Nov 112017
 
 November 11, 2017  Posted by at 9:26 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


Henri Cartier Bresson Greenfield, Indiana 1960

 

How Economics Failed the Economy (Haque)
How Did The News Go ‘Fake’? When The Media Went Social (G.)
Global Economy: Communication Breakdown? (R.)
Financial Markets Are Still Blowing Off the Fed (WS)
Is There Any Way Out Of The ECB’s Trap? (Lacalle)
How to Break Out of Our Long National Tax Nightmare (BW)
Tesla’s Junk Bonds Trading Under Water, Could Spell Trouble For Elon Musk (MW)
China Faces Historic Corruption Battle, New Graft Buster Says (R.)
Putin, Trump Agree To Fighting ISIS In Syria, Kremlin Says (R.)
Uber Loses Appeal In UK Employment Rights Case (G.)
Greece Prepares Online Platform for ‘Airbnb Tax’ (GR)
Dijsselbloem: We Saved the Greek Banks but Overlooked Taxpayers (GR)
FOIA Litigation Is Shedding Light On The Case Of Julian Assange (Maurizi)

 

 

Absolute must read.

“Economics failed the economy by telling us that everything that could be traded should be traded, since trade is always beneficial to humankind.”

“..the economic growth that the US has chased so desperately, so furiously, never actually existed at all.”

How Economics Failed the Economy (Haque)

When, in the 1930s, the great economist Simon Kuznets created GDP, he deliberately left two industries out of this then novel, revolutionary idea of a national income : finance and advertising. Don’t worry, this essay isn t going to be a jeremiad against them, that would be too easy, and too shallow, but that is where the story of how modern economics failed the economy and how to understand how to undo it should begin. Kuznets logic was simple, and it was not mere opinion, but analytical fact: finance and advertising don t create new value, they only allocate, or distribute existing value in the same way that a loan to buy a television isn’t the television, or an ad for healthcare isn’t healthcare. They are only means to goods, not goods themselves. Now we come to two tragedies of history.

What happened next is that Congress laughed, as Congresses do, ignored Kuznets, and included advertising and finance anyways for political reasons -after all, bigger, to the politicians mind, has always been better, and therefore, a bigger national income must have been better. Right? Let’s think about it. Today, something very curious has taken place. If we do what Kuznets originally suggested, and subtract finance and advertising from GDP, what does that picture -a picture of the economy as it actually is reveal? Well, since the lion’s share of growth, more than 50% every year, comes from finance and advertising -whether via Facebook or Google or Wall St and hedge funds and so on- we would immediately see that the economic growth that the US has chased so desperately, so furiously, never actually existed at all.

Growth itself has only been an illusion, a trick of numbers, generated by including what should have been left out in the first place. If we subtracted allocative industries from GDP, we’d see that economic growth is in fact below population growth, and has been for a very long time now, probably since the 1980s and in that way, the US economy has been stagnant, which is (surprise) what everyday life feels like. Feels like. Economic indicators do not anymore tell us a realistic, worthwhile, and accurate story about the truth of the economy, and they never did -only, for a while, the trick convinced us that reality wasn’t. Today, that trick is over, and economies grow , but people’s lives, their well-being, incomes, and wealth, do not, and that, of course, is why extremism is sweeping the globe. Perhaps now you begin to see why the two have grown divorced from one another: economics failed the economy.

Now let us go one step, then two steps, further. Finance and advertising are no longer merely allocative industries today. They are now extractive industries. That is, they internalize value from society, and shift costs onto society, all the while, creating no value themselves. The story is easiest to understand via Facebook’s example: it makes its users sadder, lonelier, and unhappier, and also corrodes democracy in spectacular and catastrophic ways. There is not a single upside of any kind that is discernible -and yet, all the above is counted as a benefit, not a cost, in national income, so the economy can thus grow, even while a society of miserable people are being manipulated by foreign actors into destroying their own democracy. Pretty neat, huh?

It was *because* finance and advertising were counted as creative, productive, when they were only allocative, distributive that they soon became extractive. After all, if we had said from the beginning that these industries do not count, perhaps they would not have needed to maximize profits (or for VCs to pour money into them, and so on) endlessly to count more. But we didn’t. And so soon, they had no choice but to become extractive: chasing more and more profits, to juice up the illusion of growth, and soon enough, these industries began to eat the economy whole, because of course, as Kuznets observed, they allocate everything else in the economy, and therefore, they control it.

Read more …

Discuss. Do social media make you depressed?

How Did The News Go ‘Fake’? When The Media Went Social (G.)

The Collins Dictionary word of the year for 2017 is, disappointingly, “fake news”. We say disappointingly, because the ubiquity of that phrase among journalists, academics and policymakers is partly why the debate around this issue is so simplistic. The phrase is grossly inadequate to explain the nature and scale of the problem. (Were those Russian ads displayed at the congressional hearings last week news, for example?) But what’s more troubling, and the reason that we simply cannot use the phrase any more, is that it is being used by politicians around the world as a weapon against the fourth estate and an excuse to censor free speech. Definitions matter. Take, for example, the question of why this type of content is created in the first place.

There are four distinct motivations for why people do this: political, financial, psychological (for personal satisfaction) and social (to reinforce our belonging to communities or “tribes”). If we’re serious about tackling mis- and disinformation, we need to address these motivations separately. And we think it’s time to give much more serious consideration to the social element. Social media force us to live our lives in public, positioned centre-stage in our very own daily performances. Erving Goffman, the American sociologist, articulated the idea of “life as theatre” in his 1956 book The Presentation of Self in Everyday Life, and while the book was published more than half a century ago, the concept is even more relevant today. It is increasingly difficult to live a private life, in terms not just of keeping our personal data away from governments or corporations, but also of keeping our movements, interests and, most worryingly, information consumption habits from the wider world.

The social networks are engineered so that we are constantly assessing others – and being assessed ourselves. In fact our “selves” are scattered across different platforms, and our decisions, which are public or semi-public performances, are driven by our desire to make a good impression on our audiences, imagined and actual. We grudgingly accept these public performances when it comes to our travels, shopping, dating, and dining. We know the deal. The online tools that we use are free in return for us giving up our data, and we understand that they need us to publicly share our lifestyle decisions to encourage people in our network to join, connect and purchase.

But, critically, the same forces have impacted the way we consume news and information. Before our media became “social”, only our closest family or friends knew what we read or watched, and if we wanted to keep our guilty pleasures secret, we could. Now, for those of us who consume news via the social networks, what we “like” and what we follow is visible to many – or, in Twitter’s case, to all, unless we are in that small minority of users who protect their tweets. Consumption of the news has become a performance that can’t be solely about seeking information or even entertainment. What we choose to “like” or follow is part of our identity, an indication of our social class and status, and most frequently our political persuasion.

Read more …

The Fed is not the biggest player anymore.

Global Economy: Communication Breakdown? (R.)

A flattening of government bond yield curves that may presage an economic downturn could prompt verbal interventions in the coming week by central bankers still struggling to hit this cycle’s inflation targets. ECB chief Mario Draghi, U.S. Fed Chair Janet Yellen, BOJ Governor Haruhiko Kuroda and BOE head Mark Carney will form an all-star panel on Tuesday at an ECB-hosted conference in Frankfurt. The subject? “Challenges and opportunities of central bank communication.” Curve-flattening on both sides of the Atlantic, but more markedly in the United States, suggests investors have doubts over the future path of inflation and may be starting to price in a downturn just as the global economy picks up speed.

Since the Fed began raising rates in 2015, the difference between long- and short-term U.S. yields has shrunk to levels not seen since before the 2008 financial crisis, reaching 67 basis points – its flattest in a decade – in the past week. That partly reflects uncertainty about the passage of a Republican-sponsored bill to cut U.S. taxes, which has hauled down longer-term projections of inflation while expectations for upcoming rate increases push short-term yields higher. With curve-flattening typically signaling a muted outlook for both growth and inflation, the trend suggests investors see a risk that the Fed’s current monetary tightening cycle will start to slow the world’s biggest economy. A flatter curve, which makes lending less profitable, also poses a risk to the banking sector, nursed back to fragile health by central banks after it nearly collapsed a decade ago. But with crisis-era policies still largely in place, how would central banks cushion the impact of a downturn?

Read more …

Because of Draghi and Kuroda.

Financial Markets Are Still Blowing Off the Fed (WS)

There has been a lot of hand-wringing about junk bonds this week, that they have gotten clobbered, that losses have been taken, that this is a predictor of where stocks are headed, etc., etc., because after a steamy rally in junk-bond prices from the February 2016 low, there has now been a sell-off. When bond prices fall, bond yields rise by definition. And the average yield of BB-rated junk bonds – the upper end of the junk-bond spectrum – did this:

No one likes to lose money, and junk bonds did lose money this week, an astounding event, after all the easy money that had been made since early February 2016. But how far have yields really spiked? The chart below shows the same BofA Merrill Lynch US High Yield BB Effective Yield index, but it puts that “spike” into a three-year context:

For further context, the BB yield spiked – a true spike – to over 16% during the Financial Crisis, as bond prices crashed and as credit froze up. Currently, at 4.36%, the average BB yield is off record lows, but it’s still low, and junk bond prices are still enormously inflated, given the inherent credit risks, and have a lot further to fall before any hand-wringing is appropriate. The low BB yield means that risky companies with a junk credit rating can still borrow money at near record low costs in a world awash in global liquidity that is trying to find a place to go. This shows that “financial conditions” are very easy. The market has now four Fed rate hikes under its belt and the QE unwind has commenced. Another rake hike is likely in December. Tightening is under way. By “tightening” its monetary policy, the Fed attempts to tighten financial conditions in the markets. That’s its goal.

But that hasn’t happened yet. While short-term yields have responded to the rate hikes, longer-term yields are now lower than they’d been at the time of the rate hike in December 2016. Stocks have rocketed higher. Volatility indices are near record lows. And various yield spreads have narrowed sharply – for example, the difference between the 10-year Treasury yield and the 2-year Treasury yield is currently just 0.73 percentage points. In other words, raising money is easy and cheap. And “financial stress” in the markets, as measured by the St. Louis Fed’s Financial Stress Index, has just hit a record low. In the chart below, the red line (= zero) represents “normal financial market conditions.” Values below the red line indicate below-average financial market stress. Values above the red line indicate higher than average financial stress. The latest reading of the index dropped to -1.60, by a hair below the prior record low in 2014:

In other words, financial conditions have never been easier despite the current series of rate hikes, the Fed’s “balance-sheet normalization, and the hand-wringing about junk bonds this week. The chart below shows the Financial Stress Index going back to 2014. In that time frame, all values are below zero. Financial stress in the markets was heading back to normal in late 2015 and early 2016, as a small sector of the total markets – energy junk-bonds – were getting crushed and as the S&P 500 index experienced a downdraft. But in early February 2016, everything turned around:

Read more …

Europe’s problem is huge: “..the ECB repurchase program exceeds net sovereign bond issuances in the eurozone by more than seven times. Throughout the US QE (quantitative expansion) of the Federal Reserve, it never reached 100% of net issuances.” Thing is, it’s Draghi who keeps the global economy going.

Is There Any Way Out Of The ECB’s Trap? (Lacalle)

The ECB faces the Devil’s Alternative that Frederick Forsyth mentioned in one of his books. All options are potentially risky. Mario Draghi knows that maintaining the so-called stimuli involves more risks than benefits, but also knows that eliminating them could make the eurozone deck of cards collapse. Despite the massive injection of liquidity, he knows that he can not disguise political risks such as the secessionist coup in Catalonia. The Ibex reflects this, making it clear that the European Central Bank does not print prosperity, it only puts a floor to valuations. The ECB wants a weak euro. But it is a game of juggling to pretend a weak euro and at the same time a strong economy. The EU countries export mostly to themselves. Member countries sell more than two-thirds of their goods and services to other countries in the eurozone.

Therefore, the more they export and their economies recover, the stronger the euro, and with it, the risk of losing competitiveness. The ECB has tried to break the euro strength with dovish messages, but it has not worked until political risk reappeared. With the German elections and the prospect of a weak coalition, the results of the Austrian elections and the situation in Spain, market operators have realized – at last – that the mirage of “this time is different “in the European Union was simply that, a mirage. A weak euro has not helped the EU to export more abroad. Non-EU exports from the member countries have been stagnant since the monetary stimulus program was launched, even though the euro is much weaker than its basket of currencies compared to when the stimulus program began. The Central Bank Trap. This shows that export growth is not achieved by artificial subsidies such as a devaluation, but from added value, something that the EU has stopped looking for.

Escape From The Central Bank Trap explains that the ECB has got itself in a problem that is not easy to solve. The first evidence is that it should have finished its stimuli months ago according to its own plan, but is unable to do it. The second is that, with more than a trillion euros of excessive liquidity, the ECB keeps a figure of repurchases that were clearly unnecessary and that have resulted in the figure of excess liquidity being multiplied by more than ten. The third is that perverse incentives have taken over the European economic policy. Risks are relevant. This week I had the opportunity to speak at the Federal Reserve Bank of Houston and I explained that the ECB repurchase program exceeds net sovereign bond issuances in the eurozone by more than seven times. Throughout the US QE (quantitative expansion) of the Federal Reserve, it never reached 100% of net issuances.

Now that the ECB “reduces” these repurchases to 30 billion euros per month, it will continue to be more than 100% of net issuances. What does that mean? That the US always maintained a healthy secondary market alive, which guaranteed that there would not be huge risks of collapse when tapering started, because the Federal Reserve bought less than what was issued, paying attention to the market accepting the valuations of bonds and financial assets. By extending the repurchase program, the ECB admits that it does not know if there is a secondary market that would buy European government bonds at current yields. Ask yourself a question. Would you buy bonds from a heavily indebted state that has stopped its reform impulse with a 10-year yield of less than 2%, if the ECB did not buy them back? Exactly. No.

Read more …

What’s needed is a whole overthrow of taxation as we know it. The Paradise Papers point to where the changes should be.

How to Break Out of Our Long National Tax Nightmare (BW)

President Donald Trump wanted to call it the Cut Cut Cut Act. Congressional Republicans settled on the less catchy and no more descriptive Tax Cuts and Jobs Act. What the legislation that began making its way through the U.S. House of Representatives in early November actually would do is sharply reduce taxes for business while rearranging the personal income tax with a mix of cuts and increases. House Speaker Paul Ryan called the bill “a game changer for our country.” The president said it was “the rocket fuel our economy needs to soar higher than ever before.” That’s a lot to expect from some changes in the tax code. But then, here in the U.S. we’ve come to expect big things of our income taxes. On the right, cutting them has been portrayed for decades as a near-magical growth elixir. On the left, raising or rearranging them is seen as essential to making society fairer.

And across the political spectrum, economic and social policies have come to rely on carving credits, deductions, and other exceptions out of the tax code to favor this or that behavior. It can sometimes feel, in fact, as if “we have lost sight of the fact that the fundamental purpose of our tax system is to raise revenues to fund government.” That was the lament of President George W. Bush’s Advisory Panel on Federal Tax Reform in November 2005. But this bipartisan group of worthies couldn’t agree on how to raise those revenues either, instead offering two plans with differing priorities. Both were mostly ignored by Congress at the time, though some of the recommendations—such as shrinking the tax deductions for mortgage interest and state and local taxes—have found their way into this year’s bill. Overall, though, it appears that the legislation will only make it harder to raise revenue to fund government.

The House and Senate have passed budget resolutions clearing the way for $1.5 trillion in revenue losses over the next decade from the tax changes. That’s $150 billion a year to add to a federal deficit that totaled a sinister-sounding $666 billion, 3.5% of GDP, in the just-ended fiscal year. All of which is a longer way of saying that we’ll almost certainly be back at this once again in the all-too-foreseeable future, trying to figure out a better way to fund the government. Since 1981, the year of President Ronald Reagan’s big tax cut, Congress has passed and presidents have signed 55 bills that the Urban-Brookings Tax Policy Center counts as “major” tax legislation. During the prior 36 years there had been just 18. [..] Ominously, most previous U.S. tax eras ended with major wars that required big increases in government revenue. Let’s hope it doesn’t take that to break us out of the cut-reform-increase-repeat loop we’re currently trapped in.

Read more …

This will make the next debt round a lot harder, and more expensive.

Tesla’s Junk Bonds Trading Under Water, Could Spell Trouble For Elon Musk (MW)

Tesla’s first-ever pure corporate bonds are trading under water, boding ill for the Silicon Valley car maker’s next attempt to tap capital markets. Tesla sold $1.8 billion in the senior notes in August at a yield of 5.300%, at the height of excitement about the Model 3 and expectations the sedan’s production ramp would run as smoothly as Chief Executive Elon Musk had predicted. That same month, Tesla shares rose 10% to mark their last monthly gain this year so far. The stock lost 4.2% in September and 2.8% in October. The stock is down 9% so far in November, on the heels of a quarterly miss earlier in the month and news that the company has further pushed out its Model 3 production targets. “Third-quarter results put some pressure on the cash flow needs,” said Efraim Levy, an analyst with CFRA Research.

The wider-than-expected quarterly loss and production delays “makes it harder for them to get a sweeter deal than they had in the past,” on capital raising, be it when selling bonds or equity, he said. The 5.300% notes, which mature in 2025, were trading at 94 cents on the dollar on Friday to yield 6.287%, according to trading platform MarketAxess. On a spread basis, they were trading at 393 basis points above comparable Treasurys. The bonds fell under par within a week of issuance, but were holding above 97 cents for much of October. Wall Street has long seemed to accept that Tesla’s high capital expenses and negative free cash flow will be the reality for the company at least in the short term.

But the weak performance of the bonds may be a sign that bond investors, at least, are starting to disbelieve Tesla’s growth story and will be looking for higher premiums to take on higher risk, said Trip Miller, a managing partner at hedge fund, Gullane Capital LLC. That higher cost of borrowing will have its own negative implications, he said. “Maybe the dam is starting to break for Tesla,” Miller said. Gullane does not have a position in Tesla because “their balance sheet is very, very troublesome for us,” he said.

Read more …

Everyone’s fighting corruption these days. Time for us to start doing the same?

China Faces Historic Corruption Battle, New Graft Buster Says (R.)

China must win its battle against corruption or face being erased by history, its new top graft buster said in an editorial on Saturday, underscoring the ruling Communist party’s focus on eliminating corrupt behaviour. Zhao Leji, appointed to the new seven-member politburo standing committee last month and tasked to lead president Xi Jinping’s signature war on corruption, wrote in the state-run People’s Daily that failure would lead to the party’s downfall. “If our control of the party is not strong and party governance is not strict, then the party won’t be able to avoid being erased by history and the historic task the party carries will not be able to be fulfilled,” Zhao wrote. Xi, like others before him, has warned corruption is so serious it could lead to the end of the party’s grip on power.

The president’s corruption fight has ensnared more than 1.3 million officials. At last month’s five-yearly party congress he said it would continue to target both “tigers” and “flies“, a reference to elite officials and ordinary bureaucrats. Zhao, formerly a low-profile official, replaced Wang Qishan, whose sweeping anti-graft campaign had made him China’s second most-powerful politician. “The facts tell us and warn us that the party’s position as the top political leader and power is the foundation of our political stability, economic development, national unity and social stability,” Zhao wrote. Zhao leads the central commission for discipline inspection, having previously been in charge of the party’s powerful organisation department, which is in charge of personnel decisions. He added that there would be no tolerance of people who “just do what they want to do” and ignore orders or carry on with banned behaviours such as trying to get around policy decisions.

Read more …

It’s crazy these people are kept from talking.

Putin, Trump Agree To Fighting ISIS In Syria, Kremlin Says (R.)

Russian President Vladimir Putin and U.S. President Donald Trump agreed a joint statement on Syria on Saturday that said they would continue joint efforts in fighting Islamic State until it is defeated, the Kremlin said. The White House did not immediately respond to questions about the Kremlin announcement or the conversation the Kremlin said took place on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in the Vietnamese resort of Danang. The Kremlin said the statement on Syria was coordinated by Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State Rex Tillerson especially for the meeting in Danang. Putin and Trump confirmed their commitment to Syria’s sovereignty, independence and territorial integrity and called on all parties to the Syrian conflict to take an active part in the Geneva political process, it said.

Moscow and Washington agree there is no military solution to the Syrian conflict, according to the text of the joint statement published on the Kremlin’s website. Television pictures from Danang showed Putin and Trump chatting – apparently amicably – as they walked to the position where the traditional APEC summit photo was being taken at a viewpoint looking over the South China Sea. Earlier pictures from the meeting show Trump walking up to Putin as he sits at the summit table and patting him on the back. The two lean in to speak to each other and clasp each other briefly as they exchange a few words. Although the White House had said no official meeting was planned, the two also shook hands at a dinner on Friday evening. Trump has shown little appetite for holding talks with Putin unless there is some sense that progress could be made on festering issues such as Syria, Ukraine and North Korea.

Read more …

“Companies are hiding behind technology, bogusly classifying people as self-employed so they can get away from paying minimum wage.”

Uber Loses Appeal In UK Employment Rights Case (G.)

The ride-hailing firm Uber has lost its appeal against a ruling that its drivers should be classed as workers with minimum-wage rights, in a case that could have major ramifications for labour rights in the growing gig economy. The US company, which claims that drivers are self-employed, said it would launch a further appeal against the Employment Appeal Tribunal decision, meaning the case could end up in thesupreme court next year. Drivers James Farrar and Yaseen Aslam won an employment tribunal case last year after arguing they should be classified as workers, citing Uber’s control over their working conditions. Uber challenged the ruling at the tribunal in central London, warning that it could deprive riders of the “personal flexibility they value”. It claims that the majority of its drivers prefer their existing employment status.

The Independent Workers’ Union of Great Britain (IWGB), which backed the appeal, said drivers will still be able to enjoy the freedoms of self-employment – such as flexibility in choosing shifts – even if they have worker status. The union said the decision showed companies in the gig economy – which involves people on flexible working patterns with irregular shifts and minimal employment rights – have been choosing to “deprive workers of their rights”. Farrar said: “It is time for the mayor of London, Transport for London and the transport secretary to step up and use their leverage to defend worker rights rather than turn a blind eye to sweatshop conditions.” “If Uber are successful in having this business model, obliterating industrial relations as we know them in the UK, then I can guarantee you on every high street, in retail, fast food, any industry you like, the same thing will go on.”

Farrar said he was willing to fight the case all the way to the supreme court if necessary but called on Uber’s new chief executive, Dara Khosrowshahi, to intervene instead. “We’ve asked to meet him when he came to London and Uber declined to do that, which tells you everything.” Aslam said: “Today is a good day for workers, we made history. The judge confirmed that Uber is unlawfully denying our rights.” “It’s about making sure workers across the UK are protected. Companies are hiding behind technology, bogusly classifying people as self-employed so they can get away from paying minimum wage. That can’t be allowed to happen.”

Read more …

Good.

Greece Prepares Online Platform for ‘Airbnb Tax’ (GR)

Greece is cracking down on undeclared income of owners leasing residential lodgings on a short-term basis. Tax authorities are creating an online platform where Airbnb lodged properties should be declared, or face a hefty fine. According to a report in Naftemporiki, registration will be mandatory and it will provide property owners with a certification number, which should be declared on any digital platform, website and social media where it is advertised – including the Airbnb website. The platform will demand the declaration of the property, the names of the renters and the duration of the lease, or otherwise face a fine of up to €5,000. Naftemporiki says that income from short-term residential leasing will be taxed based on income.

Specifically, for a taxpayer with a yearly income of up to 12,000 euros, the tax rate for income derived from short-term residential leasing will reach 15%; 35% for a taxpayer with between 12,000 to 35,000 euros in annual income. Above an annual income of 45,000 euros, a taxpayer’s income from short-term residential leasing will reach the astronomical rate of 45%, i.e. nearly one in two euros goes to the state. Tax authorities aim to collect revenue from people who put their property for lease on Airbnb, as many crisis-hit Greeks try to make ends meet by renting their homes to foreign visitors. It is estimated that three million tourists will be hosted in Greek homes in 2017.

Read more …

He’s lying. They didn’t act to save the Greek banks, but the German and French ones. And he knows it.

Dijsselbloem: We Saved the Greek Banks but Overlooked Taxpayers (GR)

Outgoing Eurogroup chief Jeroen Dijsselbloem acknowledged on Thursday that Greece’s creditors put too much emphasis on saving the banks at the expense of ordinary taxpayers. In an exchange of views on Greece in the European Parliament’s Employment and Social Affairs Committee, Dijsselbloem was asked if he agrees with the view that Greece’s first bailout programme was designed to support the banks. Dijsselbloem noted that “banks were the biggest problem in all countries,” at the start of the crisis. “We had a banking crisis, a fiscal crisis and we spent a lot of the tax-payers’ money – in the wrong way, in my opinion – to save the banks so that the people criticizing us and saying that everything was being done for the benefit of the banks were to some extent right,” he said.

“This was the reason why we introduced the banking union and the introduction of higher standards, better supervision and a reform and rescue framework when banks have losses…Precisely so that we don’t find ourselves in that situation again,” Dijsselbloem added. Dijsselbloem also claimed that the labour market reforms adopted by Greece had brought “clear improvements” that were reflected in the latest unemployment figures in the country. Referring to the programme as a whole, the outgoing Eurogroup president said the economic situation in Greece had improved as a result of the reforms and stressed the need to conclude the third review on time.

Read more …

This story gets darker fast. The UK deleted a lot of documents relvant to the Assange accusations AND told the Swedes not to talk to him in London.

FOIA Litigation Is Shedding Light On The Case Of Julian Assange (Maurizi)

The siege by Scotland Yard agents around the red brick building in Knightsbridge has been gone for two years now. And with Sweden dropping the rape investigation last May, even the European arrest warrant hanging over Julian Assange’s head like the sword of Damocles has gone. Many expected the founder of WikiLeaks to leave the Ecuadorian Embassy in London, where he has been confined for over five years, after spending one and a half years under house arrest. But Assange hasn’t dared leave the Embassy due to concern he would be arrested, extradited to the US and charged for publishing WikiLeaks’ secret documents.

