Oct 272016
 


Marion Post Wolcott. Unemployed coal miner’s mother in law and child. Marine, West Virginia 1938

With 70% Of Wildlife Gone, We Face Mass Extinction On Scale Of Dinosaurs (YP)
Mass Consumption Is Causing Mass Extinction. Can We Stop Ourselves? (TP)
Our Landfill Economy (CH Smith)
Mike Maloney: DEFLATION FIRST! (Max Keiser)
Globalization Goes Into Reverse (BBG)
The Next 10 Years Will Be Ugly for Your 401(k) (BBG)
Deutsche Bank Probes “Misstated” Derivative Valuations, Finds “Divergences” (ZH)
Goldman Sachs Does Mass Layoffs Piece by Piece (BBG)
US Election: Nothing to Lose (Steen Jakobsen)
Hacked Memo Offers Angry Glimpse Into Conflicted ‘Bill Clinton Inc.’ (Pol.)
Clinton Adviser Proposes Attacking Iran to Aid the Saudis in Yemen (NYMag)
Putin Tried to Warn Us About Syria Three Years Ago (TAM)
UK Deploys Hundreds Of Troops And Aircraft To Eastern Europe (G.)
Merkel Accuses Facebook, Google Of “Distorting Perception” (ZH)
Nuclear Power Is Over In The US Without More Government Subsidies (BBG)

 

 

To be correct, we don’t so much face it as live it.

70% Of Wildlife Gone: World Faces Mass Extinction On Scale Of Dinosaurs (YP)

Global wildlife populations will have fallen by more than two thirds on 1970 levels by the end of the decade, conservationists warn today. An assessment of more than 3,700 species of mammals, birds, fish, amphibians and reptiles reveals a fall of 58% between 1970 and 2012, with no sign of a slowdown in the annual two per cent reduction in numbers. By 2020, populations of vertebrate species could have fallen by 67pc over half a century, unless action is taken to reverse the damaging impacts of human activity, the Living Planet report from WWF and the Zoological Society of London said. The figures prompted experts to warn that nature was facing a global “mass extinction” for the first time since the demise of the dinosaurs.

African elephants in Tanzania have seen numbers decimated by persistent poaching, while maned wolves in Brazil are threatened by grasslands being turned into farmland. Leatherback turtles in the Atlantic have seen populations reduced by up to 95pc, and European eels are also in decline. Wildlife faces further threats from over-exploitation, climate change and pollution, the report warns. Among the species most at risk are tigers, with only 3,900 left in the wild, and Amur leopards, whose numbers have fallen to just 70 in the face of hunting and the destruction of their habitat. Giant pandas have a population of just 1,864 in the wild in China, and although numbers are increasing, the species is still threatened by climate change and impacts of human activity.

Humans themselves are also victims of the deterioration of nature, the report warns, since they depend on breathable air, water and nutritious food. [..] Mike Barrett, director of science and policy at WWF-UK, said: “For the first time since the demise of the dinosaurs 65 million years ago, we face a global mass extinction of wildlife. “We ignore the decline of other species at our peril, for they are the barometer that reveals our impact on the world that sustains us. “Humanity’s misuse of natural resources is threatening habitats, pushing irreplaceable species to the brink and threatening the stability of our climate.”


This elephant is thought to have died after eating crops sprayed with pesticides in Assam, India REUTERS

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No we can’t. But we will be stopped.

Mass Consumption Is Causing Mass Extinction. Can We Stop Ourselves? (TP)

Populations of wild animals have plummeted 58% in the past four decades as humans have pushed them into ever-smaller habitats or killed them for food and financial gain, according to a new report from a leading environmental group. World Wildlife Fund researchers said the losses could be reversed over the 21st century by systematically factoring the value of nature into how we produce and consume goods and services, as well as adopting farming methods that work with ecosystems rather than against or in spite of them. WWF compiled data on more than 14,000 populations of 3,706 vertebrate species for the latest edition of its biennial Living Planet Report and found that global populations of amphibians, birds, fishes, mammals, and reptiles sank by an average of 58% between 1970 and 2012.

These populations could drop another 9% by 2020 based on current trends, the report stated. Freshwater wildlife populations dropped a dramatic 81%—meaning that for every 10 pond frogs that existed during Richard Nixon’s first term in the White House, there were fewer than two at the beginning of Barack Obama’s second. Terrestrial and marine species populations dropped by 38% and 36%, respectively, over the same period. The leading driver of wildlife population losses has been food production—overfishing and natural habitats converted to crop and grazing land—followed by pollution, invasive species, and climate change.

All five threats are symptoms of overconsumption of natural resources, the report stated, which has far outstripped the capacity of ecosystems to restore the fertile soil and clean water that support wildlife as well as human health and welfare. “Humanity currently needs the regenerative capacity of 1.6 Earths to provide the goods and services we use each year,” the report noted, and the short-term goals of most economic systems offer no incentive to change.

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It had been a while since I last saw that term.

