Oct 172017
 
 October 17, 2017  Posted by at 8:40 am Finance Tagged with: , , , , , , , , ,  4 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Rembrandt An Old Scholar Near a Window in a Vaulted Room 1631

 

Asset Prices & Monetary Policy in an Irrational World (Whalen)
Central Banks Will Cause An Orgy of Blood (Clarmond)
Global Central Banking Leadership Flux Looms (R.)
Kobe Steel Faked Quality Data For Decades (Nikkei)
China’s Impact on Global Markets is About to Get Much Bigger (BBG)
China’s Banks Are Bingeing on Bonds Despite Debt Crackdown (BBG)
China Has Only Taken Baby Steps to Cut Leverage (BBG)
Investigations of Wall Street Have Disappeared from Corporate Media (Martens)
MIT Economist Andrew Lo Wants You To Realize That Traders Are Animals (BW)
Varoufakis Tells Macron To Adopt The ‘Empty-chair’ Tactic (EuA)
The Kurds Have No Friends But The Mountains (David Graeber)
Malta Car Bomb Kills Panama Papers Journalist (G.)
IMF Chief Calls For Implementation Of Greek Program, Debt Relief (K.)
2,000 Refugees, Migrants Landed in Greece Since October 1 (GR)

 

 

“.. the logical and unavoidable result of the end of QE is that asset prices must fall and excessive debt must be reduced.”

Asset Prices & Monetary Policy in an Irrational World (Whalen)

[..] Let’s wind the clock back two decades to December 1996. The Labor Department had just reported a “blowout” jobs report. Then-Federal Reserve chairman Alan Greenspan had just completed a decade in office. He made a now famous speech at American Enterprise Institute wherein Greenspan asked if “irrational exuberance” had begun to play a role in the increase of certain asset prices. He said:

“Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.”

In the wake of the 2008 financial crisis, the FOMC abandoned its focus on the productive sector and essentially substituted exuberant monetary policy for the irrational behavior of investors in the roaring 2000s. In place of banks and other intermediaries pushing up assets prices, we instead have seen almost a decade of “quantitative easing” by the FOMC doing much the same thing. And all of this in the name of boosting the real economy?

The Federal Reserve System, joined by the Bank of Japan and the ECB, artificially increased assets prices in a coordinated effort not to promote growth, but avoid debt deflation. Unfortunately, without an increase in income to match the artificial rise in assets prices, the logical and unavoidable result of the end of QE is that asset prices must fall and excessive debt must be reduced. Stocks, commercial real estate and many other asset classes have been vastly inflated by the actions of global central banks. Assuming that these central bankers actually understand the implications of their actions, which are nicely summarized by Greenspan’s remarks some 20 years ago, then the obvious conclusion is that there is no way to “normalize” monetary policy without seeing a significant, secular decline in asset prices. The image below illustrates the most recent meeting of the FOMC.

Read more …

Great piece of history.

Central Banks Will Cause An Orgy of Blood (Clarmond)

The Bank of Japan’s current path provides an ominous reminder of a similar era 80 years ago. These policies, which are also being followed by the other world central banks, will lead to disaster. “One man – one kill” railed Inoue Nissho, leader of the Ketsumeidan (the Blood Pledge Corps), a Japanese ultranationalist group of the 1930s committed to cleansing the country of ‘traitors’ – the leaders of business and government. The first name on their death list was Inoue Junnosuke, a former Finance Minister, an austerity advocate and former governor of the Bank of Japan (BOJ); he was shot as he visited a nursery school. The next name was Dan Takuma, head of the Mitsui Group, the Japanese Goldman Sachs; he was shot in front of his office in the fashionable Nihonbashi district.

Further attacks on the BOJ and Mitsubishi Bank followed but were unsuccessful. The “world of cosmopolitan finance had collided with nationalist resentment.” The liberal elite was stunned, unable to provide answers to the social turmoil of the time; and with the establishment paralysed, the public began to sympathise with the killers’ aims. Enter Finance Minister Takahashi Korekiyo. He placated the nationalists by championing massive deficit financing, via the BOJ, to pull Japan out of its economic morass. Japan’s economy soon embarked on a period of economic growth with stable prices, full employment and humming factories, an “economic nirvana.” Seven decades later these results were heralded a success by another central banker trying a similar trick – Ben Bernanke. Korekiyo’s plan was to fund government spending by having the BOJ directly purchase all the government-issued bonds.

The hope was that, when conditions and inflation improved, the bonds would be sold back into the market. Four years later, the BOJ’s balance sheet was 90% of GDP, and the economy (and for “economy” read military) was totally dependent on government spending financed by the BOJ. As the first modest hint of inflation arrived Korekiyo attempted to sell government bonds publicly, but the auction failed. With this failure it became clear that the bonds which had been stuffed onto the BOJ’s balance sheet could never be sold. Korekiyo’s struggle to ‘cut up the credit card’ culminated in him suffering a similar fate to Junnosuke and being cut up in an attack of army machetes. As the BOJ’s balance sheet crossed 100% of GDP, there could be no turning back, the road to conflict had been primed by the BOJ’s swollen balance sheet and the money that had flooded into the military.

The current Bank of Japan’s balance sheet has now again crossed that fabled 100% of GDP and it is getting close to owning 45% of outstanding government bonds. There is no end in sight with the BOJ buying $60 billion a month of government debt. At this current pace the modern BOJ will by 2019 be the proud owner of 60% of the local bond market. There is no longer a market price for a Japanese Government Bond, it is an asset whose price is set by the BOJ. The key difference between today and the 1930s is that Japan now has an open capital account, therefore the only untethered market price is the currency. The Yen’s continued devaluation will be deep and comprehensive, while Japanese equities will continue to rise, adjusting to the currency loss.

Read more …

Musical chairs. Won’t change a thing.

Global Central Banking Leadership Flux Looms (R.)

The leaders of the world’s top central banks who risked trillions of dollars and their reputations to rescue the global economy are now set to walk off stage at a time when the lingering effects of the crisis, evolving technology and a combustible political landscape will challenge their successors. The Fed, the Bank of Japan and the People’s Bank of China may all have new bosses in early 2018 and there will be a new head of the ECB the following year. The new leaders will have to deal with the hangover from the 2007-2009 crisis and its immediate aftermath as well as newly emerging risks. Some $10 trillion in assets bought by the Fed, the ECB and the BOJ to prop up their economies remains on the books and will have to be pared back. Stubbornly low global inflation and weak growth complicate the return to more conventional policies.

There are unfinished reforms in China and Europe, while the rise of nationalism could erode central bank independence. Further ahead, the spread of cryptocurrencies and other technologies threatens to weaken central bank control over the financial system. “The bad news is that in a crisis people learn by doing,” said Vincent Reinhart, chief economist at investment firm Standish Mellon and a longtime official at the Federal Reserve. “Will the next set of people have the set of experiences that allows them to do that? Will they have a test?” The changing of the guard could veer in unpredictable directions. China’s president is considering a provincial official to succeed Zhou Xiaochuan, a veteran policymaker who has led the central bank since 2002 and whom analysts regard as a champion of reforms that could falter without his leadership.

Read more …

Even had a fraud manual. This keeps growing by the day.

Kobe Steel Faked Quality Data For Decades (Nikkei)

Product quality data was falsified for decades at some Kobe Steel plants in Japan, well beyond the roughly 10-year time frame given by the steelmaker, a source with knowledge of the situation said Monday. Employees involved in the data manipulation used the industry term tokusai to refer to shipping of products that did not meet the standards requested by customers, the source said. Though tokusai usually refers to voluntary acceptance of such products, plants sometimes sent substandard goods without customers’ consent. The word was apparently in use at some plants for 40 to 50 years. The cheating procedures eventually became institutionalized in what was essentially a tacit fraud manual, allowing the practice to continue as managers came and went. Data manipulation may have occurred with the knowledge of plant foremen and quality control managers. Some shipments even came with forged inspection certificates.

Kobe Steel has tapped senior officials in the aluminum and copper business – where most of the misconduct took place – to serve on its board. How far up the chain of command knowledge of the fraud may have extended in the past remains an open question. Systemic data falsification took place at four Japanese production sites. The scandal has spread to the manufacturer’s mainstay steel business, with revelations Friday that steel wire was also shipped without inspection or with faked certificates. The number of affected customers has swelled from around 200 to roughly 500. Kobe Steel has said it will complete safety inspections for already shipped products in two weeks or so. A report on the causes of the fraud and measures to prevent a recurrence will come out in a month or so. The steelmaker is conducting a groupwide probe that includes interviews with former senior officials.

Read more …

Yeah, when its Ponzi collapses.

China’s Impact on Global Markets is About to Get Much Bigger (BBG)

China’s ascension as an economic superstar over the past three-plus decades is out of sync with its heft in global financial markets. But things are starting to change, and investors around the world will feel the difference. China makes up more than one-seventh of the global economy, yet its footprint in international portfolios is ludicrously small, with overseas investors owning less than 2% of its domestic stocks and bonds. But its insulated markets are slowly becoming more integrated, as President Xi Jinping loosens rules on foreign participation. That push could get further backing at the Communist Party’s twice-a-decade congress this month, where the leadership will set policy priorities for the coming five years.

China’s capacity to influence global financial markets has been growing incrementally, but the pivotal moment came in 2015, when the yuan’s unexpected devaluation rocked assets worldwide, showing investors beyond Asia that China’s markets are a force to be reckoned with. The surprise move saw the yuan slide the most in two decades on Aug. 11, 2015, as Beijing sought to shore up economic growth and make China’s exports more competitive. Following on from a Chinese stock rout in mid-2015 that also had a ripple effect globally, the devaluation rattled risk assets for weeks as it was seen as an admission the economy was struggling. Fast forward to 2017, and China’s clout has only expanded, with its lion’s share of global trade making the managed yuan an anchor for currencies throughout Asia.

The nation’s status as both the world’s biggest exporter and the largest market of consumers means policy tweaks in Beijing can affect prices for everything from beef to bitcoin. Trading on Shanghai’s commodity futures market is taking on increasing influence beyond China’s borders. The country’s pivot away from the smokestack industries that have been its growth engine for decades toward high-tech production is already shifting the global landscape for manufacturing and consumption. At the same time, China is looking to draw in more foreign capital by opening conduits to its equity and bond markets, among the largest in the world. That makes the 19th party congress, where Xi will unveil the party’s vision for China over the next five years, key for even the most peripheral of investors.

Read more …

It’s almost funny.

China’s Banks Are Bingeing on Bonds Despite Debt Crackdown (BBG)

China’s banks are still bingeing on short-term financing, defying analyst predictions that they would wean themselves off such debt as regulators intensify a crackdown on leverage. Sales of negotiable certificates of deposit — a key funding source for medium and smaller banks — surged 49% from a year ago in the third quarter to a record 5.4 trillion yuan ($819 billion), according to data compiled by Bloomberg. While strategists had predicted in June that the NCD market would shrink, it turned out to be one of the few funding channels left as officials drained cash from the interbank market and asked lenders to strengthen risk controls. China’s deleveraging looms large in debt-market dynamics these days, with government bond yields at two-year highs and the one-week Shanghai Interbank Offered Rate not far from the most expensive since 2015.

Still, officials are also trying to keep the economy humming: they’ve tweaked the rules governing NCD issuance, but haven’t shut off the taps as credit growth accelerates. “The short-term debt is an indispensable fundraising channel for smaller banks,” said Shen Bifan, head of research at First Capital Securities Co.’s fixed-income department in Shenzhen. “As other channels get squeezed, and lenders’ books continue to expand, as is the case now amid solid economic growth, it’d be difficult to see the NCD market size shrink.” Net financing – sales minus maturities – through such securities was at 333 billion yuan in the third quarter, versus a total of 1.7 trillion yuan in the first half, data compiled by Bloomberg show. With more than 8 trillion yuan of contracts outstanding, it’s now the fourth-largest type of bond in China, after sovereign, local government and policy bank debt.

Read more …

Xi only talks the talk.

China Has Only Taken Baby Steps to Cut Leverage (BBG)

China has taken “baby steps” toward cutting leverage as lending from banks slows, but progress has been uneven as borrowing by households and the government has risen, according to S&P Global Ratings. Authorities are adopting both tight and loose policies to try to reduce the country’s dependency on debt without causing a hard landing, analysts led by Christopher Lee wrote in a note dated Oct. 16. S&P last month cut China’s sovereign rating for the first time since 1999, saying it didn’t believe enough was being done to contain credit growth.

The next big test is whether companies can withstand higher funding costs as financial conditions tighten, according to S&P. “Smaller and less-capitalized banks may feel the liquidity squeeze and pressures on their capital, leading to distress; and default risks could also increase for the local government financing vehicles,” the analysts wrote. “Passing the baton of credit-fueled growth in recent years to households also has many obvious risks,” such as a correction in the property market hurting consumption, they said.

Read more …

One system.

Investigations of Wall Street Have Disappeared from Corporate Media (Martens)

Rupert Murdoch’s News Corp. bought Dow Jones & Company in late 2007 after a century of ownership by the Bancroft family. The purchase just happened to come at a time when the Federal Reserve had secretly begun to funnel what would end up totaling $16 trillion in cumulative low-cost loans to bail out the Wall Street mega banks and their foreign counterparts. In 2011, the Pew Research Center released a study on how front page coverage had changed since the News Corp. purchase of the Wall Street Journal. Pew found that “coverage has clearly moved away from what had been the paper’s core mission under previous ownership—covering business and corporate America. In the past three and a half years, front-page coverage of business is down about one-third from what it had been in 2007, the last year of the old ownership regime.”

What is not down but “up” at the Wall Street Journal is its defense of the Wall Street banking giants’ indefensible practices on its editorial and opinion pages. One of the most striking examples of the changing face of corporate media coverage of Wall Street was an October 20, 2013 editorial in the Wall Street Journal headlined:“The Morgan Shakedown.” The unsigned editorial began with this: “The tentative $13 billion settlement that the Justice Department appears to be extracting from J.P. Morgan Chase needs to be understood as a watershed moment in American capitalism. Federal law enforcers are confiscating roughly half of a company’s annual earnings for no other reason than because they can and because they want to appease their left-wing populist allies.”

Actually, there was a very good reason for the $13 billion settlement – but the intrepid investigative reporting on that subject would be done by Matt Taibbi for Rolling Stone – not by the paper still calling itself the “Wall Street” Journal. Taibbi revealed that the U.S. Justice Department had actually settled on the cheap and had failed to reveal to the public that it had the most credible of eyewitnesses to mortgage fraud at JPMorgan Chase – a securities attorney who worked there and had reported the fraud to her supervisors. The attorney, Alayne Fleischmann, told Taibbi that what she witnessed in JPMorgan’s mortgage operations was “massive criminal securities fraud.”

Taibbi’s in-depth report on the matter made the editorial board at the Wall Street Journal appear naïve or captured by Wall Street. It raised the added embarrassing question as to why the Wall Street Journal was out of touch with the details of the Justice Department’s investigation.

Read more …

This year’s Fauxbel for human behavior, next year’s for animal behavior?