Julian Assange’s situation is unique. Like him and his work or not, he is the only western publisher confined to a tiny embassy, without access to even the one hour a day outdoors maximum security prisoners usually receive. He is being arbitrarily detained, according to a decision by the UN Working Group on Arbitrary Detentions in February 2016, a decision which has completely faded into oblivion. December 7th will mark seven years since he lost his freedom, yet as far as we know, in the course of these last 7 years no media has tried to access the full file on Julian Assange.

That is why next Monday, La Repubblica will appear before a London Tribunal to defend the press’ right to access the documents regarding his case, after spending the last two years attempting Freedom of Information requests (FOI) without success. It is entirely possible, however, that we will never be able to access many of these documents, as last week London authorities informed us that “all the data associated with Paul Close’s account was deleted when he retired and cannot be recovered”. A questionable choice indeed: Close is the lawyer who supported the Swedish prosecutors in the Swedish investigation on Julian Assange from the beginning. What was the rationale for deleting historical records pertaining to a controversial and still ongoing case?

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 …

Jul 032017
 
 July 3, 2017  Posted by at 9:32 am Finance Tagged with: , , , , , , , , , ,  6 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


Paul Klee Girl in Mourning 1939

 

Merkel Promises Full Employment In Party Platform (R.)
Theresa May Steps Back From Public Sector Pay Cap Amid Austerity Backlash (Ind.)
Donald Trump May Make ‘Sneak’ Visit To UK Within Fortnight (G.)
Maine, New Jersey Lawmakers Scramble To End Partial Government Shutdowns (R.)
Illinois House Approves Major Income Tax Hike (CTrib)
China Inc’s $7.8 Billion of Dividend Payments Will Stress the Yuan (BBG)
Japan PM Abe’s Party Suffers Historic Defeat In Tokyo Election (R.)
Abe’s Mentor Says BOJ Needs Fresh Face as Kuroda Is Out of Ideas (BBG)
Saudi Arabia, Allies Give Qatar Two More Days To Accept Demands (R.)
The Crash of 1929 (Jesse’s Café/PBS)
Italy Urges EU Ports To Take Migrants As Pressure Builds (AFP)
‘Our Future Is Slavery, The West Gets Everything’ – Congo (RT)

 

 

Note: tomorrow’s a travel day for me. Not sure about a Debt Rattle.

 

 

Plus tax relief. Plus support for young families to build new housing. Now compare that to Greece, where over half of young people are unemployed, and where taxes are being raised all the time and pensions cut. That, too, is a German decision. But Greeks don’t get to vote for or against Merkel.

Merkel Promises Full Employment In Party Platform (R.)

Chancellor Angela Merkel’s conservatives will promise to all but eliminate unemployment in Germany by the year 2025 when they announce their 2017 election campaign platform on Monday. Merkel’s Christian Democrats (CDU) and their Bavarian sister party, the Christian Social Union (CSU), will present their platform for the Sept. 24 election on Monday with other already known policies such as income tax cuts worth 15 billion euros per year and promises to build flats. “A major point is that we’d like to achieve full employment,” Horst Seehofer, CSU chairman and state premier in Bavaria, said on Sunday on his way into a meeting of the conservative leadership. The CDU/CSU consider full employment to be a jobless rate of less than 3% – compared to 5.5% now.

Those “Economic Miracle” levels of unemployment have not been seen in the country since the mid-1970s. The two parties also want to add 15,000 police officers in the 16 federal states. The sister parties, however, will not agree on a joint position on refugees. The CSU wants an upper limit of 200,000 per year, which Merkel and the CDU rejects. “We agree to disagree on that,” Interior Minister Thomas de Maiziere (CDU) said in a Bild am Sonntag newspaper interview, referring to the issue that split the two parties badly since some 1 million refugees arrived in late 2015. The CDU/CSU hold a 16%age point lead over the center-left Social Democrats in opinion polls with a 40-24 lead, but would still need a coalition partner. They rule with the SPD and in the past they have ruled with the Free Democrats (FDP).

[..] Earlier on Sunday, CDU Finance Minister Wolfgang Schaeuble said in a radio interview there could be room to cut taxes by more than the €15 billion already announced. Germany has had balanced budgets since 2014 and the government plans to have no new borrowing in its planning through 2021. Schaeuble told Deutschlandfunk radio he hoped there could be tax relief beyond that already promised €15 billion income tax cut. “We’re planning, all in all, to do more than just correcting the income taxes by €15 billion,” he said, referring to plans to reduce the country’s “cold progression” tax increases – or clandestine tax increases. [..] Schaeuble said aside from fighting “cold progression”, the Christian Democrats want to support young families to build new housing while also supporting research and development for small- to medium-sized companies.

Read more …

Messing it up as they go along.

Theresa May Steps Back From Public Sector Pay Cap Amid Austerity Backlash (Ind.)

Tory austerity appeared to be crumbling at the edges today, as Theresa May further distanced herself from a hated public sector pay freeze. Downing Street said the Government would consider potential wage increases for nurses, police officers and firefighters on a “case by case” basis after a string of top cabinet ministers signalled backing for an end to the blanket 1 per cent cap on all public servants. Environment Secretary Michael Gove said the Government should now listen to the recommendations of salary review bodies ignored by ministers for almost ten years. Education Secretary Justine Greening and Health Secretary Jeremy Hunt are also both reported to be pushing for new deals for teachers and nurses. The Independent reported last week how the Government faced a first ever strike from the Royal College of Nursing over a crisis in the profession.

There has also been mounting pressure from Jeremy Corbyn’s Labour – whose party fought a successful election campaign on an anti-austerity message. A Downing Street spokesman defended the Government’s record, but pointed to potential changes ahead. He said: “Dealing with the economic mess we inherited from Labour has meant hard work and sacrifice, including for public sector workers. That hard work and those tough decisions have helped get our deficit down by three quarters, and public sector pay restraint has helped us protect jobs. “Independent public sector pay review bodies are currently reporting to Government and we are responding to them on a case-by-case basis. While we understand the sacrifice that has been made, we must also ensure we continue to protect jobs and deal with our debts.”

Read more …

What is the Queen would be received like this?:

“MPs and trade unions vowed to hold the largest demonstrations in UK history if Donald Trump made a state visit to the UK..”

Donald Trump May Make ‘Sneak’ Visit To UK Within Fortnight (G.)

Anti-Donald Trump protesters are preparing to spring into action at short notice, after it emerged that Downing Street is braced for a snap visit from the US president in the next two weeks. A formal state visit, which was expected to take place over the summer, was postponed last month, amid fears that it could be disrupted by mass protests, despite Theresa May extending the invitation personally when she visited the White House late last year. But Whitehall sources confirmed the government has now been warned that the president could visit Turnberry, his golf resort in Scotland, during his trip to Europe, between attending the G20 summit in Hamburg next weekend and joining celebrations for Bastille Day in France on 14 July.

Trump would be expected to come to Downing Street to meet the prime minister for informal talks as part of any such visit – though final confirmation would be likely to be given with just 24 hours’ notice, to minimise the risk of disruption. May invited Trump to Britain seven days after his inauguration when she became the first foreign leader to visit him in the White House. In February activists, MPs and trade unions vowed to hold the largest demonstrations in UK history if Donald Trump made a state visit to the UK, forming The Stop Trump coalition, even hiring a permanent staff member. In early June, just after the UK general election, it emerged that the US president had told May that he did not want to go ahead with the state visit to Britain until the British public supports his coming, fearing large-scale demonstrations.

Read more …

How about you borrow some more, guys? Or, you know, come clean and tell people their pensions are shot.

Maine, New Jersey Lawmakers Scramble To End Partial Government Shutdowns (R.)

Partial government shutdowns in Maine and New Jersey entered a second day on Sunday as lawmakers returned to their respective state capitals in a bid to break budget impasses that have led to the suspension of many nonessential services. In Maine, a bipartisan legislative committee met in Augusta in hopes of breaking a stalemate between Republican Governor Paul LePage and Democratic lawmakers. The shutdown came after LePage threatened to veto a compromise reached by lawmakers in the state’s $7.055 billion, two-year budget. In New Jersey, the legislature was due to reconvene to resolve a political fight over a controversial bill that Governor Chris Christie said must be passed alongside the state’s budget.

After House Republicans in Maine voted to reject a compromise deal on Saturday, the Bangor Daily News reported that Republican Minority Leader Ken Fredette presented a $7.1 billion plan he said could get the governor’s approval, but some Democrats noted that was costlier than the rejected compromise. “The Speaker thinks it is unconscionable that Maine doesn’t have a budget, especially leading into the holiday weekend,” Mary-Erin Casale, a spokeswoman for Democratic House Speaker Sara Gideon, said Sunday morning. If the budget committee meeting on Sunday in Augusta agrees on a deal, the measure would go to the full legislature. LePage has insisted on a budget with deeper spending cuts than those contemplated by lawmakers and has promised to veto any spending plan that raises taxes.

Read more …

Sign of things to come.

Illinois House Approves Major Income Tax Hike (CTrib)

The Illinois House on Sunday approved a major income tax increase as more than a dozen Republicans broke ranks with Gov. Bruce Rauner amid the intense pressure of a budget impasse that’s entered its third year. The Republican governor immediately vowed to veto the measure, saying Democratic House Speaker Michael Madigan was “protecting the special interests and refusing to reform the status quo.” The measure, which needed 71 votes to pass and got 72, is designed to start digging the state out of a morass left by the lengthy stalemate. Madigan, in a statement, praised the action as “a crucial step toward reaching a compromise that ends the budget crisis by passing a fully funded state budget in a bipartisan way.”

The tax hike now heads to the Senate, but whether there will be enough votes to send it to Rauner’s desk is in question. When the Senate approved its own tax hike in late May, no Republicans voted for it and several Democrats voted against it. Senators return to the Capitol on Monday. The crucial vote in the House was the big story Sunday, though. Ultimately, pressure that had built up in districts across the state moved enough Republicans to defy the governor. With state government operating without a budget for two full years, public universities risk losing their accreditation, social service providers are closing their doors and layoffs of road construction workers are imminent.

Adding to lawmakers’ anxiety was a promised downgrade of the state’s credit rating to junk status, which could spike the cost of borrowing at a time when the state has $15 billion in unpaid bills. Left out of the House budget package was a plan for dealing with the unpaid bills, though both sides generally agree that some amount of borrowing will be needed. Rauner, a former private equity specialist from Winnetka, had spent tens of millions of dollars on legislative campaigns and TV ads to prop up the Illinois Republican Party as a counterweight to Madigan and his labor union allies. And Republican lawmakers largely had stuck by their governor — until Sunday. [..] The proposal mirrors a plan the Senate passed earlier this year and calls for raising the personal income tax rate from the current 3.75% to 4.95%, which would generate roughly $4.3 billion. An increase in the corporate income tax rate from 5.25% to 7% would bring in another $460 million.

Read more …

Bearish on the dollar? You sure?

China Inc’s $7.8 Billion of Dividend Payments Will Stress the Yuan (BBG)

The yuan’s rebound may be undermined by a seasonal hunt for dollars as Chinese companies prepare to pay dividends to shareholders overseas. Demand for the greenback and other currencies will peak at $7.8 billion in July, a substantial sum considering that local lenders settled an average of $11.8 billion in foreign-exchange for clients in the first five months of 2017. China’s currency reserves have shrunk every July in the last three years, with former regulator Guan Tao saying last week that demand for foreign-exchange surges in this period. China’s exchange rate has turned more volatile in the past two months, climbing the most in more than a year in May and then declining in June before suspected central bank intervention spurred a rally.

Goldman Sachs warned capital outflows have picked up, while recent data suggest the economy is showing signs of slowing as an official deleveraging drive crimps spending. “The need for dividend payouts will pressure the yuan and may pressure a recent increase in China’s foreign reserves,” said Xia Le at BBVA. “The yuan’s advance in the past few days is not sustainable – short-term factors such as dividend payments and long-term ones like capital outflows will work together to push the currency weaker in the coming months.” Offshore-listed Chinese firms need to pay a combined $16 billion of dividends in foreign exchange in the three months through August. That includes $2.4 billion in June and $5.9 billion for August.

Read more …

Abe will shuffle his cabinet to deflect attention from himself. But he’s in trouble.

Japan PM Abe’s Party Suffers Historic Defeat In Tokyo Election (R.)

Prime Minister Shinzo Abe’s Liberal Democratic Party suffered an historic defeat in an election in the Japanese capital on Sunday, signaling trouble ahead for the premier, who has suffered from slumping support because of a favoritism scandal. On the surface, the Tokyo Metropolitan assembly election was a referendum on Governor Yuriko Koike’s year in office, but the dismal showing for Abe’s party is also a stinging rebuke of his 4-1/2-year-old administration. Koike’s Tokyo Citizens First party and its allies took 79 seats in the 127-seat assembly. The LDP won a mere 23, its worst-ever results, compared with 57 before the election. “We must recognize this as an historic defeat,” former defense minister Shigeru Ishiba was quoted as saying by NHK.

“Rather than a victory for Tokyo Citizens First, this is a defeat for the LDP,” said Ishiba, who is widely seen as an Abe rival within the ruling party. Past Tokyo elections have been bellwethers for national trends. A 2009 Tokyo poll in which the LDP won just 38 seats was followed by its defeat in a general election that year, although this time no lower house poll need be held until late 2018. [..] “We must accept the results humbly,” said Hakubun Shimomura, a close Abe ally and head of the LDP’s Tokyo chapter. “The voters have handed down an extremely severe verdict.” Abe is expected to reshuffle his cabinet in coming months in an effort to repair his damaged ratings, a step often taken by beleaguered leaders but one that can backfire if novice ministers become embroiled in scandals or commit gaffes.

Read more …

If Kuroda’s out of ideas, that means Abenomics has failed. And that in turn means Abe should go too.

Abe’s Mentor Says BOJ Needs Fresh Face as Kuroda Is Out of Ideas (BBG)

Haruhiko Kuroda shouldn’t serve another term as governor of the Bank of Japan because the central bank will need fresh ideas as it moves toward exiting years of unprecedented monetary easing, according to an adviser to the prime minister. “An exit will surely come up within the next five years and we need someone who can prepare for it,” said Nobuyuki Nakahara, a former BOJ board member. “He will fall into inertia and struggle to come up with bold new ideas. It’s the same in the private sector when a corporate president stays too long,” he said. Nakahara’s comments come amid growing speculation among private economists that Prime Minister Shinzo Abe will reappoint Kuroda, 72, after his five-year term ends in April.

Nakahara, who was close to Abe’s father, Shintaro, has known the prime minister since he was young and has advised him for years. In an interview on June 29, Nakahara, one of the architects of Abenomics, said he didn’t have any replacements for Kuroda in mind. But he said change at the top of the BOJ would be good because the government and central bank should strike a new accord and form a new strategy for the next five years. The current accord, issued in January 2013, says the central bank should aim for price stability at an annual inflation rate of 2%, while the government is responsible for strengthening competitiveness and the nation’s growth potential. More than four years later, the inflation target remains far off.

[..] Kuroda’s propensity to surprise markets with innovative ideas has been waning, according to Nakahara. And the strains of his record easing are particularly evident in the bank’s purchases of exchange-traded funds, which are distorting the market, he said. “They can’t keep holding ETFs forever,” he said. Nakahara offered a possible solution. How about getting companies to buy back their own shares from the BOJ? Or the BOJ could tell companies it plans to sell the shares on the market. If the companies need funding for share buybacks, the central bank could help with a loan-support program. “That’s my secret strategy,” he said.

Read more …

Really, close Al Jazeera? What an awful signal that would be. Why not close CNN then?!

Saudi Arabia, Allies Give Qatar Two More Days To Accept Demands (R.)

Four Arab states that accuse Qatar of supporting terrorism agreed to extend until Tuesday a deadline for Doha to comply with a list of demands, as U.S. President Donald Trump voiced concerns about the dispute to both sides. Qatar has called the charges baseless and says the stiff demands – including closing Qatar-based al Jazeera TV and ejecting Turkish troops based there – are so draconian that they appear designed to be rejected. Saudi Arabia, Bahrain, Egypt and the United Arab Emirates (UAE) have raised the possibility of further sanctions against Qatar if it does not comply with the 13 demands presented to Doha through mediator Kuwait. They have not specified what further sanctions they could impose on Doha, but commercial bankers in the region believe that Saudi, Emirati and Bahraini banks might receive official guidance to pull deposits and interbank loans from Qatar.

According to a joint statement on Saudi state news agency SPA, the four countries agreed to a request by Kuwait to extend by 48 hours Sunday’s deadline for compliance. Foreign ministers from the four countries will meet in Cairo on Wednesday to discuss Qatar, Egypt said on Sunday. Kuwait state media said its Emir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah had received a response by Qatar to the demands. It did not elaborate. The four states cut diplomatic and commercial ties with Qatar on June 5, accusing it of supporting terrorism, meddling in their internal affairs and cosying up to regional adversary Iran, all of which Qatar denies. Mediation efforts, including by the United States, have been fruitless. Trump spoke separately to the leaders of Saudi Arabia, Qatar and the Crown Prince of Abu Dhabi in the UAE to discuss his “concerns about the ongoing dispute”, the White House said.

Read more …

For history buffs.

The Crash of 1929 (Jesse’s Café/PBS)

“…people believed that everything was going to be great always, always. There was a feeling of optimism in the air that you cannot even describe today.” “There was great hope. America came out of World War I with the economy intact. We were the only strong country in the world. The dollar was king. We had a very popular president in the middle of the decade, Calvin Coolidge, and an even more popular one elected in 1928, Herbert Hoover. So things looked pretty good.” “The economy was changing in this new America. It was the dawn of the consumer revolution. New inventions, mass marketing, factories turning out amazing products like radios, rayon, air conditioners, underarm deodorant…One of the most wondrous inventions of the age was consumer credit. Before 1920, the average worker couldn’t borrow money. By 1929, “buy now, pay later” had become a way of life.”

“Wall Street got the credit for this prosperity and Wall Street was dominated by just a small group of wealthy men. Rarely in the history of this nation had so much raw power been concentrated in the hands of a few businessmen…” “One of the most common tactics was to manipulate the price of a particular stock, a stock like Radio Corporation of America…Wealthy investors would pool their money in a secret agreement to buy a stock, inflate its price and then sell it to an unsuspecting public. Most stocks in the 1920s were regularly manipulated by insiders ” “I would say that practically all the financial journals were on the take. This includes reporters for The Wall Street Journal, The New York Times, The Herald-Tribune, you name it. So if you were a pool operator, you’d call your friend at The Times and say, “Look, Charlie, there’s an envelope waiting for you here and we think that perhaps you should write something nice about RCA.”

And Charlie would write something nice about RCA. A publicity man called A. Newton Plummer had canceled checks from practically every major journalist in New York City… Then, they would begin to — what was called “painting the tape” and they would make the stock look exciting. They would trade among themselves and you’d see these big prints on RCA and people will say, “Oh, it looks as though that stock is being accumulated. Now, if they are behind it, you want to join them, so you go out and you buy stock also. Now, what’s happening is the stock goes from 10 to 15 to 20 and now, it’s at 20 and you start buying, other people start buying at 30, 40. The original group, the pool, they’ve stopped buying. They’re selling you the stock. It’s now 50 and they’re out of it. And what happens, of course, is the stock collapses.”

Read more …

Prediction: the EU will offer more money. They simply don’t understand that some things are not about money.

Italy Urges EU Ports To Take Migrants As Pressure Builds (AFP)

The French and German interior ministers met with their Italian counterpart Marco Minniti in Paris on Sunday to discuss a “coordinated response” to Italy’s migrant crisis, hours after Minniti had called on other European countries to open their ports to rescue ships. The working dinner at the French interior ministry – also attended by EU Commissioner for Refugees Dimitris Avramopoulos – was aimed at finding “a coordinated and concerted response to the migrant flux in the central Mediterranean (route) and see how to better help the Italians,” a source close the talks said. The four-way talks between Minniti, Thomas de Maiziere of Germany, Gerard Collomb of France and Avramopoulos will also prepare them for EU talks in Tallinn this week. “The talks went off very well,” a member of the Italian delegation told AFP after the Paris meeting, with the “Italian proposals being discussed”.

“We are under enormous pressure,” Minniti had said earlier Sunday in an interview with Il Messaggero. With arrivals in Italy up nearly 19% over the same period last year, Rome has threatened to close its ports to privately-funded aid boats or insist that funding be cut to EU countries which fail to help. “There are NGO ships, Sophia and Frontex boats, Italian coast guard vessels” saving migrants i the Mediterranean, Minniti said, referring to the aid boats as well as vessels deployed under EU border security missions. “They are sailing under the flags of various European countries. If the only ports where refugees are taken to are Italian, something is not working. This is the heart of the question,” he said. “I am a europhile and I would be proud if even one vessel, instead of arriving in Italy, went to another European port. It would not resolve Italy’s problem, but it would be an extraordinary signal” of support, he said.

Read more …

I’ve often said that the Congo is perhaps richer in resources than any other country. It should be prosperous, but instead it ranks 227th out of 230 countries for GDP per capita. That’s our doing.

From July 5, see documentary at https://rtd.rt.com/films/congo-my-precious/

‘Our Future Is Slavery, The West Gets Everything’ – Congo (RT)

RT Documentary travels to the vast, landlocked Democratic Republic of Congo, prized for its mineral resources, but plagued by centuries of colonial rule, dictatorship, civil wars and lawlessness, and meets people trying to make a living in one of the most desperate places on Earth. The documentary crew’s key to understanding the country, seven times the size of Germany, was Bernard Kalume Buleri, born in 1960, the same year DRC was granted its independence from Belgium. Buleri served as an interpreter, guide, and finally the hero and symbol of the country, having been a direct participant in some of its bloodiest chapters. “I can’t say that the Congolese, we are in control of our destiny. No, because the ones who benefit from our minerals are not the local population, but Western countries are the ones who are taking everything.

They make themselves rich, while we are getting poorer and poorer,” says Buleri. The country of almost 80 million is one of the world’s largest exporters of diamonds, coltan – essential for electronics – and has massive deposits of copper, tin and cobalt. “I’m afraid even for my children. Because they will continue in this system to be slaves forever. We’ll never be powerful enough to challenge the Western countries. So, the future will be the future of slaves,” Buleri continues. There is plenty of blame to go around for the predicament of what is also a fertile and scenic land. With almost no educated elite, DRC was poorly-prepared for its separation from Belgian rule, now best remembered for the atrocity-filled reign of King Leopold II, which may have killed as many as half of the country’s population.

The vacuum was filled by the archetype-setting African kleptocrat Mobutu Sese Seko, who ruled the country for more than three decades, until he was deposed in 1997, plunging Africa into a series of continent-wide conflicts that may have resulted in as many as 5 million deaths through violence, starvation and disease. The country’s below-ground wealth means that it was never left alone for long enough to reform and wean itself off its reliance on metals and gems – the widely-mentioned “mineral curse.” The mines the RT crew passes are now owned by local warlords, chiefs and officials, with exports mostly going to China. [..] Millions of locals – perhaps as many as one-fifth of the adult population – are employed in what is known as artisanal mining, inefficient small-scale prospecting with simple handheld tools, with no safety measures or guaranteed wages. But for a country that ranks 227th out of 230 for GDP per capita, according to World Bank data, any job at all is a matter of survival.

Read more …

Nov 192016
 
 November 19, 2016  Posted by at 9:49 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle November 19 2016
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


Unknown Dutch Gap, Virginia. Picket station of Colored troops 1864

Financial Conditions Are Rigged Against Donald Trump (BBG)
Big Short’s Steve Eisman: ‘Europe is Screwed’ (G)
Emerging Markets Borrowers Owe $3.2 Trillion In -Rising- Dollar Debt (BBG)
Dollar’s Rapid Gain Triggers Angst in Emerging Markets (WSJ)
Global Bonds Post Biggest Two-Week Loss in 26 Years (BBG)
Bond Carnage hits Mortgage Rates. But This Time, it’s Real (WS)
US Dollar Sees Steepest 2-Week Gain Against Yen Since January 1988 (R.)
Bank of Japan Surprises With Plan to Buy Unlimited JGBs at Fixed Rates (WSJ)
US Banks Close Rupee Exchanges After Large Bills Ruled Illegal (BBG)
Lobbyists Leave Trump Transition Team After New Ethics Rule (Pol.)
The Rise Of The ‘Un-Lobbyist’ (Mother Jones)
UK Approves ‘Most Extreme Surveillance In History Of Western Democracy’ (AFP)
Far-Right Group Attacks Refugee Camp On Greek Island Of Chios (G.)

 

 

Just as I wrote on election day in America is The Poisoned Chalice.

Financial Conditions Are Rigged Against Donald Trump (BBG)

The reaction in financial markets to Trump’s election victory – much like the win itself – has defied conventional wisdom, with U.S. equities surging following a sharp drop as the results came in. But if you’re an occasional real estate developer — a self-professed “low interest rate guy” who wants to fix America’s trade deficit while bringing factories back from overseas – it might seem as though markets have been rigged against you. The U.S. dollar spot index (DXY) touched levels not seen since the Clinton administration on Friday morning, and the yield on the 10-year U.S. Treasury has increased by more than 50 basis points since Nov. 9.

This rise in the greenback and borrowing costs for the U.S. constitutes a tightening of financial conditions — a potential obstacle to U.S. growth, as servicing new debt has become more expensive and goods produced domestically are now less attractive to foreigners. Earlier this week, the Goldman Sachs Financial Conditions Index rose above 100 to hit levels not seen since March, when the financial backdrop was trending in a more accommodative direction following the market turmoil that started 2016. The index tracks changes in interest rates, credit spreads, equity prices, and the value of the U.S. dollar: a rise indicates that financial conditions have tightened. “A stronger USD implies lower domestic inflation and higher real rates, a headwind to U.S. growth,” writes Neil Dutta at Renaissance Macro Research.