Our Landfill Economy (CH Smith)

Correspondent Bart D. (Australia) captured the entire global economy in three words: The Landfill Economy. Stuff is manufactured, energy is consumed shipping it somewhere, consumers buy it and shortly thereafter it ends up as garbage in the landfill. This is of course the definition of “economic growth”: waste, inefficiency, environmental destruction–none of these matter. Only two things matter: maximize “growth” by any means necessary, and maximize profits by any means necessary. The Landfill Economy now encompasses the entire planet. The swirling gyre of plastic trash the size of Texas between Hawaii and California: it’s just one modest example of the planetary trash dump that “growth” and profit generate as byproducts/blowback.

The planet’s oceans are one giant trash dump. Everything from plastic water bottles to abandoned fishing nets to radiation to containers that fell off ships is floating around even the most distant corners of the seas. Seabirds nesting in remote islands die of starvation as their guts fill with plastic bits of “permanent growth.” Globalization has turned the planet’s land masses and rivers into trash dumps. Want to make a quick profit along a tropical sea coast? Dig some big holes near the coast, dump in baby prawns, food and chemicals to suppress algae blooms and diseases and then harvest the prawns to ship to the insatiable markets of the developed world. Once the prawn farms are poisoned wastelands, move on and despoil another coastline elsewhere.

Globalization has greased the slippery slope from factory to landfill by enabling the global distribution of defective parts. Whether they are pirated, designed to fail or just the result of slipshod quality control, the flood of defective parts guarantee that the entire assembly they are installed in–stoves, vacuum cleaners, transmissions, electronics, you name it–will soon fail and be shipped directly to the landfill, as repairing stuff is far costlier than buying a new replacement.

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Mike Maloney is one of the very few people who, like the Automatic Earth, have emphasized Deflation and The Velocity of Money as driving forces ever since we both predicted the 2008 fiasco. It’s funny, because Mike is all gold and stuff, and we have been saying all the time that there are more important things, like growing your own food etc etc. But that’s just a matter of who you’re addressing, and our audience unlike Mike’s isn’t necessarily investors, but ‘normal’ people.

Mike Maloney: DEFLATION FIRST! (Max Keiser)

Mike Maloney appears on Keiser Report to discuss how velocity of currency determines what happens next in the cycle. You’ll learn how central banks are manufacturing a crisis of epic proportions.

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You heard it here first.

Globalization Goes Into Reverse (BBG)

There’s a backlash against globalization underway in many Western countries. Although Americans still say positive things about international trade and immigration, political candidates like Donald Trump and Bernie Sanders have gotten a lot of support for opposing both to a degree that would have been unthinkable a decade ago. Meanwhile, trade deals like the relatively innocuous Trans-Pacific Partnership are suddenly in danger. Britain’s divorce from the European Union is also commonly interpreted as a rejection of globalization. But there’s a likelihood that today’s anti-globalization warriors are fighting yesterday’s war. By many measures, globalization has been in full retreat since the crisis of 2008. First, there’s trade. For many decades up until 2008, global trade volumes had been increasing at a healthy clip. But the crisis and recession stopped trade growth in its tracks, and it hasn’t recovered; 2008 was the all-time peak of world trade as a % of total output:

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And the next 10 after that.

The Next 10 Years Will Be Ugly for Your 401(k) (BBG)

It doesn’t seem like much to ask for—a 5% return. But the odds of making even that on traditional investments in the next 10 years are slim, according to a new report from investment advisory firm Research Affiliates. The company looked at the default settings of 11 retirement calculators, robo-advisers, and surveys of institutional investors. Their average annualized long-term expected return? 6.2%. After 1.6% was shaved off to allow for a decade of inflation1, the number dropped to 4.6%, which was rounded up. Voilà. So on average we all expect a 5%; the report tells us we should start getting used to disappointment. To show how a mainstream stock and bond portfolio would do under Research Affiliates’ 10-year model, the report looks at the typical balanced portfolio of 60% stocks and 40% bonds.

An example would be the $29.6 billion Vanguard Balanced Index Fund (VBINX). For the decade ended Sept. 30, VBINX had an average annual performance of 6.6%, and that’s before inflation. Over the next decade, according to the report, “the ubiquitous 60/40 U.S. portfolio has a 0% probability of achieving a 5% or greater annualized real return.” One message that John West, head of client strategies at Research Affiliates and a co-author of the report, hopes people will take away is that the high returns of the past came with a price: lower returns in the future. “If the retirement calculators say we’ll make 6% or 7%, and people saved based on that but only make 3%, they’re going to have a massive shortfall,” he said. “They’ll have to work longer or retire with a substantially different standard of living than they thought they would have.”

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Deutsche senses legal threats, ‘volunteers’ to cooperate.