MIT Economist Andrew Lo Wants You To Realize That Traders Are Animals (BW)

Every reigning theory of finance has holes. The efficient-markets hypothesis says markets are rational and self-regulating, but it doesn’t account for crashes and crises; behavioral finance blames market breakdowns on investors’ short-term thinking, but it fails to account for group dynamics or predict future markets. Andrew Lo spent his early career studying these flaws. Lo, 57, is the Charles E. and Susan T. Harris professor of finance at the MIT Sloan School of Management, but he’s always been a multidisciplinarian. At the Bronx High School of Science, he excelled in biology, physics, chemistry, and mathematics and liked solving broad problems. “I just really enjoyed the dynamics across all these fields,” he says. “I never thought of myself as, I am an economist or I’m a statistician.”

Eighteen years into his research, Lo had a major insight. One day in 1999 his 4-year-old son took off running toward a gorilla cage at the Smithsonian’s National Zoo. “The mother gorilla jumped right in and growled,” he says. “And as soon as she did that, I did the same thing. I ran to my child and brought him back.” The similarity of their reactions startled Lo and caused him to wonder: Could there be other similarities in the way people and animals react to danger and risk? The insight eventually led to the adaptive-markets hypothesis. “Right now, we tend to collect prices and assume that those are the only things that matter” to predict investor behavior, Lo says, whereas an ecologist would try to understand investors as a population—which means accounting for their animal instincts. Lo’s hypothesis says people act in their own self-interest but frequently make mistakes, figure out where they’ve erred, and change their behaviors.

The broader system also adapts. These complex interactions contribute to our booms and busts. Lo’s book-length exploration of the idea, Adaptive Markets, came out in February. Says Ben Golub, a founding partner at BlackRock Inc. and now co-head of the company’s risk and quantitative analysis group: “It makes you realize that at any time in the market, the people who are there are not there by accident.” Some people survived the last financial crisis and might be more risk-averse, and some people who’ve joined since might be more risk-tolerant. “The cautious guys survive for a while and then get pushed out by the more aggressive risk takers, who then get thrown out when the thing blows up in their faces,” Golub says. He’s made the book required reading for many BlackRock employees.

Read more …

“Varoufakis plans to run for the 2019 European elections, even if he says the European Parliament “is not a real parliament.” But he wants to run in Germany, “to show that federalism is possible, and also that Germany’s current politics is harmful for Germans.”

Varoufakis Tells Macron To Adopt The ‘Empty-chair’ Tactic (EuA)

More than fifty years ago, in 1965, French President Charles de Gaulle withdrew his ministers from the Council of the EU, de facto vetoing all decisions. According to Yanis Varoufakis, former finance minister for Greece, Macron should consider refreshing this tactic – but for the opposite reason. De Gaulle was defending nation states, while Macron wants to push federalism forward. “Macron has got some good ideas, but he already lost, he is done, belittled by Germany” who refuses to create a budget for the Eurozone, according to the economist, who spoke to the French press in Paris. According to him, the success of the far-right party AfD in September’s parliamentary election gives Germany the perfect excuse to retrench on this dossier. And the European Monetary Fund, proposed by Germany as an alternative to a Eurozone budget, is a sham and not a real compromise, according to Varoufakis.

The only way to force Germany into siding with France on relaunching the federalist process is the empty-chair tactic, he says. A form of “constructive disobedience” [..] “Trying to achieve a permanent reduction of the public deficit under 3% of GDP is nonsensical. It is not a problem to run a public deficit: Arizona will always have one, especially if compared to California. In a federation, this happens a lot. But in the case of France, current public spending will condemn the country to permanent stagnation, because the German industry has a monopoly of numerous markets”, he says. The real priority according to him is investment, which should be raised to €500 billion per year. “The Juncker plan is a farce,” he said.

Without a eurozone budget to relaunch the federalist project, the economist proposes that the European Investment Bank (BEI) issue green bonds to finance large infrastructure projects in clean energy and transport – and that the ECB buys them. “We don’t need to change the treaties. It is already feasible – it is just a question of achieving the consensus of the EIB’s board.” On the type of projects that should be financed, Varoufakis echoes Macron who spoke about a way to cross the old continent without polluting: he would like to develop a railway network from the East to the West as well as invest in clean energy. While he sides with Macron’s federalist elements, including a transnational list for the 2019 European elections, Varoufakis is also very critical of his first steps.

“The speech he gave in Greece was pathetic. Coming to tell us that Greece is out of the crisis is an insult, and speaking from [Athens’ Acropolis] where countless dictators spoke to Greeks adds insult to injury,” said the economist. Varoufakis plans to run for the 2019 European elections, even if he says the European Parliament “is not a real parliament.” But he wants to run in Germany, “to show that federalism is possible, and also that Germany’s current politics is harmful for Germans.”

Read more …

Excellent and very educational.

The Kurds Have No Friends But The Mountains (David Graeber)

“The Kurds have no friends but the mountains” — that’s what Mehmet Aksoy used to say. But Mehmet, who was killed Sept. 26 during an attack by the Islamic State in northern Syria, was my friend, and a tireless advocate of the Kurdish freedom movement. He was working on an essay that began with those words when he died. He often used that adage to explain the plight of his people, who have long been used or mistreated by the very powers that claim to spread democracy and freedom through the world. I first met Mehmet at a Kurdish demonstration in London, where he lived. I had come because of my interest in direct democratic movements like the one the Syrian Kurds were building, but ended up feeling as if I was lurking, out of place at the fringe of the gathering, until he walked up and introduced himself.

I came to know him as I’ve now heard many in the community did, as kind and unassuming but somehow larger than life, always juggling a dozen projects, films, essays, events and political actions. Now I think it’s important to tell people about his last project, his writing on the conflict in Kurdistan, so that more of us understand what’s at stake there. He was writing in the shadow of a referendum taking place in neighboring Iraqi Kurdistan that everyone knew would end with a strong endorsement of an independent Kurdish state. But the Syrian Kurdish freedom movement that Mehmet represents has pursued an entirely different vision from that of the Kurds in Iraq: It does not wish to change the borders of states but simply to ignore them and to build grass-roots democracy at the community level.

It frustrated Mehmet that the endless sacrifices of Kurdish fighters against the Islamic State in cities across Syria are being mistakenly seen as justification of more borders and more divisions rather than for less. Too often in the Western news media, the Kurds are grouped together as one homogeneous people, with Syrian Kurds often an afterthought of late because of the attention the Iraqi Kurds have received for their referendum. But the Kurds in these two countries have built very different political systems. The Syrian Kurds have built a coalition with Arabs, Syriacs, Christians and others in the northern slice of Syria that they call Rojava (or, more officially, the The Democratic Federation of Northern Syria.).

Read more …

RIP. May your courage shine on others.

Malta Car Bomb Kills Panama Papers Journalist (G.)

The journalist who led the Panama Papers investigation into corruption in Malta was killed on Monday in a car bomb near her home. Daphne Caruana Galizia died on Monday afternoon when her car, a Peugeot 108, was destroyed by a powerful explosive device which blew the vehicle into several pieces and threw the debris into a nearby field. A blogger whose posts often attracted more readers than the combined circulation of the country’s newspapers, Caruana Galizia was recently described by the Politico website as a “one-woman WikiLeaks”. Her blogs were a thorn in the side of both the establishment and underworld figures that hold sway in Europe’s smallest member state.

Her most recent revelations pointed the finger at Malta’s prime minister, Joseph Muscat, and two of his closest aides, connecting offshore companies linked to the three men with the sale of Maltese passports and payments from the government of Azerbaijan. No group or individual has come forward to claim responsibility for the attack. Malta’s president, Marie-Louise Coleiro Preca, called for calm. “In these moments, when the country is shocked by such a vicious attack, I call on everyone to measure their words, to not pass judgment and to show solidarity,” she said. After a fraught general election this summer, commentators had been fearing a return to the political violence that scarred Malta during the 1980s.

In a statement, Muscat condemned the “barbaric attack”, saying he had asked police to reach out to other countries’ security services for help identifying the perpetrators. [..] Caruana Galizia, who claimed to have no political affiliations, set her sights on a wide range of targets, from banks facilitating money laundering to links between Malta’s online gaming industry and the Mafia. Over the last two years, her reporting had largely focused on revelations from the Panama Papers, a cache of 11.5m documents leaked from the internal database of the world’s fourth largest offshore law firm, Mossack Fonseca.

Read more …

This is theater. And it’s empty.

IMF Chief Calls For Implementation Of Greek Program, Debt Relief (K.)

Managing Director of the IMF, Christine Lagarde, has praised Greece’s progress on reforms while saying that implementation of the adjustment program coupled with an agreement on debt relief are key to leading the debt-wracked country out of the crisis. The IMF chief made the comments after a meeting with Greek Prime Minister Alexis Tsipras in Washington Monday to discuss recent developments in Greece and key issues ahead. “I was very pleased to welcome Prime Minister Tsipras to the IMF today. I complimented him and the Greek people on the notable progress Greece has achieved in the implementation of difficult policies, including recent pension and income tax reforms. We had an excellent and productive meeting,” Lagarde said in a statement after the meeting.

“The IMF recently approved in principle a new arrangement to support Greece’s policy program. Resolute implementation of this program, together with an agreement with Greece’s European partners on debt relief, are essential to support Greece’s return to sustainable growth and a successful exit from official financing next year,” Lagarde said. “The prime minister and I are committed to working together towards this goal,” she said. In his comments, Tsipras said that “after several years of economic recession Greece has turned a page.” The Greek prime minister said that it is in everyone’s interest to wrap up the third bailout review as swiftly as possible.

Read more …

Numbers rising as we speak.

2,000 Refugees, Migrants Landed in Greece Since October 1 (GR)

A total of 1,877 migrants and refugees crossed into the northern Aegean islands from the Turkish coast during the first 15 days of October. According to official figures, 1,148 have arrived in Lesvos; 572 in Chios, and 117 in Samos. In addition to this, on Monday morning, 44 people arrived in Lesvos and 157 in Chios. Between October 1 and 13, the Turkish coast guard announced that it had located 25 incidents involving dinghies with migrants and refugees on board, that had attempted to reach the Greek waters. 907 people have been returned back to Turkey.

Read more …

Oct 142017
 
 October 14, 2017  Posted by at 9:12 am Finance Tagged with: , , , , , , , , ,  2 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Georgia O’Keeffe Manhattan 1932

 

Central Bankers Use Moment of Calm to Debate How to Fight the Next Crisis (DJ)
BOJ’s Kuroda Says No Signs Of Excesses Building In Markets (R.)
What Keeps Poor Americans From Moving (Atlantic)
Prepare for a Chinese Maxi-Devaluation (Rickards)
The Cost of Missing the Market Boom Is Skyrocketing (BBG)
Are You Better Off Than You Were 17 Years Ago? (CH Smith)
As Crisis At Kobe Steel Deepens, CEO Says Cheating Engulfs 500 Firms (R.)
Worse Than Big Tobacco: How Big Pharma Fuels the Opioid Epidemic (Parramore)
Tesla Fired Hundreds Of Employees In Past Week (R.)
No-Deal Brexit: It’s Already Too Late (FCFT)
‘They Have To Pay’, EU’s Juncker Says Of Britain (R.)
EU Intervention In Catalonia Would Cause Chaos – Juncker (G.)
Blade Runner 2049: Not The Future (Kunstler)

 

 

This really is the firefighter setting his own house on fire so he can play the hero. There’s often talk of central bankers taking away the punch bowl, but we need to take away the punch bowl from them. Urgently.

Central Bankers Use Moment of Calm to Debate How to Fight the Next Crisis (DJ)

Central bankers, basking in a moment of synchronized growth and a global economy less dependent on easy-money policies, are thinking about what they will do when the next economic meltdown happens. ECB President Mario Draghi said Thursday that central banks might need to reuse some of the weapons employed to fight the last war, most notably negative interest rates. Federal Reserve and ECB officials, who are gathered in Washington for the fall meetings of the IMF and World Bank, are using a tranquil period to debate the type of monetary policies central banks might pursue. The world’s two most influential central banks signaled no shifts in strategy – in the Fed’s case, to raise rates gradually and shrink its bond portfolio, and in the ECB’s, to announce a slowdown of its bond-purchase program as soon as its next policy meeting on Oct. 26.

But while current policies are stepping away from the bond-purchase programs known as quantitative easing, central bankers are opening the door for a future that could include more negative interest rates and periods of higher inflation following recession. The discussions are still largely hypothetical. Ever since the global financial crisis of 2007-09, central bankers have wished for more moments when they could gather in calm and openly spitball monetary policy ideas without the risk of derailing recovery. That moment has finally arrived. Mr. Draghi said that negative interest rates, an untested policy for the ECB until 2014, had been a success, and that the decision to push the ECB’s target rate into negative territory hadn’t hurt bank profitability as critics suggested it would.

“We haven’t seen the distortions that people were foreseeing,” Mr. Draghi said at the Peterson Institute for International Economics in Washington. “We haven’t seen bank profitability going down; in fact, it is going up.” Mr. Draghi reiterated that the ECB would maintain its negative target rate “well past” the time it steps back from its bond-purchase program, underscoring growing comfort in the negative-rate strategy. And while Mr. Draghi endorsed negative rates, current and former Fed officials engaged in an unusually open discussion about changing the target for 2% inflation. That discussion was kicked off by former Federal Reserve Chairman Ben Bernanke, who presented a paper Thursday morning at the Peterson Institute arguing the Fed could overshoot its target for 2% inflation to make up for periods of recession in which inflation ran too low.

Read more …

And this is just pure insanity.

BOJ’s Kuroda Says No Signs Of Excesses Building In Markets (R.)

Bank of Japan Governor Haruhiko Kuroda said on Friday he did not see any signs of bubbles or excesses building up in U.S., European and Japanese markets as a result of heavy money printing by their central banks. Kuroda also dismissed some analysts’ criticism that the BOJ’s purchases of exchange-traded funds (ETF) were distorting financial markets or dominating Japan’s stock market. “I don’t think we have a very big share” of Japan’s total stock market capitalisation, he told reporters after attending the Group of 20 finance leaders’ gathering. The IMF painted a rosy picture of the global economy in its World Economic Outlook earlier this week, but warned that prolonged easy monetary policy could be sowing the seeds of excessive risk-taking.

Kuroda said that while policymakers should not be complacent about their economies, he did not see huge risks materializing as a result of their policies. Although major central banks deployed massive stimulus programmes to battle the global financial crisis, they have always scrutinized whether their policies were causing excessive risk-taking, he said. “I don’t think we’re seeing excesses building up and emerging as a big risk,” Kuroda said, adding that recent rises in global stock prices reflected strong corporate profits in Japan, the United States and Europe. He added that Japan’s economy was on track for a steady recovery that will likely gradually push up inflation and wages. “I don’t see any big risk for Japan’s economy. But there could be external risks, such as geopolitical ones, so we’re watching developments carefully,” he said.

Read more …

Bubbles shape (distort) the space around them. It’s like a miniature version of Einstein’s gravitational waves.