In her testimony before Congress on Thursday, Federal Reserve Chair Janet Yellen highlighted this rise in the U.S. dollar as well as interest rates since the election — but not the gains in the stock market. This may serve as an implicit nod at what’s reflected in many financial conditions indexes: There’s a certain degree of asymmetry at play, with the rise in the greenback and U.S. Treasury yields far outweighing the tightening of credit spreads and rise in stock values. That asymmetry perhaps speaks to an unintentional and counterintuitive overlap between how the president-elect and the Federal Reserve interpret how changes in financial conditions affect real economic activity.

Read more …

“What is very negative is that in every country in Europe, the largest owner of that country’s sovereign bonds are that country’s banks..”

Big Short’s Steve Eisman: ‘Europe is Screwed’ (G)

In the Oscar-winning The Big Short, Steve Carell plays the angry Wall Street outsider who predicts (and hugely profits from) the great financial crash of 2007-08. [..] In real life he is Steve Eisman, he is still on Wall Street, and he is still shorting stocks he thinks are going to plummet. And while he’s tight-lipped about which ones (unless you have $1m to spare for him to manage) it is evident he has one major target in mind: continental Europe’s banks – and Italy’s are probably the worst. Why Italy? Because, he says, the banks there are stuffed with “non-performing loans” (NPLs). That’s jargon for loans handed out to companies and households where the borrower has fallen behind with repayments, or is barely paying at all. But the Italian banks have not written off these loans as duds, he says.

Instead, billions upon billions are still on the books, written down as worth about 45% to 50% of their original value. The big problem, says Eisman, is that they are not worth anywhere near that much. In The Big Short, Eisman’s staff head to Florida to speak to the owners of newly built homes bundled up in “mortgage-backed securities” rated as AAA by the investment banks. What they find are strippers with loans against multiple homes but almost no income, the mortgages arranged by sharp-suited brokers who know they won’t be repaid, and don’t care. Visiting the housing estates that these triple-A mortgages are secured against, they find foreclosures and dereliction. In a mix of moral outrage at the banks – and investing acumen – Eisman and his colleagues bought as many “swaps” as possible to profit from the inevitable collapse of the mortgage-backed securities, making a $1bn profit along the way.

This time around, Eisman is not padding around the plains of Lombardy because he says the evidence is in plain sight. When financiers look to buy the NPLs off the Italian banks, they value the loans at what they are really worth – in other words, how many of the holders are really able to repay, and how much money will be recovered. What they find is that the NPLs should be valued at just 20% of their original price. Trouble is, if the Italian banks recognise their loans at their true value, it wipes out their capital, and they go bust overnight. “Europe is screwed. You guys are still screwed,” says Eisman. “In the Italian system, the banks say they are worth 45-50 cents in the dollar. But the bid price is 20 cents. If they were to mark them down, they would be insolvent.”

[..] Trump’s victory has sent the bond markets into disarray, with the yield on government bonds rising steeply. While this sounds good for savers – interest rates could rise – it is bad news for the holders of government bonds, which fall in value when the yield rises. Eisman sees that as another woe for Europe’s banks, who hold vast amounts of “sovereign bonds”. “What is very negative is that in every country in Europe, the largest owner of that country’s sovereign bonds are that country’s banks,” he says. As the bonds decline in value, then the capital base of the banks deteriorates.

Read more …

The usual victims.

Emerging Markets Borrowers Owe $3.2 Trillion In -Rising- Dollar Debt (BBG)

[..] Companies in these more-vulnerable economies have $340 billion of debt coming due through 2018, and they are going to have a hard time paying all that back if investors keep withdrawing their cash. [..] After the election of Donald Trump as the next U.S. president, many expect his infrastructure spending programs and trade policies to lead to higher consumer prices in the world’s biggest economy. Bonds tend to do poorly when inflation accelerates, especially because such an environment would prompt the Fed to raise benchmark interest rates faster than many expect. That would bad for all types of debt but particularly for notes in emerging markets. That’s because investors will migrate back to higher-rated bonds in developed economies instead of those in less-proven nations.

Also, more U.S. growth typically means a stronger dollar, which is a significant problem for emerging-market nonbank borrowers, which have accumulated more than $3 trillion in dollar-denominated debt, according to BIS data. The higher the dollar rises, the more expensive it becomes to pay back the debt. And already this week, the currency has surged because of the sudden prospect of tighter Fed policies and faster U.S. growth. The sheer scale of leverage in the economy, including “the large increase of emerging-market debt, much of it denominated in dollars,” is one of the biggest risks in the financial system right now, Adair Turner, former U.K. Financial Services Authority chairman, said in a Bloomberg Television interview Friday. All that money is owed to somebody, and a failure to pay it back will cause big ripple effects.

Read more …

if the US doesn’t manipulate its currency lower soon, it’s going to lose export markets.

Dollar’s Rapid Gain Triggers Angst in Emerging Markets (WSJ)

The dollar extended its powerful rally, spurring central banks in developing countries to take steps to stabilize their own currencies and threatening to create headwinds for the long-running U.S. expansion. The US currency moved closer to parity with the euro after rising for the 10th straight day, the dollar’s longest winning streak against the euro since the European currency’s inception in 1999. The dollar also moved higher against the yen, which fell to its weakest levels against the U.S. currency since May 30. The gains are even greater against many emerging-market currencies, prompting central banks in a number of countries to intervene to slow the slide. The Mexican peso has fallen 11% against the dollar to record lows since the election, while the Brazilian real has tumbled 6.3%.

The currency’s gains make foreign goods and travel cheaper for U.S. consumers and could give a boost to exports from Japan and Europe. But they also are reigniting fears that the dollar’s strength could slow U.S. corporate profit growth and intensify capital flight from the developing world, which would complicate the prospects for economic growth. “The strong dollar is destabilizing for markets, for foreign assets, for emerging-market nations that pay back their debt in dollars,” said Jonathan Lewis, chief investment officer Fiera Capital. “That’s pretty significant.” The dollar’s gains have been driven by bets that fiscal spending and tax cuts proposed by President-elect Donald Trump will spur U.S. economic growth, as well as by the rising probability that the Federal Reserve will raise interest rates next month.

Read more …

Too much is moving in the same direction. Sheep don’t make for healthy markets.

Global Bonds Post Biggest Two-Week Loss in 26 Years (BBG)

Bonds around the world had their steepest two-week loss in at least 26 years as President-elect Donald Trump sends inflation expectations surging. The Bloomberg Barclays Global Aggregate Index has fallen 4% since Nov. 4. It’s the biggest two-week rout in data going back to 1990. Federal Reserve Chair Janet Yellen contributed to the decline by saying Thursday an interest-rate hike could come “relatively soon.” “We’ve seen a sharp and swift move since the election, which is pricing in the potential future policies of Trump,” said Sean Simko at SEI Investments in Oaks, Pennsylvania. “The big question is to what extent these policies are going to be implemented, and how quickly are they going to be implemented.”

Treasury 10-year note yields climbed five basis points, or 0.05 percentage point, to 2.35% as of 5 p.m. in New York, reaching the highest since November 2015, according to Bloomberg Bond Trader data. The 2% security due in November 2026 closed at 96 27/32. “Trump is a game changer,” Park Sung-jin at Mirae Asset Securities. “I was bearish, but the current level is more than I expected.” The selloff has gone fast enough that it’ll probably pause before yields press higher in 2017, Park said. Yellen, addressing U.S. lawmakers Thursday, signaled the U.S. central bank is close to lifting interest rates as the economy continues to create jobs at a healthy clip and inflation inches higher.

The president-elect’s pledges include tax cuts and spending $500 billion or more over a decade on infrastructure, a combination that’s seen as spurring quicker growth and price gains in the world’s biggest economy. Trump has also blamed China and Mexico for American job losses and threatened punitive tariffs on imports, a move that may spur inflation. The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, rose to as much as 1.97 percentage points this week, the highest since April 2015.

Read more …

It’s not just global markets being hit, the US ‘homeowner’ will also pay the price.

Bond Carnage hits Mortgage Rates. But This Time, it’s Real (WS)

The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.” One of the other three months on that short list occurred at the end of 2010 and two “back to back amid the 2013 Taper Tantrum,” when the Fed let it slip that it might taper QE Infinity out of existence. Investors were not amused. From the day after the election through November 16, they yanked $8.2 billion out of bond funds, the largest weekly outflow since Taper-Tantrum June.

The 10-year Treasury yield today jumped to 2.36% in late trading the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July! The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%. [..] I still think that pullback in yields is going to happen any day now. As I said, nothing goes to heck in a straight line. In terms of dollars and cents, this move has wiped out a lot of wealth. Bond prices fall when yields rise. This chart shows the CBOT Price Index for the 10-year note. It’s down 5.6% since July:

The 30-year Treasury bond went through a similar drubbing. The yield spiked to 3.01%. The mid-week pullback was a little more pronounced. Since the election, the yield has spiked by 44 basis points and since early July by 91 basis points (via StockCharts.com). Folks who have this “risk free” bond in their portfolios: note that in terms of dollars and cents, the CBOT Price Index for the 30-year bond has plunged 13.8% since early July!

Read more …

This will now be scaring Abe and Kuroda.

US Dollar Sees Steepest 2-Week Gain Against Yen Since January 1988 (R.)

The dollar rose to its highest level since April 2003 against a basket of currencies on Friday, marking its biggest two-week increase since March 2015 as traders piled bets on a massive dose of fiscal stimulus under a Trump U.S. presidency. Also stoking the dollar rally were growing expectations the Fed would raise interest rates next month on signs of rising inflation and improved economic growth. The greenback has climbed 7.3% against the yen in two weeks, its steepest such gain since January 1988 and its second-strongest performance in the era of floating exchange rates. The dollar has been on a tear following Donald Trump’s Nov. 8 victory over Hillary Clinton, tracking surging U.S. Treasury yields amid concerns government borrowing to fund possible stimulus programs could stoke inflation.

Traders have seized on the tax cuts, deregulation and infrastructure spending that Trump campaigned on as negatives for bonds and positives for the dollar. “It has caused a wave of dollar buying across the board,” said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago. To be sure, it remained unclear how many, if any, of the policy proposals would materialize. Trump’s stance on immigration and trade, if they become law, could hurt the dollar, analysts said. “The dollar is the wild card,” said Richard Bernstein, CEO of Richard Bernstein Advisors. The dollar index, hit 101.48, its highest since early April 2003 before paring gains to 101.25, up 0.4% on the day.

Read more …

Yeah, like that’s in your power… “’Interest rates may have risen in the U.S., but that doesn’t mean that we have to automatically allow Japanese interest rates to increase in tandem’, Mr. Kuroda said.”

Bank of Japan Surprises With Plan to Buy Unlimited JGBs at Fixed Rates (WSJ)

The Bank of Japan on Thursday offered to buy an unlimited amount of Japanese government bonds at fixed rates for the first time since the introduction of a new policy framework—a sign of its concerns over recent rises in yields. The move is the first clear sign from the central bank that it intends to take action to keep a lid on rising yields, and took market participants by surprise. “I thought there was still a lot more room left” before the BOJ took action, said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management. The BOJ’s move followed a sharp rise in government bond yields globally, sparked by expectations that the presidency of Donald Trump would lift inflation and growth.

Japanese government bond yields have risen as well, but not as sharply. The 10-year yield rose to its highest level since March on Wednesday. Yields on two-year and five-year Japanese government bonds fell Thursday after the BOJ’s announcement. The 10-year yield also briefly fell to 0.010% after hitting as high as 0.025% earlier in the morning. Speaking in parliament, Bank of Japan Gov. Haruhiko Kuroda said he wouldn’t allow market pressure from abroad to dictate the course of Japanese government bond yields, highlighting his resolve to hold interest rates down. “Interest rates may have risen in the U.S., but that doesn’t mean that we have to automatically allow Japanese interest rates to increase in tandem,” Mr. Kuroda said.

Read more …

And the winner is … plastic.

US Banks Close Rupee Exchanges After Large Bills Ruled Illegal (BBG)

Aruna Desai has a problem with the thousands of Indian rupees she has with her in the U.S. – she can’t find a bank to exchange her funds and couldn’t give the money away if she tried. Since Indian PM Narendra Modi removed 500- and 1,000-rupee notes from circulation, currency exchange providers in the U.S. have been unable to take the outlawed bills. Some of the country’s biggest banks, including JPMorgan and Citigroup work with vendors to provide rupees to clients and those vendors have made the bills unavailable, spokesmen for the banks said. Wells Fargo also said it can’t supply rupees at this time, while Bank of America said it has never accepted the currency for exchange. “If you have a euro, you can go to a bank and exchange it,” Desai, 76, of Cliffside Park, New Jersey, said. “For an Indian rupee, I don’t think there’s any bank that does that here.”

Five-hundred rupee ($7.34) and 1,000-rupee notes ceased to be legal tender Nov. 9, Modi said last week in a surprise announcement, sweeping away 86% of the total currency in circulation. The move has been seen as an attempt to fulfill his election promise of curbing tax evasion and recovering illegal income, locally known as black money, stashed overseas. The notes will have to be deposited in banks by the end of December, Modi said. “For our clients, it’s very hard,” Nandita Chandra, head of Great Indian Travel’s New York office, said in a telephone interview while visiting New Delhi. “A lot of people are affected and we don’t have a culture that is credit-card friendly, it’s a cash-based economy.”

Mastercard, the second-largest payment network, heralded the move as one that will reduce crime and drive growth in the Indian economy. Modi’s “bold action and leadership is a critical step in positioning India to be a leader in the global cashless and digital economy movement,” Porush Singh, the firm’s president for South Asia, said in a statement. “Mastercard is committed to working with the government to provide the cashless solutions that combat corruption and create growth, and inclusion for all members of society.”

Read more …

Will Washington fall apart without the lobbyists who keep it standing up?

Lobbyists Leave Trump Transition Team After New Ethics Rule (Pol.)

At least three lobbyists have left President-elect Donald Trump’s presidential transition operation after the team imposed a new ethics policy that would have required them to drop all their clients. CGCN’s Michael Catanzaro, who was responsible for energy independence; Michael Torrey, who was running the handoff at the Department of Agriculture; and Michael McKenna of MWR Strategies, who was focused on the Energy Department, are no longer part of the transition, POLITICO has learned. Lobbyists who piled into the transition when it was being run by New Jersey Gov. Chris Christie were caught off-guard Wednesday by a new ethics policy requiring them to terminate their clients.

“Throughout my time assisting the transition effort, I have adhered closely to the code of ethical conduct and confidentiality agreement that was provided to me,” Torrey said in a statement. “When asked recently to terminate lobbying registration for clients whom I serve in order to continue my role with the transition, I respectfully resigned from my role.” Torrey represents the American Beverage Association, Dean Foods and pizza franchise Little Caesars. Before founding Michael Torrey & Associates in 2005, he was Agriculture Secretary Ann Veneman’s deputy chief of staff, advised Kansas Sen. Bob Dole and worked at the Commodity Futures Trading Commission. Catanzaro lobbies for the American Fuel and Petrochemical Manufacturers, a refining group, as well as Hess, Encana, Noble Energy and Devon Energy.

Read more …

Let’s see how many will be left come January 20.

The Rise Of The ‘Un-Lobbyist’ (Mother Jones)

On Wednesday, Donald Trump’s transition team announced one phase of the president-elect’s plan to “drain the swamp” of corruption—a prohibition on registered lobbyists serving in his administration and a five-year lobbying ban for Trump officials who return to the private sector. Trump’s plan effectively doubles down on a policy that the Obama administration already has in place—one that many good government groups and lobbyists alike believe may have created a new problem: un-lobbyists—that is, influence-peddlers who avoid registering as lobbyists to skirt the administration’s rules.

Obama, like Trump, campaigned on a platform of aggressively rooting out the influence of lobbyists. After taking office, he put in place several major good-government initiatives, including a ban on lobbyists serving in his administration and a two-year cooling-off period before ex-administration officials could register to lobby. Once Obama’s lobbying rules took effect, there was a sharp decline in the number of registered lobbyists. Industry insiders and watchdog groups that track the influence game noted that the decrease was not due to lobbyists hanging up their spurs as hired guns for corporations and special interests. Rather it appeared that lobbyists were finding creative ways to avoid officially registering as such. There was no less influence-peddling going on, but now there was less disclosure of the lobbying that was taking place.

The problem lies with the definition of who is a lobbyist. The federal government requires anyone who spends more than 20% of their time on behalf of a client while making “lobbying contacts”—an elaborate and specifically defined type of contact with certain types of federal officials—to register as a lobbyist and file quarterly paperwork disclosing their clients and the bills or agencies he or she sought to sway. But by avoiding too many official “lobbying contacts” and limiting how much income that kind of work accounts for, lobbyists can shed the scarlet L, describing themselves as government affairs consultants or experts in advocacy and public policy.

Read more …

All governments will use all new technology to encroach ever more on all people’s lives.

UK Approves ‘Most Extreme Surveillance In History Of Western Democracy’ (AFP)

The British parliament this week gave the green light to new bulk surveillance powers for police and intelligence services that critics have denounced as the most far-reaching of any western democracy. The Investigatory Powers Bill would, among other measures, require websites to keep customers’ browsing history for up to a year and allow law enforcement agencies to access them to help with investigations. Edward Snowden, the former US National Security Agency contractor turned whistleblower, said the powers “went further than many autocracies”. “The UK has just legalised the most extreme surveillance in the history of western democracy,” he tweeted.

The bill, the first major update of British surveillance laws for 15 years, was passed by the House of Lords and now only needs rubber-stamping by Queen Elizabeth II. Prime Minister Theresa May introduced the bill in March when she was still interior minister, describing it as “world-leading” legislation intended to reflect the change in online communications. It gives legal footing to existing but murky powers such as the hacking of computers and mobile phones, while introducing new safeguards such as the need for a judge to authorise interception warrants. But critics have dubbed it the “snooper’s charter” and say that, in authorising the blanket retention and access by authorities of records of emails, calls, texts and web activity, it breaches fundamental rights of privacy.

Read more …

The EU needs to act to stop this. But instead it still hardly resettles refugees at all, and won’t even allow for the refugees to be hosted in mainland Greece. Ugliness guaranteed. Couldn’t have been more effective if they planned it.

Far-Right Group Attacks Refugee Camp On Greek Island Of Chios (G.)

Dozens of people have been driven out of a refugee camp on the Greek island of Chios after two successive nights of attacks by a far-right group. At least two people were wounded after attackers threw Molotov cocktails and rocks as big as boulders from elevated areas surrounding the Souda camp, activists said. Three tents were burned down and three others were hit by rocks. A 42-year-old Syrian man was assaulted, while a Nigerian boy was hit by a rock. Fearing a third attack on Friday night, about 100 former occupants refused to re-enter the camp, instead taking shelter in a nearby car park. “We do not have any kind of protection,” Mostafa al-Khatib, a Syrian refugee, told the Guardian. “No one cares about us.” Gabrielle Tan, an aid worker with Action From Switzerland, a grassroots organisation working on Chios, said those sheltering in the car park included families with babies and toddlers.

“They’d rather sleep outside in the cold than go back inside,” said Tan. The mayor of Chios said the attackers were thought to be affiliated with Greece’s main far-right party, Golden Dawn. “Of course Golden Dawn supporters are suspected to have participated,” Manolis Vournous told the Guardian. Activists and camp occupants said the rocks appeared to have been thrown with the intention of killing people. Tan said: “These rocks were probably the size of a shoebox, weighing approximately 15kg. Some of them I can’t even lift.” There were conflicting reports about who started the clashes on Wednesday. According to Vournous, the unrest began after Algerians and Moroccans stole alcohol and fireworks from a shop, frightening local residents. But some activists claimed the events escalated after a planned assault by Golden Dawn.

Read more …

Oct 032016
 
 October 3, 2016  Posted by at 9:37 am Finance Tagged with: , , , , , , , ,  7 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


NPC Congressman John C. Schafer of Wisconsin 1924

Is the U.S. Dollar Set to Soar? (CH Smith)
Pound Nears Three-Decade Low as May Sets Date for Brexit Trigger (BBG)
China Seeking To Succeed Where Japan Failed In Reserve Currency Push (BBG)
Deutsche Bank Races Against Time To Reach US Settlement (R.)
German Economy Minister Accuses Deutsche Bank Of Hypocrisy (Pol.)
It’s Not Just Deutsche. European Banking is Utterly Broken (Tel.)
Kuroda Blamed For Abenomics Failure, Ruins Chance Of Second Term (BBG)
BOJ Deploys US World War II Tactics That Failed to Spur Prices (BBG)
Canada’s Big Bet on Stimulus Draws Global Attention (WSJ)
Jail Wells Fargo CEO and Chairman John Stumpf! (Nomi Prins)
The Government Is Turning the Entire United States into a Debtors Prison (TAM)
Fukushima Has Contaminated The Entire Pacific Ocean, Going To Get Worse (TA)
Hungary’s Refugee Referendum Not Valid After Voters Stay Away (G.)
Vulnerable Refugees To Be Moved From ‘Squalid’ Camps On Greek Islands (G.)
Germany Wants Migrants Sent Back To Greece, Turkey (AFP)

 

 

As the Automatic Earth has said for many years, he USD won’t be the first to go. It’s about dollar-denominated debt.

Is the U.S. Dollar Set to Soar? (CH Smith)

Which blocs/nations are most likely to face banking/liquidity crises in the next year? Hating the U.S. dollar offers the same rewards as hating a dominant sports team: it feels righteous to root for the underdogs, but it’s generally unwise to let that enthusiasm become the basis of one’s bets. Personally, I favor the emergence of non-state reserve currencies, for example, blockchain crypto-currencies or precious-metal-backed private currencies – currencies which can’t be devalued by self-serving central banks or the private elites that control them. But if we set aside our personal preferences and look at fundamentals and charts, odds seem to favor the U.S. dollar making a major move higher in the next few months. Let’s start with a national index of finance-power which combines GDP, military spending, banking, foreign direct investment (FDI) and foreign exchange:

The key take-away is the preponderance of the U.S. and the Anglo-American alliance, a.k.a. the special relationship of Great Britain and the U.S. The U.S. exceeds Germany, China, Japan and France combined, and the U.S.-Great Britain alliance is roughly equal to the next 10 nations: the four listed above plus The Netherlands, Switzerland, Italy, Spain, Canada and the Russian Federation. We don’t have to like it, but as investors it’s highly risky to act like it isn’t reality.

Read more …

If the whining about Beautiful Brexit would finally stop in the UK, maybe they could do something constructive.

Pound Nears Three-Decade Low as May Sets Date for Brexit Trigger (BBG)

The pound approached the three-decade low set in the days following the Brexit referendum after U.K. Prime Minister Theresa May said she’ll begin the process of withdrawal from the European Union in the first quarter of 2017. Sterling dropped to the weakest level since July 6, the day it reached its 31-year low of $1.2798, and slipped against all of its 31 major peers. Hedge-fund data showed speculators raised bets that the currency would fall. May told delegates at her Conservative Party’s annual conference that she’ll curb immigration, stoking speculation the nation is headed toward a so-called hard Brexit. Stocks of U.K. exporters rose, boosted by the weaker currency. “We’re back to the Brexit risks,” said Vishnu Varathan, a senior economist at Mizuho Bank Ltd. in Singapore. “Sterling has taken a bit of a knock.”

Read more …

Let’s see large-scale global issuance of debt in yuan. Then we talk.

China Seeking To Succeed Where Japan Failed In Reserve Currency Push (BBG)

Like the yuan, the yen’s march toward liberalization was gradual and marked with ambivalence. Under the Bretton Woods system after World War II, the Japanese currency was fixed at 360 a dollar, before a trading band was introduced in 1959 to make it slightly more flexible. For three decades, all capital flows except those explicitly permitted were banned, making it easier for the government to achieve policy goals. It wasn’t until 1998 that approval or notification requirements for financial transactions and outward direct investments were abolished. The push to internationalize the yen initially came from the U.S., which wanted greater global use to fuel appreciation and reduce Japan’s trade surplus with America. China’s situation now isn’t dissimilar.

Having thrived on an economic model of closed borders and accumulation of reserves for decades, its capital account is still closed, individuals’ foreign-exchange conversions are capped and inter-country money flows occur mainly through specific programs. Policy makers have tightened controls on outflows in the past year after the yuan’s August 2015 devaluation exacerbated depreciation pressures. The currency was little changed Friday at 6.68 per dollar. Lowering the hurdles to create a true freely traded currency might risk a flight of capital during times of weakness, a concept China doesn’t always seem comfortable with. “Everyone wants this thing called ‘exorbitant privilege,’ but if you try to give it to them, they get furious and they tell you to stop,” said Michael Pettis, a finance professor at Peking University.

“Countries like China that are running huge surpluses because of insufficient domestic demand – basically they are creating the role of the dollar as the dominant reserve currency.” The term “exorbitant privilege,” coined by former French finance minister Valery Giscard D’Estaing in 1965, referred to the benefits the U.S. received for the dollar’s status. Daniel McDowell, a Syracuse University political science assistant professor who studies international finance, made the point that the appeal of a nation’s sovereign debt market plays a key role in a currency’s internationalization. The yen never became a major reserve currency because its government bonds weren’t as attractive or as plentiful as the U.S., he said.

Read more …

Everyone’s just trying to save face by now. Merkel, Obama, DOJ.

Deutsche Bank Races Against Time To Reach US Settlement (R.)

Deutsche Bank is throwing its energies into reaching a settlement before next month’s presidential election with U.S. authorities demanding a fine of up to $14 billion for mis-selling mortgage-backed securities. The threat of such a large fine has pushed Deutsche shares to record lows, and a cut-price settlement is urgently needed to reverse the trend and help to restore confidence in Germany’s largest lender. Its shares won’t trade in Germany on Monday because of a public holiday, but they will resume trading on the U.S. market later on Monday. A media report late on Friday that Deutsche and the U.S. Department of Justice were close to agreeing on a settlement of $5.4 billion lifted the stock 6% higher, but that report has not been confirmed.

