia, Bath, Maine, Oct 1904

I was reading this letter to his fund investors by Hugh Hendry, a very intelligent and probably slightly autistic fund manager I’ve liked a lot forever and a day and have written about quite a bit in the past, and it got me thinking about how and why I see the world different from the way he does, and wondering how you see that difference.

Hugh was for years known as a true bear, and then he turned around, changed his views and turned bull, only at the same time he did not. If that makes any sense. I’ll take you through the letter as posted by Tyler Durdenand try to explain what struck me in it. It’s much easier and safer not to write things like this, but I think there are things you must explore, like how do you react when realize your world is falling to bits.

Hendry, I think, is as bearish (or negative) about the – future of – world as he has been for a long time, only he’s decided to see things from his fund manager point of view, and to ride the crest of the waves the central banks have tsunamied towards our shores. He’s chosen to make a buck off of them waves, even as he’s aware of the damage they’ll will do once they hit land. In the exact same way as a surfer who sees a tsunami as merely a set of great waves to ride on. And, no value judgment involved, but that’s not what I see.

He sees the world going to hell in a handbasket (and Hendry recognizes that very much, that’s not why he shifted gears from bear to bull) and his response is to grab as much money and wealth as he can (for his investors … ). My response is different: I don’t see filling my personal coffers as a priority when I see the numbers of homeless children in the States shoot up, or the over 50% of youth without a job or a future in southern Europe for many years running, or all the other stuff that goes awfully wrong all around here behind the ‘recovery’ veil, stuff that Hendry is acutely aware of.

I simply think other people’s misery, especially when it comes in droves, is a bigger threat to my existence, my lifestyle, my society, my community, and certainly my peace of mind than having a few bucks more or less. We’re not in some market cycle move here, we’re in something much bigger. And Hugh Hendry knows that too. I don’t believe in ‘we have a world to save’, I think that’s beyond our means, but I do see a responsibility towards smaller units, a town, a society, perhaps even a country, simply for our own sakes and that of our children.

And I think viewing today’s world primarily through a fund manager’s eyes, especially if you have the brains to see more and wider and bigger, is poor and bleak. And if you’re Hugh Hendry, you don’t need the money to keep yourself from starving. It becomes more like Bill Gross who at an age when most men have long retired, moves from Pimco to some other fund to make even more money. It turns into the kind of poverty that money can not hide. Here’s Hendry:

My premise hasn’t really changed since I published my paper explaining why I had become more constructive towards risk assets this time last year. That is to say, the structural deficiency of global demand continues to radicalise the central banking community. I believe they are terrified: the system is so leveraged and vulnerable to potentially systemic price reversals that the monetary authorities find themselves beholden to long only investors and obliged to support asset prices.

However, I clearly confused everyone with my choice of language. What I should have said is that investors are perhaps misconstruing rising equity prices as a traditional bull market spurred on by revenue and earnings growth, and becoming fearful of a reversal, when instead the persistent upwards drift in stock markets is more a reflection of the steady erosion of the soundness of the global monetary system and therefore the rise in stock prices is something that is likely to prevail for some time. There is more to it of course, as I will attempt to explain, but not much.

[..] the world’s monetary authorities are targeting higher risk asset prices as a policy response to restoke economic demand. Whether you agree with such a policy is irrelevant. You need to own stocks. And yet, remarkably, the most contentious thing you can say in the macro world today is “I’m bullish”.

In a world dominated by the existentialist angst of identifying and trading qualitative value, there is profound mistrust of equity values today; macro investors see prices as overvalued and few are willing to capitalise on the opportunities to make money.

This angst and fear of big drawdowns in risky assets in part reflects astonishment that policy makers were able to rescue investors from the folly of their misallocations in the years preceding 2008 and that stocks have massively outperformed the modest rise in global nominal GDP. I should know. I, like others, became a moraliser who just couldn’t forgive the Fed for bailing out Wall Street.[..] I became a moral curmudgeon rather than a money maker.

As you know, I have sought to overcome this deficiency. However my risk controls, or rather my procedures for dealing with big monthly losses, seemed to anchor me to the bearish camp (against my better wishes). [..] since the end of last year I have been a bull that had to sell for lower prices. No wonder I couldn’t make you money. But perhaps you don’t need such reactive stop loss policies when the world’s central banking community is intent on protecting you; [..]

Japan was down 16% from its highs earlier this year. I was particularly long Japanese equities at the start of the year and so at some point, fearing greater losses, I swallowed my pride and booked a loss. However, the ongoing policy intentions of the BoJ meant that the stock market clawed back all of its losses. Why did I sell?