What Keeps Poor Americans From Moving (Atlantic)

Seccora Jaimes knows that she is not living in the land of opportunity. Her hometown has one of the highest unemployment rates in the nation, at 9.1%. Jaimes, 34, recently got laid off from the beauty school where she taught cosmetology, and hasn’t yet found another job. Her daughter, 17, wants the family to move to Los Angeles, so that she can attend one of the nation’s top police academies. Jaimes’s husband, who works in warehousing, would make much more money in Los Angeles, she told me. But one thing is stopping them: The cost of housing. “I don’t know if we could find a place out there that’s reasonable for us, that we could start any job and be okay,” she told me. Indeed, the average rent for a two-bedroom apartment in Merced, in California’s Central Valley, is $750. In Los Angeles, it’s $2,710.

America used to be a place where moving one’s family and one’s life in search of greater opportunities was common. During the Gold Rush, the Depression, and the postwar expansion West millions of Americans left their hometowns for places where they could earn more and provide a better life for their children. But mobility has fallen in recent years. While 3.6% of the population moved to a different state between 1952 and 1953, that number had fallen to 2.7% between 1992 and 1993, and to 1.5% between 2015 and 2016. (The share of people who move at all, even within the same county, has fallen too, from 20% in 1947 to 11.2% today.) Of course, it wasn’t simply “moving” that mattered—it was that they moved to specific areas that were growing.

When farming jobs were plentiful in the Midwest, for example, people moved there—in 1900, states including Iowa and Missouri were more populous than California. Black men who moved from to the North from the South earned at least 100% more than those who stayed, according to work by Leah Platt Boustan, an economist at Princeton. Additionally, for most of the 20th century, both janitors and lawyers could earn a lot more living in the tri-state area of New York, New Jersey, and Connecticut than they could living in the Deep South, so many people moved, according to Peter Ganong, an economist at the University of Chicago. With less labor supply in the regions that they left, wages would then increase there, and fall in the regions they were moving to, as the supply of workers increased.

As a result, for more than 100 years, the average incomes of different regions were getting closer and closer together, something economists call regional income convergence. Wages in poorer cities were growing 1.4% faster than wages in richer cities for much of the 20th century, according to Elisa Giannnone, a post-doctoral fellow at Princeton. But over the past 30 years, that regional income convergence has slowed. Economists say that is happening because net migration—the tendency of large numbers of people to move to a specific place—is waning, meaning that the supply of workers isn’t increasing fast enough in the rich areas to bring wages down, and isn’t falling fast enough in the poor areas to bring wages up.

Read more …

Well argued.

Prepare for a Chinese Maxi-Devaluation (Rickards)

In August 2015, China engineered a sudden shock devaluation of the yuan. The dollar gained 3% against the yuan in two days as China devalued. The results were disastrous. U.S. stocks fell 11% in a few weeks. There was a real threat of global financial contagion and a full-blown liquidity crisis. A crisis was averted by Fed jawboning, and a decision to put off the “liftoff” in U.S. interest rates from September 2015 to the following December. China conducted another devaluation from November to December 2015. This time China did not execute a sneak attack, but did the devaluation in baby steps. This was stealth devaluation. The results were just as disastrous as the prior August. U.S. stocks fell 11% from January 1, 2016 to February 10. 2016. Again, a greater crisis was averted only by a Fed decision to delay planned U.S. interest rate hikes in March and June 2016. The impact these two prior devaluations had on the exchange rate is shown in the chart below.


Major moves in the dollar/yuan cross exchange rate (USD/CNY) have had powerful impacts on global markets. The August 2015 surprise yuan devaluation sent U.S. stocks reeling. Another slower devaluation did the same in early 2016. A stronger yuan in 2017 coincided with the Trump stock rally. A new devaluation is now underway and U.S. stocks may suffer again.

[..] China escaped the impossible trinity in 2015 by devaluing their currency. China escaped the impossible trinity again in 2017 using a hat trick of partially closing the capital account, raising interest rates, and allowing the yuan to appreciate against the dollar thereby breaking the exchange rate peg. The problem for China is that these solutions are all non-sustainable. China cannot keep the capital account closed without damaging badly needed capital inflows. Who will invest in China if you can’t get your money out? China also cannot maintain high interest rates because the interest costs will bankrupt insolvent state owned enterprises and lead to an increase in unemployment, which is socially destabilizing. China cannot maintain a strong yuan because that damages exports, hurts export-related jobs, and causes deflation to be imported through lower import prices. An artificially inflated currency also drains the foreign exchange reserves needed to maintain the peg.

[..] Both Trump and Xi are readying a “gloves off” approach to a trade war and renewed currency war. A maxi-devaluation of the yuan is Xi’s most potent weapon. Finally, China’s internal contradictions are catching up with it. China has to confront an insolvent banking system, a real estate bubble, and a $1 trillion wealth management product Ponzi scheme that is starting to fall apart. A much weaker yuan would give China some policy space in terms of using its reserves to paper over some of these problems. Less dramatic devaluations of the yuan led to U.S. stock market crashes. What does a new maxi-devaluation portend for U.S. stocks?

Read more …

See my article yesterday: The Curious Case of Missing the Market Boom .

The Cost of Missing the Market Boom Is Skyrocketing (BBG)

Skepticism in global equity markets is getting expensive. From Japan to Brazil and the U.S. as well as places like Greece and Ukraine, an epic year in equities is defying naysayers and rewarding anyone who staked a claim on corporate ownership. Records are falling, with about a quarter of national equity benchmarks at or within 2% of an all-time high. “You’ve heard people being bearish for eight years. They were wrong,” said Jeffrey Saut, chief investment strategist at St. Petersburg, Florida-based Raymond James Financial Inc., which oversees $500 billion. “The proof is in the returns.” To put this year’s gains in perspective, the value of global equities is now 3 1/2 times that at the financial crisis bottom in March 2009.

Aided by an 8% drop in the U.S. currency, the dollar-denominated capitalization of worldwide shares appreciated in 2017 by an amount – $20 trillion – that is comparable to the total value of all equities nine years ago. And yet skeptics still abound, pointing to stretched valuations or policy uncertainty from Washington to Brussels. Those concerns are nothing new, but heeding to them is proving an especially costly mistake. Clinging to such concerns means discounting a harmonized recovery in the global economy that’s virtually without precedent — and set to pick up steam, according to the IMF. At the same time, inflation remains tepid, enabling major central banks to maintain accommodative stances. “When policy is easy and growth is strong, this is an environment more conducive for people paying up for valuations,” said Andrew Sheets, chief cross-asset strategist at Morgan Stanley.

“The markets are up in line with what the earnings have done, and stronger earnings helped drive a higher level of enthusiasm and a higher level of risk taking.” The numbers are impressive: more than 85% of the 95 benchmark indexes tracked by Bloomberg worldwide are up this year, on course for the broadest gain since the bull market started. Emerging markets have surged 31%, developed nations are up 16%. Big companies are becoming huge, from Apple to Alibaba. Technology megacaps occupy all top six spots in the ranks of the world’s largest companies by market capitalization for the first time ever. Up 39% this year, the $1 trillion those firms added in value equals the combined worth of the world’s six-biggest companies at the bear market bottom in 2009. Apple, priced at $810 billion, is good for the total value of the 400 smallest companies in the S&P 500.

Read more …

“If we define “winning the war” by counting dead bodies, then the dead bodies pile up like cordwood.”

Are You Better Off Than You Were 17 Years Ago? (CH Smith)

If we use GDP as a broad measure of prosperity, we are 160% better off than we were in 1980 and 35% better off than we were in 2000. Other common metrics such as per capita (per person) income and total household wealth reflect similarly hefty gains. But are we really 35% better off than we were 17 years ago, or 160% better off than we were 37 years ago? Or do these statistics mask a pervasive erosion in our well-being? As I explained in my book Why Our Status Quo Failed and Is Beyond Reform, we optimize what we measure, meaning that once a metric and benchmark have been selected as meaningful, we strive to manage that metric to get the desired result. Optimizing what we measure has all sorts of perverse consequences. If we define “winning the war” by counting dead bodies, then the dead bodies pile up like cordwood.

If we define “health” as low cholesterol levels, then we pass statins out like candy. If test scores define “a good education,” then we teach to the tests. We tend to measure what’s easily measured (and supports the status quo) and ignore what isn’t easily measured (and calls the status quo into question). So we measure GDP, household wealth, median incomes, longevity, the number of students graduating with college diplomas, and so on, because all of these metrics are straightforward. We don’t measure well-being, our sense of security, our faith in a better future (i.e. hope), experiential knowledge that’s relevant to adapting to fast-changing circumstances, the social cohesion of our communities and similar difficult-to-quantify relationships. Relationships, well-being and internal states of awareness are not units of measurement.

While GDP has soared since 1980, many people feel that life has become much worse, not much better: many people feel less financially secure, more pressured at work, more stressed by not-enough-time-in-the-day, less healthy and less wealthy, regardless of their dollar-denominated “wealth.” Many people recall that a single paycheck could support an entire household in 1980, something that is no longer true for all but the most highly paid workers who also live in locales with a modest cost of living.

Read more …

How on earth is it possible these people still have jobs?

As Crisis At Kobe Steel Deepens, CEO Says Cheating Engulfs 500 Firms (R.)

The cheating crisis engulfing Kobe Steel just got bigger. Chief Executive Hiroya Kawasaki on Friday revealed that about 500 companies had received its falsely certified products, more than double its earlier count, confirming widespread wrongdoing at the steelmaker that has sent a chill along global supply chains. The scale of the misconduct at Japan’s third-largest steelmaker pummeled its shares as investors, worried about the financial impact and legal fallout, wiped about $1.8 billion off its market value this week. As the company revealed tampering of more products, the crisis has rippled through supply chains across the world in a body blow to Japan’s reputation as a high-quality manufacturing destination. A contrite Kawasaki told a briefing the firm plans to pay customers’ costs for any affected products.

“There has been no specific requests, but we are prepared to shoulder such costs after consultations,” he said, adding the products with tampered documentation account for about 4% of the sales in the affected businesses. Yoshihiko Katsukawa, a managing executive officer, told reporters that 500 companies were now known to be affected by the tampering. Kobe Steel initially said 200 firms were affected when it admitted at the weekend it had falsified data about the quality of aluminum and copper products used in cars, aircraft, space rockets and defense equipment. Asked if he plans to step down, Kawasaki said: “My biggest task right now is to help our customers make safety checks and to craft prevention measures.”

Read more …

“The manufacturers can now exploit their monopoly positions, created by the patents, by marketing their drugs for conditions for which they never got regulatory approval.”

Worse Than Big Tobacco: How Big Pharma Fuels the Opioid Epidemic (Parramore)

Once again, an out-of-control industry is threatening public health on a mammoth scale Over a 40-year career, Philadelphia attorney Daniel Berger has obtained millions in settlements for investors and consumers hurt by a rogues’ gallery of corporate wrongdoers, from Exxon to R.J. Reynolds Tobacco. But when it comes to what America’s prescription drug makers have done to drive one of the ghastliest addiction crises in the country’s history, he confesses amazement. “I used to think that there was nothing more reprehensible than what the tobacco industry did in suppressing what it knew about the adverse effects of an addictive and dangerous product,” says Berger. “But I was wrong. The drug makers are worse than Big Tobacco.”

The U.S. prescription drug industry has opened a new frontier in public havoc, manipulating markets and deceptively marketing opioid drugs that are known to addict and even kill. It’s a national emergency that claims 90 lives per day. Berger lays much of the blame at the feet of companies that have played every dirty trick imaginable to convince doctors to overprescribe medication that can transform fresh-faced teens and mild-mannered adults into zombified junkies. So how have they gotten away with it? The prescription drug industry is a strange beast, born of perverse thinking about markets and economics, explains Berger. In a normal market, you shop around to find the best price and quality on something you want or need—a toaster, a new car. Businesses then compete to supply what you’re looking for.

You’ve got choices: If the price is too high, you refuse to buy, or you wait until the market offers something better. It’s the supposed beauty of supply and demand. But the prescription drug “market” operates nothing like that. Drug makers game the patent and regulatory systems to create monopolies over every single one of their products. Berger explains that when drug makers get patent approval for brand-name pharmaceuticals, the patents create market exclusivity for those products—protecting them from competition from both generics and brand-name drugs that treat the same condition. The manufacturers can now exploit their monopoly positions, created by the patents, by marketing their drugs for conditions for which they never got regulatory approval. This dramatically increases sales. They can also charge very high prices because if you’re in pain or dying, you’ll pay virtually anything.

Read more …

How much longer?

Tesla Fired Hundreds Of Employees In Past Week (R.)

Luxury electric vehicle maker Tesla fired about 400 employees this week, including associates, team leaders and supervisors, a former employee told Reuters on Friday. The dismissals were a result of a company-wide annual review, Tesla said in an emailed statement, without confirming the number of employees leaving the company. “It’s about 400 people ranging from associates to team leaders to supervisors. We don’t know how high up it went,” said the former employee, who worked on the assembly line and did not want to be identified.

Though Tesla cited performance as the reason for the firings, the source told Reuters he was fired in spite of never having been given a bad review. The Palo Alto, California-based company said earlier in the month that “production bottlenecks” had left Tesla behind its planned ramp-up for the new Model 3 mass-market sedan. The company delivered 220 Model 3 sedans and produced 260 during the third quarter. In July, it began production of the Model 3, which starts at $35,000 – half the starting price of the Model S. Mercury News had earlier reported about the firing of hundreds of employees by Tesla in the past week.

Read more …

Behind closed doors, the EU is already talking to Jeremy Corbyn. But that’s too late too.

No-Deal Brexit: It’s Already Too Late (FCFT)

As things stand at the moment, eighteen months from now the UK will leave the EU without any agreement on trade regulation or tariffs, either with the EU or any of the other countries with which it currently has trade agreements. The arrangements which assure the smooth running of 60 percent of our goods trade will disappear. Once we are outside the regulatory framework, many products, particularly in highly regulated areas like agriculture and pharmaceuticals, will no longer be accredited for sale in Europe. Aeroplanes will be unable to fly to and from the EU to the UK. Those goods which can still legally be traded with the EU will face lengthy customs checks. Integrated supply chains and just-in-time manufacturing processes will be severely disrupted and, in some cases, damaged beyond repair. Unless politicians do something, that’s where we are heading.

International trade and commerce doesn’t just happen. It is facilitated by a framework of agreements on tariffs, quotas and regulations. Without these, trade is either very expensive or, in some cases, simply illegal. Therefore, if the UK were to leave the EU without concluding a trade deal, things wouldn’t simply stay the same. They would be very different and very damaging. Of course, it would be disruptive for the rest of the EU too, although it is much easier to find new suppliers and customers in a bloc of 27 countries than it is in a stand alone country with no trade deals. Even so, most of us have assumed that common sense will prevail at some point. No-one in their right mind would let such a thing happen so surely both sides will do what is necessary to between now and March 2019 to avoid it.