The Wall Street Journal reported on Sunday that the bank’s talks with the DOJ were continuing. Details are in flux, with no deal yet presented to senior decision makers for approval on either side, the paper said, citing people familiar with the matter. “Clearly, so long as a fine of this order of magnitude ($14 billion) is an even remote possibility, markets worry,” UniCredit Chief Economist Erik F. Nielsen wrote in a note on Sunday. Ratings agency Moody’s said it would be positive for bondholders if the lender could settle for around $3.1 billion, while a fine as high as $5.7 billion would dent 2016 profitability but not significantly impair the bank’s capital position.

[..] The Bild am Sonntag newspaper wrote on Sunday that Deutsche’s chairman had informed Berlin just before it disclosed the potential $14 billion fine but had not asked for help. The same newspaper quoted the president of the Bavarian Finance Centre, Wolfgang Gerke, as saying that the German government should step in and buy a 20% stake in the bank before its value fell any further. The group represents financial services companies in the southern German state. “Fundamentally, I’m against state interventions,” he told the newspaper, but added that in this case a government stake would be “a signal that could turn the whole market”.

Read more …

Making Merkel’s day, no doubt. It wasn’t nearly hard enough for her yet.

German Economy Minister Accuses Deutsche Bank Of Hypocrisy (Pol.)

Germany’s economy minister has highlighted the irony of Deutsche Bank blaming speculators for its falling share price when the bank itself has built its business on speculation. “I did not know if I should laugh or get angry that the bank that made speculation a business model is now saying it is a victim of speculators,” Sigmar Gabriel told journalists on a plane to Tehran on Sunday, Der Spiegel reported. The threat of a $14 billion fine by U.S. authorities over the sales of mortgage-backed securities before the financial crisis sent Deutsche Bank’s shares to new lows this month. Gabriel was responding to a letter sent by Deutsche Bank CEO John Cryan to staff Friday blaming “new rumors” for causing the plunge in share prices and saying “forces” wanted to weaken trust in Germany’s largest bank.

Read more …

“US banks won’t be nearly as badly hit by the measure as their European counterparts, which is no doubt why their regulators are gunning so hard for it.”

It’s Not Just Deutsche. European Banking is Utterly Broken (Tel.)

[..] as is evident from the events of the last week, the banking crisis itself is far from over. Nine years after the initial eruption, it still rumbles on, with the epicentre now moved from the US to Europe. Only it’s not the same crisis; in large measure, it is completely different. Today’s mayhem is not so much the result of reckless bankers and asleep at the wheel regulators, but rather of the public policy response to the last crisis itself – that is to say, regulatory over-reach and central bank money printing. All eyes are naturally focused on the specific problems of Deutsche Bank, but Deutsche is in truth no more than the canary in the coal mine. As Tidjane Thiam, chief executive of Credit Suisse, observed last week, as an entire sector, European banks are still “not really investable”.

Much the same disease as afflicts Continental banks also applies to British counterparts, including RBS, Barclays and even Lloyds. All are fast being enveloped by a perfect storm of negatives, and this time around, it is substantially the policymakers and law enforcers who are to blame. There are essentially four factors at work here. First, it’s virtually impossible to make money out of banking in a zero interest rate environment, frustrating attempts to rebuild capital buffers after the bad debt write-downs of recent years. In circumstances where central banks have bought right along the yield curve, flattening it down to virtually nothing, the margin from maturity transformation all but disappears. Much the same thing has happened to the once lucrative returns of investment banking.

Even Goldman Sachs has been forced to admit that it is struggling to cover its cost of capital. Second is ever tougher international capital requirements, the latest instalment of which is dubbed Basel IV. The renewed crackdown is understandable, given what occurred nine years ago, but also ill-conceived and discriminatory, unfairly penalising European banks against their American counterparts. The technical details need not concern us too much here, suffice it to say that in order to stop banks gaming the system, regulators are attempting to impose a so-called “output floor”, tightly limiting the scope for easier capital requirements on risk weighted assets. US banks won’t be nearly as badly hit by the measure as their European counterparts, which is no doubt why their regulators are gunning so hard for it.

Read more …

That is so convenient for Abe…

Kuroda Blamed For Abenomics Failure, Ruins Chance Of Second Term (BBG)

Governor Haruhiko Kuroda has ruined his chances of getting a second full term, according to Nobuyuki Nakahara, who has advised the prime minister on the economy and was an intellectual father of the Bank of Japan’s first run at quantitative easing in 2001. The central bank’s switch to yield-curve targeting compounds its earlier error of adopting negative interest rates and is a disappointing move away from monetary-base expansion, Nakahara, 81, said in an interview on Sept. 30. In a stinging attack on the BOJ’s recent actions, he said the decision to conduct a comprehensive review of monetary policy had invited defeat on reflationist efforts and would raise questions about Abenomics as a whole.

Prime Minister Shinzo Abe’s economic program consists of three so-called arrows: the first being aggressive monetary policy, the second fiscal spending and the third structural reform. The central bank’s program, which began when Abe tapped Kuroda for the BOJ role in early 2013, has been the most prominent and highly debated aspect of Abenomics. “They are trying to clean up the mess of negative rates. It’s impossible to do a stupid thing like keeping the yield curve under government control,” said Nakahara. “They changed the regime to rates from quantity, meaning those who support quantitative easing were defeated. Reflationists on the BOJ policy board lost. An exit from deflation is going to be far away.”

After being greeted with fanfare when he took the helm, Kuroda, 71, now faces a reversal of fortunes on multiple fronts. Markets have moved against him and critics are growing more vocal. The extended honeymoon he enjoyed with a rising stock market and falling yen are long gone and his 2% inflation goal is nowhere in sight. Kuroda has less than 19 months to go in his term. While no BOJ governor has been tapped for a second five-year term since the 1960s, Kuroda’s central role in Abenomics has led to speculation that he may be different.

Read more …

If you don’t know what deflation is, you can’t fight it.

BOJ Deploys US World War II Tactics That Failed to Spur Prices (BBG)

In deciding to target bond yields, Japan is deploying a monetary strategy to combat deflation used by its former enemy in World War II. The trouble is that America’s experience back then suggests that the tactics probably won’t work on their own. Economists who have studied that period say that it was increased government spending, along with heightened inflation expectations, that eventually led to a stepped-up pace of U.S. price increases more than a half century ago. Once inflation was humming along, the Federal Reserve’s strategy of pegging long-term interest rates did nothing to put a lid on it, which is why the central bank pushed for a 1951 agreement with the Treasury to abandon the long-term yield fix.

If inflation expectations are contained, simply targeting yields won’t necessarily spur price pressures, according to Barry Eichengreen, a professor at the University of California at Berkeley who co-wrote a paper on U.S. monetary and financial policy from 1945 to 1951. But if people already expect faster inflation, then the tool can help promote it. That’s not a helpful conclusion for Bank of Japan Governor Haruhiko Kuroda and his colleagues, who last month switched the focus of their monetary stimulus to controlling yields across a range of maturities, after simply expanding the monetary base through debt purchases. It set the target for the yield on the 10-year Japanese government bond at around 0%.

Another piece of their new framework: trying to shock inflation expectations higher by pledging to keep stimulus in place until prices are rising even faster than their 2% target. Their struggle is to overturn subdued household and corporate expectations that have been set hard by decades of deflation. For the Fed in World War II and its aftermath, capping long-term yields at 2.5% had nothing to do with inflation per se. Its goal was to limit the government’s borrowing costs and so support the war effort. Inflation was held down by price controls during the war, then spiked higher after hostilities ended, hitting a high of 19.7% in 1947. The surge proved short-lived, as an economic recession that began late the following year produced a return of the deflation that had plagued the country during the Great Depression.

Read more …

And if successful, they’re all going to do it? Oops, too late.

Canada’s Big Bet on Stimulus Draws Global Attention (WSJ)

In the global struggle to boost growth, a Canadian experiment in fiscal spending is providing a test case for some of the world’s biggest economies. PM Justin Trudeau’s Liberal government unveiled a plan last spring to spend heavily on tax benefits and infrastructure, with $120 billion CAD (US$91.39 billion) going into infrastructure over the next decade, including about one-tenth of that on short-term projects. It’s a bold bet to inject life into an economy struggling with a rout in commodity prices, especially crude oil, which was once Canada’s top export. It also highlights the limits of monetary stimulus, since the country’s central bank cut rates twice in 2015, to 0.5%, and has acknowledged—as its counterparts around the world have—that monetary policy becomes a less powerful tool when interest rates are already low.

Mr. Trudeau’s big infrastructure spend will be largely financed by a bigger deficit, which is projected to reach C$29.4 billion this fiscal year, or about 1.5% of GDP. That’s a sharp turn from the balanced-budget promise of his Conservative predecessor, who hewed the austerity path Mr. Trudeau is now shunning. Canada’s efforts stand in contrast to many of the world’s economies, whose finance ministers and central bankers meet this week in Washington for semiannual meetings of the International Monetary Fund and World Bank. Some—like Australia, also hit by the commodity rout—are trying to use coordinated fiscal and monetary policy. But larger advanced economies are holding firm to tight budgets, making Canada’s embrace of debt-fueled stimulus unusual.

“The eyes of the world—the economists—will be watching to see how Canada performs,” said Martin Eichenbaum, a Northwestern University economist who is also an international fellow at the C.D. Howe Institute, a Canadian think tank. “We’re all watching to see: Will they get it right?”

Read more …

Yeah. Not going to happen….

Jail Wells Fargo CEO and Chairman John Stumpf! (Nomi Prins)

Consider this. You’re a mob boss. You run a $1.8 trillion network of businesses across state lines and continents. Many of these are legit, but a select subset of them – not so much. Every so often the illegal components flare up; some Washington commission launches an investigation, someone blows a whistle, people lose their homes, a pack of investors sheds a ton of money and lawsuits fly. You get reprimanded and have to pay lawyers and accountants overtime to deal with the paperwork. You settle on fines with the government — $10 billion worth. Then you keep going with no one the wiser, no wings clipped, no hard time. After all of that — you say you’re sorry, forfeit some money you didn’t even make yet, and (maybe) resign with boatloads more of it.

This is what we’re dealing with regarding Wells Fargo CEO and Chairman John Stumpf. He could be a really nice guy and wears some lovely tailored attire. (Hell, even Al Capone cared about proper milk expiration date labels.) But he’s also a crook, plain and simple. He’s cheated shareholders and taxpayers and customers, and used a stockpile of FDIC-backed deposits as fodder for illicit activities that have been repeatedly investigated and fined. And he made hundreds of millions of dollars doing it. This is not conjecture, nor sour grapes from the nonmillionaire swath of the population. It’s based on documented facts. But by no means is Wells the only guilty bank on the street, or Stumpf the only “apologetic” CEO. Apologies are cheap, and so is money when it’s a small piece of a much larger pie.

Somewhere, Jamie Dimon and Lloyd Blankfein are sighing in relief that this time it was Stumpf and not one of them, the other two of the three (of the Big Six bank) CEOs left standing since the crisis. These are just some highlights of those nearly $10 billion in total fines Wells agreed to, rather than take matters to court, since 2009. The sheer sum of those fines reveal a recidivist attitude toward ethics, regulations and the law. The associated transgressions were all committed under Stumpf’s leadership. There’s no way a regular citizen committing a fraction of a fraction of anything like these wouldn’t be in jail. Complexity is no excuse for criminal behavior. Nor is calling these practices “abuses” rather than felony fraud for misleading, at the very least, investors and shareholders in a publicly traded mega-company that violates securities laws.

Read more …

… but if not the Wells Fargo CEO, at least some people will go to jail…

The Government Is Turning the Entire United States into a Debtors Prison (TAM)

Since the United States was founded, citizenship has represented a safe haven from oppressive regimes around the world. By preserving the principles of small government and free markets, those who were willing to work hard found success, and America became a magnet for innovation. But as the U.S. continues to erode personal and economic freedom, more people than ever before are handing over their U.S. passports to seek better opportunities abroad. The staggering amount of debt held by the American empire ensures the public will be working it off for generations to come. The government has already begun its campaign to make it more difficult to leave the country, and it has also begun to crack down on the finances of the eight million Americans living abroad.

Regardless of whether you’re a millionaire with multiple foreign bank accounts or a recent college graduate with a boatload of debt, the status of being a United States citizen brings with it a burden that will only grow heavier over time. Since 2008, the number of individuals giving up their citizenship has increased by almost 560%, setting new records each of the past three years. Some of these expats are motivated by the extra tax load paid when working abroad, while others are trying to avoid student loan debt. Others have just had enough of the encroaching police state. Every taxpayer left in the country now owes more than $149,000 of the national debt, so it’s no surprise the tide is beginning to turn. By hook or by crook, in the coming years, citizens will be fleeced of that money through higher taxes, savings that are inflated away, and an overall drop in their standard of living.

Many can see the writing on the wall and have become determined to protect themselves from the years of economic repression coming down the pipe. Draconian steps have already been taken to slow the rate of expatriation. For one, the IRS has broadened its reach into foreign bank accounts through the Foreign Account Tax Compliance Act. Through agreements with over 100 nations, the law is able to require all financial institutions abroad to report the account details of any American customers they have. With access to this new information, the IRS can revoke the passports of potential tax evaders and hinder their ability to travel using yet another additional power the agency was granted last year.

Read more …

The gift that keeps on contaminating.

Fukushima Has Contaminated The Entire Pacific Ocean, Going To Get Worse (TA)

What was the most dangerous nuclear disaster in world history? Most people would say the Chernobyl nuclear disaster in Ukraine, but they’d be wrong. In 2011, an earthquake, believed to be an aftershock of the 2010 earthquake in Chile, created a tsunami that caused a meltdown at the TEPCO nuclear power plant in Fukushima, Japan. Three nuclear reactors melted down and what happened next was the largest release of radiation into the water in the history of the world. Over the next three months, radioactive chemicals, some in even greater quantities than Chernobyl, leaked into the Pacific Ocean. However, the numbers may actually be much higher as Japanese official estimates have been proven by several scientists to be flawed in recent years.

If that weren’t bad enough, Fukushima continues to leak an astounding 300 tons of radioactive waste into the Pacific Ocean every day. It will continue do so indefinitely as the source of the leak cannot be sealed as it is inaccessible to both humans and robots due to extremely high temperatures. It should come as no surprise, then, that Fukushima has contaminated the entire Pacific Ocean in just five years. This could easily be the worst environmental disaster in human history and it is almost never talked about by politicians, establishment scientists, or the news. It is interesting to note that TEPCO is a subsidiary partner with General Electric (also known as GE), one of the largest companies in the world, which has considerable control over numerous news corporations and politicians alike.

Could this possibly explain the lack of news coverage Fukushima has received in the last five years? There is also evidence that GE knew about the poor condition of the Fukushima reactors for decades and did nothing. This led 1,400 Japanese citizens to sue GE for their role in the Fukushima nuclear disaster. Even if we can’t see the radiation itself, some parts of North America’s western coast have been feeling the effects for years. Not long after Fukushima, fish in Canada began bleeding from their gills, mouths, and eyeballs. This “disease” has been ignored by the government and has decimated native fish populations, including the North Pacific herring. Elsewhere in Western Canada, independent scientists have measured a 300% increase in the level of radiation.

Read more …

It won’t stop Orban.

Hungary’s Refugee Referendum Not Valid After Voters Stay Away (G.)

The Hungarian prime minister, Viktor Orbán, has failed to convince a majority of his population to vote in a referendum on closing the door to refugees, rendering the result invalid and undermining his campaign for a cultural counter-revolution within the European Union. More than 98% of participants in Sunday’s referendum sided with Orbán by voting against the admission of refugees to Hungary, allowing him to claim an “outstanding” victory. But more than half of the electorate stayed at home, rendering the process constitutionally null and void.

Orbán himself put a positive spin on the low turnout. He argued that while “a valid [referendum] is always better than an invalid [referendum]” the extremely high proportion of no-voters still gave him a mandate to go to Brussels next week “to ensure that we should not be forced to accept in Hungary people we don’t want to live with”. He argued that the poll would encourage a wave of similar votes across the EU. “We are proud that we are the first,” he said.

Read more …

NOTE: Less than 2 weeks ago, the EU refused Greece permission to move the refugees to the mainland, because they might try to travel north.

“Athens will be overwhelmed, [as will] the mainland, people will be forced to live in fields, there will be scenes we’ll never have imagined.”

Vulnerable Refugees To Be Moved From ‘Squalid’ Camps On Greek Islands (G.)

Greece is poised to transfer thousands of refugees from overcrowded camps on its Aegean islands to the mainland amid escalating tensions in the facilities and protests from irate locals. The government said unaccompanied minors, the elderly and infirm would be among the first to be moved as concerns mounted over the future of a landmark EU-Turkey deal to stem migrant flows. “The situation on the islands is difficult and needs to be relieved,” said deputy minister for European affairs Nikos Xydakis. “Accommodation on the mainland will be more suitable. We will start with transfers of those who are most vulnerable, always in the sphere of implementing and protecting the EU-Turkey agreement.”

The operation, expected to be put into motion this week, came as Ankara warned the pact would not hold if Brussels failed to honour its pledge to allow Turks visa-free travel to the bloc. In a fiery speech before the newly reconvened parliament at the weekend, Turkish president Erdogan gave his clearest signal yet that the six-month-old agreement was in danger of collapse because of slow progress over visa liberalisation. [..] Refugee flows, although rising again, have dropped by 90% since the deal was signed. [..] Western diplomats in the Greek capital raised the spectre of chaos if the agreement collapsed. “If it does, there will be an influx of a million or more and this country is totally unprepared,” one European ambassador confided. “Athens will be overwhelmed, [as will] the mainland, people will be forced to live in fields, there will be scenes we’ll never have imagined.”

[..] Acknowledging that camp conditions were far from ideal, Xydakis blamed the backlog in asylum applications on the EU’s failure to dispatch promised staff and push ahead with an agreed relocation scheme to other parts of the continent. “We were promised 400 experts in asylum procedures but so far only have around 29 on the islands. We are continuing to recruit and look for more staff but it is not easy,” he said. “The deal is not only in the hands of Turkey but Europe … some EU states are not respecting but neglecting their responsibilities.”

Read more …

To reiterate what I said yesterday on this topic:

“It was Germany that last year declared Dublin null and void. They will say that was only temporaray, but regulations like this are not light switches that selected parties can flick on and off when it suits them.

What happens now is quite simply that both the refugees and Greece are the victims of Angela Merkel’s falling poll numbers. And that is insane. It’s cattle trade. Athens should take Berlin to court over this.

Greece is already little more than a greatly impoverished holding pen for the unwanted, and it threatens to fall much deeper into the trap. That’s why the Automatic Earth effort to support the poorest people is not just still needed, but more now than ever. We will soon start a new campaign to that end. In the meantime, please do continue to donate through our Paypal widget in amounts ending in $.99 or $.37.”

Germany Wants Migrants Sent Back To Greece, Turkey (AFP)

Germany called Sunday for asylum seekers who entered the European Union via Greece to be forced to return there, while also urging Athens to send more migrants back to Turkey. In an interview with a Greek daily, German interior minister Thomas de Maiziere said he wants to reinstate EU rules which oblige asylum seekers to be sent back to Greece as the first EU country they reached. “I would like the Dublin convention to be applied again… we will take up discussions on this in a meeting with (EU) interior ministers” later in October, he told the Greek daily Kathimerini. The Dublin accord gives responsibility for asylum seekers’ application to the first country they reach – which put Greece on the frontline of more than a million migrants who arrived in the EU last year.

The accord also says asylum seekers should be sent back to the first country they arrived in if they subsequently reach another EU state before their case is examined. A huge proportion of the migrants ended up in Germany. But this clause was suspended for Greece in 2011 after the country lost an EU legal complaint which condemned the mistreatment of migrants seeking international protection. “Since then, the EU has provided substantial support, not only financially,” to Greece to improve its asylum seeker procedures, the German minister said. In an interview on German television Sunday evening, De Maiziere also criticised Athens for failing to fully implement an EU agreement with Turkey to return migrants there.

The EU reached a deal with Turkey in March to stop the influx to the Greek islands in return for financial aid and eased visa conditions for its citizens. But the deal has looked shaky in the wake of a coup attempt in Turkey in July. “Greece must carry out more expulsions,” he told the ARD television station.

Read more …

Jul 292016
 
 July 29, 2016  Posted by at 9:20 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


Dorothea Lange Crossroads grocery store and filling station, Yakima, Washington, Sumac Park 1939

IMF: Disastrous Love Affair With Euro, Apologies For Immolation Of Greece (AEP)
Global Trade Is Not Growing Slower – It’s Not Growing At All (WEF)
Not Even Fiscal Stimulus Will Save Global Growth – Deutsche Bank (BBG)
Kuroda’s $26 Billion Gift to Stock Market Underwhelms Investors (BBG)
Bank of Japan Blames Brexit As It Unleashes More Monetary Stimulus (G.)
Japan Sees Weaker Consumer Spending, Manufacturing In June (AP)
Japan Should Stop Chasing A Weaker Yen – Steen Jakobsen (CNBC)
US Homeownership Rate Falls to Five-Decade Low (WSJ)
Wholesale California Gasoline Prices Plunge, Consumers Still Pay Up (R.)
Oil Glut Proves Harder To Kill Than Saudis To Goldman Predicted (BBG)
In Past 50 Years Earnings Recession This Big Always Triggered Bear Market (F.)
Barcelona Unveils ‘Shame Counter’ That Tracks Refugee Deaths (AFP)

 

 

” They had no fall-back plans on how to tackle a systemic crisis in the eurozone [..] because they had ruled out any possibility that it could happen.”

“Some staff members warned that the design of the euro was fundamentally flawed but they were overruled..”

Ambrose on Twitter: ”IMF seems to have slipped leash of political control. Even its own watchdog in dark on EMU crisis. Astonishing saga..”

IMF: Disastrous Love Affair With Euro, Apologies For Immolation Of Greece (AEP)

The IMF’s top staff misled their own board, made a series of calamitous misjudgments in Greece, became euphoric cheerleaders for the euro project, ignored warning signs of impending crisis, and collectively failed to grasp an elemental concept of currency theory. This is the lacerating verdict of the IMF’s top watchdog on the Fund’s tangled political role in the eurozone debt crisis, the most damaging episode in the history of the Bretton Woods institutions. It describes a “culture of complacency”, prone to “superficial and mechanistic” analysis, and traces a shocking break-down in the governance of the IMF, leaving it unclear who is ultimately in charge of this extremely powerful organisation. The report by the IMF’s Independent Evaluation Office (IEO) goes above the head of the managing director, Christine Lagarde.

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

“Many documents were prepared outside the regular established channels; written documentation on some sensitive matters could not be located. The IEO in some instances has not been able to determine who made certain decisions or what information was available, nor has it been able to assess the relative roles of management and staff,” it said. The report said the whole approach to the eurozone was characterised by “groupthink” and intellectual capture. They had no fall-back plans on how to tackle a systemic crisis in the eurozone – or how to deal with the politics of a multinational currency union – because they had ruled out any possibility that it could happen. “Before the launch of the euro, the IMF’s public statements tended to emphasize the advantages of the common currency, “ it said. Some staff members warned that the design of the euro was fundamentally flawed but they were overruled.


The forecasts for Greek growth compared to what actually happened Credit: IMF

[..] While the Fund’s actions were understandable in the white heat of the crisis, the harsh truth is that the bail-out sacrificed Greece in a “holding action” to save the euro and north European banks. Greece endured the traditional IMF shock of austerity, without the offsetting IMF cure of debt relief and devaluation to restore viability. A sub-report on the Greek saga said the country was forced to go through a staggering squeeze, equal to 11pc of GDP over the first three years. This set off a self-feeding downward spiral. The worse it became, the more Greece was forced cut – what ex-finance minister Yanis Varoufakis called “fiscal water-boarding”. “The automatic stabilizers were not allowed to operate, thus aggravating the pro-cyclicality of the fiscal policy, which exacerbated the contraction,” said the report.

Read more …

Who says we need global growth?

Global Trade Is Not Growing Slower – It’s Not Growing At All (WEF)

Falling rates of global trade growth have attracted much comment by analysts and officials, giving rise to a literature on the ‘global trade slowdown’ (Hoekman 2015, Constantinescu et al. 2016). The term ‘slowdown’ gives the impression of world trade losing momentum, but growing nonetheless. The sense of the global pie getting larger has the soothing implication that one nation’s export gains don’t come at the expense of another’s. But are we right to be so sanguine? Using what is widely regarded as the best available data on global trade dynamics, namely, theWorld Trade Monitor prepared by the Netherlands Bureau of Economic Policy Analysis, the 19th Report of the Global Trade Alert, published today, evaluates global trade dynamics (Evenett and Fritz 2016).


Figure 1 World trade plateaued around the start of 2015

Our first finding that the rosy impression painted by some should be set aside. We demonstrate that: •World export volumes reached a plateau at the start of January 2015. The same finding holds if import volume or total volume data are used instead. •Both industrialised countries’ and emerging markets’ trade volumes have plateaued (Figure 1). •Except during global recessions, a plateau lasting 15 months is practically unheard of since the Berlin Wall fell. •In 2015 the best available data on world export volumes diverges markedly from that reported by the WTO, IMF, and World Bank, and probably explains why analysts at these organisations have missed this profound change in global trade dynamics (Table 1).


Table 1 Marked differences in reported global trade volume growth in 2015

Read more …

“The fight against sluggish growth rates..” Maybe we should stop that fight?

Not Even Fiscal Stimulus Will Save Global Growth – Deutsche Bank (BBG)

While monetary policy may be at — or beyond — the limits of its usefulness in stoking global growth, economists at Deutsche Bank say fiscal stimulus is unlikely to be much more effective. At least, not the kind that is politically possible. The fight against sluggish growth rates and low inflation has seen central banks from Europe to Japan buy up swaths of the bond market, and experiment with negative interest rates. Yet with growth still stubbornly slow, these efforts are seen either as ineffective or counterproductive, spurring calls for more active fiscal policy, whether it take the form of tax cuts or ‘helicopter money’ transfers to the private sector. Just this past weekend, finance ministers from the Group of Twenty meeting in China gave strong backing to this view.