European stocks fell almost the same over the summer but again the ECB upped its ante, pushed short term rates negative, tolerated a weaker currency and promised to re-stock its balance sheet with more local risk asset purchases. Lo and behold, European stock prices recovered sharply in August and early September. So why did I reduce my holdings?

October is simply another example. US stocks fell over 10%. I don’t really know why. Was it the threat of the end of QE or a global pandemic or more misgivings as to the state of affairs in Greece and Europe’s enduringly weak economy? It doesn’t really matter. […]

So why all this enthusiasm for upside equity risk? [..] The FX market tends to take the US Supreme Court view. Overruling an obscenity charge for showing a salacious French movie in Ohio in 1964, Justice Potter Stewart wrote that the Constitution protected all obscenity except hard core pornography. Unwilling to define the latter, the judge maintained that he would know it when he saw it. [..]

Which is a rather long preamble to describe what I believe is a very analogous central banking intervention in today’s financial markets. It would take just too long for the Fed, ECB or the BoJ to rely on a return of animal spirits in the real economy to lift their flagging economies. They need the remedy of fast moving risk asset prices. By using QE to promote more risk taking, asset values in the US have risen faster than fundamentals and, with better perceived collateral and more confidence, the demand for risk taking in the real economy has recovered somewhat. At a lag, the theory runs, so will the rate of expected inflation.

So I think we find ourselves especially in Europe (and Japan) with a situation whereby the central bank has to use all of its powers to engineer higher stock and bond prices. And I think the precarious nature of France and the election timetable in 2017 means that they need higher European stock and bond prices NOW or there will be no economic recovery, budget deficits will continue to overshoot 3% and the Euro area will get trapped in the poisonous and perpetual cycle of having to demand more and more unpopular austerity measures. This is high stakes: boost European stock prices or risk losing France and the euro. To my mind the message is simple: don’t short French bonds, buy European stocks and short the euro.

Hugh Hendry sees the world in an extremely bearish way, he sees hell, the handbasket, brimstone and far worse. But he wants to profit – in name of his investors (?!) – from the very mechanism that drives the world there: the power central banks and governments have been allotted, and the way they use it to protect the interests of investors, banks, insurance companies and uber rich individuals, all at the expense of booting the 90% who make up the real world and the real economy, ever deeper into the mud.

Seeking to profit from that is a choice. Hendry makes it, and so do many others, even many inside the 90%. Who mistakenly dream they’ll be able to hold on to those profits (they’ll wake up yet, and wish they had before). The whole idea of scraping out what you can before the tsunami hits is not my thing.

Hugh Hendry recognizes, as many other people do, that there would be no viable markets left if central banks wouldn’t have kept them standing up for years now and made us all pay. But he, and many like him, still think that the best thing to do in that situation is to grab what you can before it’s over. I think that is worth asking a question or two about.

Of course it all depends on how bad you think it will get. Well, Hendry has an idea, just look him up on YouTube, and I have an idea, and so do lots of others. None of us can be sure what the use of a few bucks more or less will be when things get as bad as we think they will get. But there’s no certainty anywhere in sight. And for me, that means what’s more important, and what is certain, are things like this Simon Black graph, that makes me wonder what on earth we’re doing around here:

You see what’s happening to these kids and your answer is let’s make as much money as we can? That’s how we think? I’m sure a lot of people, rich or poor, have pondered how to get more self-sufficient, and a few have taken great strides towards that too. But I’m also sure the successful ones in that regard would all agree that money in the end had very little to do with it.

So do or don’t we have anything better to do with ourselves than make money while the world burns? And do we think the money we might make will have much value once the fire spreads? If the ‘world of money’ is in as bad a shape as Hugh Hendry says it is, and can only be maintained by ever more desperate machinations by central banks, until it evidently can’t? There doesn’t seem to be a clear answer, to put it mildly.

Is making and hoarding as much money as you can the best answer to a collapsing financial system which may or may not leave much value in that money? Same for gold, silver et al, though many people see just that as the big answer.

In the end, the issue may be whether amassing material wealth is the right answer to the demise of a system based on material wealth. A suggestion is that perhaps growing your own food and learning how to make the things you need, yourself, is a better answer. Just because you have money, or gold, doesn’t mean you can buy things with it. Don’t mistake money and self-sufficiency.

And that’s what Hugh Hendry’s shift from bear to bull, but not really because he knows where it’s going, made me think of. Now it’s your turn.