Incredibly, though, our government, egged on by ideologues on its own back benches, has been talking up the prospect of a no-deal Brexit, apparently as a negotiating ploy to make the EU realise that we are serious about walking away. Almost as soon as the no-deal idea was suggested, Phillip Hammond said that he was not willing to set aside any money to fund it. In any organisation, that’s a sure-fire sign of a project that’s going nowhere. If the finance director won’t even stump up the cash for the planning phase, you might as well forget the whole thing. Mr Hammond said that he would wait until “the very last moment” before committing any money to prepare for a no-deal scenario. Which means it’s not going to happen because the very last moment passed some time ago, most probably before we even had the referendum.

Read more …

“They have to pay, they have to pay, not in an impossible way.”

‘They Have To Pay’, EU’s Juncker Says Of Britain (R.)

Britain must commit to paying what it owes to the European Union before talks can begin about a future relationship with the bloc after Brexit, European Commission President Jean-Claude Juncker said on Friday. “The British are discovering, as we are, day after day new problems. That’s the reason why this process will take longer than initially thought,” Juncker said in a speech to students in his native Luxembourg. “We cannot find for the time being a real compromise as far as the remaining financial commitments of the UK are concerned. As we are not able to do this we will not be able to say in the European Council in October that now we can move to the second phase of negotiations,” Juncker said. “They have to pay, they have to pay, not in an impossible way. I‘m not in a revenge mood. I‘m not hating the British.” The EU has told Britain that a summit next week will conclude that insufficient progress has been made in talks for Brussels to open negotiations on a future trade deal.

Read more …

Summary: EU countries can use whatever force they want against their European citizens. Because anything else would threaten Brussels.

EU Intervention In Catalonia Would Cause Chaos – Juncker (G.)

The president of the European commission has spoken of his regret at Spain’s failure to follow his advice and do more to head off the crisis in Catalonia, but claimed that any EU intervention on the issue now would only cause “a lot more chaos”. Speaking to students in Luxembourg on Friday, Jean-Claude Juncker said he had told the Spanish prime minister, Mariano Rajoy, that his government needed to act to stop the Catalan situation spinning out of control, but that the advice had gone unheeded. “For some time now I asked the Spanish prime minister to take initiatives so that Catalonia wouldn’t run amok,” he said. “A lot of things were not done.” Juncker said that while he wished to see Europe remain united, his hands were tied when it came to Catalan independence.

“People have to undertake their responsibility,” he said. “I would like to explain why the commission doesn’t get involved in that. A lot of people say: ‘Juncker should get involved in that.’ “We do not do it because if we do … it will create a lot more chaos in the EU. We cannot do anything. We cannot get involved in that.” Juncker said that while he often acted as a negotiator and facilitator between member states, the commission could not mediate if calls to do so came only from one side – in this case, the Catalan government. Rajoy has rejected calls for mediation, pointing out that the recent Catalan independence referendum was held in defiance of the Spanish constitution and the country’s constitutional court. “There is no possible mediation between democratic law and disobedience or illegality,” he said on Wednesday.

Despite his refusal to intervene, however, Juncker warned the international community that the political crisis in Spain could not be ignored. “OK, nobody is shooting anyone in Catalonia – not yet at least. But we shouldn’t understate that matter, though,” he added. he commission president also spoke more generally about the fragmentation of national identities within Europe, saying he feared that if Catalonia became independent, other regions would follow. “I am very concerned because the life in communities seems to be so difficult,” he said. “Everybody tries to find their own in their own way and they think that their identity cannot live in parallel to other people’s identity. “But if you allow – and it is not up to us of course – but if Catalonia is to become independent, other people will do the same. I don’t like that. I don’t like to have a euro in 15 years that will be 100 different states. It is difficult enough with 17 states. With many more states it will be impossible.”

Read more …

“The people who deliver that way of life, and profit from it, are every bit as sincerely wishful about it as the underpaid and overfed schnooks moiling in the discount aisles. ”

Blade Runner 2049: Not The Future (Kunstler)

The original Mad Max was little more than an extended car chase — though apparently all that people remember about it is the desolate desert landscape and Mel Gibson’s leather jumpsuit. As the series wore on, both the vehicles and the staged chases became more spectacularly grandiose, until, in the latest edition, the movie was solely about Charlize Theron driving a truck. I always wondered where Mel got new air filters and radiator hoses, not to mention where he gassed up. In a world that broken, of course, there would be no supply and manufacturing chains. So, of course, Blade Runner 2049 opens with a shot of the detective played by Ryan Gosling in his flying car, zooming over a landscape that looks more like a computer motherboard than actual earthly terrain.

As the movie goes on, he gets in and out of his flying car more often than a San Fernando soccer mom on her daily rounds. That actually tells us something more significant than all the grim monotone trappings of the production design, namely, that we can’t imagine any kind of future — or any human society for that matter — that is not centered on cars. But isn’t that exactly why we’ve invested so much hope and expectation (and public subsidies) in the activities of Elon Musk? After all, the Master Wish in this culture of wishful thinking is the wish to be able to keep driving to Wal Mart forever. It’s the ultimate fantasy of a shallow “consumer” society. The people who deliver that way of life, and profit from it, are every bit as sincerely wishful about it as the underpaid and overfed schnooks moiling in the discount aisles.

In the dark corners of so-called postmodern mythology, there really is no human life, or human future, without cars. This points to the central fallacy of this Sci-fi genre: that technology can defeat nature and still exist. This is where our techno-narcissism comes in fast and furious. The Blade Runner movies take place in and around a Los Angeles filled with mega-structures pulsating with holographic advertisements. Where does the energy come from to construct all this stuff? Supposedly from something Mr. Musk dreams up that we haven’t heard about yet. Frankly, I don’t believe that such a miracle is in the offing.

Read more …

Oct 132017
 
 October 13, 2017  Posted by at 9:04 am Finance Tagged with: , , , , , , , , ,  3 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Joan Miro Dancer 1925

 

The Shoeshine Boy Moment For FANG And Friends (DR)
Valuations Are Expensive (Lance Roberts)
Central Banks Have Effectively Manufactured The World’s Biggest Economy (BBG)
ECB to Consider Cutting QE Purchases in Half Next Year (BBG)
Boeing Passenger Jets Have Falsely Certified Kobe Steel Products (R.)
Kobe Steel Scandal Expands Into Core Business Overseas (BBG)
Distressed Investors Buying Houston Homes for 40 Cents on the Dollar (BBG)
Tesla Plays Auto Game By Silicon Valley Rules (DN)
What Powers America (CB)
Greek Civil Servants’ Wages 38% Higher Than Private Sector Staff (K.)
US Obesity Rates Hit New Records: 39.6% of Adults Now Obese (AFP)
Antibiotic Resistance Could Spell End Of Modern Medicine (G.)
Penguin Disaster As Only Two Chicks Survive From Colony Of 40,000 (G.)

 

 

My guess is that once one of them starts falling, the others will domino right along.

The Shoeshine Boy Moment For FANG And Friends (DR)

In early March 2009, the current bull market began in the same way that most of the great bull runs in history have, at a moment when investors were terrified to own stocks. Since then it has been nothing but good times. We are now eight and a half years into this bull market making it the second longest in history. This party has been fun. And for a handful of the most popular stocks, fun doesn’t do it justice. The party has been positively off the chains. The stocks that I’m talking about are the FANG (Facebook, Amazon, Netflix and Google) stocks plus a few of their friends (Tesla, Alibaba and others). These stocks have vastly outperformed the market during this bull-run. Now this is where I become a bit of a party-pooper.

Where Joseph Kennedy Sr. had his shoeshine boy moment for the market in 1929, I believe that a similar warning sign arrived for FANG and friends this summer. Remember, they don’t ring a bell at the top but there are signs. This I believe is a big one… The demand for these stocks has become so high that specific ETFs and dedicated index funds are being launched that are comprised only of FANG and friends. Not just an ETF or index fund, but multiple versions. That latest is called the NYSE FANG+ index. It includes 10 highly liquid stocks that are considered innovators across tech and internet/media companies. It is marketed as a benchmark of today’s tech giants. That may be true, but it is also a benchmark of some of the most expensive stocks in the entire S&P 500. Here are its components:

Yes, I’d love to go back in history and own this group of stocks three years ago. But would I want to own them after an already incredible run? No! As a group these stocks are frighteningly expensive today. That is generally what happens when stocks go up that fast, they become much less attractively valued.

Read more …

Another great effort by Lance.

Valuations Are Expensive (Lance Roberts)

[..] the repetitive cycle of monetary policy: • Using monetary policy to drag forward future consumption leaves a larger void in the future that must be continually refilled. • Monetary policy does not create self-sustaining economic growth and therefore requires ever larger amounts of monetary policy to maintain the same level of activity. • The filling of the “gap” between fundamentals and reality leads to consumer contraction and ultimately a recession as economic activity recedes. • Job losses rise, wealth effect diminishes and real wealth is destroyed. • Middle class shrinks further. • Central banks act to provide more liquidity to offset recessionary drag and restart economic growth by dragging forward future consumption. •Wash, Rinse, Repeat.

If you don’t believe me, here is the evidence. The stock market has returned more than 60% since 2007 peak, which is more than three times the growth in corporate sales growth and 30% more than GDP. The all-time highs in the stock market have been driven by the $4.5 trillion increase in the Fed’s balance sheet, hundreds of billions in stock buybacks, PE expansion, and ZIRP.

It is critical to remember the stock market is NOT the economy. The stock market should be reflective of underlying economic growth which drives actual revenue growth. Furthermore, GDP growth and stock returns are not highly correlated. In fact, some analysis suggests that they are negatively correlated and perhaps fairly strongly so (-0.40). However, in the meantime, the promise of a continued bull market is very enticing as the “fear of missing out” overrides the “fear of loss.” This brings us back to Jack Bogle and the importance of valuations which are often dismissed in the short-term because there is not an immediate impact on price returns. Valuations, by their very nature, are HORRIBLE predictors of 12-month returns should not be used in any strategy that has such a focus. However, in the longer term, valuations are strong predictors of expected returns.

[..] I have also previously modified Shiller’s CAPE to make it more sensitive to current market dynamics. “The need to smooth earnings volatility is necessary to get a better understanding of what the underlying trend of valuations actually is. For investor’s, periods of ‘valuation expansion’ are where the bulk of the gains in the financial markets have been made over the last 116 years. History shows, that during periods of ‘valuation compression’ returns are more muted and volatile. Therefore, in order to compensate for the potential ‘duration mismatch’ of a faster moving market environment, I recalculated the CAPE ratio using a 5-year average as shown in the chart below.”

To get a better understanding of where valuations are currently relative to past history, we can look at the deviation between current valuation levels and the long-term average going back to 1900.

Read more …

“Central Banks’ Return to Normalcy Is Nothing But a Charade”

Central Banks Have Effectively Manufactured The World’s Biggest Economy (BBG)

The Federal Reserve keeps talking about a “return to normal” in monetary policy. The media must buy into it, because it keeps repeating the phrase. Many investors buy into it, too. After all, it is the high and mighty Fed speaking. This “normal” is defined by interest rates, but interest rates are defined by the economics that surround them. Interest rates do not exist in a vacuum. But since we are in an economic environment never before seen in history, where data compiled by Bloomberg show that central banks have amassed $21.5 trillion in assets, how can there possibly be any notion of “normal?” Nothing in history supports the claim. Without a history, “normal” is a meaningless term. Think about it: In response to the financial crisis, central banks have essentially manufactured in just nine years an economy that is bigger than the gross domestic products of either the U.S. or China.

I am more than willing to recognize the accomplishment, but to call it “normal” is either a ruse or the height of foolishness. There is nothing “normal” about it. Some may say it is the “crown of creation,” and a case can be made for this argument, but it is not a crown that was ever seen before. This is why, when assessing financial markets, I keep pointing at the money. It is the giant amount of manufactured capital that is holding interest rates down, pushing equities up and compressing all risk assets against their sovereign benchmarks. It isn’t inflation or housing data or wages or any other piece of data that can be singled out. Those are, by comparison, flyspecks in the wind. Simply put, all that money has created demand that outstrips the current supply in bonds, in equities, in stock price-to-earnings multiples, in historical risk valuations and in credit assets.

Therefore, the economic environment that underlies asset pricing is, in fact, distorted. The Fed’s claim of some sort of “normalcy” is a charade. Fed Chair Janet Yellen can say it, and so can Fed governors and presidents, but there is not one grain of truth in the telling. It is nothing more than mumbo-jumbo because they do not wish you to recognize what is actually happening. They have taken over markets and now totally control and dominate them, regardless of the usual day-to-day antics.

Read more …

More ‘normalcy’.

ECB to Consider Cutting QE Purchases in Half Next Year (BBG)

ECB officials are considering cutting their monthly bond buying by at least half starting in January and keeping their program active for at least nine months, according to officials familiar with the debate. Reducing quantitative easing to €30 billion ($36 billion) a month from the current pace of €60 billion is a feasible option, said the officials, who asked not to be identified because the deliberations are private. While the central bank’s governors are split on the need to identify an end date for purchases, a pledge to keep buying bonds until September – with the proviso that it could be extended if needed – may offer grounds for compromise, they said. Policy makers led by President Mario Draghi are becoming increasingly confident that ECB policy makers will on Oct. 26 agree to the specifics of how much debt the euro-area’s central banks will buy in the coming year.

After more than 2 1/2 years of trying to revive the region’s economy through bond purchases, some governors see the recent period of robust growth as a reason to rein in the support. Others are concerned that inflation remains too weak. Any changes to the sum and time frame of quantitative easing would still fit into the ECB’s present guidance on monetary policy, which commits the ECB to promise “a sustained adjustment in the path of inflation consistent with its inflation aim.” It also pledges that if “the outlook becomes less favorable, or if financial conditions become inconsistent with further progress toward a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the program in terms of size and/or duration.”

Read more …

The Japanese government better act fast. Kobe requires controlled demolition.

And this sort of comment needs to stop: “Boeing does not as yet consider the issue a safety problem..”

Of course it’s safety problem. Or are we to believe the safety standards never amounted to anything?

Boeing Passenger Jets Have Falsely Certified Kobe Steel Products (R.)

Boeing, the world’s biggest maker of passenger jets, has used Kobe Steel products that include those falsely certified by the Japanese company, a source with knowledge of the matter told Reuters. Boeing does not as yet consider the issue a safety problem, the source stressed, but the revelation may raise compensation costs for the Japanese company, which is embroiled in a widening scandal over the false certification of the strength and durability of components supplied to hundreds of companies. The U.S. airline maker is carrying out a survey of aircraft to ascertain the extent and type of Kobe Steel components in its planes and will share the results with airline customers, said the source who has knowledge of the investigation.

Even if the falsely certified parts do not affect safety, given the intense public scrutiny that airlines operate under they may opt to replace suspect parts rather than face any backlash over concerns about safety. Any large-scale program to remove those components, even during scheduled aircraft maintenance, could prove costly for Kobe Steel if it has to foot the bill. Kobe Steel’s CEO, Hiroya Kawasaki, on Thursday said his company’s credibility was at “zero.” The company, he said, is examining possible data falsification going back 10 years, but does not expect to see recalls of cars or airplanes for now.. Also in the U.S., General Motors said it is checking whether its cars contain falsely certified components from Kobe Steel, joining Toyota and around 200 other firms that have received falsely certified parts from the company.