“Monetary policy alone cannot lead to balanced growth,” they said. “Fiscal strategies are equally important to support our common growth objectives.” Those comments could signal a “new direction for fiscal policy,” according to Deutsche Bank economists led by Peter Hooper. Yet while they welcomed the potential dethroning of monetary policy as “the principal lever of support,” the economists expect that the boost to global growth from the most probable fiscal packages “is likely to be modest.” Europe is in greatest need of fiscal stimulus — even though the ECB has been gobbling up bonds since 2014, and has cut its deposit rate to minus 0.4% — and it’s also where fiscal stimulus would be most effective, according to the Deutsche Bank economists.

Read more …

Are Kuroda and Abe drifting apart?

Kuroda’s $26 Billion Gift to Stock Market Underwhelms Investors (BBG)

Welcome to Japan, where a central bank plan to pump $26 billion a year more into stocks and continue buying 30 times that in debt sees equities struggle to advance and bonds plunge. The Topix index slid as much as 1.4% in Tokyo after the Bank of Japan boosted its annual exchange-traded fund budget to 6 trillion yen ($58 billion), from 3.3 trillion yen. Japanese government bonds headed for their steepest slump since 2008, as policy makers retained a plan to expand the monetary base by an annual 80 trillion yen. Speculation among investors and analysts that Friday’s policy announcement might even see the adoption of so-called helicopter money, as well as a cut to the negative deposit rate, resulted in a lukewarm reception for the expanded stimulus program.

The yen surged as much as 2.4%, the most since the U.K. decision to leave the European Union, even as BOJ Governor Haruhiko Kuroda hinted more easing might still be in the pipeline. “The BOJ had a choice of about five boxes to tick today, but only chose one,” said Sean Callow, a senior FX strategist at Westpac Banking in Sydney. “Buying more ETFs was as widely expected as balloons dropping on Hillary.” [..] In an unexpected development, Kuroda has ordered an assessment of the effectiveness of BOJ policy, to be undertaken at the next meeting, which is scheduled for Sept. 20-21.

Read more …

“The BOJ won’t admit it, but it has reached the limits of quantitative easing and negative rates.”

Bank of Japan Blames Brexit As It Unleashes More Monetary Stimulus (G.)

The Bank of Japan has announced a modest expansion of its monetary easing programme, blaming Britain’s decision to leave the European Union as the biggest uncertainty facing world markets. The central bank acknowledged government pressure for more action to drive the yen lower and help Japan’s legion of exporters, but stopped short of upping its bond purchases or cutting interest rates. Instead the bank sanctioned an increase in purchases of exchange-traded funds as it attempted to accelerate inflation towards its 2% target. The moves disappointed the markets, which had expected another big influx of liquidity. The Nikkei stock average yo-yoed wildly in the aftermath of the move before falling nearly 2% in late afternoon trade.

Other stock markets in the region were also down while futures trading indicated the FTSE100 and Dow Jones would open slightly down on Friday morning. The yen rose 2% against the US dollar, which will frustrate government attempts to devalue the stubbornly high currency. [..] Some market experts said the lack of bold action suggested the bank had decided that the effectiveness of its huge monetary easing programme had reached its limits. “The BOJ did not live up to expectations … increasing ETF purchases makes no contribution to achieving 2% inflation,” said Norio Miyagawa, senior economist at Mizuho Securities. “The BOJ won’t admit it, but it has reached the limits of quantitative easing and negative rates.”

Read more …

After Abenomics has been running for 3 years, deflation continues unabated.

Japan Sees Weaker Consumer Spending, Manufacturing In June (AP)

Japan reported further signs of weakness in its economy in June, with industrial output and consumer spending falling from the year before. The data released Friday were in line with expectations the central bank may follow the government’s lead in opting for more stimulus at a policy meeting that ends Friday. Core inflation excluding volatile food prices dropped 0.5% from 0.4% in May. The Bank of Japan and government have made scant progress toward a 2% inflation goal set more than three year ago, partly due to the prolonged slump in crude oil prices.

Household spending fell 2.2% from a year earlier, while industrial output slipped 1.9% on an annual basis. Earlier this week Prime Minister Shinzo Abe announced plans to propose 28 trillion yen ($267 billion) in spending initiatives to help support the sagging economic recovery. Household incomes rose 0.3% in June, weak for a month when workers commonly receive bonuses.

Read more …

Let’s not pretend there is a way out for Japan.

Japan Should Stop Chasing A Weaker Yen – Steen Jakobsen (CNBC)

Japan has aimed a lot of firepower at keeping its currency weak, but a stronger yen might be just what the long moribund economy really needs, said Saxo Bank’s Chief Investment Officer Steen Jakobsen. “The government of Japan sort of quasi-promises to maintain a weak yen in order to support and buy time for the export companies,” Jakobsen said. “Having a focus only on the export sector takes away from [what] the focus should be: To reform the domestic economy.” Jakobsen’s comments came just as Japan appears set to level a double bazooka of easing at its sluggish economy, firepower that appears aimed, at least in part, at wiping out the recent gains in the newly resurgent yen.

The Bank of Japan was widely expected to announce another monetary easing bomb at the close of its two-day meeting on Friday, with analysts anticipating that the central bank would either cut interest rates deeper into negative territory or expand its asset purchase program or both. At the same time, fresh fiscal stimulus was expected to offer additional cross fire. News agency Jiji reported that Prime Minister Shinzo Abe had revealed a 28 trillion yen ($265 billion) injection, which Reuters estimated at 6% of Japan’s economy.

The double-barreled approach was in line with Abe’s plan to break Japan’s economy out of a decades-long deflationary spiral. That effort, dubbed Abenomics, was introduced in 2013 with a plan for three “arrows:” A first arrow of massive quantitative easing from the BOJ, followed by a second arrow of increased government spending and a third arrow of structural reforms, including immigration and labor changes. But Jakobsen noted that the latest plan for combined BOJ and fiscal easing just replayed the same strategy. “The present situation we’re talking about is just re-launching arrow one and two,” he said. “We’re still missing arrow number three, which is the reform side.”

Read more …

It didn’t take long to kill the dream.

US Homeownership Rate Falls to Five-Decade Low (WSJ)

The U.S. homeownership rate fell to the lowest level in more than 50 years in the second quarter of 2016, a reflection of the lingering effects of the housing bust, financial hurdles to buying and shifting demographics across the country. But the bigger picture also suggests more Americans are gaining the confidence to strike out on their own, albeit as renters rather than buyers. The homeownership rate, the proportion of households that are owner-occupied, fell to 62.9%, half a percentage point lower than the second quarter of 2015 and 0.6%age point lower than the first quarter 2016, the Census Bureau said on Thursday. That was the lowest figure since 1965.

There are many ways to interpret the numbers. Part of the story is the catastrophic housing market collapse, which was especially severe for Generation X—those born from 1965 to 1984. Younger households may struggle to save amid student debt, growing rents, rising home prices and limited inventories of starter homes. Indeed, the homeownership rate for 18- to 35-year-olds slipped to 34.1%, the lowest level in records dating to 1994. At 77.9%, the homeownership rate was highest for those 65 years and over.

But the broader picture suggests a degree of economic strength: Renters are spurring a steady increase in overall household formation. Renter-occupied housing units jumped by 967,000 from the same period a year earlier. Overall, household formation has been fairly steady since the early days of the expansion. A rising number of households suggests more people are optimistic enough to strike out on their own and helps further spur growth as they buy furniture, start families and move up the economic ladder. Indeed, moving into a rental unit has been entirely responsible for rising household formation since the recession began.

Read more …

“It’s probably going to take a little longer than they expected.” “Demand growth has faltered a bit.”

Oil Glut Proves Harder To Kill Than Saudis To Goldman Predicted (BBG)

The bullish spirit that gripped oil traders as industry giants from Saudi Arabia to Goldman Sachs declared the supply glut over is rapidly ebbing away. Oil is poised for a drop of 20% since early June, meeting the definition of a bear market. While excess crude production is abating, inventories around the world are brimming, especially for gasoline, and a revival in U.S. drilling threatens to swell supplies further. As the output disruptions that cleared some of the surplus earlier this year begin to be resolved, crude could again slump toward $30 a barrel, Morgan Stanley predicts. “The tables are turning on the bulls, who were prematurely constructive on oil prices on the basis the re-balancing of the oil market was a done deal,” said Harry Tchilinguirian at BNP Paribas in London.

“It’s probably going to take a little longer than they expected.” Oil almost doubled in New York between February and June as big names from Goldman and the International Energy Agency to new Saudi Energy Minister Khalid Al-Falih said declining U.S. oil production and disruptions from Nigeria to Canada were finally ending years of oversupply. Prices retreated to a three-month low near $41 a barrel this week amid a growing recognition the surplus will take time to clear. “There’s lots of crude and refined products around,” said David Fransen, Geneva-based head of Vitol SA, the biggest independent oil trader. “Demand growth has faltered a bit.”

Read more …

Don’t worry, prices will come down.

Wholesale California Gasoline Prices Plunge, Consumers Still Pay Up (R.)

Wholesale gasoline in California became the cheapest in the country this week, but that change has largely gone unseen at the pump, where consumers are still paying the highest prices in the continental United States to fill up their cars. Ample inventories along with relatively stable refinery operations and imports has driven down the spot value of gasoline in Los Angeles at the wholesale level by more than 60 cents since mid-June. However, that has not translated to similarly lower retail fuel prices for consumers because of peculiarities in California’s market. The declines in the state’s retail gasoline market over that period of time have averaged less than 14 cents, according to data from the U.S. Energy Information Administration.

On Thursday, wholesale California gasoline was trading below $1.20 a gallon. The spread between California’s wholesale and retail gasoline markets was about $1.50 a gallon the week to July 25, about 40 cents wider than a similar spread in the New York market. California is one of the most expensive places in the United States to produce gasoline because of the state’s unique blending requirements and its relative isolation from the rest of the country, which makes securing crude oil to refine pricier. Gasoline prices across the country have plunged as crude has also slumped in the past two years, pressured by a global supply glut. On the West Coast, gasoline stocks are at a five-year seasonal high of 29.6 million barrels, according to the EIA.

Read more …

Lots of reports due later today.

In Past 50 Years Earnings Recession This Big Always Triggered Bear Market (F.)

It’s earnings season once again and it looks as if, as a group, corporate America still can’t find the end of its earnings decline since profits peaked over a year ago. What’s more analysts, renowned for their Pollyannish expectations, can’t seem to find it, either. So I thought it might be interesting to look at what the stock market has done in the past during earnings recessions comparable to the current one. And it’s pretty eye-opening. Over the past half-century, we have never seen a decline in earnings of this magnitude without at least a 20% fall in stock prices, a hurdle many use to define a bear market. In other words, buying the new highs in the S&P 500 today means you believe “this time is different.” It could turn out that way but history shows that sort of thinking to be very dangerous to your financial wellbeing.

Read more …

Great idea. There should be one in Athens too.

Barcelona Unveils ‘Shame Counter’ That Tracks Refugee Deaths (AFP)

Spain’s seaside city of Barcelona on Thursday unveiled a large digital counter that will track the number of refugees who die in the Mediterranean, next to one of its popular beaches. “We are inaugurating this shame counter which will update all known victims who drowned in the Mediterranean in real time,” said Mayor Ada Colau. The monument consists of a large metal rectangular pillar that comes decked out with a digital counter above the inscription “This isn’t just a number, these are people.”

The counter kicked off with 3,034 — the number of migrants and refugees who have died trying to cross the Mediterranean to Europe in 2016, according to the International Organization for Migration (IOM). “We’re here to look the Mediterranean in the face and look at this number — 3,034 people who drowned because they were not offered a safe passage,” said Colau, as swimmers took advantage of the last rays of sunshine nearby.


Barcelona’s mayor Ada Colau poses in front a digital billboard that shows the number of refugees who died in the Mediterranean sea, named “the shame counter” (AFP Photo/Josep Lago)

Read more …

Jun 162016
 
 June 16, 2016  Posted by at 8:10 am Finance Tagged with: , , , , , , ,  5 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


Arthur Rothstein Bank that failed. Kansas 1936

Brexit Is The Only Way The Working Class Can Change Anything (G.)
It’s Time To Call Time On The EU Experiment (Steve Keen)
Osborne’s ‘Punishment Budget’ Is Economic Vandalism (AEP)
JPMorgan CIO: Brexit “Hardly The Stuff Of Economic Calamity” (ZH)
Brexit: Which Banks Will Be Hit Hardest (WSJ)
Yellen Says Forces Holding Down Rates May Be Long Lasting, New Normal (BBG)
Yellen Says Brexit Vote Influenced Fed (BBG)
Bank of Japan Stands Pat Ahead of Brexit Vote (WSJ)
Is The World Turning Its Back On Free Trade? (BBC)
Switzerland Withdraws Longstanding Application To Join EU (RT)
Highrise Harry Whispers The Terrible Truth (MB)
EU Pushes Greece To Set Up New Asylum Committees (EUO)
Could We Set Aside Half The Earth For Nature? (G.)

The essence behind the Leave surge. People dislike Cameron so much they’ll vote for anything he doesn’t want.

Brexit Is The Only Way The Working Class Can Change Anything (G.)

In working-class communities, the EU referendum has become a referendum on almost everything. In the cafes, pubs, and nail bars in east London where I live and where I have been researching London working-class life for three years the talk is seldom about anything else (although football has made a recent appearance). In east London it is about housing, schools and low wages. The women worry for their children and their elderly parents – what happens to them if the rent goes up again? The lack of affordable housing is terrifying. In the mining towns of Nottinghamshire where I am from, the debate again is about Brexit, and even former striking miners are voting leave.

The mining communities are also worried about the lack of secure and paid employment, the loss of the pubs and the grinding poverty that has returned to the north. The talk about immigration is not as prevalent or as high on the list of fears as sections of the media would have us believe. The issues around immigration are always part of the debate, but rarely exclusively. From my research I would argue that the referendum debate within working-class communities is not about immigration, despite the rhetoric. It is about precarity and fear. As a group of east London women told me: “I’m sick of being called a racist because I worry about my own mum and my own child,” and “I don’t begrudge anyone a roof who needs it but we can’t manage either.”

Over the past 30 years there has been a sustained attack on working-class people, their identities, their work and their culture by Westminster politics and the media bubble around it. Consequently they have stopped listening to politicians and to Westminster and they are doing what every politician fears: they are using their own experiences in judging what is working for and against them.

Read more …

Think I made it very and abundantly clear in the past that I fully agree with this. Tad surpised to see it come from Steve, given his link to Varoufakis.

It’s Time To Call Time On The EU Experiment (Steve Keen)

The arguments for and against Brexit have focused on the economic costs and benefits for the UK in leaving or remaining within the EU. Though I am an economist, I am taking a more political perspective to this vote by focusing on the utterly undemocratic nature of the key institutions of the EU. The European Parliament is a weak, diversionary figurehead, while the real power resides within the unelected bureaucracy of the EU and the key political appointees of the Europe’s governments—and particularly its Finance Ministers. These effective cabals run roughshod over political democracies when they elect leaders that oppose core EU economic policies, while at the same time these policies are leading to the ruin of southern Europe, and the stagnation of France and Italy.

The EU has been a failed enterprise ever since 1992, when the Maastricht Treaty was approved. As the prescient non-mainstream English economist Wynne Godley realised at the time, the fetish in this Treaty for government surpluses would lead to the collapse of Europe. Godley wrote that “If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation” (Godley, Maastricht and all that, London Review of Books, 1992). Godley’s words, which surely seemed rash and insanely pessimistic at the time, have proven true with time. I therefore think that it’s time to call time on the EU experiment. I’ll be voting for Brexit for this reason.

Read more …

A bit surprisingly, Ambrose has turned hard against Brussels and Remain.

Osborne’s ‘Punishment Budget’ Is Economic Vandalism (AEP)

George Osborne is disqualified from serving as Chancellor of the Exchequer for a single week longer. Whatever his past contributions, his threat to push through draconian fiscal tightening in an emergency Brexit budget is economic madness, if not criminal incompetence. Such action would leverage and compound the financial shock of Brexit, and would risk pushing the country into a depression. It violates the known tenets of macro-economics, whether you are Keynesian or not. Alistair Darling, the former Labour Chancellor, has connived in this Gothic drama. He professes to be “much more worried now” than he was even during the white heat of the Lehman crisis and the collapse of the Western banking system in 2008. So he should be. The emergency Budget that he endorses might well bring about disaster.

The policy response is the mirror image of what he himself did – wisely – during his own brief tenure through the Great Recession. We all understand why George Osborne is toying with such pro-cyclical vandalism – or pretending to – for he is acting purely as as partisan for the Remain campaign. He has fatally mixed his roles. No head of the Treasury can behave in this fashion. The emergency Budget would aim to cover a £30bn ‘black hole’ with a mix of tax rises and spending cuts. These “illustration” measures include 2p on income tax and a 5 percentage point rise on inheritance tax, and petrol and alcohol duties. Transport, the police, and local government would be axed by 5pc. There would be cuts in pensions and defence. Spending on the NHS would be “slashed’.

This is a fiscal contraction of 1.7pc of GDP. It would hammer the economy just as it was reeling from the immediate trauma of a Brexit vote and the probable contagion effects across eurozone periphery, already visible in widening bond spreads. It would come amid political chaos, before it was clear what the UK negotiating strategy is, or what the EU might do. It would be the worst possible moment to tighten. The Treasury has already warned that the short-term shock of Brexit would slash output by 3.6pc, or 6pc with 820,000 job losses in its ‘severe’ scenario. The Chancellor now states he will reinforce this with austerity a l’outrance. It is a formula for a self-feeding downward spiral, all too like the scorched-earth policies imposed on southern Europe during the debt crisis.

Read more …

“.. the history of the last two centuries can be summed up in two words: democracy matters.”

JPMorgan CIO: Brexit “Hardly The Stuff Of Economic Calamity” (ZH)

First The Telegraph, then The Sun, and today The Spectator all came out on the “Leave” side of the Brexit debate. However, perhaps even more shocking to the establishment is the CIO of a major bank’s asset management arm dismissing the apparent carnage that Cameron, Obama, and Osborne have declared imminent, warning that, “many articles on the Brexit vote overstate its risks and consequences.” As JPM’s Michael Cembalest adds, the reality is “hardly the stuff that economic calamity is made of.” As The Spectator concludes, “the history of the last two centuries can be summed up in two words: democracy matters.” As JPMorgan Asset Management CIO Michael Cembalest explains…

“My sense is that many articles on the Brexit vote overstate its risks and consequences for the UK, and/or overstate the vote’s impact on political movements and economic malaise in the Eurozone that predate it by months and years. Here are some thoughts on issues I have seen raised over the last few weeks. “UK growth will suffer a huge hit”. Of all the analyses I’ve read about a possible Brexit scenario, I found Open Europe’s report to be the most clear-headed and balanced. Their realistic case estimates the cumulative impact of Brexit on UK GDP at just -0.8% to 0.6% by the year 2030; hardly the stuff that economic calamity is made of.

“UK-EU trade will collapse”. Not necessarily. Norway, Iceland and Switzerland have entered into agreements with the EU on trade and labor mobility (European Economic Area, European Free Trade Area). As shown below, these three non-EU countries export as much to the EU as its members do. Such agreements could serve as a template for post-Brexit trade between Britain and the EU, if both sides see it in their mutual self-interest.”

Read more …

The City could take a big hit.

Brexit: Which Banks Will Be Hit Hardest (WSJ)

Barclays and HSBC are the banks with the most business in Europe. Barclays got just under 9% of its profits from continental European businesses in 2015. At HSBC, roughly 5.5% of last year’s profits came from continental Europe, where it has a large French retail business. Local businesses could become much more difficult to run from the U.K. if a Brexit vote provokes a big change in the trade arrangements with the rest of Europe. Meanwhile, their large London-based investment banks—and those of other European and U.S. groups—would also face losing direct access to Europe without a new trade deal that preserved Britain’s “passport” for services. In this case, Deutsche Bank, BNP Paribas and Société Générale, for example, would suffer some of the same disruption and relocation costs as Barclays or HSBC.

The other vulnerable group would be U.K. mortgage lenders, such as Lloyds Banking Group, Virgin Money and OneSavings. If international investors react badly to Brexit, pulling capital out of the country, the pound will fall further and the Bank of England may feel compelled to lift interest rates to attract investors back into U.K. government bonds. Some believe benchmark interest rates might only have to go to, say, 2%, to make U.K. assets attractive, but that could upend the housing market, where prices have risen dramatically in the past couple of years, helped by substantial lending to small-time landlords. Ultra-low interest rates have kept debt-service costs minuscule, a situation that could be upended quickly.

Read more …

Sounds like she’s giving up.

Yellen Says Forces Holding Down Rates May Be Long Lasting, New Normal (BBG)

Federal Reserve Chair Janet Yellen seems to be coming around to what her one-time rival, Lawrence Summers, has been arguing for a while: Some of the forces holding down interest rates may be long-lasting and secular. That’s reflected in a marked downgrade in rate projections released by policy makers after their meeting on Wednesday. Six of 17 now only see one rise this year, after the central bank lifted rates effectively from zero in December. Officials also slowed the pace of expected moves in both 2017 and 2018: They now only foresee three increases in each of those years, down from the four they expected in March, according to their latest median forecast.

Yellen in the past has ascribed the low level of rates mainly to lingering headwinds from the financial crisis – tight mortgage credit, for instance – and suggested that they would dissipate over time. On Wednesday, though, she also pointed to more permanent forces that could depress rates for longer, namely, slow productivity growth and aging societies, in the U.S. and throughout much of the world. In a press conference after the Fed held policy steady, Yellen spoke of a sense that rates may be depressed by ”factors that are not going to be rapidly disappearing, but will be part of the new normal.”

Read more …

She means the Leave vote did. When it looked like Remain would win easily, things were different.

Yellen Says Brexit Vote Influenced Fed (BBG)

Federal Reserve chair Janet Yellen said next week’s referendum in the UK on whether to remain in the EU was a factor in the US central bank’s decision to hold interest rates steady at its meeting Wednesday in Washington. “It is a decision that could have consequences for economic and financial conditions in global financial markets,” Yellen said during a press conference following the meeting. A vote on June 23 by Britons to leave the EU “could have consequences in turn for the US economic outlook,” she said. Fewer Federal Reserve officials now expect the central bank to raise interest rates more than once this year, as policy makers gave a mixed picture of a US economy where growth is picking up and job gains are slowing.

While the median forecast of 17 policy makers remained at two quarter-point hikes this year, the number of officials who see just one move rose to six from one in the previous forecasting round in March, according to projections released by the Federal Open Market Committee on Wednesday following a two-day meeting in Washington. “The central bank reiterated that interest rates are likely to rise at a “gradual” pace, without referring in the statement to the next meeting in July or any other specific timing for another increase.

Read more …

“The BOJ might also have found itself short of ammunition to respond to that turbulence.”

Bank of Japan Stands Pat Ahead of Brexit Vote (WSJ)

The Bank of Japan stood pat Thursday despite a surging yen and faltering inflation, opting to wait until after the results of a British referendum next week that could roil global markets. The central bank’s decision comes amid growing skepticism about the effectiveness of Prime Minister Shinzo Abe’s economic program in ending Japan’s long cycle of lackluster growth and sporadic deflation. Abenomics, which has leaned most heavily on the central bank, hasn’t produced sustained, robust growth since it was launched more than three years ago. Japan’s economy has swung between modest expansions and contractions in recent quarters, while the BOJ’s hard-won gains in the battle against falling prices are starting to slip away.

Economists have expected the BOJ to take additional action in recent months, particularly given that BOJ Gov. Haruhiko Kuroda has repeatedly vowed to take action “without hesitation” if the central bank’s 2% inflation target is in danger. The central bank also stood pat in April, when expectations for action were high. Some BOJ policy board members, though, signaled ahead of this week’s meeting that they preferred to wait until after the U.K. votes next week on whether to leave the European Union, according to people familiar with the central bank’s thinking. They were concerned that even if the BOJ acted this week, the market impact of its move would fade if a “Brexit” vote rocked global financial markets, according to people close to the bank. The BOJ might also have found itself short of ammunition to respond to that turbulence.

Read more …

Free trade, like all forms of centralization, depends on a growing economy. There is no such thing anymore.

Is The World Turning Its Back On Free Trade? (BBC)

Which politician has captured the curve, summed up a growing mood, in a ferocious speech? “Your iron industry is dead, dead as mutton. Your coal industries, which depend greatly on the iron industries, are languishing. Your silk industry is dead, assassinated by the foreigner. Your woollen industry is in articulo mortis, gasping, struggling. Your cotton industry is seriously sick. Your shipbuilding industry, which held out longest, is come to a standstill.” The Latin, the silk and the mutton are a dead giveaway. Not Trump, but Lord Randolph Churchill in 1884 denouncing Free Trade. The system he preferred – “Fair Trade” – is coming back into fashion.

We have heard a lot about the revolt against the political elites, the backlash by those “left behind” by globalization; a lot about the movements and political personalities this has brought to the fore; a lot about the implications for immigration. But not so much about the economics of it all. It many signal a new rejection of one of the global elite’s most cherished policies – free trade. This is the notion that the fewer economic barriers around the world, and the less countries protect their own goods and trade with special policies, the richer we all end up. The opposite is protectionism – making foreign goods more expensive by putting taxes on their import , tariffs, in order to make home-grown products cheaper by comparison. While few embrace the word protectionism, growing numbers of politicians are openly embracing the principle behind it.

Donald Trump has said he would put a swingeing 45% tax on goods from China and 35% on many from Mexico. Many economists mock this as crazy stuff, but it is a sentiment that goes down well with many Americans. [..] Bernie Sanders has made it very clear he is opposed to NAFTA, the free trade bloc with Mexico and Canada, and the planned Asia Pacific agreement. He has been saying it for a while. This is him in 2011: “Let’s be clear: one of the major reasons that the middle class in America is disappearing, poverty is increasing and the gap between the rich and everyone else is growing wider and wider, is due to our disastrous unfettered free trade policy.”

Read more …

“..only “a few lunatics” may want to join the EU now..”

Switzerland Withdraws Longstanding Application To Join EU (RT)

The upper house of the Swiss parliament on Wednesday voted to invalidate its 1992 application to join the European Union, backing an earlier decision by the lower house. The vote comes just a week before Britain decides whether to leave the EU in a referendum Twenty-seven members of the upper house, the Council of States, voted to cancel Switzerland’s longstanding EU application, versus just 13 senators against. Two abstained. In the aftermath of the vote, Switzerland will give formal notice to the EU to consider its application withdrawn, the country’s foreign minister, Didier Burkhalter, was quoted as saying by Neue Zürcher Zeitung. The original motion was introduced by the conservative Swiss People’s Party MP, Lukas Reimann.

It had already received overwhelming support from legislators in the lower house of parliament in March, with 126 National Council deputies voting in favor, and 46 against. Thomas Minder, counsellor for the state of Schaffhausen and an active promoter of the concept of “Swissness,” said he was eager to “close the topic fast and painlessly” as only “a few lunatics” may want to join the EU now, he told the newspaper. Hannes Germann, also representing Schaffhausen, highlighted the symbolic importance of the vote, comparing it to Iceland’s decision to drop its membership bid in 2015. “Iceland had the courage and withdrew the application for membership, so no volcano erupted,” he said, jokingly.

Read more …

Australia: “We have nothing else except real estate…”

Highrise Harry Whispers The Terrible Truth (MB)

Highrise Harry’s media foghorns continue his campaign to abolish foreign buyer stamp duties today at the AFR: “Alluding to remarks by Meriton boss Harry Triguboff that he might have to reduce his apartment prices in the wake of the surcharges, Ms Berejiklian said that, given so many people were worried about housing affordability, the NSW government would be “happy to wear that consequence”. Mr Triguboff labelled the new taxes “very dangerous”, coming as they did on top of moves by the banks to tighten up lending to foreign buyers. He also urged caution in light of the decline of the mining sector. “We have nothing else except real estate. We have to be very careful,” Mr Triguboff told the AFR.” True indeed, Highrise. But that’s why policy must shift away from property and towards the repair of everything else.

Read more …

Brussels trying to bend Greek sovereign law and legal system.

EU Pushes Greece To Set Up New Asylum Committees (EUO)

The EU wants Greece to quickly set up new appeals committees to better cope with the large number of asylum requests. “New appeals committees under the new law will be set up in the next 10 days, I am confident that procedures will be accelerated soon,” EU migration commissioner Dimitris Avramopoulos [said]. The Greek commissioner said the government in Athens decided on Tuesday to “upgrade and enhance” the appeals committees. “We salute that the Greek government took that initiative,” he said. The aim was “to speed up judicial procedures to assess all the requests and give prompt answers”. The committees are an essential part of an agreement reached in March between Turkey and the EU for sending back migrants.

So far, dealing with appeals regarding asylum requests has been the job of the so-called backlog committees, created in 2010 to deal with the large number of pending asylum cases in Greece. But these committees were not designed to deal with massive influx, as more than 8,000 migrants are still stranded on the Greek islands. EU officials claim it was always the goal of Brussels and Athens to create new committees to take this burden off the backlog committees. A Greek source told EUobserver however that an amendment to the existing law on appeals committees is still being debated in the Greek parliament, and there is no guarantee that the new committees will be set up the next 10 days.

But the issue has become especially important for EU member states after it emerged that the committees had ruled in 55 cases involving Syrians that the claimant could not be returned back to Turkey. In effect ruling that Turkey is not a safe country. Only in two cases did they agree to send those Syrians back to Turkey. According to an EU source, the first decision by the backlog committees that said Turkey is not a safe country created a major upset in Brussels and in other EU capitals, prompting fears that the EU-Turkey deal could unravel. “They are seen as the enemy of the deal,” the source added.

Read more …

E.O. Wilson makes a last desperate call.

Could We Set Aside Half The Earth For Nature? (G.)

As of today, the only place in the universe where we are certain life exists is on our little home, the third planet from the sun. But also as of today, species on Earth are winking out at rates likely not seen since the demise of the dinosaurs. If we don’t change our ways, we will witness a mass extinction event that will not only leave our world a far more boring and lonely place, but will undercut the very survival of our species. So, what do we do? E.O. Wilson, one of the world’s most respected biologists, has proposed a radical, wild and challenging idea to our species: set aside half of the planet as nature preserves. “Even in the best scenarios of conventional conservation practice the losses [of biodiversity] should be considered unacceptable by civilised peoples,” Wilson writes in his new book, Half-Earth: Our Planet’s Fight for Life.

One of the world’s most respected biologists, Wilson is known as the father of sociobiology, a specialist in island biogeography, an expert on ant societies and a passionate conservationist. In the book, Wilson argues eloquently for setting aside half of the planet for nature, including both terrestrial and marine ecosystems. He writes that it’s time for the conservation community to set a big goal, instead of aiming for incremental progress. “People understand and prefer goals,” he writes. “They need a victory, not just news that progress is being made. It is human nature to yearn for finality, something achieved by which their anxieties and fears are put to rest…It is further our nature to choose large goals that while difficult are potentially game-changing and universal in benefit. To strive against odds on behalf of all life would be humanity at its most noble.”

The reason why half is the answer, according to Wilson, is located deep in the science of ecology. “The principal cause of extinction is habitat loss. With a decrease of habitat, the sustainable number of species in it drops by (roughly) the fourth root of the habitable area,” Wilson wrote via email, referencing the species-area curve equation that describes how many species are capable of surviving long-term in a particular area. By preserving half of the planet, we would theoretically protect 80% of the world’s species from extinction, according to the species-area curve. If protection efforts, however, focus on the most biodiverse areas (think tropical forests and coral reefs), we could potentially protect more than 80% of species without going beyond the half-Earth goal. In contrast, if we only protect 10% of the Earth, we are set to lose around half of the planet’s species over time. This is the track we are currently on.

Read more …

May 202016
 
 May 20, 2016  Posted by at 8:59 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


John Vachon Window in home of unemployed steelworker. Ambridge, PA 1941

Lacking New Ideas, G7 To Agree On ‘Go-Your-Own-Way’ Approach (R.)
Japan And US Are Headed For A Showdown Over Currency Manipulation (MW)
Kuroda Stresses Readiness to Act if Yen Rise Threatens Inflation Goal (WSJ)
US Business Loan Delinquencies Spike to Lehman Moment Level (WS)
China Steelmakers Attack US 522% Tariff Move; Say Need More Time (R.)
The Iron Mountain on China’s Doorstep Tops 100 Million Tons (BBG)
Big Chinese Banks Issue New Yuan-Denominated Debt In US (WSJ)
Mass Layoffs Are Looming in South Korea (BBG)
‘Central Banks Can Do Nothing’: Steen Jakobsen (Saxo)
Making Things Matters. This Is What Britain Forgot (Chang)
Germany Strives to Avoid Housing Bubble (BBG)
Bayer Eyes $42 Billion Monsanto in Quest for Seeds Dominance (BBG)
Bayer’s Mega Monsanto Deal Faces Mega Backlash in Germany (BBG)
EU Declines To Renew Glyphosate Licence (EUO)
Ai Weiwei Says EU’s Refugee Deal With Turkey Is Immoral (G.)

In a strong sign of how fast the crisis is deepening, and in between the usual blah blah, the G7 is falling apart.

Lacking New Ideas, G7 To Agree On ‘Go-Your-Own-Way’ Approach (R.)

A rift on fiscal policy and currencies is likely to set the stage for G7 advanced economies to agree on a “go-your-own-way” response to address risks hindering global economic growth at their finance leaders’ gathering on Friday. As years of aggressive money printing stretch the limits of monetary policy, the G7 policy response to anemic inflation and subdued growth has become increasingly splintered. Finance leaders gathering in Sendai, northeast Japan, sought advice from prominent academics, including Nobel Prize-winning economist Robert Shiller, on ways to boost growth in an informal symposium ahead of an official G7 meeting on Friday.

Participants of the symposium agreed that instead of relying on short-term fiscal stimulus or monetary policy, structural reforms combined with appropriate investment are solutions to achieving sustainable growth, a G7 source said. If so, that would dash Japan’s hopes to garner an agreement on the need for coordinated fiscal action to spur global demand. Germany showed no signs of responding to calls from Japan and the United States to boost fiscal stimulus, instead warning of the dangers of excessive monetary loosening. “There is high nervousness in financial markets” fostered by huge government debt and excess liquidity around the globe, German Finance Minister Wolfgang Schaeuble said on Thursday.

But G7 officials have signaled that they would not object if Japan were to call for stronger action using monetary, fiscal tools and structural reforms – catered to each country’s individual needs. That means the G7 finance leaders, while fretting about risks to outlook, may be unable to agree on concrete steps to bolster stagnant global growth. “I expect there to be a frank exchange of views on how to achieve price stability and growth using monetary, fiscal and structural policies reflecting each country’s needs,” Bank of Japan Governor Haruhiko Kuroda told reporters on Thursday.

Read more …

The interests are too different to reconcile, and it’s by no means just Japan and the US that are involved in the showdown.

Japan And US Are Headed For A Showdown Over Currency Manipulation (MW)

Investors will be watching for signs of tension between Japanese and U.S. powers this weekend, when central bankers and finance chiefs face off in Sendai, a city northeast of Tokyo, for the latest Group of 7 summit. The two countries have sparred over the dollar-yen exchange rate in the months since the Japanese currency began a prolonged rise against the dollar. The yen has lost nearly 9% of its value relative to the dollar since the beginning of the year. Last week, Japanese Finance Minister Taro Aso spoke publicly about the continuing disagreement between U.S. and Japanese policy makers over whether the rise in the yen seen since the beginning of the year has been severe enough to warrant an intervention.

Japan might favor a weaker currency primarily because it makes the country’s exports more attractive. “We’ve have often been arguing over the phone,” Aso said, according to The Wall Street Journal. He also reiterated that Japanese officials wouldn’t hesitate to intervene in the market if the currency continued its sharp moves. Plus, he said, the Treasury Department’s decision to put Japan on a currency manipulation monitoring list “won’t constrain” the country’s currency policy. The Treasury published the list for the first time this year, including it as part of a semiannual report on currency practices released late last month. Japan was joined on the list by China, Germany, Taiwan and Korea.

To be included on the Treasury’s watch list, a country must meet at least two of three criteria: A trade surplus with the U.S. larger than $20 billion, a current-account surplus larger than 3% of its GDP—or it must engage in persistent one-sided intervention in the currency market, which the Treasury qualifies as repeated purchases of foreign currency amounting to more than 2% of a country’s GDP over the course of a year.

Read more …

And so are all other central bankers.

Kuroda Stresses Readiness to Act if Yen Rise Threatens Inflation Goal (WSJ)

Bank of Japan Gov. Haruhiko Kuroda said he would act quickly if the yen’s rise threatens his inflation goal, highlighting his caution over exchange rates ahead of a major international convention. “Be it exchange rates or anything, if it has negative effects on our efforts to achieve our price-stability target, and from that perspective if we figure that action is necessary, we will undertake additional easing measures,” Mr. Kuroda told reporters Thursday. The remarks by Mr. Kuroda come at a time of tension between the U.S. and Japan over whether the yen’s appreciation seen earlier this year is sharp enough to warrant intervention by authorities. Investors are closely watching whether Tokyo and Washington will continue to clash over yen policy during a meeting in northern Japan Friday and Saturday of finance chiefs from the Group of Seven leading industrialized nations.

Mr. Kuroda defended his policy stance, saying it is no different from that of central banks abroad. He also reiterated that the BOJ has kept in place massive stimulus to achieve its target of 2% inflation, not to guide the yen lower. Mr. Kuroda said that while he is watching how the bank’s negative-rates policy affects the economy, “this doesn’t mean that we will sit idly by until trickle-down effects become clear.” The BOJ will review the need for fresh steps “at every policy meeting,” he added. Speaking of risks facing Japan’s economy, Mr. Kuroda acknowledged that he is “paying close attention” to the coming British referendum to decide whether to leave the European Union.

Read more …

“Business loan delinquencies are a leading indicator of big economic trouble.”

US Business Loan Delinquencies Spike to Lehman Moment Level (WS)

This could not have come at a more perfect time, with the Fed once again flip-flopping about raising rates. After appearing to wipe rate hikes off the table earlier this year, the Fed put them back on the table, perhaps as soon as June, according to the Fed minutes. A coterie of Fed heads was paraded in front of the media today and yesterday to make sure everyone got that point, pending further flip-flopping. Drowned out by this hullabaloo, the Board of Governors of the Federal Reserve released its delinquency and charge-off data for all commercial banks in the first quarter – very sobering data. So here a few nuggets. Consumer loans and credit card loans have been hanging in there so far.

Credit card delinquencies rose in the second half of 2015, but in Q1 2016, they ticked down a little. And mortgage delinquencies are low and falling. When home prices are soaring, no one defaults for long; you can sell the home and pay off your mortgage. Mortgage delinquencies rise after home prices have been falling for a while. They’re a lagging indicator. But on the business side, delinquencies are spiking! Delinquencies of commercial and industrial loans at all banks, after hitting a low point in Q4 2014 of $11.7 billion, have begun to balloon (they’re delinquent when they’re 30 days or more past due). Initially, this was due to the oil & gas fiasco, but increasingly it’s due to trouble in many other sectors, including retail.

Between Q4 2014 and Q1 2016, delinquencies spiked 137% to $27.8 billion. They’re halfway toward to the all-time peak during the Financial Crisis in Q3 2009 of $53.7 billion. And they’re higher than they’d been in Q3 2008, just as Lehman Brothers had its moment. Note how, in this chart by the Board of Governors of the Fed, delinquencies of C&I loans start rising before recessions (shaded areas). I added the red marks to point out where we stand in relationship to the Lehman moment:

Business loan delinquencies are a leading indicator of big economic trouble. They begin to rise at the end of the credit cycle, on loans that were made in good times by over-eager loan officers with the encouragement of the Fed. But suddenly, the weight of this debt poses a major problem for borrowers whose sales, instead of soaring as projected during good times, may be shrinking, and whose expenses may be rising, and there’s no money left to service the loan.

Read more …

Hadn’t seen this claim before: “..local steelmakers are more efficient (and enjoy far lower costs) than their international counterparts.”

China Steelmakers Attack US 522% Tariff Move; Say Need More Time (R.)

Chinese steelmakers attacked new U.S. import duties on the country’s steel products as “trade protectionism” on Thursday, saying the world’s biggest producer needs time to address its excess capacity. “There’s too much trade friction and it’s not good for the market,” Liu Zhenjiang, secretary general of the China Iron and Steel Association told Reuters when asked if China will appeal U.S. anti-dumping duties at the WTO. China said it will continue its tax rebates to steel exporters to support the sector’s painful restructuring after the United States said on Tuesday it would impose duties of 522% on Chinese cold-rolled flat steel. China, which accounts for half the world’s steel output, is under fire after its exports hit a record 112 million tonnes last year, with rivals claiming that Chinese steelmakers have been undercutting them in their home markets.

In the four months to April, China’s steel exports have risen nearly 7.6% to 36.9 million tonnes. “It’s not just China’s problem to tackle overcapacity. Everyone should play a part. China needs time,” Liu told an industry conference. “Trade protectionism hurts consumers, (it’s) against free trade and competition,” he added. China’s Commerce Ministry said on Wednesday the United States had employed “unfair methods” during an anti-dumping investigation into Chinese cold-rolled steel products. While a flood of cheap Chinese steel has been blamed for putting some overseas producers out of business, China denies its mills have been dumping their products on foreign markets, stressing that local steelmakers are more efficient and enjoy far lower costs than their international counterparts.

Read more …

All we got to do is wait till they run out of space to store it.

The Iron Mountain on China’s Doorstep Tops 100 Million Tons (BBG)

There’s a mountain of iron ore sat right on China’s doorstep. Stockpiles at ports have climbed above 100 million metric tons, offering fresh evidence of increased supplies in the world’s top user that may hurt prices. The inventories swelled 1.6% to 100.45 million tons this week, the highest level since March 2015, according to data from Shanghai Steelhome Information Technology. The holdings, which feed the world’s largest steel industry, have expanded 7.9% this year, and are now large enough to cover more than five weeks’ of imports. Iron ore has traced a boom-bust path over the past two months after investors in China piled into raw-material futures, then changed course after regulators clamped down.

While mills in China churned out record daily output in April to take advantage of a steel price surge, production in the first four months was 2.3% lower than a year earlier. Port inventories in China may continue to increase, BHP Billiton forecast this week. “There’s a lot of optimism actually that steel demand in China will increase,” Ralph Leszczynski at shipbroker Banchero Costa , said by phone. “It’s a bit of an ‘if’ as the economy is still quite fragile,” he said, calling the rise in port stocks “probably excessive.” The raw material with 62% content sank 5.8% to $53.47 a dry ton on Thursday, according to Metal Bulletin Ltd. Prices have tumbled 24% since peaking at more than $70 a ton in April, paring the gain so far in 2016 to 23%.

Read more …

A stronger dollar makes this a huge gamble.

Big Chinese Banks Issue New Yuan-Denominated Debt In US (WSJ)

Two of China’s largest banks are issuing new local currency debt in the U.S., offering attractive yields for investors willing to take some currency risk. Industrial and Commercial Bank of China, the world’s largest bank by assets, said it plans on Friday to raise 500 million yuan ($76 million) through 31-day certificates of deposit in the U.S. that will yield 2.6%. Agricultural Bank of China, the third-largest bank in the world, this week sold a 117 million yuan one-year bill that yields 3.35%. Both issues came at a significant premium to the 0.621% yield on the one-year U.S. Treasury bill. But the yuan-denominated debt could pay out less if the currency falls in value. Fed officials last month discussed the possibility of raising interest rates at their June policy meeting, according to minutes from the April meeting released on Wednesday.

A rate increase could cause the yuan to weaken against the dollar. China’s 3% devaluation in August sparked a selloff in yuan-denominated bonds, driving up interest rates in the offshore market, also known as the dim sum market. The new offerings will test demand for Chinese debt in local currency, the first issued by any Chinese bank in the U.S. since last year. China’s one-month interbank rate is currently 2.84%, which means some Chinese banks can borrow at better rates in the U.S. and other foreign markets than at home. The debt also promotes the use of the yuan abroad, one of the conditions set by the IMF when it said last year it would add the Chinese currency to its basket of reserve currencies. The IMF’s inclusion of the yuan is a step toward making the currency fully convertible.

Read more …

Take that, G7.

Mass Layoffs Are Looming in South Korea (BBG)

The South Korean government’s push to restructure debt-laden companies is set to cost tens of thousands of workers their jobs in an economy where social security is limited and a rigid labor market reduces the likelihood of getting rehired in a full-time position. Many of the layoffs will be in industrial hubs along the southeast coastline, where shipyards and ports dominate the landscape. These heavy industries, which helped propel South Korea’s growth in previous decades, have seen losses amid a slowdown in global growth, overcapacity and rising competition from China. As a condition of financial support, creditor banks and the government are pushing companies to cut back on staff and sell unprofitable assets. In Korea, losing a permanent, full-time job often means sliding toward poverty, one reason why labor unions stage strikes that at times lead to violent confrontations with employers and police.

A preference for hiring and training young employees, rather than recruiting experienced hands, means that many workers who get laid off drift into day labor or low-wage, temporary contracts that lack insurance and pension benefits, according to Lee Jun Hyup, a research fellow for Hyundai Research Institute. “The possibility of me getting a new job that offers similar income and benefits is about 1%,” said one of about 2,600 employees to be laid off following a previous restructure, of Ssangyong Motor in 2009. The 45-year-old worker, who asked only to be identified by the surname Kim as he tries to get rehired, initially delivered newspapers and worked construction after losing his permanent job. He’s now on a temporary contract at a retailer and taking night shifts as a driver to get by. Despite having these two jobs, his income has been halved. Being fired was “like being pushed into a desert with no water,” Kim said.

Read more …

Jakobsen’s always interesting. This is quite a long piece.

‘Central Banks Can Do Nothing’: Steen Jakobsen (Saxo)

TradingFloor.com: The “new nothingness” thesis was based on zero rates, zero growth, zero reforms. But you hinted that all of this nothingness has spilled over into culture and politics as well… do these macro facts hinder peoples’ imagination, or their ability to deal with the problem?

Steen Jakobsen: Yes, I think so. This year, we see a growing gap between the central banks’ narrative – which is that you have a trickle-down impact from lower rates – and [the situation on the ground]. People understand that zero interest rates are a reflection of zero growth, zero inflation, zero hope for changes, and zero reforms. In my opinion as an economist and a market observer, people are smarter than central banks. And because they are smarter, they can live with policy mistakes for a while because the narrative is very strong and because people like (ECB head Mario) Draghi and (Fed chief Janet) Yellen have these platforms from which they not only talk but occasionally shout, and they are deemed to be “credible”, scare quotes mine…

We see [this gap] in the Brexit debate as well, where the elite and the academics talk down to the average voter. By doing that, of course, they alienate the voters from their representatives. That’s what we see globally, that’s why Brazil is going to change presidents, why Ireland could not get its government re-elected with 6% growth. It’s not about the top line, but about the average person seeing that we need real, fundamental change.

TF: Earlier this year, you said that the social contract – the agreement between rulers and the ruled – is broken. It made me think of this year’s Davos meeting, which showed a leadership class terrified of slowing jobs growth and enamoured with the idea that population movements might be used to address this. Given the current unpopularity of globalisation and its effects, would you say that there are some things it is impossible for 21st century leaders and the led to agree upon? Is a social contract impossible?

SJ: No, it could be re-established, but it needs to be established on terra firma. Right now, we have a panacea in the form of low rates and the idea that things will somehow improve in six months. This has led to buyback programmes, a lack of motivation [and all the rest]. We as a society have to recognise that productivity comes from raising the average education level. People forget that all the revolutionary trends, the changes we’ve seen in history, have come from basic research. I don’t mean research driven by profit, but by an individual’s particular interest in one very minute area of a specific topic. This is what creates new inventions.

The second thing we often forget is that the military has been behind a lot of the industrial revolution. Mobile telephony, for example, had nothing to do with private citizens or companies – instead, it had a lot to do with the US military. The key thing here is that we need to be more productive. If everyone has a job, there is no need to renegotiate the social contract. The world has become elitist in every way. Before, you could start a company and build a small franchise; now, you have to be global, you have to have a billion users (if you’re an IT company), and [the pursuit of this] does not necessarily provide the best technologies, but only the biggest ones, the ones backed by [the firms with] the deepest pockets and largest web of connections.

Read more …

It’s what many countries ‘forgot’.

Making Things Matters. This Is What Britain Forgot (Chang)

It’s being blamed on the Brexit jitters. But the weakness in the UK economy that the latest figures reveal is actually a symptom of a much deeper malaise. Britain has never properly recovered from the 2008 financial crisis. At the end of 2015, inflation-adjusted income per capita in the UK was only 0.2% higher than its 2007 peak. This translates into an annual growth rate of 0.025% per year. How pathetic this performance is can be put into perspective by recalling that Japan’s per capita income during its so-called “lost two decades” between 1990 and 2010 grew at 1% a year. At the root of this inability to stage a real recovery is the serious imbalance that has developed in the past few decades – namely, the over-development of the UK financial sector and the atrophy of manufacturing.

Right after the 2008 financial crisis there was a widespread recognition that the ballooning financial sector needed to be reined in. Even George Osborne talked excitedly for a while about the “march of the makers”. That march never materialised, however, and manufacturing’s share of GDP has stagnated at around 10%. This is remarkable, given that the value of sterling has fallen by around 30% since the crisis. In any other country a currency devaluation of this magnitude would have generated an export boom in manufactured goods, leading to an expansion of the sector. Unfortunately manufacturing had been so weakened since the 1980s that it didn’t have a hope of staging any such revival. Even with a massive devaluation, the UK’s trade balance in manufacturing goods (that is, manufacturing exports minus imports) as a proportion of GDP has hardly budged.

The weakness of manufacturing is the main reason for the UK’s ever-growing deficit, which stood at 5.2% of GDP in 2015. Some play down the concerns: the UK, we hear, is still the seventh or eighth largest manufacturing nation in the world – after the US, China, Japan, Germany, South Korea, France and Italy. But it only gets this ranking because it has a large population. In terms of per capita output, it ranks somewhere between 20th and 25th. In other words, saying that we need not worry about the UK’s manufacturing sector because it is still one of the largest is like saying that a poor family with lots of its members working at low wages need not worry about money because their total income is bigger than that of another family with fewer, high-earning members.

Read more …

Just keep rates low enough for long enough and you’ll screw up any economy.

Germany Strives to Avoid Housing Bubble (BBG)

The German government, after years of warnings, is about to clamp down on rising home prices and mortgage lending. The government is preparing to implement measures to prevent real estate bubbles, the Finance Ministry said in an e-mail late on Wednesday. These policies may include capping borrowers’ loan-to-income ratio in order to reduce the probability of default, Handelsblatt reported on Thursday. The government continues to study the consequences of low interest rates on financial stability, a finance ministry spokesman said in the e-mail. However, there are currently no signs that German residential real estate lending is causing acute risks, he said.

With mortgage rates at record lows and savings accounts earnings almost nothing – thanks to a string of ECB rate cuts – Germans are buying homes at the fastest rate in decades. That’s pushed prices in cities including Berlin, Hamburg and Munich up by more than 30% in five years. New mortgages jumped by 22% in 2015 after five years of rising at 3% or less, according to the Bundesbank. In March, Bundesbank board member Andreas Dombret said he sees “clouds gathering on the horizon” and that the central bank is keeping a close eye on mortgages. Finance Minister Wolfgang Schaeuble, who has been critical of the ECB’s policy of pushing growth with cheap cash, in December said the hunt for yield could lead to the “formation of bubbles and excessive asset values.”

Read more …

Don’t think I can say in public what I think should happen to companies like Monsanto, Bayer, Syngenta et al. The people who brought you Agent Orange, Zyklon B and chemical warfare are coming for your food, all of it. A start might be to figure out who holds shares in these things. Your money fund, your pension fund? This is the industry of death, as much as arms manufactureers are.