Boeing does not buy products such as aluminum composites, used in aircraft because of their light weight, directly from Kobe Steel. Its key Japanese suppliers, including Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Subaru, however, do. These Japanese companies are key parts of Boeing’s global supply chain, building one fifth of its 777 jetliner and 35% of its carbon composite 787 Dreamliner.

Read more …

This is getting bigger by the minute.

“..the company holds roughly half of the global market share for the wires used in valve springs of auto engines

Kobe Steel Scandal Expands Into Core Business Overseas (BBG)

Kobe Steel’s fake data scandal expanded to its core business after the company admitted “inappropriate actions” related to steel wire produced overseas, triggering a fresh collapse in its shares and heightened speculation that the steelmaker may get broken up. Customers have been informed about the issue, which has been resolved, Tokyo-based spokeswoman Eimi Hamano said by phone, declining to provide details. Kobe Steel falsified quality certification data for steel wire used in auto engines and to strengthen tires, the Nikkei newspaper reported Friday. Kobe’s admission of misconduct in its steel business, which accounts for about a third of revenue, ratchets up the pressure on Japan’s third-biggest steelmaker.

The company’s disclosures had up until now dealt with aluminum, copper and iron ore products used in everything from cars to computer hard drives to Japan’s iconic bullet trains, although there haven’t been any reports of products being recalled or safety concerns raised. The deepening scandal “suggests that this is company culture, not just the actions of a few rogue employees,” Alexander Robert Medd, managing director at Bucephalus Research in Hong Kong, said by email. The question to be resolved is “were they trying to save money or just unable to produce the right spec in the right quantities,” he said. Kobe’s shares have plunged 42% this week, including a 9.1% drop on Friday, after it revealed on Sunday that it had fudged data on the strength and durability of metals supplied to as many as 200 customers around the world, including Toyota, General Motors and space rocket-maker Mitsubishi Heavy Industries.

[..] SMBC Nikko Securities said in a note the new revelations around steel wires could be “quite negative” for Kobe Steel’s creditworthiness as the company holds roughly half of the global market share for the wires used in valve springs of auto engines. If doubts arose over the safety of the wires, it could “shake the foundation” of the company, according to chief credit analyst Takayuki Atake.

Read more …

“The whole thing makes me feel like there’s a bunch of vultures sitting on my back fence..”

Distressed Investors Buying Houston Homes for 40 Cents on the Dollar (BBG)

Bryan Schild drives through the byways of Houston looking for what could be the investment opportunity of a lifetime: homes selling for as little as 40¢ on the dollar. “We Pay Cash For Flooded Homes $$$$$$$$ Don’t fix it, sell it. Quick close,” read the signs piled in the back seat of his Ford pickup. Schild stops by a ranch-style house where 74-year-old Paul Matlock lives with his wife, disabled from multiple sclerosis. Matlock is desperate to leave and is considering Schild’s offer of $120,000—half the home’s value three weeks earlier. A half-dozen other investors have made offers, one as low as $55,000. “The whole thing makes me feel like there’s a bunch of vultures sitting on my back fence,” Matlock says. “They’re waiting for the dead body to fall over.”

It’s axiomatic on Wall Street that the time to buy is when fear overtakes greed—when blood (or, in this case, water) is in the streets. Now some are eyeing the billions of dollars in hurricane-ravaged property in Texas and Florida and deciding it may be the time to take out their checkbooks. Investors such as Schild figure they can buy low, either fix up and flip the houses or rent them out for several years, and unload them later, doubling their money or more. Those kinds of bets have often paid off. Buyers who snapped up co-ops and office towers when New York was near bankruptcy in the 1970s made a killing. More recently, companies including Blackstone and other marquee names bought foreclosed homes after the 2008 financial crisis and are sitting on billions in potential gains.

The cycle begins with small-time investors such as Schild, who’s bought more than 30 waterlogged houses for an average $175,000 apiece. Then Wall Street swoops in. Gary Beasley, former CEO of Waypoint Homes, also sees an opportunity. He’s pitching private equity firms and pension funds on the potential profit in buying flooded homes, repairing them, and renting them back to homeowners. Bain Capital and billionaire Marc Benioff, co-founder of Salesforce.com, are backing Beasley’s two-year-old company, Roofstock. It runs a website where investors can buy and sell single-family rental properties. Beasley thinks owner-occupants may be interested in selling there, too, and that flooded neighborhoods are the Next Big Thing. “It’s much like the housing crisis, when the institutional guys came in to buy homes nobody wanted,” he says. Like other investors, Beasley and Schild view themselves as helping homeowners to move on and Houston to rebuild.

Read more …

Will Musk take Silicon Valley down with him?

Tesla Plays Auto Game By Silicon Valley Rules (DN)

Lest there be any doubt, the electrified race for supremacy in self-driving cars is being played by Silicon Valley rules. How do we know this? By Tesla Chairman Elon Musk’s recognition that his long-awaited Model 3 compact is “in production hell,” that it’s complicated by “bottlenecks” and by confirmation that parts of the cars are being “hand-built.” This amazing accomplishment is being greeted, well, differently by investors than it would if, say, General Motors Chairman Mary Barra copped to the same kind of chaos with its electric Chevrolet Bolt … or just about any other eagerly anticipated model in its lineup. Tesla mostly gets a pass, as it does for losing money on every car it produces. The nearly 4% slide in its shares Monday, the first trading day after The Wall Street Journal reported the messy Model 3 launch, has since recouped most of the loss, judging by the market close Wednesday.

To free “resources to fix Model 3 bottlenecks” and increase battery production to help hurricane-ravaged Puerto Rico, Musk tweeted that Tesla’s anticipated demonstration of its self-driving truck would be delayed until Nov. 16. Detroit (and its foreign-owned rivals) would get crucified for a similar mess. Analysts, the news media and, especially, investors would show scant tolerance for misses of that magnitude from traditional auto industry players — and all of them would demand answers. Tesla? Not so much. Never mind that Musk, the automotive wunderkind, might risk missing what Barclays Research calls the “iPhone moment” for the Model 3, Tesla’s long-awaited entry into the volume-priced electric car segment. You know, the segment already occupied by GM’s Chevy Bolt, Nissan’s Leaf and a slew of coming electric entrants from global automakers.

As a rule, they don’t botch production launches with the same aplomb as Musk’s hand-built production hell. They also have broader distribution networks under existing state franchise laws; more disciplined production systems with longer lead times to ensure more consistent quality at launch; and greater transparency with investors, analysts and the news media. This will be fascinating to watch. Tesla’s Model 3 is one of the most highly anticipated car launches in a long time. It’s supposed to be sheet metal and electric powertrain proof that Silicon Valley innovation can beat Detroit and Stuttgart, Tokyo and Seoul at their own game.

Read more …

Click the link to see the whole thing.

What Powers America (CB)

The US electricity system is often described as the world’s largest machine. It is also incredibly diverse, reflecting the policy preferences, needs and available natural resources of each state. Carbon Brief has plotted the nation’s power stations in an interactive map to show how and where the US generates electricity. A few key messages can be gleaned from the map and associated data interactives below: • The US electricity system has been changing rapidly over the past decade. This reflects not only federal policy, but also technologies, geographies, markets and state mandates. •The average US coal plant is 40 years old and runs half the time. Some 15% are at least 50 years old, against an average retirement age of 52. • Planned new power plants are almost exclusively gas, wind or solar.

Supplying electricity to a nation’s homes, business and industry is an almost uniquely challenging enterprise. For now, electrical energy is either expensive or inconvenient to store, meaning supply and demand must be balanced in real time. It is also easier to generate power close to home than to transport it over long distances. The way electricity is generated fundamentally depends on the fuels and technologies available. The march of progress means this mix is changing – but natural resources and geographies are fixed. Moreover, US states have broad powers to influence the electricity systems within their borders. Putting the US electricity system on a map offers visual confirmation of how important these factors are. Why is solar so prevalent in North Carolina, for example? Or coal in West Virginia?

You can use Carbon Brief’s interactive map to view all the power plants in the US and their relative electricity generating capacities, which are proportional to the size of the bubbles. The dynamic chart in the sidebar summarises the makeup of the capacity mix. It’s important to note that the map and related charts, below, are based on electrical generating capacity. The electricity generated each year by each unit varies according to its load factor (average output of a power station, relative to its installed capacity). US wind has a load factor of around 35% while solar is around 27%. These are lower load factors than for nuclear at around 90%. Coal and gas can, in theory, have similarly high load factors, but in practice both are at around 50% in the US.

Read more …

Article gets numbers mixed up, but one thing is certain: Greeks make very little money compared to cost of living.

Greek Civil Servants’ Wages 38% Higher Than Private Sector Staff (K.)

Despite years of austerity policies, Greek civil servants remain significantly better paid than private sector wages, with their average wages 38% higher than their counterparts in the private sector, according to the Hellenic Federation of Enterprises (SEV). The average net monthly wage in the public sector is €1,075 compared to €777 in the private sector, according to figures made public in SEV’s weekly bulletin which underlined that the gap between the two is widening rather than closing. In the first half of this year, the average wage in the public sector rose marginally – by 0.1% – compared to a drop of 1.3% for private sector salaries, according to SEV’s analysis, which concluded that private sector workers saw their wages shaved by about €10 a month over that period.

In a related development, a report conducted by the civil servants’ union ADEDY reported an increase in permanent staff in the Greek civil service over the past year. An additional 1,293 staff were hired between August 2016 and last August, bringing the total number to 566,022, according to the report. Another finding was that most Greek civil servants – 80% of the total – take home a net monthly salary of less than €1,300. Half earn up to €1,000 a month, 44% take home between €1,000 and €1,500 and 3.6% net between €1,500 and €2,100, according to the report. Last month, SEV painted a dire picture of the state of the Greek pension system, which it described as running on empty, while warning that the country’s beleaguered private sector has taken on a disproportionate share of the burden to support pensioners and the public sector.

Read more …

Easy to figure out what this will mean to health care. The richest country in the world kills its people for profit.

US Obesity Rates Hit New Records: 39.6% of Adults Now Obese (AFP)

The rate of obesity in the United States has reached a new high, at 39.6% of adults, according to US government data released Friday. Health experts are concerned about obesity because it is associated with a number of life-threatening health conditions, including heart disease, stroke, diabetes and certain kinds of cancer. The adult obesity rate in the United States has risen steadily since 1999, when 30.5% of adults were obese. “From 1999–2000 through 2015–2016, a significantly increasing trend in obesity was observed in both adults and youth,” said the report, based on a nationally representative sample of the population, and issued by the National Center for Health Statistics.

“The observed change in prevalence between 2013–2014 and 2015–2016, however, was not significant among both adults and youth.” Its previous report for 2013 to 2014 found that 37.7% of adults were obese. Researchers said the difference between the current and last report is not statistically significant because it falls within the margin of error of the estimate. Adult obesity is defined as having a body mass index (BMI) of 30 or higher. Among youths aged two to 19, 18.5% are obese, the report said. The rate of youth obesity was 13.9% in 1999.

Read more …

Another example of killing people for profit.

Antibiotic Resistance Could Spell End Of Modern Medicine (G.)

England’s chief medical officer has repeated her warning of a “post-antibiotic apocalypse” as she urged world leaders to address the growing threat of antibiotic resistance. Prof Dame Sally Davies said that if antibiotics lose their effectiveness it would spell “the end of modern medicine”. Without the drugs used to fight infections, common medical interventions such as caesarean sections, cancer treatments and hip replacements would become incredibly risky and transplant medicine would be a thing of the past, she said. “We really are facing – if we don’t take action now – a dreadful post-antibiotic apocalypse. I don’t want to say to my children that I didn’t do my best to protect them and their children,” Davies said.

Health experts have previously said resistance to antimicrobial drugs could cause a bigger threat to mankind than cancer. In recent years, the UK has led a drive to raise global awareness of the threat posed to modern medicine by antimicrobial resistance (AMR). Each year about 700,000 people around the world die due to drug-resistant infections including tuberculosis, HIV and malaria. If no action is taken, it has been estimated that drug-resistant infections will kill 10 million people a year by 2050. The UK government and the Wellcome Trust, along with others, have organised a call to action meeting for health officials from around the world. At the meeting in Berlin, the government will announce a new project that will map the spread of death and disease caused by drug-resistant superbugs.

Read more …

Too sad for words.

Penguin Disaster As Only Two Chicks Survive From Colony Of 40,000 (G.)

A colony of about 40,000 Adélie penguins in Antarctica has suffered a “catastrophic breeding event” – all but two chicks have died of starvation this year. It is the second time in just four years that such devastation – not previously seen in more than 50 years of observation – has been wrought on the population. The finding has prompted urgent calls for the establishment of a marine protected area in East Antarctica, at next week’s meeting of 24 nations and the European Union at the Commission for the Conservation of Antarctic Marine Living Resources (CCAMLR) in Hobart. In the colony of about 18,000 breeding penguin pairs on Petrels Island, French scientists discovered just two surviving chicks at the start of the year. Thousands of starved chicks and unhatched eggs were found across the island in the region called Adélie Land (“Terre Adélie”).

The colony had experienced a similar event in 2013, when no chicks survived. In a paper about that event, a group of researchers, led by Yan Ropert-Coudert from France’s National Centre for Scientific Research, said it had been caused by a record amount of summer sea ice and an “unprecedented rainy episode”. The unusual extent of sea ice meant the penguins had to travel an extra 100km to forage for food. And the rainy weather left the chicks, which have poor waterproofing, wet and unable to keep warm. This year’s event has also been attributed to an unusually large amount of sea ice. Overall, Antarctica has had a record low amount of summer sea ice, but the area around the colony has been an exception.

Ropert-Coudert said the region had been severely affected by the break-up of the Mertz glacier tongue in 2010, when a piece of ice almost the size of Luxembourg – about 80 km long and 40km wide – broke off. That event, which occurred about 250km from Petrels Island, had a big impact on ocean currents and ice formation in the region. “The Mertz glacier impact on the region sets the scene in 2010 and when unusual meteorological events, driven by large climatic variations, hit in some years this leads to massive failures,” Ropert-Coudert told the Guardian. “In other words, there may still be years when the breeding will be OK, or even good for this colony, but the scene is set for massive impacts to hit on a more or less regular basis.”

Read more …

Oct 122017
 
 October 12, 2017  Posted by at 8:55 am Finance Tagged with: , , , , , , , , ,  1 Response »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Piet Mondriaan Broadway boogie wooogie 1943

 

The Bubble Economy Is Set To Burst, US Elections Be The Trigger (Andy Xie)
Fed Divide On Inflation Intensified At September Policy Meeting (R.)
UK Resigned To Endless Productivity Gloom (Tel.)
The World Must Spend $2.7 Trillion on Charging Stations for Tesla to Fly (BBG)
Bullet Train Wheel Parts Made By Kobe Steel Failed Quality Tests (BBG)
General Motors Checking Impact Of Kobe Steel Data Cheating (R.)
De-dollarization Not Now (WS)
Xi’s Legacy May Rest on the World’s Biggest Infrastructure Project (BBG)
Retirement in Australia is Unrealisable For Most Workers (Satyajit Das)
With Brexit Talks Stuck, Britain Is Preparing For The Worst (BBG)
IMF Report Suggests New Greek Debt Measures Necessary (K.)