Bayer Eyes $42 Billion Monsanto in Quest for Seeds Dominance (BBG)

Bayer made an unsolicited takeover offer for Monsanto Co. in a bold attempt by the German company to snatch the last independent global seeds producer and become the world’s biggest supplier of farm chemicals. The St. Louis-based company, with a market value of $42 billion, said it’s reviewing the offer in a statement Thursday. It didn’t disclose the terms of the proposal. Bayer, confirming the bid, said the combination would bolster its position as a life sciences company. Shares of Bayer plunged amid concern that a large purchase would weigh on its credit rating and force the company to sell more stock. The proposal by Werner Baumann, who’s been at Bayer’s helm for less than a month, follows Monsanto’s failed attempt to buy Syngenta and the proposed merger of Dow Chemical and DuPont.

To help finance its quest to buy the world’s largest seed maker, Bayer is considering asset disposals and a share sale, according to people familiar with the matter, who asked not to be identified because discussions are private. The German company is exploring the potential disposal of its animal-health business and the remaining 69% stake in plastics business Covestro, the people said. Animal health could fetch $5 billion to $6 billion, according to one of the people, and the Covestro holding is worth about €4.9 billion. If Bayer buys Monsanto, it could be the biggest acquisition globally this year and the largest German deal ever, according to data compiled by Bloomberg. A takeover of Monsanto would require an enterprise value of as much as €65 billionß, according to analysts at Citigroup.

[..]Merging Monsanto with the company that invented aspirin would bring together brands such as Roundup, Monsanto’s blockbuster herbicide, and Sivanto, a new Bayer insecticide. Monsanto is particularly vulnerable to a takeover after piling up a mountain of problems this year. The company has cut its earnings forecast, clashed with some of the world’s largest commodity-trading companies and become locked in disputes with the governments of Argentina and India. Shares are down 19% in the past 12 months. “It’s a relentless string of bad news,” Jonas Oxgaard, an analyst with Sanford C. Bernstein in New York, said. “It’s almost like they forgot to sacrifice a goat to the gods.”

Read more …

Bayer won’t be able to sell its new ‘products’ at home.

Bayer’s Mega Monsanto Deal Faces Mega Backlash in Germany (BBG)

Bayer’s proposed mega deal to buy Monsanto is likely to create a mega public relations challenge for the German company at home. Bayer faces a backlash against Germany’s biggest planned acquisition because of two products from the St. Louis-based company that are widely detested in the country: genetically modified seeds and the weedkiller Roundup, which uses a compound called glyphosate that some believe can cause cancer. “Germans view Monsanto as the main example of American corporate evil,” said Heike Moldenhauer, a biotechnology expert at German environmental group BUND. “It may not be such a good idea to take over Monsanto as that means incorporating its bad reputation, which would also make Bayer more vulnerable.”

A German Environment Ministry study released last month found 75% of citizens are against genetic engineering of plants and animals. Aware of voter suspicions, members of Chancellor Angela Merkel’s junior coalition partner, the Social Democrats, have already come out against the deal, which would turn Bayer into the biggest supplier of farm chemicals. Monsanto, which has a market value of $42 billion, said Thursday it’s studying the offer. Neither party has disclosed the terms. A merger would “strengthen the economic power of genetic engineering in Germany, which we see as very problematic as the majority of the population in Germany is opposed to the technology,” said Elvira Drobinski-Weiss, the lawmaker responsible for formulating policy positions on genetic engineering for the Social Democrats.

BASF four years ago abandoned research into genetically modified crops in Germany, citing a lack of acceptance of the technology in many parts of Europe from consumers, farmers and politicians. The German company moved the unit to the U.S. and halted development of products targeted for Europe to focus on crops for the Americas and Asia. “There’s virtually no market for genetically modified seeds in Europe because they’re so unpopular,” said Dirk Zimmermann, a GMO expert at Greenpeace in Hamburg. A deal combining Bayer and Monsanto would “hurt the future of sustainable agriculture.”

Read more …

The EU is good for something after all. The pro-Roundup arguments get an eery left field feel to them though: “We use it for some farming practices such as no-till and minimum-tillage, helping to ensure less greenhouse gas emissions and soil erosion.”

EU Declines To Renew Glyphosate Licence (EUO)

European experts failed again to take a decision on whether to renew a licence for glyphosate, the world’s widest-used weedkiller, during a meeting on Wednesday and Thursday (18-19 May). The EU standing committee on plants, animals, food and feed (Paff), which brings together experts of all EU member states, failed to organise a vote. There was no qualified majority for such a decision. The current licence expires on 30 June. The Paff committee was expected to settle on the matter already in March, but postponed the vote after France, Italy, the Netherlands and Sweden raised objections, mainly over the impact of glyphosate on human health. The European Commission has since tabled two new proposals, both of which failed to convince the member states.

The health commissioner Vytenis Andriukaitis insists that member states decide with a qualified majority because of the controversies involved. A spokesperson said the commission will reflect on the discussions. ”If no decision is taken before 30 June, glyphosate will be no longer authorised in the EU and member states will have to withdraw authorisations for all glyphosate based products”, the spokesperson said. Pekka Pesonen, the secretary general of agriculture umbrella organisation Copa-Cogeca, told EUobserver he regretted the outcome. ”This adds to uncertainty in an already pressured business”, he said. Glyphosate is widely used by European farmers because it is cost-efficient and widely available on the market.

”Without it, production will be jeopardised. This raises questions about food safety, competitiveness of European farmers, as well as our commitments to climate change,” Pesonen said. “We use it for some farming practices such as no-till and minimum-tillage, helping to ensure less greenhouse gas emissions and soil erosion.” ”Glyphosate is also recognised as safe by the EU food safety authority [Efsa]”, he added.

Read more …

“It is not legal or moral, it is shameful and it is not a solution. It will cause problems later.”

Ai Weiwei Says EU’s Refugee Deal With Turkey Is Immoral (G.)

The Chinese artist Ai Weiwei described the EU’s refugee deal with Turkey as shameful and immoral as he unveiled the artistic results of his stay on the Greek island of Lesbos. Speaking in Athens, where the works are going on public display for the first time from Friday, Ai said that although he had seen and experienced extreme and violent conditions in China, he “could never have imagined conditions like this”. Lesbos last year became the main European entry point for tens of thousands of Syrian and Iraqi refugees, but arrivals have fallen dramatically since the implementation of an agreement between Brussels and Ankara to return migrants from the Greek islands to Turkey. Of the agreement, Ai said: “It is not legal or moral, it is shameful and it is not a solution. It will cause problems later.”

The artist told the Guardian: “These people have nothing to do with Europe; they are like people from outer space, but they have to come. They have been pushed out and they are being totally neglected by Europe. They are sleeping in the mud and rain and it is only volunteers giving them food or clothes.” Ai arrived on Lesbos in December, having been invited to stage an exhibition at the Museum of Cycladic Art in Athens. The island seemed like a good starting point for thinking about ancient Greece and its mythologies, philosophies and values. Instead Ai became caught up in what he said was the biggest, most shameful humanitarian crisis since the second world war. He had told his girlfriend and young son it was a holiday, but five months later he and his studio are still there. He said he has been changed by what he has seen.

“It is such a beautiful island – blue water, sunshine, tourists – and to see the boats come in with desperate children, pregnant women and elderly people, some 90 years old, and they all have fear and they all have it in their eyes … You think: how could this happen? I got completely emotionally involved.” Ai said Europe needed to understand that the refugees were fleeing their countries because they had to. It was leave or die, he said. The exhibition at the MCA, Ai’s first in Greece, includes an enormous collage of 12,030 small pictures taken on his camera phone, documenting his time on the island. He is also exhibiting photographs taken by six Greek amateur photographers, in partnership with the Photographic Society of Mytilene.

Read more …

Feb 292016
 
 February 29, 2016  Posted by at 8:53 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


William Henry Jackson Portales of the market of San Marcos, Aguascalientes, Mexico 1890

China Stocks Tumble Toward 15-Month Low as Stimulus Bets Unwind (BBG)
China Devalues Most In 8 Weeks, Offshore Yuan Slides To 3-Week Lows (ZH)
China Expects To Lay Off 1.8 Million Coal, Steel Workers (Reuters)
China Central Bank Deflects Concerns Over Forex Reserves (Reuters)
Kuroda Negative Rate Bazooka Fizzles on Overnight Lending Freeze (BBG)
Share Buybacks: The Bill Is Coming Due (WSJ)
European Banks’ $200 Billion Oil Slick (BBG)
US Shale Frackers Eye World Conquest Despite Bloodbath (AEP)
Arab States Face $94 Billion Debt Crunch (BBG)
SocGen’s Albert Edwards Is Rethinking His ‘Ice Age’ Theory (MW)
Negative Rates = Deleveraging (Tonev)
I Was Wrong On Australian House Prices (Steve Keen)
Egypt Migrant Departures Stir New Concern In Europe (Reuters)
Pope Urges United Response To Refugee ‘Drama,’ Praises Greece (Reuters)
EU Warns Of Humanitarian Crisis As Emergency Measures Prepared (Kath.)
Europe Turns Its Back On Greece Over Refugees (FT)
We Can’t Allow Refugee Crisis To Plunge Greece Into Chaos, Says Merkel (G.)
Up To 70,000 Migrants ‘May Soon Be Stranded In Greece’ (Guardian)

Next weekend: the big National People’s Congress votes on XI’s five-year plan. Pie in the sky.

China Stocks Tumble Toward 15-Month Low as Stimulus Bets Unwind (BBG)

Chinese stocks sank, with the benchmark index approaching the lowest level since November 2014, as some investors were disappointed by a lack of specific measures to boost growth during the Group of 20 meetings in Shanghai. The Shanghai Composite Index dropped as much as 4.4% as almost 20 stocks fell for each that rose. The measure has declined 24% this year, the worst performer among 93 global equity indexes, on concern capital outflows will accelerate as the economic slowdown deepens. The yuan headed for its longest losing streak this year. Investors had hoped the government would announce measures to bolster the economy over the weekend, according to JK Life Insurance, after People’s Bank of China Governor Zhou Xiaochuan said on Friday there is room for more easing.

There are also increasing signs funds are shifting from equities to housing, according to Steve Wang, chief China economist at Reorient Financial Markets Ltd. “Investors feel disappointed over the lack of good news from the G-20, while the yuan has started to weaken again,” Wang said in Hong Kong. “There are signs of panic buying in China’s property market as prices in large cities continue to rise. A hazy economic outlook prompted some people to sell shares and buy homes, while many stocks remain overvalued.” [..] Increased volatility in stocks threatens to undo policy makers’s efforts to project an image of stability in the nation’s financial markets after months of turbulence reverberated across the world. Investors are also selling before the nation’s legislators meet on Saturday for the annual National People’s Congress, where economic policies for the next five years will be approved

Read more …

They should have pushed for a devaluation deal this weekend. Now it’s back to all out beggar thy neighbor.

China Devalues Most In 8 Weeks, Offshore Yuan Slides To 3-Week Lows (ZH)

Following USD strength last week, China has come back to work after the disappointment of the Shanghai non-accord and weakened the Yuan fix by 0.2% – the most since January 7th.

 

This move follows pressure from offshore Yuan weakness since traders returned from Golden Week – driving the onshore-offshore spread out to its widest since The PBOC stepped in and stomped the shorts.


After a few weeks of stability, it appears China is forced to let the Yuan slip back out to where its CDS (a market it is notr manipulating directly yet) implied it to be after shaking out some weak shorts at the end of January.

Read more …

And those are not the only sectors with overcapacity.

China Expects To Lay Off 1.8 Million Coal, Steel Workers (Reuters)

China said on Monday it expects to lay off 1.8 million workers in the coal and steel sectors as part of efforts to reduce industrial overcapacity, but no timeframe was given. China has vowed to deal with excess capacity and eliminate hundreds of so-called “zombie enterprises” – loss-making firms in struggling sectors that are being kept alive by local governments trying to avoid job losses. Yin Weimin, the minister for human resources and social security, told a news conference that 1.3 million workers in the coal sector could lose jobs, plus 500,000 from the steel sector. It was the first time a senior government official has given a number for job losses as China deals with industrial overcapacity amid slowing growth. “This involves the resettlement of a total of 1.8 million workers. This task will be very difficult, but we are still very confident,” Yin said.

For China’s stability-obsessed government, keeping a lid on unemployment and any possible unrest that may follow has been a top priority. The central government will allocate 100 billion yuan ($15.27 billion) over two years to relocate workers laid off as a result of China’s efforts to curb overcapacity, officials said last week. China’s vice finance minister Zhu Guangyao quoted Premier Li Keqiang as telling U.S. Treasury Secretary Jack Lew on Monday that the fund would mainly focus on the steel and coal sectors. “The economy faces relatively big downward pressures and some firms face difficulties in production and operation, which would lead to insufficient employment,” Yin said, adding that increasing graduates this year would also add pressure in the job market.

Read more …

Whether or not concerns are deflected is not in their hands.

China Central Bank Deflects Concerns Over Forex Reserves (Reuters)

The vice-governor of China’s central bank on Sunday deflected concerns over the possibility of an extended fall in the country’s foreign exchange reserves and reaffirmed confidence in the strength of the Yuan. China still owns the world’s largest currency reserves but has been burning through them at such a pace that some economists and foreign exchange professionals have been questioning how low can they go before Beijing is forced to choose between fresh capital controls or giving upselling dollars to defend the yuan, also known as the renminbi. Foreign exchange reserves in China declined by $99.5 billion in January to $3.23 trillion after a record fall the previous month. Reserves have shrunk by $762 billion since mid-2014, more than the gross domestic product of Switzerland.

Yi Gang, vice governor of the People’s Bank of China (PBOC), told state news agency Xinhua that part of the recent reductions in China’s massive forex reserve was down to higher holdings by companies and individuals. The interview, shortly after the G20 financial ministers’ meeting in Shanghai, was posted on the central bank’s website www.pbc.gov.cn. “The falls in forex reserve was mainly because residents increased their holdings and cut their forex debts. This process has a limit and the capital outflow will gradually slow down,” Yi was quoted as saying. “On the other hand, China still enjoys high trade surplus and direct foreign investment, resulting in still-fast capital inflow,” Yi said.

Read more …

The Boomerang Bazooka.

Kuroda Negative Rate Bazooka Fizzles on Overnight Lending Freeze (BBG)

Japan’s banks have almost stopped lending to one another in the overnight market, threatening to undermine the impact of the central bank’s negative-rates stimulus. The outstanding balance of the interbank activity plunged 79% to a record low of 4.51 trillion yen ($40 billion) on Feb. 25 since Bank of Japan Governor Haruhiko Kuroda on Jan. 29 announced plans to charge interest on some lenders’ reserves at the monetary authority. Bond volatility has soared to a 2 1/2-year high as the evaporation of trading volumes in the call market dislocates funding of a range of debt investments. While Kuroda wants to lower the starting point of the yield curve to reduce borrowing costs and spur shift of funds into riskier assets, the interbank rate has fallen only about as far as minus 0.01%, above the minus 0.1% charged on some BOJ reserves.

The swings on bond yields will make it harder for financial institutions to determine how much business risks they can take, weighing on lending in a weak economy even as they are penalized for keeping some of their money at the central bank. “It is still uncertain how deep into the negative the overnight call rates will sink,” said Naomi Muguruma at Mitsubishi UFJ Morgan Stanley Securities. “It won’t settle until funding flows in the new scheme become clear. That may pressure volatility to stay high for government bonds.” The overnight rate was the BOJ’s main policy target until Kuroda switched it to monetary base growth in April 2013. The central bank said the initial amount to which its minus rate would be applied to is about 10 trillion yen of financial institutions’ reserves held at the BOJ. Reflecting the confusion among traders about the unprecedented negative-rate policy, the one-month premium for one-year interest-rate swaps have surged.

Read more …

More boomerangs: “Nonfinancial corporations owed $8 trillion in debt..”

Share Buybacks: The Bill Is Coming Due (WSJ)

Low rates alone aren’t enough to make it easy to pay off a loan. Many companies may find that out the hard way, especially as high-yield debt markets show signs of strain lately. U.S. companies went on a borrowing binge in recent years. Nonfinancial corporations owed $8 trillion in debt in last year’s third quarter, according to the Federal Reserve, up from $6.6 trillion three years earlier. As a share of gross value added—a proxy for companies’ combined output—corporate debt is approaching levels hit in the financial crisis’s aftermath. Most of the debt increase came from bond issuance, as nonfinancial companies took advantage of the lowest rates on corporate bonds since the mid-1960s. That is a plus as companies in many cases extended the maturity of their debt and lowered borrowing costs.

The negative: Rather than investing the funds they raised back into their businesses, companies in many cases bought back stock instead. That was something that many investors welcomed, but it may have come with future costs that they didn’t fully appreciate. In aggregate, nonfinancial companies’ cash flows over the past three years were enough to cover capital spending. That is unusual—typically, capital spending outstrips cash flows as companies invest for growth—and is reflective of how muted business investment has been since the financial crisis. Over the same period, the companies repurchased $1.3 trillion in shares. Because those stock buybacks helped reduce companies’ total shares outstanding, earnings per share got a boost. Indeed, absent the past three years’ share-count reductions, S&P 500 earnings per share would have been 2% lower in the fourth quarter than what companies are reporting, according to S&P Dow Jones Indices.

The major reason companies plowed money into buybacks rather than capital spending was that, in a low-growth environment, the returns from investing in expansion didn’t seem as attractive as in the past. This is a big part of why companies were able to borrow cheaply: In a low-growth, low-inflation environment, investors were willing to accept lower returns on corporate bonds than if the economy was moving at a more rapid clip. The sticking point is that in a low-growth environment, paying down debt also may be harder. Especially because companies weren’t putting the money they borrowed into capital investments, which provide cash flows to help service debt. The stock they bought back won’t do that for them.

Read more …

“..$200 billion. That’s more than the U.S. banks’ estimated $123 billion of outstanding loans and lending commitments to the industry..”

European Banks’ $200 Billion Oil Slick (BBG)

The European earnings season isn’t over yet – but already banks have given some disclosure about the size of their loans to the oil and gas industry: almost $200 billion. That’s more than the U.S. banks’ estimated $123 billion of outstanding loans and lending commitments to the industry, and a sign of how Europe’s lenders face risks far beyond their home turf as oil lingers near a historic low.The problem is that this may be the tip of the iceberg.Disclosure so far has been inconsistent – some firms provide net exposures and others gross. Others, like Deutsche Bank, haven’t given any precise numbers at all.The direct exposures only capture part of the picture though. Firms like HSBC and Standard Chartered, face a double helping of pain as the falling price of commodities rips through the economies of energy-exporting countries where they have ramped up lending in recent years.

There’s also the risk that attention shifts away from oil and gas producers to other industries tied to commodities. Signs of stress are already appearing among traders and miners: Noble Group on Thursday posted its first annual loss in almost two decades, while Anglo American’s credit rating was cut to junk earlier this month. While commodities trading exposure is usually included in banks’ overall portfolio, the companies often class it as immune to oil-price fluctuations. That suggests losses in this space would come as a nasty surprise. As for metals and mining, that exposure is worthy of its own iceberg: HSBC alone booked about $100 million in provisions on its $18 billion metals and mining loan book in 2015.The U.S. banks, which are closer to the threat of their domestic shale boom turning into a bust, are leading the way in terms of transparency.

And they’re being more realistic. JPMorgan CEO Jamie Dimon warned this week that if oil prices held at around $25 per barrel over 18 months then the bank’s loan-loss reserves would go up by $1.5 billion.European banks are assuming oil will stay at about $30 a barrel, a forecast that appears too benign when compared with predictions of $20 oil from Goldman Sachs and Morgan Stanley.European optimists counter that falling commodity prices should be a zero-sum game. Energy exposures at most banks are around the three to five% mark relative to overall group lending, which looks manageable. If cheaper commodities lead to lower costs for consumers and non-energy companies, they say, that should more than offset the pain. Look at ING, a Dutch lender with a big consumer operation: while oil-and-gas loan losses rose in the fourth quarter, overall group loan losses fell. But economists don’t seem to be showing much faith in the growth outlook.

Read more …

Got to love Ambrose’s insistence on counter-intuitive intuition. However….

US Shale Frackers Eye World Conquest Despite Bloodbath (AEP)

Dozens of indebted US shale companies face annihilation over coming months as their hedge protection runs out and creditors pull the plug, but veteran frackers insist defiantly that the slump will not stop the industry’s march to world conquest. “What is happening scares the heck out of you. We’re going to see a decimation for the industry, with bodies and corpses all over the place,” said Mark Papa, the former head of EOG Resources. “Lower for longer, is starting to feel like the Great Depression. You run for cash. You ride out the storm,” said John Hess, founder of the Hess Corporation. “It is probably a three-year process and we’re in the middle of it. The impact on investment has been devastating,” he told the IHS CERAWeek summit of energy leaders in Houston.

“Our activity is at a bare minimum, and we’re just preserving our operational capability. We had 17 rigs two years ago, eight last year, and now we’re running two. Very few things make sense at $30. It’s better to leave the oil in the ground,” he said. Mr Papa said the 70pc crash in oil prices since mid-2014 will wipe out those companies that leveraged to the hilt betting that crude prices would stay above $100 forever. Survivors will “rise from the ashes” – chastened but wiser. “They’re not going to stretch their balance sheets so much or make acquisitions based on false promises,” he said. Yet Mr Papa, a legendary figure in the shale fraternity and now at Riverstone Holdings, said OPEC’s price war against shale will not stop the US juggernaut. Oil giants with deep pockets are waiting in the wings to “gobble up” distressed assets, and America’s nimble mid-cost frackers will have an edge when the cycle turns.

Oil and gas investment has collapsed from $700bn in 2014 to nearer $400bn this year. IHS estimates that planned spending by 2020 will be $1.8 trillion less than forecast two years ago, almost guaranteeing an oil shortage as global demand keeps growing by 1.2m barrels per day (b/d) each year and existing wells deplete at an annual rate of 3m b/d. Mr Papa expects the global balance of supply and demand to tighten by 1.6m b/d this year. This would mop up the glut, before gradually eating into record stocks next year. “The market is going to grow to 100m b/d. Where is the quantity going to come from Capital spending on mega-projects has stopped cold,” he said. “I can see a case where US shale is the biggest supplier of oil in the world by 2020. We could turn the whole thing on its ear, producing 13-14m b/d. But it will be really ugly getting through this valley,” he said.

This would amount to 16m b/d if all liquids are included, more than the combined crude exports of Saudi Arabia and Russia. The International Energy Agency forecast this week that the US would account for much of the growth in world output by 2020 – after dropping 600,000 b/d this year, and 200,000 next year. Mr Papa said it will not be long before engineers work out how to double the efficiency of shale extraction to the 50pc levels seen in conventional oil wells. “It’ll probably come in the next ten years. That’s the next big break-through,” he said. David Hager, head of Devon Energy, said shale frackers have slashed cuts costs my more than outsiders generally realize since the heady days of the boom, when service fees and wages were rocketing. “A lot of plays work at $45-$50, and the vast majority from $55-$60. They certainly don’t need $90,” he said.

Read more …

All that past revenue, and $100 billion in debt. That’s saying a few things.

Arab States Face $94 Billion Debt Crunch (BBG)

Gulf Cooperation Council countries may struggle to refinance $94 billion of debt in the next two years as the region faces slowing growth, rising rates and rating downgrades, according to HSBC. Oil-rich GCC states have to refinance $52 billion of bonds and $42 billion of syndicated loans, mostly in the United Arab Emirates and Qatar, HSBC said in an e-mailed report. The countries also face a fiscal and current account deficit of $395 billion over the period, it said. Expectations that these funding gaps “will be part financed through the sale of sovereign U.S. dollar debt will complicate efforts to refinance existing paper that matures over 2016 and 2017,” Simon Williams, HSBC’s chief economist for the Middle East, said in the report.

“With the Gulf acting as a single credit market, the refinancing challenge will likely be much more broadly felt” and “compounded by tightening regional liquidity, rising rates and recent downgrades,” he said. GCC states, which collectively produce about a quarter of the world’s oil, are taking unprecedented measures to shore up their public finances as crude prices struggle to rebound from the lowest levels in 12 years. The countries, which include Saudi Arabia and Oman, have also been hit by a series of rating cuts, while billions of dollars have been drained from the region’s banking system.

Gulf countries have about $610 billion outstanding in FX-denominated bonds and syndicated loans, HSBC said. This includes financial and corporate debt, as well as sovereign debt, mainly in the U.A.E., Bahrain and Qatar, it said. HSBC is confident that the funding gaps will be covered and expects a “raft” of foreign sovereign bond issuance to fund budget deficits. Any new issuance will have to compete with upcoming refinancing needs, the bank said. Almost half of the maturities due in the next two years are in the banking sector, HSBC said, “suggesting any increase in costs at refinancing could quickly feed through into a broader monetary tightening.”

Read more …

“..the stupid is not impossible..”

SocGen’s Albert Edwards Is Rethinking His ‘Ice Age’ Theory (MW)

Uber-bear Albert Edwards says his famous/infamous “Ice Age” investment theory may need a major rethink after a further drop in yields for Japanese government bonds. The Société Générale equity strategist first introduced his flagship piece of glacial advice, which urges an underweight on equities and heavily long position on bonds, in 1996. It was devised from his long-standing position that deflationary pressures will trigger a stock-market collapse and a bond-market boom. Edwards had this to say in a note to investors on Thursday: “With [10-year Japanese government bonds] yesterday falling to record-low negative yields of minus 0.06% and Switzerland [10-years] having already fallen to minus 0.5%, I’m now in the process completely rethinking my Ice Age investment thesis,” he said.