 

 

“In today’s bubble, central bankers and governments are fools. They can mobilise more resources to become bigger fools.”

“In addition to taking nearly half of the business labour outlay, China has invented the unique model of taxing the household sector through asset bubbles. The stock market was started with the explicit intention to subsidise state-owned enterprises.”

“China’s residential property value may have surpassed the total in the rest of the world combined.”

The Bubble Economy Is Set To Burst, US Elections Be The Trigger (Andy Xie)

While Western central bankers can stop making things worse, only China can restore stability in the global economy. Consider that 800 million Chinese workers have become as productive as their Western counterparts, but are not even close in terms of consumption. This is the fundamental reason for the global imbalance. China’s most important asset bubble is the property market China’s model is to subsidise investment. The resulting overcapacity inevitably devalues whatever its workers produce. That slows down wage rises and prolongs the deflationary pull. This is the reason that the Chinese currency has had a tendency to depreciate during its four decades of rapid growth, while other East Asian economies experienced currency appreciation during a similar period. Overinvestment means destroying capital. The model can only be sustained through taxing the household sector to fill the gap.

In addition to taking nearly half of the business labour outlay, China has invented the unique model of taxing the household sector through asset bubbles. The stock market was started with the explicit intention to subsidise state-owned enterprises. The most important asset bubble is the property market. It redistributes about 10% of GDP to the government sector from the household sector. The levies for subsidising investment keep consumption down and make the economy more dependent on investment and export. The government finds an ever-increasing need to raise levies and, hence, make the property bubble bigger. In tier-one cities, property costs are likely to be between 50 and 100 years of household income. At the peak of Japan’s property bubble, it was about 20 in Tokyo. China’s residential property value may have surpassed the total in the rest of the world combined.

In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius How is this all going to end? Rising interest rates are usually the trigger. But we know the current bubble economy tends to keep inflation low through suppressing mass consumption and increasing overcapacity. It gives central bankers the excuse to keep the printing press on. In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius. In today’s bubble, central bankers and governments are fools. They can mobilise more resources to become bigger fools. In 2000, the dotcom bubble burst because some firms were caught making up numbers. Today, you don’t need to make up numbers. What one needs is stories.

Hot stocks or property are sold like Hollywood stars. Rumour and innuendo will do the job. Nothing real is necessary. In 2007, structured mortgage products exposed cash-short borrowers. The defaults snowballed. But, in China, leverage is always rolled over. Default is usually considered a political act. And it never snowballs: the government makes sure of it. In the US, the leverage is mostly in the government. It won t default, because it can print money. The most likely cause for the bubble to burst would be the rising political tension in the West. The bubble economy keeps squeezing the middle class, with more debt and less wages. The festering political tension could boil over. Radical politicians aiming for class struggle may rise to the top. The US midterm elections in 2018 and presidential election in 2020 are the events that could upend the applecart.

Read more …

Time to acknowledge these people really don’t have a clue. They are stuck in models that have long since failed, and they have no others.

Fed Divide On Inflation Intensified At September Policy Meeting (R.)

Federal Reserve policymakers had a prolonged debate about the prospects of a pickup in inflation and slowing the path of future interest rate rises if it did not, according to the minutes of the U.S. central bank’s last policy meeting on Sept. 19-20 released on Wednesday. The readout of the meeting, at which the Fed announced it would begin this month to reduce its large bond portfolio mostly amassed following the financial crisis and unanimously voted to hold rates steady, also showed that officials remained mostly sanguine about the economic impact of recent hurricanes. “Many participants expressed concern that the low inflation readings this year might reflect… the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted,” the Fed said in the minutes.

As such several said that they would focus on incoming inflation data over the next few months when deciding on future interest rate moves. Nevertheless, many policymakers still felt that another rate increase this year “was likely to be warranted,” the Fed said. U.S. stocks and yields on U.S. Treasuries were little changed following the release of the minutes. Fed Chair Janet Yellen has repeatedly acknowledged since the meeting that there is rising uncertainty on the path of inflation, which has been retreating from the Fed’s 2% target rate over the past few months. However, Yellen and a number of other key policymakers have made plain they expect to continue to gradually raise interest rates given the strength of the overall economy and continued tightening of the labor market.

“The majority of Fed officials are worried that core inflation might not rebound quickly, but that isn’t going to stop them from continuing to normalize interest rates, particularly not when the unemployment rate is getting so low,” said Paul Ashworth, an economist at Capital Economics.

Read more …

More clueless hacks. On Twitter, Tropical Traderhas this: “UK is a f**king leveraged real estate hedge fund Ponzi scheme run by and for spivs and chancers. Of course productivity is going nowhere… ”

UK Resigned To Endless Productivity Gloom (Tel.)

Britain’s productivity crisis is not going to come to an end any time soon. That is the verdict of the Office for Budget Responsibility (OBR), the official watchdog of Britain’s government finances, which monitors the economy closely. Productivity is crucial to economic growth and to living standards – workers can be paid more and work less if they produce more output for every hour worked. But since the financial crisis productivity has barely budged. Back in 2010 the OBR predicted productivity would resume its pre-crash trend, rising by about 15pc from 2009 to 2016. That did not happen. Each time the OBR made a forecast – at the Budget or the Autumn Statement – it thought the strong old trend rate would pick up. But it did not. Productivity remained stubbornly low.

After seven years of persisting with this forecast, the OBR has thrown in the towel. “As the period of historically weak productivity growth lengthens, it seems less plausible to assume that potential and actual productivity growth will recover over the medium term to the extent assumed in our most recent forecasts,” the watchdog said. “Over the past five years, growth in output per hour has averaged 0.2%. This looks set to be a better guide to productivity growth in 2017 than our March forecast.” That paints a gloomy picture for future economic growth, pay rises and the government’s finances. The report notes that “some commentators have argued that advanced economies have entered an era of permanently subdued productivity growth for structural reasons”. However, the OBR does not quite go that far.

This puzzle is a global one. Productivity growth has been disappointing across much of the rich world. But that is barely a silver lining, particularly when the underlying causes are hard to establish. At least the global nature of the problem allows for more ‘cures’ to be attempted. The US is currently engaged in monetary tightening. Interest rates are rising and quantitative easing will soon start to be wound back – gently, but still significantly. The move by Janet Yellen and her colleagues at the Federal Reserve should begin to test the idea that low interest rates are in part to blame for low productivity. At some point the theory around employment will surely have to be tested.

Read more …

That’s a lot of green.

The World Must Spend $2.7 Trillion on Charging Stations for Tesla to Fly (BBG)

A $2.7 trillion chasm stands between electric vehicles and the infrastructure needed to make them popular. That’s how much Morgan Stanley says must be spent on building the supporting ecosystem for EVs to reach its forecast of 526 million units by 2040. The estimate, projected by scaling up Tesla Inc.’s current network of charging stations to assembly plants, shows how infrastructure can be the biggest bottleneck for the industry’s expansion, Morgan Stanley said in a Oct. 9 report. To support half a billion EVs, the projected investment will require a mix of private and public funding across regions and sectors, and any auto company or government with aggressive targets will be at risk without the necessary infrastructure, the report said.

The industry shift to battery-powered cars is being helped by government efforts to reduce air pollution by phasing out fossil fuel-powered engines. China, which has vowed to cap its carbon emissions by 2030 and improve air quality, recently joined the U.K. and France in seeking a timetable for the elimination of vehicles using gasoline and diesel. China will become the largest EV market, accounting for about a third of global infrastructure spending by 2040, according to Morgan Stanley.

Read more …

Just wait for the dominoes to drop. “In Central Japan Railway’s bullet trains, 310 of the tested parts were found to be sub-standard..”

Bullet Train Wheel Parts Made By Kobe Steel Failed Quality Tests (BBG)

Kobe Steel’s fake data scandal penetrated deeper into the most hallowed corners of Japanese industry as iconic bullet trains were found with sub-standard parts supplied by the steelmaker. While they don’t pose any safety risks, aluminum components connecting wheels to train cars failed Japanese industry standards, according to Central Japan Railway, which operates the high-speed trains between Tokyo and Osaka. West Japan Railway, which runs services from Osaka to Fukuoka, also found sub-standard parts made by Kobe Steel. The latest scandal to hit Japan’s manufacturing industry erupted on Sunday after the country’s third-largest steel producer admitted it faked data about the strength and durability of some aluminum and copper.

As scores of clients from Toyota to General Motors scrambled to determine if they used the suspect materials and whether safety was compromised in their cars, trains and planes, the company said two more products were affected and further cases could come to light. “I deeply apologize for causing concern to many people, including all users and consumers,” Kobe Steel CEO Hiroya Kawasaki said at a meeting with a senior official from the Ministry of Economy, Trade and Industry on Thursday. He said trust in the company has fallen to “zero” and he will work to restore its reputation. “Safety is the top priority.” Shares in the company rebounded 1% Thursday, after plunging 36% over the previous two days. About $1.6 billion of the company’s market value has been wiped out since the revelations were made.

Figures were systematically fabricated at all four of Kobe Steel’s local aluminum plants, with the practice dating back as long as 10 years for some products, the company said Sunday. Data was also faked for iron ore powder and target materials that are used in DVDs and LCD screens, it said three days later. In Central Japan Railway’s bullet trains, 310 of the tested parts were found to be sub-standard and will be replaced at the next regular inspection, spokesman Haruhiko Tomikubo said. They were produced by Kobe Steel over the past five years, he said.

Read more …

I suggest mass recalls before Kobe is bankrupt. Or GM will have to pay up.

General Motors Checking Impact Of Kobe Steel Data Cheating (R.)

General Motors is checking whether its cars contain falsely certified parts or components sourced from Japan’s Kobe Steel, the latest major automaker to be dragged into the cheating scandal. “General Motors is aware of the reports of material deviation in Kobe Steel copper and aluminum products,” spokesman Nick Richards told Reuters, confirming a Kyodo News report. “We are investigating any potential impact and do not have any additional comments at this time” GM joins automakers including Toyota and as many as 200 other companies that have received parts sourced from Kobe Steel as the scandal reverberates through global supply chains. On Wednesday fresh revelations showed data fabrication at the steelmaker was more widespread than it initially said, as the company joins a list of Japanese manufacturers that have admitted to similar misconduct in recent years.

Investors, worried about the financial impact and potential legal fallout, again dumped Kobe Steel stock, wiping about $1.6 billion off its market value in two days. On Thursday in Tokyo, the shares stabilized and were up 1.1% [..] Kobe Steel President Hiroya Kawasaki said on Thursday his company would do the utmost to investigate the reason for the tampering and take measures to prevent further occurrences. He was speaking before meeting an industry ministry official to discuss the matter. The steelmaker admitted at the weekend it had falsified data about the quality of aluminum and copper products used in cars, aircraft, space rockets and defense equipment, a further hit to Japanese manufacturers’ reputation for quality products. Kobe Steel said late on Wednesday it found 70 cases of tampering with data on materials used in optical disks and liquid crystal displays at its Kobelco Research Institute Inc, which makes and tests products for the company.

Read more …

“Dollar denominated debt owed by governments and non-bank corporations in advanced economies with currencies other than the dollar has reached 26% of their GDP, nearly three times the level of the year 2000.”

And now raise rates….

De-dollarization Not Now (WS)

China announced today that it would sell $2 billion in government bonds denominated in US dollars. The offering will be China’s largest dollar-bond sale ever. The last time China sold dollar-bonds was in 2004. Investors around the globe are eager to hand China their US dollars, in exchange for a somewhat higher yield. The 10-year US Treasury yield is currently 2.34%. The 10-year yield on similar Chinese sovereign debt is 3.67%. Credit downgrade, no problem. In September, Standard & Poor’s downgraded China’s debt (to A+) for the first time in 19 years, on worries that the borrowing binge in China will continue, and that this growing mountain of debt will make it harder for China to handle a financial shock, such as a banking crisis.

Moody’s had already downgraded China in May (to A1) for the first time in 30 years. “The downgrade reflects Moody’s expectation that China’s financial strength will erode somewhat over the coming years, with economy-wide debt continuing to rise as potential growth slows,” it said. These downgrades put Standard & Poor’s and Moody’s on the same page with Fitch, which had downgraded China in 2013. But the Chinese Government doesn’t exactly need dollars. On October 9th, it reported that foreign exchange reserves – including $1.15 trillion in US Treasuries, according the US Treasury Department – rose to $3.11 trillion at the end of September, an 11-month high, as its crackdown on capital flight is bearing fruit (via Trading Economics):

[..] In total, emerging market governments and companies have issued $509 billion in dollar-denominated bonds so far this year, a new record. Dollar-denominated junk bond issuance in the developing world has hit a record $221 billion so far this year, up 60% from the total for the entire year 2016. [..] Dollar denominated debt owed by governments and non-bank corporations in advanced economies with currencies other than the dollar has reached 26% of their GDP, nearly three times the level of the year 2000. Borrowing in foreign currencies increases the default risks.

When the dollar rises against the currency that the borrower uses – which is a constant issue with many emerging market currencies that have much higher inflation rates than the US – borrowers can find it impossible to service their dollar-denominated debts. And when these economies or corporate cash flows slow down, central banks in these countries cannot print dollars to bail out their governments and largest companies. Financial crises have been made of this material, including the Asian Financial Crisis and the Tequila Crisis in Mexico. But today, none of this matters. What matters are yield-chasing investors that, after years of zero-interest-rate-policy brainwashing by central banks, can no longer see any risks at all. And the dollar remains the foreign currency of choice.

Read more …

The new Silk Road isn’t a Chinese idea. The US toyed with it. Xi has realized it’s the way to export China’s Ponzi. They will insist on having countries use Chinese products, and paying for them. Often with Chinese loans.

Xi’s Legacy May Rest on the World’s Biggest Infrastructure Project (BBG)

There’s one ambitious scheme of Xi’s about whose importance we may already be certain, one that will leave a big mark one way or another. It’s fundamentally geopolitical in nature, though it may ultimately maintain China’s historical sense of empire. The project is the Belt and Road Initiative, which aims to be nothing less than the biggest infrastructure program the world has ever seen. Sometimes known as One Belt One Road, or OBOR, it will attempt to integrate China’s markets with those on three continents, Asia, Europe, and Africa. The idea is to build an integrated rail network crisscrossing Central and Southeast Asia and reaching far into Europe, while constructing large, modern deep-water ports to link shipping from China and the surrounding western Pacific to South Asia, Kenya, Tanzania, and beyond.

So far, more than 60 countries have signed on or appear inclined to participate. Together they account for about 70% of the Earth’s population and 75% of its known energy supplies. Finding reasonably accurate statistics about Chinese geopolitical initiatives has long been a challenge, but under Xi, OBOR appears to have amassed well over $100 billion in commitments from various Chinese or Chinese-derived institutions, including the recently formed Asian Infrastructure Investment Bank, which some already see as a rival to the World Bank. Backed by Xi’s personal prestige, heft on this scale has turned OBOR into a kind of organizing motif for China’s politics and economy. The clear hope is that it will cement the country’s place as a leading, and, perhaps someday soon, the preeminent center of gravity in the world.

[..] Although downplayed in boosterish Chinese discussions, Beijing’s desire for markets to help soak up some of its overcapacity in steel and cement is an important motive behind OBOR’s focus on infrastructure—especially railroad lines. In 2015, China’s steel surplus was equivalent to the total output of the next four producers, Japan, India, the U.S., and Russia. Much the same is true for other key industrial materials. This push to develop outlets for China’s badly unbalanced economy has led many to skip over basic questions about the economic rationale for a vast rail network in the first place. If the ultimate idea is to link East and West with rapid, modern freight trains, as is often suggested, what’s the category of products that will benefit enough from these connections to make them profitable? Perishable and highly time-sensitive goods will almost always be transported by air. Meanwhile, no train, no matter how modern, will beat ocean freight for capacity or price per mile.

Read more …

Sobering.

Retirement in Australia is Unrealisable For Most Workers (Satyajit Das)

Australians make up barely 0.3% of the globe’s population and yet hold $2.1 trillion in pension savings – the world’s fourth-largest such pool. Those assets are viewed as a measure of the country’s wealth and economic resilience, and seem to guarantee a high standard of living for Australians well into the future. Other developed nations, aging even faster than Australia and subject to fraying safety nets, have held up the system as a world-class model to fund retirement. In fact, its future looks nowhere near so bright. Australia’s so-called superannuation scheme is a defined contribution pension plan funded by mandatory employer contributions (currently 9.5%, scheduled to rise gradually to 12% by 2025). Employees can supplement those savings and are encouraged to do so with tax breaks, pension fund earnings and generous benefits.

The gaudy size of the investment pool, however, masks serious vulnerabilities. First, the focus on assets ignores liabilities, especially Australia’s $1.8 trillion in household debt as well as total non-financial debt of around $3.5 trillion. It also overlooks Australia’s foreign debt, which has reached over 50% of GDP – the result of the substantial capital imports needed to finance current account deficits that have persisted despite the recent commodity boom, strong terms of trade and record exports. Second, the savings must stretch further than ever before, covering not just the income needs of retirees but their rapidly increasing healthcare costs. In the current low-income environment, investment earnings have shrunk to the point where they alone can’t cover expenses. That’s reducing the capital amount left to pass on as a legacy.

Third, the financial assets held in the system (equities, real estate, etc.) have to be converted into cash at current values when they’re redeemed, not at today’s inflated values. Those values are quite likely to decline, especially as a large cohort of Australians retires around the same time, driving up supply. Meanwhile, weak public finances mean that government funding for healthcare is likely to drop, forcing retirees to liquidate their investments faster and further suppressing values. Fourth, the substantial size of these savings and the large annual inflow (more than $100 billion per year) into asset managers has artificially inflated values of domestic financial assets, given the modest size of the Australian capital markets. As retirees increasingly draw down their savings, withdrawals may be greater than new inflows, reducing demand for these financial assets.

[..] The real lesson of Australia’s experience may be that the idea of retirement is unrealisable for most workers, who will almost certainly have to work beyond their expected retirement dates if they want to sustain their lifestyles. Governments have implicitly recognised this fact by abandoning mandatory retirement requirements, increasing the minimum retirement age, tightening eligibility criteria for benefits and reducing tax concessions for this form of saving. If the world’s best pension system can’t succeed, we’re going to have to rethink retirement itself.

Read more …

I must admit, the circus continues to amaze. By now, everyone involved on the UK side is just trying to save their political careers. But the Tories want to hold on to power too, and those two things will conflict. They’ll need to make a choice.

With Brexit Talks Stuck, Britain Is Preparing For The Worst (BBG)

With Brexit talks stuck, the U.K. is preparing for the worst. As the fifth round of negotiations draws to a close on Thursday, progress is so scant that the European side is stepping back from concessions it was said to be considering last month. The Commission won’t talk about trade before getting assurances that the U.K. will pay its dues, and with less than 18 months to go until the country tumbles out of the bloc, the focus in London has turned to contingency planning. Philip Hammond, the pro-EU chancellor of the exchequer, says he’s reluctant to spend cash on a Plan B just to score negotiating points. But he’ll start releasing money as soon as January if progress hasn’t been made in talks. Judging by the latest EU rhetoric, the chances of that happening are growing.

The goodwill that Prime Minister Theresa May generated in her speech in Florence, where she promised to pay into the EU budget for two years after Brexit and asked in return for a transition period so businesses can prepare for the split, hasn’t translated into progress in talks. Meanwhile May’s Conservatives remain deeply divided on the shape of Brexit, with the premier struggling each week to tread a careful line between rival camps. The political establishment is so conflicted that late on Wednesday two politicians from opposing parties joined forces to try and effectively bind May’s hands by tabling an amendment that would enshrine a two-year transition in law. Pound investors are expecting swings in the currency to get more dramatic over the next three months, options show, as political uncertainty unnerves traders.

Read more …

The torture never stops. And in the end the Germans win.

IMF Report Suggests New Greek Debt Measures Necessary (K.)

The third review of Greece’s third bailout could hit a snag after the International Monetary Fund’s forecast Thursday that the country’s primary surplus in 2018 will be at 2.2% of GDP– significantly lower than the 3.5% predicted by European insititutions and stipulated in the government’s draft budget and the bailout agreement. The latest forecast included in the IMF’s Fiscal Monitor report released Wednesday could, analysts believe, be a source of misery not just for Athens, which may once again be forced to look down the barrel of fresh measures next year to the tune of €2.3 billion – 1.3% of GDP – but for its European Union partners as well, who will have to decide whether to go along with the IMF’s forecast or not.

If they do not, then the risk of the IMF leaving the Greek program will be higher. If, however, European lenders go along with IMF’s forecast, which it first made in July, then Athens is concerned that they may revise their own predictions downward in order to placate the organization – as was the case during the second review – in order to ensure that it remains on board with the Greek program. The latter outcome could, analysts reckon, be the more likely one given that Germany’s Free Democrats (FDP), expected to form part of Chancellor Angela Merkel’s governing coalition, have stated that they will agree to an aid program for Greece on the condition that the IMF takes part in the Greek bailout.

Read more …

Oct 112017
 
 October 11, 2017  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  10 Responses »
Share on FacebookTweet about this on TwitterShare on Google+Share on LinkedInShare on TumblrFlattr the authorDigg thisShare on RedditPin on PinterestShare on StumbleUponEmail this to someone


Georgia O’Keeffe New York night 1929

 

Stock Record Ride ‘Has Reached Epic Proportions’ – Morgan Stanley (MW)
Janet Yellen Has Finally Come To Her Senses – Somewhat (Crudele)
Nobel Economist Thaler Says He’s Nervous About Stock Market (BBG)
Catalans Call Time Out on Independence Bid, Seek Spain Talks (BBG)
China Debt-for-Equity Swaps Turn Out More Like Debt-for-Debt (BBG)
Chinese Investors Keep Pouring Money Into Australian Housing (BBG)
Kobe Steel Shares Plunge As Data Fabrication Concerns Deepen (R.)
51 Eurozone Banks Vulnerable To Rate Shocks – ECB (R.)
Russian Central Bank To Ban Websites Offering Crypto-Currencies (R.)
Fukushima Court Rules Tepco, Government Liable Over 2011 Disaster (R.)
10% of New York City Public School Students Were Homeless Last Year (NYT)
The European Union Is Doomed to Fail (FEE)
How Labour Could Lead The Global Economy Out Of The 20th Century (G.)
I Will Make A Film Based On Adults in the Room (Costa Gavras)
Self-Harm, Suicide Attempts Rise In Greek Refugee Camps (Reuters)

 

 

You don’t say.

Stock Record Ride ‘Has Reached Epic Proportions’ – Morgan Stanley (MW)

Wall Street isn’t just in a bull market, it’s in an “epic” one. That is according to Morgan Stanley, which on Tuesday wrote that the equity market rally “has reached epic proportions.” “We say this not as hyperbole, but based on a quantitative perspective,” the investment bank explained. “Dispersions in valuations and growth rates are among the lowest in the last 40 years; stocks are at their most idiosyncratic since 2001; and equity hedge fund beta is at its highest since March 2008.” Simply from the perspective of price moves, the “epicness” of recent trading activity should come as no surprise to investors. The Dow DJIA, S&P 500 SPX, Nasdaq COMP, and Russell 2000 RUT have all hit repeated records this year alone, notching dozens of all-time highs. Those gains have been widespread and “perpetual,” to use Morgan Stanley’s description.

Only two of the 11 primary S&P 500 sectors are in negative territory for the year, and for broader indexes, even mild pullbacks of 3% have basically been nonexistent for months. Volatility is near record lows. Beta refers to a measure of an assets tendency to fluctuate compared against a benchmark like the S&P 500. [..] “While investors have at times appeared reluctant to embrace the recent rally, there is evidence from last month that risk appetites are increasing,” Morgan Stanley wrote. The investment bank noted that cyclical sectors, which are more closely correlated to the pace of economic growth, have been outperforming defensive ones, just as small-capitalization stocks have outperforming larger companies. “Momentum is now strongly correlated with high beta globally, and the presence of this cohort of investors could produce continued risk-seeking behavior,” wrote the team of analysts, led by Brian Hayes, an equity strategist.

Read more …

“The big question is whether Yellen was just misreading the data or whether the data she was reading were wrong.”

Janet Yellen Has Finally Come To Her Senses – Somewhat (Crudele)

I’ve been telling you for years that the employment data produced by the US government were misleading people into thinking the economy was performing better than it really was. Now Federal Reserve Chair Janet Yellen — finally! — agrees. Yellen, speaking before the National Association of Business Economics on Sept. 26, said, “My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective or even the fundamental forces driving inflation.” That’s what she said. Internet news sites picked up that statement, but none of the major newspapers did. And the story behind Yellen’s admission and its importance would be way over the heads of TV news anchors — so they ignored it as well.

Yet Yellen’s statement is important as heck. It means that the Fed has been screwing up in thinking that the US economy was, as Yellen has often said, near full employment. But here’s the kicker — Yellen has been overestimating the strength of the job market and underestimating the amount of inflation in the economy. The big question is whether Yellen was just misreading the data or whether the data she was reading were wrong. There will need to be years of investigation to determine that, but I’ll give you a clue now. Anyone who lives in the real world knows that the unemployment rate is far higher than the 4.2% that the Labor Department reports. And that the job growth each year — as I’ve been harping on — is mostly driven by guesstimates and adjustments made by government statisticians who apparently don’t live in the real world.

And, of course, the economy has been creating crappy-paying, benefit-lacking jobs that don’t come close to replacing the higher-quality employment that went bye-bye after the last recession. Last Friday, Labor said the jobless rate dipped in September to 4.2% from 4.4% in August — and its number crunchers also reported that 33,000 jobs were lost last month. It blamed the hurricanes. The experts were expecting the US economy to have added 100,000 new jobs despite the storms. Labor also announced that it revised August’s figures lower — from growth of 189,000 jobs to just 138,000. So instead of being reasonably good, August was blah, with nary a hurricane to blame.

Read more …

An award for not understanding?! If you ask me, the very fact that someone gets an award for ‘finding out’ that human behavior affects economies, says all you need to know about economics.

Nobel Economist Thaler Says He’s Nervous About Stock Market (BBG)

A buoyant and complacent stock market is worrying Richard H. Thaler, the University of Chicago professor who this week won the Nobel Prize in economics. “We seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping,” Thaler said, speaking by phone on Bloomberg TV. “I admit to not understanding it.” The S&P 500 index has been reaching repeated records since President Donald Trump’s election last November amid steady growth in the U.S. economy and labor market, as well as expectations for lower taxes, though policy action in Washington has been limited. Thaler, who has made a career of studying irrational and temptation-driven actions among economic actors and won the Nobel for such contributions to behavioral economics, expressed misgivings about the low volatility and continued optimism among investors.

“I don’t know about you, but I’m nervous, and it seems like when investors are nervous, they’re prone to being spooked,” Thaler said, “Nothing seems to spook the market” and if the gains are based on tax-reform expectations, “surely investors should have lost confidence that that was going to happen.” The economist said that he didn’t know “where anyone would get confidence” that tax reform is going to happen. “The Republican leadership does not seem to be interested in anything remotely bipartisan, and they need unanimity within their caucus, which they don’t have,” Thaler said. “And the president’s strategy of systematically insulting the votes he needs doesn’t seem to be optimizing anything I can think of, but maybe he’s a deeper thinker than me.”

Read more …

Schrödinger’s State. On Wikipedia, someone last night put Catalonia at no. 1 on the List of Shortest-Lived States. At 8 seconds, which is how long the applause lasted when Puigdemont said he had the mandate, only to say right after that he would hold off on executing the mandate. Wikipedia took it down.

Catalans Call Time Out on Independence Bid, Seek Spain Talks (BBG)

Catalan President Carles Puigdemont said that he’ll seek talks with the government in Madrid over the future of his region in Spain, rowing back from an immediate declaration of independence that threatened to turn a constitutional crisis into an economic one. Addressing the regional parliament in Barcelona on Tuesday evening after days of tension in Catalonia, Puigdemont said the result of an Oct. 1 referendum had given him the mandate to pursue independence, but he would hold off for “weeks” for dialogue on the way forward with Prime Minister Mariano Rajoy’s administration. Rajoy convened an extraordinary meeting of his cabinet in Madrid on Wednesday at 9 a.m. to discuss his next move, and is due to address the Spanish Parliament on the crisis in Catalonia later in the day.

“Today Mr. Puigdemont has plunged Catalonia into the highest level of uncertainty,” Spain’s Deputy Prime Minister Soraya Saenz de Santamaria told reporters in Madrid late on Tuesday. “Neither Mr. Puigdemont nor anyone else can draw conclusions from a law that doesn’t exist, from a referendum that hasn’t taken place and from the wishes of the Catalan people which it’s trying to take over.” Pressure has piled on Puigdemont as the Spanish government and Catalan business leaders demand that he desist from pitching the region further down a path to independence that they warn would wreck the economy and tear apart Spain’s social fabric. Rajoy has consistently ruled out talks until the Catalans drop the threat of a declaration of independence that is illegal under Spanish law.

“Today I assume the mandate for Catalonia to become an independent state in the form of a republic,” Puigdemont said to cheers from the packed assembly, with Catalan police deployed around the parliament perimeter. “We propose the suspension of the effects of the declaration of independence for a few weeks, to open a period of dialogue.”

Read more …

When equity is debt.

China Debt-for-Equity Swaps Turn Out More Like Debt-for-Debt (BBG)

A key Chinese initiative to rein in the world’s largest corporate-debt load has been a program swapping some loans into equity stakes. As the initiative gets going, however, it’s becoming clear the debt isn’t really going away. In a late-summer notice, central government officials said that new bonds should be used to finance the swaps, effectively moving the debt off the balance sheets of the original lenders onto those buying the new debt. The first such deal came last month, according to China Lianhe Credit Rating Co., a domestic rating firm. Shaanxi Coal and Chemical Industry Group Co., a troubled old-line industrial company, was targeted for a debt-for-equity swap. Then the Shaanxi provincial government in northwest China set up an asset-management company to raise new debt to pay off the existing lending that was designated to be swapped for an equity stake.