The contrarian investor still seems to hate stocks, though. In January, he predicted that “another leg in the secular equity valuation bear market,” would take the S&P 500 down 75% from its recent peak to around 550. “I haven’t changed my view on that at all and look forward to the opportunity of buying lots of cheap equities in the months and years ahead,” he wrote in this latest note. “But it is our overweight long bond position that has me a bit flummoxed.” On one hand, he openly questioned how long Japanese bonds can continue their uninterrupted rally that has been going on for nearly a decade and has pushed yields to record-low negative territory. Yet he seemed to imply that yields practically have nowhere else to go but lower.

“How low can they go?” he asked, adding that Japanese 10-years are “the only major global asset class that [has] not seen a negative year-over-year return at any time since the Global Financial Crisis at the start of 2007.” Given that Japanese 10-year bonds have been eking out positive returns for nearly a decade while their yields have already crashed below zero to a record low of minus 0.06%, a further move lower would imply interest rates would fall further into negative territory, Edwards’ rationale continued. But that could have disastrous consequences, the doomsday thinker suggested. Edwards quoted a recent article by Edward Chancellor at Breaking Views that argues that negative interest rates “undermine bank profitability, threaten the stability of bank liabilities, force households to save more, and discourage credit creation.”

Nor, Edwards said, are negative policy rates good in fighting deflation. But even as negative interest rates make little sense to him, Edwards concluded that “the stupid is not impossible,” quoting SocGen analyst Andrew Lapthorne.

Read more …

And yet another boomerang.

Negative Rates = Deleveraging (Tonev)

While conventional theory suggests that central banks set base interest rates and that negative rates are a result of low inflation and slow economic growth, we suggest there may be an alternative explanation. Drawing on historical and cultural analogies, we view negative rates as a possible market response to the growing levels of debt and inequality in income and wealth. In April last year, Switzerland became the first country to issue a 10-year sovereign bond at a negative yield. By the end of 2015, about a third of newly issued eurozone sovereign bonds came with a negative yield. Investors who buy these bonds and hold them to maturity will receive less than they put in and the issuer will ultimately pay back less than borrowed. Through this mechanism, we believe that negative interest rates can be a useful tool for deleveraging.

We recognise that the challenge to this view is that the objective of this policy has been to encourage even more leverage; the case of the Swedish housing market comes to mind. The majority of the countries with negative yields on their government bonds have high levels of either government or private debt (or in some cases both). Historically, one would expect government yields to go up to discourage the issuance of more debt. This is not happening now. Why? We suggest that, precisely because of the high level of debt and the need to deleverage, nominal yields in those countries have become more and more negative to encourage the issuance of more debt and slowly roll down the existing debt stock.

This suggests the market may be indicating there is too much debt. But this has an implication for the creation of new money, which is essential for the normal functioning of the economy. Most of the money creation in the developed world is done by the private banking system through issuing loans. If there is no demand for new debt, the money creation process stalls. In other words, while under the gold standard our money creation was constrained by the availability of gold, in the current “fiat” monetary system, we cannot issue new money without the issuance of new debt. However, the system after 1971 was much more flexible than the metallic standard before because, as long as the economy was expanding, the banks could always find someone willing to borrow from them and thus increase the money supply.

Read more …

But not as wrong as Australians will turn out to be.

I Was Wrong On Australian House Prices (Steve Keen)

“I was hopelessly wrong on house prices. Ask me how.” It’s about time I answered that question, isn’t it? In a nutshell, I got the cause of the Aussie House Price Bubble right, but the direction of the cause wrong. The fundamental determinant of house prices is mortgage debt. I thought that – as had happened in Japan after its bubble economy burst – the Australian economy would start to de-lever after the GFC, and that this process would take house prices down with it. This is what happened in the USA and most of the First World. But in Australia, the rate of change of mortgage debt never went negative and deliberate government policy played a major role in stopping that from happening on two separate occasions: The Rudd stimulus package in October 2008 and the reversal of the RBA’s “fight the inflation bogeyman” policy of rising interest rates in November 2011.

Both policies allowed – and indeed encouraged – mortgage growth to continue long after it would have stopped without government intervention, and long after it did stop in most of the rest of the First World. Though they didn’t quite know why it worked, Treasury knew from experience that a boost to the housing market stimulated the economy – so they advised Rudd to throw in what I nicknamed the “First Home Vendors Boost” into his rescue package. The $7,000 Federal Government grant doubled to $14,000 for buyers of existing properties, and trebled to $21,000 for those buying new properties (State governments threw in their own debt sweeteners as well – with Victoria purchasers being given up to $36,500 in total). First home buyers flooded into the market, leveraging up the grant by a factor of ten or more in additional mortgage debt.

This stopped the decline in mortgage debt in its tracks and growth in mortgage lending – and house prices – resumed until the grant ended in mid-2010. The RBA’s policy intervention was even more shambolic – but, ultimately, even more effective – than Treasury’s. With its conventional economic mind set, the RBA not only failed to see the GFC coming but continued to put interest rates up after it struck (unlike all other Central Banks, save the equally incompetent ECB). Like a general determined to win the last war, Stevens continued to build his Maginot line against the inflation demon, only to belatedly concede that deflation was the actual foe. Fully one year after the GFC began, the RBA reluctantly joined the global surrender of central banks to this unexpected enemy and dropped its reserve rate from 7.25% to 3% in a mere 8 months.

But then, confident that the war it hadn’t seen coming was over, the RBA resumed its struggle to win the previous one against inflation. It put its rate up from 3% to 4.75% in 14 months – at the same time as the stimulus from Rudd’s ‘First Home Vendors Boost’ was ending. By this time, Australia’s prosperity stood on the twin pillars of China’s export demand – thanks to its huge post-GFC stimulus package – and the investment boom this induced in Australia’s mining sector. Since even those enormous injections weren’t enough to keep the economy on the mend, the RBA was again forced to reverse direction and began cutting its rate in late 2011 – this time with the deliberate hope that a restored housing bubble would take the place of an unexpectedly unfulfilling mining boom.

Read more …

Better get that UN emergency summit set up, Angela.

Egypt Migrant Departures Stir New Concern In Europe (Reuters)

The EU fears Mediterranean migrant smuggling gangs are reviving a route from Egypt, officials told Reuters, putting thousands of people to sea in recent months as they face problems in Libya and Turkey. “It’s an increasing issue,” an EU official said of increased activity after a quiet year among smugglers around Alexandria that has raised particular concerns in Europe about Islamist militants from Sinai using the route to reach Greece or Italy. Departures from Egypt were a tiny part of the million people who arrived in Europe by sea last year; more than 80% came from Turkey to Greece and most others from Libya to Italy. Detailed figures on Egypt are not available. But as security in anarchic Libya has worsened, EU officials say, more smugglers are choosing to bring African and Middle East refugees and migrants to the Egyptian coast.

Voyages from Egypt are long, but smugglers mainly count on people being rescued once in international shipping lanes. Brussels, engaged in delicate bargaining with Turkey to try and stem the flow of migrants from there, is concerned that the Egyptian authorities are not stopping smugglers. But it is reluctant to use aid and trade ties to pressure Cairo to do more when Egypt remains an ally in an increasingly troubled region. “Our major concern is that among smugglers and migrants there may also be militants from the Sinai, affiliated to al Qaeda or Islamic State,” a second EU official said. “Controls in Egypt are strict, which limit the activities of smugglers … But sometimes we suspect that they turn a blind eye to let migrants go somewhere else.” An Egyptian security official told Reuters that Cairo had more pressing concerns, limiting resources to control migrants.

Read more …

Let him do something. He has the clout, and the Vatican has the resources.

Pope Urges United Response To Refugee ‘Drama,’ Praises Greece (Reuters)

Pope Francis called on Sunday for a united response to help flows of people into Europe fleeing war and suffering, as the region argues over sharing the burden of looking after them. Addressing crowds in St. Peter’s Square at the Vatican, Francis, who decried the suffering of migrants at the border between Mexico and the United States this month, said the “refugee drama” was always in his prayers. “Greece and other countries on the front line are giving these people generous help, which needs the collaboration of all countries. A response in unison could be effective and distribute the load fairly,” the pontiff said. “To do this, we need to push decisively and unreservedly in negotiations,” he added.

Greece has been inundated with refugees and migrants after Balkan countries shut their borders and Austria restricted entry for the hundreds of thousands aiming for Europe, which is in the second year of its biggest migration crisis since World War Two. Francis welcomed a cessation of hostilities deal in Syria, where five years of civil war have killed more than 250,000 people and driven 11 million from their homes, swelling the tide of refugees. “I have greeted with hope the news about a stop to hostilities in Syria, and I invite everyone to pray that this glimmer can give relief to the suffering population, enable necessary humanitarian aid and open the way to dialogue and longed-for peace.” Guns fell mostly silent in Syria when the truce came into effect on Saturday, but reports of violations have come from both sides.

Read more …

The crisis it created itself.

EU Warns Of Humanitarian Crisis As Emergency Measures Prepared (Kath.)

Migration Commissioner Dimitris Avramopoulos has warned of an imminent humanitarian crisis in Greece unless “all sides assume their responsibilities” in the coming days, as both the European Union and Athens hammered out emergency measures. “There is no point in playing the blame game any more. We simply have to do everything possible to control the situation,” Avramopoulos said in an interview with Kathimerini’s Sunday edition, pointing at the conclusions reached at last week’s EU meeting of interior ministers. The Greek official called for the implementation of a deal signed between Brussels and Ankara in November to slow the migrant flow; he urged EU states to fulfill pledges to accept asylum-seekers for relocation; and condemned “unilateral actions” taken by several countries, such as the introduction of border controls and Vienna’s cap on asylum seeker numbers.

“Time is no longer on our side,” Avramopoulos said ahead of a crucial meeting of EU leaders with Turkey on March 7. More than 25,000 migrants and refugees were stranded in Greece over the weekend as neighboring states shut down their borders. An estimated 2,000-3,000 reach the country’s islands every day. Speaking to Kathimerini on condition of anonymity, a senior European official said that the Commission is preparing a package of measures to be activated in the event of a humanitarian crisis in Greece or other nations along the Balkan migrant route. These, the official said, include providing funding to an international organization to set up a refugee camp as well as vouchers for refugees to acquire food and accommodation. Similar aid has been provided to African countries, as well as Lebanon and Jordan.

Meanwhile, the Greek government last week requested 228 million euros in emergency aid from the Commission to be spend on infrastructure for the ballooning number of migrants. An emergency plan submitted by Athens foresees the creation of new reception places in addition to the 50,000 Athens has already pledged to the Europeans.

Read more …

At least someone calls a spade a spade. “Even at this late stage, Europe’s governments must realise where their fragmented response is heading.”

Europe Turns Its Back On Greece Over Refugees (FT)

Time is running out for the EU’s 28 member states to take the co-ordinated action that is needed to start bringing Europe’s migrant crisis under control. At the beginning of this year, Donald Tusk, the EU president, warned the bloc’s leaders that they must implement an EU-wide solution to the crisis when they meet in Brussels on March 17, or face “grave consequences” as summer begins and refugee flows from the Middle East and north Africa accelerate. With less than three weeks left to the summit, his warning is being wilfully disregarded by EU governments who prefer unilateral action to the collective effort that is sorely needed. In recent days, more and more member states have swept aside the Schengen system for border-free travel in the EU and acted alone. France and Belgium have engaged in verbal sparring after a Belgian decision to impose border controls on their common border.

Hungary has pledged a referendum on European Commission plans to share out refugees, currently in Greece and Italy, across the bloc — a severe blow to common action. Most strikingly, Austria, once a strong supporter of a collective EU stance, has joined ranks with nine neighbouring states to impose border controls that will stop refugees coming from Greece into Europe through the “Western Balkans route”. These moves are unlikely to deter the flight of more desperate refugees from Syria and other failed states into Europe. In the first two months of this year, more than 100,000 crossed into Greece, compared with 5,000 in the same period in 2015. The UN predicts that another 1m refugees will travel into Europe in the course of 2016.

What is far more worrying is that the action by Austria and its Balkan allies to seal their southern border risks creating a humanitarian emergency in Greece. The Greek government has a contingency to shelter 70,000 migrants, but more than 2,000 are arriving each day on Greek territory. Greece’s difficulty is all the more acute because, after six years of recession, it is now struggling with the punishing fiscal retrenchment imposed in last year’s bailout deal. Even at this late stage, Europe’s governments must realise where their fragmented response is heading. Greece cannot be condemned by the rest of the EU to becoming a migrant holding pen or, as prime minister Alexis Tsipras has put it, “a warehouse of souls”. Instead, the bloc should adopt the collective approach advocated by Mr Tusk and German chancellor Angela Merkel.

Read more …

But Greece is already in chaos, thanks to EU economic policies.

We Can’t Allow Refugee Crisis To Plunge Greece Into Chaos, Says Merkel (G.)

The German chancellor, Angela Merkel, has warned that European countries cannot afford to allow the continent’s continuing refugee crisis to plunge debt-stricken Greece into chaos by shutting their borders to migrants. With up to 70,000 refugees expected to become stranded on Greece’s northern borders in the coming days, Merkel warned that the recently bailed-out Athens government could become paralysed by the huge numbers of arrivals from war-torn areas of the Middle East and Africa. “Do you seriously believe that all the euro states that last year fought all the way to keep Greece in the eurozone – and we were the strictest – can one year later allow Greece to, in a way, plunge into chaos?” she said in an interview with public broadcaster ARD.

Merkel also defended her open-door policy for migrants, rejecting any limit on the number of refugees allowed into her country despite divisions within her government. Merkel said there was no “Plan B” for her aim of reducing the flow of migrants through cooperation with Turkey and warned that the efforts could unravel were Germany to cap the number of refugees it accepts. “Sometimes, I also despair. Some things go too slow. There are many conflicting interests in Europe,” Merkel told state broadcaster ARD. “But it is my damn duty to do everything I can so that Europe finds a collective way.“ Merkel spelled out her motivation to keep Germany’s borders open without limits on refugees, a policy which has damaged her once widespread popularity. “There is so much violence and hardship on our doorstep,” she said. “What’s right for Germany in the long term? There, I think it is to keep Europe together and to show humanity.

Read more …

“In the next month 50,000-70,000 will come and then I believe [the flows] will stop there..” What will stop them?

Up To 70,000 Migrants ‘May Soon Be Stranded In Greece’ (Guardian)

Up to 70,000 migrants and refugees could soon be stranded in Greece, the leftist-led government said as it considered enlisting the help of the army to deal with the emergency. The alarm was sounded as the EU’s top immigration policymaker warned the situation was at risk of becoming uncontrollable unless member states “assume their responsibilities”. “In the next month 50,000-70,000 will come and then I believe [the flows] will stop there,” Athens’ migration minister, Yannis Mouzalas, said. Admitting it would “be hard and very difficult” Mouzalas said it was also likely the Greek armed forces – recently brought in to build “hotspot” screening centres – would be deployed to tackle the crisis. “Wherever the army is needed it will play a role just as it does in all western democracies,” he added.

“Now we use it to build [camps and centres] and to distribute nutrition, tomorrow we don’t know, we may deploy trucks and use it in several other services.” The leftists, in power with the small rightwing Independent Greeks party, have so far resisted giving armed forces a more prominent role in handling the influx of people entering Europe across the Aegean from Turkey. In a country that experienced seven years of military dictatorship until 1974, many leftists have expressed consternation.

By Sunday 22,000 people were trapped in Greece with an estimated 6,000 stuck at the Macedonian border after restrictions were tightened – and frontiers effectively sealed to all but Syrians – by Balkan nations along the migrant route. But while Mouzalas insisted the increased numbers would be manageable, the EU’s migration commissioner Dimitris Avramopoulos spoke of an imminent humanitarian crisis if the 28-nation bloc continued to indulge in “unilateral actions.” “There is no point in playing the blame game any more. We simply have to do everything possible to control the situation,” he told the Sunday edition of Kathimerini. Enmeshed in its worst economic depression in modern times, debt-stricken Greece has requested emergency aid from the EU. As part of urgent plans to be put into immediate effect, Mouzalas said impromptu camps would be established that would also see tents erected in local sports grounds.

A further four hotspots will be set up in the northern Greek province of Macedonia. In anticipation of the influx, Athens has asked for tents, blankets, sleeping bags, transport vehicles, ambulances and other supplies. “In Germany we have taken the decision that we have to support Greece,” Berlin’s ambassador to Athens, Peter Schoof, announced at an economic forum held in Delphi. Germany’s hardline finance minister, Wolfgang Schäuble, hinted that Europe’s powerhouse might also be willing to cut Greece some slack as it struggles with the dual task of dealing with the refugee crisis and enacting punishing reforms. With divisions widening ahead of an emergency EU summit to discuss the crisis on 7 March anger is mounting with Berlin enraged at the way Balkan nations, led by Austria, have closed the refugee transit route.

Read more …

Feb 212016
 
 February 21, 2016  Posted by at 10:50 pm Finance Tagged with: , , , , , , , , , ,  6 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


“6 gals for 99c”, Roosevelt and Wabash, Chicago 1939

That the world’s central bankers get a lot of things wrong, deliberately or not, and have done so for years now, is nothing new. But that they do things that result in the exact opposite of what they ostensibly aim for, and predictably so, perhaps is. And it’s something that seems to be catching on, especially in Asia.

Now, let’s be clear on one thing first: central bankers have taken on roles and hubris and ‘importance’, that they should never have been allowed to get their fat little greedy fingers on. Central bankers in their 2016 disguise have no place in a functioning economy, let alone society, playing around with trillions of dollars in taxpayer money which they throw around to allegedly save an economy.

They engage solely, since 2008 at the latest, in practices for which there are no historical precedents and for which no empirical research has been done. They literally make it up as they go along. And one might be forgiven for thinking that our societies deserve something better than what amounts to no more than basic crap-shooting by a bunch of economy bookworms. Couldn’t we at least have gotten professional gamblers?

Central bankers who moreover, as I have repeatedly quoted my friend Steve Keen as saying, even have little to no understanding at all of the field they’ve been studying all their adult lives.

They don’t understand their field, plus they have no idea what consequences their next little inventions will have, but they get to execute them anyway and put gargantuan amounts of someone else’s money at risk, money which should really be used to keep economies at least as stable as possible.

If that’s the best we can do we won’t end up sitting pretty. These people are gambling addicts who fool themselves into thinking the power they’ve been given means they are the house in the casino, while in reality they’re just two-bit gamblers, and losing ones to boot. The financial markets are the house. Compared to the markets, central bankers are just tourists in screaming Hawaiian shirts out on a slow Monday night in Vegas.

I’ve never seen it written down anywhere, but I get the distinct impression that one of the job requirements for becoming a central banker in the 21st century is that you are profoundly delusional.

Take Japan. As soon as Abenomics was launched 3 years ago, we wrote that it couldn’t possibly succeed. That didn’t take any extraordinary insights on our part, it simply looked too stupid to be true. In an economy that’s been ‘suffering’ from deflation for 20 years, even as it still had a more or less functioning global economy to export its misery to, you can’t just introduce ‘Three Arrows’ of 1) fiscal stimulus, 2) monetary easing and 3) structural reforms, and think all will be well.

Because there was a reason why Japan was in deflation to begin with, and that reason contradicts all three arrows. Japan sank into deflation because its people spent less money because they didn’t trust where their economy was going and then the economy went down further and average wages went down so people had less money to spend and they trusted their economies even less etc. Vicious cycles all the way wherever you look.

How many times have we said it? Deflation is a b*tch.

And you don’t break that cycle by making borrowing cheaper, or any such thing, you don’t break it by raising debt levels, and try for everyone to raise theirs too. Which is what Abenomics in essence was always all about. They never even got around to the third arrow of structural reforms, and for all we know that’s a good thing. In any sense, Abenomics has been the predicted dismal failure.

Now, I remember Shinzo Abe ‘himself’ at some point doing a speech in which he said that Abenomics would work ‘if only the Japanese people would believe it did’. And that sounded inane, to say that to people who cut down on spending for 2 decades, that if only they would spend again, the sun would rise in concert. That’s like calling your people stupid to their faces.

The reality is that in global tourism, the hordes of Japanese tourists have been replaced by Chinese (and we can tell you in confidence that that’s not going to last either). The Japanese economy simply dried out. It sort of functions, still, domestically, albeit it on a much lower level, but now that global trade is grasping for air, exports are plunging too, the population is aging fast and there’s a whole new set of belts to tighten.

So last June, the desperate Bank of Japan governor Haruhiko Kuroda did Abe’s appeal to ‘faith’ one better, and, going headfirst into the fairy realm, said:

I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it’. Yes, what we need is a positive attitude and conviction. Indeed, each time central banks have been confronted with a wide range of problems, they have overcome the problems by conceiving new solutions.

And that’s not just a strange thing to say. In fact, when you read that quote twice, you notice -or I did- that’s it’s self-defeating. Because, when paraphrasing Kuroda, we get something like this: ‘the moment the Japanese people doubt whether their government can save the economy, they cease forever to believe that it can’.

Now, I’m not Japanese, and I’m not terribly familiar with the role of fairy tales in the culture, but just the fact that Kuroda resorted to ‘our’ Peter Pan makes me think it’s not all that large. But I also think the Japanese understood what he meant, and that even the few who hadn’t yet, stopped believing in him and Abe right then and there.

Then again, Asian cultures still seem to be much more obedient and much less critical of their governments than we are, for some reason. The Japanese don’t voice their disbelief, they simply spend ever less. That’s the effect of Kuroda’s Peter Pan speech. Not what he was aiming for, but certainly what he should have expected, entirely predictable. Why hold that speech then, though? Despair, lack of intelligence?

In a similar vein, we chuckled out loud on Friday, first when president Xi demanded ‘Absolute Loyalty’ from state media when visiting them, an ‘Important Event’ broadly covered by those same media. Look, buddy, when you got to go on TV to demand it, someone somewhere’s bound to to be thinking you don’t have it…

And we chuckled also when the South China Morning Post (SCMP) broke the news that the People’s Bank of China, in its monthly “Sources and Uses of Credit Funds of Financial Institutions” report has stopped publishing the “Position for forex purchase”, which is that part of capital movements -and in China’s case today that stands for huge outflows- which goes through ‘private’ banks instead of the central bank itself.

It’s like they took a page, one-on-one-, out of the Federal Reserve’s playbook, which cut its M3 money supply reporting back in March 2006. What you don’t see can’t hurt you, or something along those lines. The truth is, though, that if you have something to hide, the last thing you want to do is let anyone see you digging a hole in the ground.

But the effect of this attempt to not let analysts get the data is simply that they’re going to get suspicious, and start digging even harder and with increased scrutiny. And they have access to the data anyway, through other channels, so the effect will be the opposite of what’s intended. And that too is predictable.

First, from Fortune, based on the SCMP piece:

Is China Trying to Hide Capital Outflows?

China’s central bank is making it harder to calculate the size of capital outflows afflicting the economy, just as investors have started paying closer attention to those mounting outflows, which in December reached almost $150 billion and in January around $120 billion. The central bank omitted data on “position for forex purchase” during its latest report, the South China Morning Post reported today.

The unannounced change comes at a time pundits are questioning whether outflows have the potential to cripple China’s currency and economy. Capital outflows lead to a weaker currency, which concerns the hordes of Chinese companies that borrowed debt in foreign currencies over the past few years and now have to pay it back with a weaker yuan.

The news of the central bank withholding data is important because capital outflow figures aren’t released as line items. They are calculated by analysts in a variety of ways, one of which includes using the omitted data. The Post quoted two analysts concluding the central bank’s intention was to hide the true amount of continuing outflows.

The impulse to hide bad news shouldn’t come as a surprise. China’s government has been evasive about economic matters from this summer’s stock bailout to its efforts propping up the value of the yuan. Analysts still have a variety of ways to estimate the flows, but the central bank is making it ever more difficult.

And then the SCMP:

Sensitive Financial Data ‘Missing’ From PBOC Report On Capital Outflows

Sensitive data is missing from a regular Chinese central bank report amid concerns about capital outflow as the economy slows and the yuan weakens. Financial analysts say the sudden lack of clear information makes it hard for markets to assess the scale of capital flows out of China as well as the central bank s foreign exchange operations in the banking system.

Figures on the “position for forex purchase” are regularly published in the People’s Bank of China’s monthly report on the “Sources and Uses of Credit Funds of Financial Institutions”. The December reading in foreign currencies was US$250 billion. But the data was missing in the central bank’s latest report. It seemed the information had been merged into the “other items” category, whose January figure was US$243.9 billion -a surge from US$20.4 billion the previous month.

[..] “Its non-transparent method has left the market unable to form a clear picture about capital flows,” said Liu Li-Gang, ANZ’s chief China economist in Hong Kong. “This will fuel more speculation that China is under great pressure from capital outflows. It will hurt the central bank’s credibility.”

[..] All forex-related data released by the central bank is closely monitored by financial analysts. They often read item by item from the dozens of tables and statistics to try to spot new trends and changes. China Merchants Securities chief economist Xie Yaxuan said the PBOC would not be able to conceal data as there were many ways to obtain and assess information on capital movements.

“We are waiting for more data releases such as the central bank’s balance sheet and commercial banks’ purchase and sales of foreign exchange released by the State Administration of Foreign Exchange for a better understanding of the capital movement and to interpret the motive of the central bank for such change,” Xie said.

It’s like they’ve landed in a game they don’t know the rules of. But then again, that’s what we think every single time we see Draghi and Yellen too, who are kept ‘alive’ only by investors’ expectations that they are going to hand out free cookies, and lots of them, every time they make a public appearance.

And what’s going on in Japan and China will happen to them, too: they will achieve the exact opposite of what they’re aiming for. They arguably already have. Or at least none of their desperate measures have achieved anything close to their stated goals.

They may have kept equity markets high, true, but their economies are still as bad as when the QE ZIRP NIRP stimulus madness took off, provided one is willing to see through the veil that media coverage and ‘official’ numbers put up between us and the real world. But they sure as h*ll haven’t turned anything around or caused a recovery of any sorts. Disputing that is Brooklyn Bridge for sale material.

Eh, what can we say? Stay tuned?! There’ll be a lot more of this lunacy as we go forward. It’s baked into the stupid cake.


Professor Steve Keen and Raúl Ilargi Meijer discuss central banking, Athens, Greece, Feb 16 2016