One criticism of the debt-for-equity initiative, which was launched a year ago, is that it keeps afloat struggling enterprises, leaving excess capacity intact and pulling down productivity. The Shaanxi example shows a further weakness: while the company won’t need to service debt any more, the new asset-management unit will – without any new source of revenue having been generated. “If the funding comes from debt, it’s really not solving the issue here because the capital is not permanent capital,” Christopher Lee, managing director of corporate ratings at S&P Global Ratings in Hong Kong. “In fact, you are adding more debt just to refinance the debt that was going to be swapped.”

Read more …

Australia lives off its bubble. It’s all that’s left.

Chinese Investors Keep Pouring Money Into Australian Housing (BBG)

Property-hungry Chinese investors have shrugged off the impact of tighter capital controls and continue to pour money into Australian housing. Foreign buyers are acquiring about a quarter of new housing supply in New South Wales, and China accounts for about 90% of that demand, according to Credit Suisse analysis of tax office data. Foreigners are buying 17% of new housing in Victoria, and 8% in Queensland, Credit Suisse said. While local property agents say higher state taxes on foreigners are deterring buyers, Credit Suisse isn’t so sure they will have a big impact on prices.

They point to even-higher taxes in other global cities, the relative cheapness of Australian property compared to Chinese cities, and the growing stock of wealth in China. “Local incomes are becoming less relevant in determining the outlook for house prices and regional wealth is becoming more relevant,’’ Credit Suisse analysts Hasan Tevfik and Peter Liu said in the report. “We see no evidence of a slowdown in foreign demand because of the stronger capital controls introduced by Chinese authorities.” That’s not good news for locals already struggling to break into the booming housing market.

Read more …

WHy would anyone still want to buy a car or plane made with Kobe metals? Imagine the lawsuits if accidents happen.

Kobe Steel Shares Plunge As Data Fabrication Concerns Deepen (R.)

Kobe Steel shares tumbled a further 16% on Wednesday after it admitted it may have fabricated data on iron powder products and media reported the possible sale of its real estate business. The latest disclosure comes after Japan’s No.3 steelmaker said on the weekend it had falsified data to show that its aluminum and copper products had met customer specifications, and suggests the problems could be widespread. Japanese manufacturers were thrown into turmoil by the revelation, with implications for materials used in cars, aircraft and possibly a space rocket and defense equipment.

Shares in Kobe Steel were down 15.73% at 900 yen as of 0114 GMT on Wednesday, underperforming the broader market which was steady. They fell 22% the previous day. A Kobe Steel spokesman confirmed a report on Wednesday in the Yomiuri newspaper saying the firm may have fabricated data on iron powder products used in components such as automotive gears. He said the company was investigating the issue. The Nikkei business daily meanwhile reported that Kobe Steel intended to put its real estate business on the block in an effort to shore up already shaky finances now threatened by the data falsification scandal.

Read more …

And that’s after all those trillions in support.

51 Eurozone Banks Vulnerable To Rate Shocks – ECB (R.)

Fifty-one large euro zone banks are leaving themselves exposed to a sudden change in interest rates and may need to aside more capital against that risk, the European Central Bank said on Monday. The ECB is preparing to start dialing back its monetary stimulus after years of ultra-low interest rates and massive bond purchases, paving the ground for rate hikes further down the line. After simulating scenarios ranging from a sudden monetary tightening to the kind of lending freeze that followed Lehman Brothers’ collapse, the ECB found that most of the 111 euro zone banks it tested are well prepared for interest rates shocks. But it cautioned it needed “intense discussions” with 51 of them after finding they may be making themselves vulnerable via large bets on derivative instruments and overly aggressive models for calculating risk.

A hike in interest rates could mean the banks suddenly need more capital. “What we need to do is have intense discussions and check with the banks if they’re aware of the… risk and if they have enough capital if things go wrong,” Korbinian Ibel, a senior supervisor at the ECB, said. Results of the test, which started in February, are incorporated into the ECB’s guidance on how much capital each lender on its watch should hold. Ibel said the 51 banks may, in principle, see their capital demands rise by up to 25 basis points, although any decision would depend on the individual circumstances of each firm. Similarly, the remaining 60 banks could see their guidance reduced by the same amount.

Read more …

Crypto makes it too easy for money to leave a country.

Russian Central Bank To Ban Websites Offering Crypto-Currencies (R.)

Russia will block access to websites of exchanges that offer crypto-currencies such as Bitcoin, Russian Central Bank First Deputy Governor Sergei Shvetsov said on Tuesday. He called them “dubious”. Russian financial authorities initially treated any sort of money issued by non-state approved institutions as illegal, saying they could be used to launder money. Later the authorities accepted the globally booming market of crypto-currencies but want to either control the turnover or to limit access to the market “We cannot stand apart. We cannot give direct and easy access to such dubious instruments for retail (investors),” Shvetsov said, referring to households.

Speaking at a conference on financial market derivatives, Shvetsov said the central bank sees rising interest in crypto-currencies because of high returns from buying into such instruments. He warned, however, that crypto-currencies gradually transform into high-yielding assets from being a mean of payment. “We think that for our citizens, for businesses the usage of such crypto-currencies as an investment object carries unreasonably high risks,” he said. Russian authorities said earlier this year they would like to regulate the use of crypto-currencies by Russian citizens and companies.

Read more …

$4 million? That’s the damage?

Fukushima Court Rules Tepco, Government Liable Over 2011 Disaster (R.)

A district court in Fukushima prefecture on Tuesday ruled that Tokyo Electric Power and the Japanese government were liable for damages totaling about 500 million yen ($4.44 million) in the largest class action lawsuit brought over the 2011 nuclear disaster, Kyodo news agency said. A group of about 3,800 people, mostly in Fukushima prefecture, filed the class action suit, marking the biggest number of plaintiffs out of about 30 similar class action lawsuits filed across the nation. This is the second court ruling that fixed the government’s responsibility after a Maebashi district court decision in March.

All the three district court decisions so far have ordered Tepco to pay damages. Only the Chiba court decision last month did not find the government liable for compensation. The plaintiffs in Fukushima case have called on defendants for reinstating the levels of radioactivity at their homes before the disaster, but the court rejected the request, Kyodo said. Tepco has long been criticized for ignoring the threat posed by natural disasters to the Fukushima plant and the company and the government were lambasted for their handling of the crisis.

Read more …

Incredible. You’d expect to see this in Bombay perhaps, or Lagos.

10% of New York City Public School Students Were Homeless Last Year (NYT)

The number of homeless students in the New York City public school system rose again last year, according to state data released on Tuesday. The increase pushed the city over a sober milestone: One in every 10 public school students was homeless at some point during the 2016-17 school year. More than 111,500 students in New York City schools were homeless during the last academic year, a 6% increase over the year before and enough people to populate a small city. Of the overall figure, 104,000 students attended regular district public schools, while the rest were in charter schools. Statewide, 148,000 students were homeless, or about 5% of the state’s public school population.

The data was released by the New York State Technical and Education Assistance Center for Homeless Students, a project of Advocates for Children of New York funded by the state Education Department. The plight of homeless students is part of the entrenched and growing problem of homelessness confronting New York City and Mayor Bill de Blasio, who is pushing a controversial plan to expand the city’s shelter system. After rising steadily for about five years, the number of homeless students reported to the state shot up in the 2015-16 school year, reaching nearly 100,000 children, and in the last school year the numbers crossed that threshold. The count this year is the highest since the state began keeping records.

Read more …

Not great title for interesting article.

The European Union Is Doomed to Fail (FEE)

Have you ever heard of Deutsch Jahrndorf? No? I don’t blame you. The tiny Austrian village, which is situated four miles from the Danube, is utterly unremarkable, except for the fact that it sits on the border of three countries. To the east is Slovakia. To the south lies Hungary. As such, within shouting distance of one another, live three peoples speaking completely unintelligible languages. Austria belongs to the West Germanic language group, Hungary to Finno-Ugric and Slovakia to West Slavic. I thought about the exquisitely rich tapestry of European languages, cultures, customs, and nationalities as I watched the sad spectacle of Spanish riot police and Catalan separatists confronting one another on the streets of Barcelona. How on earth can the European Union unite that which history forced asunder?

The European Union, French President Emmanuel Macron has recently declared to almost universal acclaim, needs more unity, including the creation of “a eurozone budget managed by a eurozone parliament and a eurozone finance minister”. The need for the centralization of power in Brussels is, apparently, the lesson that the EU establishment has learned from the outcome of the British referendum on EU membership. Meanwhile, in Catalonia, millions of people have set their sights on independence from Spain. Foremost among their complaints is that the Catalan budget is influenced by Madrid. Independence, the Catalans feel, will rectify a grave injustice occasioned by the French capture of Barcelona in 1714. The conqueror, Duke of Anjou, became the first Bourbon king of Spain under the name of Philip V. His descendant, Philip VI, is on the throne today. In Europe, ancient lineages last as long as ancient resentments.

Therein lies the conundrum of European unification. On the one hand, people throughout much of Europe desire greater autonomy. Madrid has the vexing problem of the Basque Country to worry about as well as Catalonia. In Italy, Padania and South Tyrol in the North don’t feel like they have very much in common with the Mezzogiorno in the South. Corsica does not want to be French and Britain has only recently revisited a territorial arrangement that dates back to 1707. On the other hand, every separatist movement in Europe declares its support for the project of European unification. But, how likely is it that people annoyed by Madrid, Rome, Paris, and London will be happy to have their affairs decided upon in Brussels? Will the Catalans, resentful of subsidizing farmers in Andalusia, quietly have no problem with subsidizing Polish peasants in Lower Silesia?

Read more …

Monbiot has some nice ideas, but underestimates the degree to which our societies profit from carbon. And why bring in Labour?

How Labour Could Lead The Global Economy Out Of The 20th Century (G.)

We are still living in the long 20th century. We are stuck with its redundant technologies: the internal combustion engine, thermal power plants, factory farms. We are stuck with its redundant politics: unfair electoral systems, their capture by funders and lobbyists, the failure to temper representation with real participation. And we are stuck with its redundant economics: neoliberalism, and the Keynesianism still proposed by its opponents. While the latter system worked very well for 30 years or more, it is hard to see how it can take us through this century, not least because the growth it seeks to sustain smacks headlong into the environmental crisis. Sustained economic growth on a planet that is not growing means crashing through environmental limits: this is what we are witnessing, worldwide, today.

A recent paper in Nature puts our current chances of keeping global heating to less than 1.5C at just 1%, and less than 2C at only 5%. Why? Because while the carbon intensity of economic activity is expected to decline by 1.9% a year, global per capita GDP is expected to grow by 1.8%. Almost all investment in renewables and efficiency is cancelled out. The index that was supposed to measure our prosperity, instead measures our progress towards ruin. But the great rupture that began in 2008 offers a chance to change all this. The challenge now is to ensure that the new political movements threatening established power in Britain and elsewhere create the space not for old ideas (such as 20th-century Keynesianism) but for a new politics, built on new economic and social foundations.

There may be a case for one last hurrah for the old model: a technological shift that resembles the second world war’s military Keynesianism. In 1941 the US turned the entire civilian economy around on a dime: within months, car manufacturers were producing planes, tanks and ammunition. A determined government could do something similar in response to climate breakdown: a sudden transformation, replacing our fossil economy. But having effected such a conversion, it should, I believe, then begin the switch to a different economic model.

Read more …

Featuring Dwayne Johnson? All we need then is a ferret to play Dijsselbloem.

I Will Make A Film Based On Adults in the Room (Costa Gavras)

When the crisis began, the tragedy that the Greek people are still living through, I began to gather material and information in an attempt to make sense of the reasons and the people – published, filmic and oral. However, what I was missing were the goings on behind the closed doors, where the representatives of the European Union and the Greek people met. On 16th July 2015, just after his resignation, I sent a text message to Yanis Varoufakis, whom I did not know personally. In that message I wrote: “Reading your interview in the New Statesman, I believe I found what I have been looking for a long time: the subject for a film, a piece of fiction, about a Europe governed by a group of cynical people disconnected from human, political and cultural concerns – obsessed with numbers and them alone.”

Soon, the arrangements were made and Michele, my wife, and I visited Yanis and Danae in Greece a few weeks later. Meanwhile I read two of his books, The Global Minotaur (London: Zed Books, 2011,2015) and the manuscript of a book he was completing at that time entitled And The Weak Suffer What They Must? (London: The Bodley Head, 2016). I was impressed by the quality and originality of their content, as well as the prose. When we met we had long conversations, in the context of which he let me know that he was about to begin writing his own account of his tenure as Greece’s finance minister, a tale of being an outsider in politics, of the negotiations in the Eurogroup – that illegitimate but ultra powerful EU body. I asked to read the manuscript. He agreed and began sending it to me chapter by chapter, as the book was being written.

Immediately I was convinced by the text’s seriousness and the accuracy of the description of the behaviour of each of the tragedy’s protagonists. Reading it saddened me, and I found myself often angered, indeed enraged, by the violence and the indifference of Eurogroup members, especially the German side, to the drama and unsustainable situation in which the people of Greece lived, and live. I decided to make a film out of this tragedy. Yanis Varoufakis gave me the rights to his book and absolute freedom to adapt it.

Read more …

Words fail.

Self-Harm, Suicide Attempts Rise In Greek Refugee Camps (Reuters)

A mental health emergency is unfolding in migrant camps on Greece’s islands, fueled by poor living conditions, neglect and violence, Doctors Without Borders (MSF) said Tuesday. Medical staff have seen a sharp increase in people trying to get help after attempting suicide, harming themselves or suffering psychotic episodes, the humanitarian organization said in a report. More than 13,000 migrants and refugees, mostly Syrians and Iraqis fleeing years of war, are living in five camps on Greek islands close to Turkey, government figures show. Four of those camps are holding two to three times as many people as they were designed for. “Every day our teams treat patients who tell us that they would prefer to have died in their country than be trapped here,” said Jayne Grimes, manager of MSF’s mental health activities on Samos.

The organization said six or seven new patients had visited its clinic on the nearby island of Lesvos each week over the summer following suicide attempts, self-harm or psychotic episodes, 50% more than the previous three months. Violence which many experienced on the journey or in Greece was one factor aggravating mental distress, MSF said. “I know I need to find hope, but when the night falls and I see where I am, I feel like I’m going crazy,” it quoted a Syrian man as saying. The 25-year-old said he was haunted by the images of people dying of hunger in front of him in the long-besieged town of Madaya. “I still remember the taste of the leaves and the smell of death,” he said. On Samos, more than 3,000 people are crammed into facilities designed to hold 700, and about 400 live in the woods. In one Lesvos camp, about 1,500 people are in makeshift shelters or tents without flooring or heating, the UN refugee agency says.

Read more …