Deutsche Bank Probes “Misstated” Derivative Valuations, Finds “Divergences” (ZH)

Perhaps the single biggest reason why Deutsche Bank’s stock has been drastically underperforming most of Europe’s banks, in addition to its skyhigh leverage and lack of capital buffer, is the market’s concern about what is hidden on its books, namely whether the bank’s billions in loans and its trillions in derivatives have been marked correctly. Which is why a just released report from Bloomberg that Deutsche Bank is reviewing whether it “misstated” the value of derivatives in its interest-rate trading business, will hardly spark optimism in the bank’s critical asset marking practices; the good news is that according to the report the biggest German lender is sharing its findings with U.S. authorities, according to people with knowledge of the situation.

Zero-coupon inflation swaps are derivatives that help customers bet on, or hedge against, inflation. Two parties agree to exchange a payment in the future whose size is determined by how much an inflation index rose or fell. The issue, however, is not the underlying security, but the total notional involved, which based on the DB’s latest public filings, could be in the hundreds of billions (or more), and how substantial the impact on DB’s P&L any variation from true market values will be. Specifically, DB is looking at valuations on a type of derivative known as zero-coupon inflation swaps. The reason for the probe is that, as has been a recurring case with many of its peers of the last few years, the bank found valuations that “diverged from internal models” at which point it began questioning traders.

The push to finally open its books comes after CEO John Cryan’s vow in February to try to resolve his institution’s legal challenges swiftly. As Bloomberg sarcastically adds, “he is still working on it.” The bank has been facing regulatory and enforcement pressure around the world, including a money-laundering investigation tied to its Russia operations, inquiries into mortgage-bond trading before and after the financial crisis and charges that the bank colluded to help falsify the accounts of Italy’s Banca Monte dei Paschi di Siena. More importantly perhaps is the reason why DB has decided to share its internal probe with the US, whose Justice Department asked in September for a $14 billion settlement, an amount the bank said it wouldn’t pay.

The figure was big enough to unleash a selling frenzy in the stock, sending it to all time lows, leading to repeating rumored discussions with outside sources, most recently of Saudi and Chinese origina, about raising capital. The bank last year hired Steven F. Reich as its general counsel for the Americas to help navigate its legal probes. Reich is a former official at the Justice Department and attorney for former President Bill Clinton. Perhaps it is time for Deutsche to make some donations to the Clinton Foundation?

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Spare a thought for a Goldman banker.

Goldman Sachs Does Mass Layoffs Piece by Piece (BBG)

The first “plant layoff” notice came in February: 43 people would lose their jobs. The second arrived six weeks later, increasing the cuts to 109 workers. Then a third, in April, for 146 more. And a fourth, in June: 98. Three more notices followed, including 20 dismissals announced last week. The “plant” in question – Goldman Sachs. Like all big companies in New York State, the firm is required to file a “WARN notice” with state authorities when it plans to shed large numbers of employees as part of a plant closing, or “mass layoffs” involving 250 or more. Employers also must inform the state of smaller reductions under certain circumstances, and Goldman Sachs cited a “plant layoff” in each case. Last week’s notice brings this year’s job-cut tally to 443.

With the run of notices, seven since the start of the year, the bank has signaled its intention to dismiss hundreds of employees in New York without placing a single, headline-grabbing number on the overall reduction, already its largest since 2008. The company’s approach differs from competitors, including Morgan Stanley, who have shown a preference for larger, one-time cuts. “When there’s a big number, people right away get that something is happening at that firm – it’s a negative,” said Jeanne Branthover, a partner at New York-based executive-search firm DHR International. “This is more, ‘We’re having layoffs and we don’t want to explain it.’ It’s more under the radar screen.”

It also reflects the firm’s philosophy. The company doesn’t see a reason to make announcements about job cuts since it’s part of the normal course of business and something that needs to be done if the environment calls for it, CFO Harvey Schwartz said last year. “You just have to run the business, and if the revenue environment is such that you’re in a period of decline, you just need to take those actions,” Schwartz said in November at a conference. “So, you probably won’t hear us make lots of announcements.”

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“..the US presidential campaign comes up short in many categories except one: failure is almost guaranteed.”

US Election: Nothing to Lose (Steen Jakobsen)

My present macro speech is titled “Ugly: Don’t fight with ‘ugly’ people as they have nothing to lose”. To me, this is the essence of the US presidential campaign. The ugly truth surrounding this ballot lies in the bigger picture, as whomever becomes president will go down in history as the “non-president” – the president who made us need, see, and demand something else. For all of the colourful headlines, and the almost McCarthy-esque pursuit of Trump by mainstream media, this is not going to be about “Trump, the person” or his more or less moronic views; Trump merely represents the catalyst for change. He is the anti-establishment candidate, yes, but not our vision for the future. Ultimately, Trump may still win despite (rather than because of) being… Trump.

That does not excuse mainstream media for not going after Clinton. If elected, she will be the least-liked president in US history, and I doubt any of her policies will do anything good for America. More Barack Obama-type policy is not what the world needs. Obama may have created more jobs, but the average income for American has actually fallen during his presidency. What does this mean? It means he has presided over an economy that has created more jobs but less valuable ones, and growth during his tenure has been lower than during any other president, with the largest build-up in debt. I am pretty sure that even this economist could create jobs with the amount of money Obama has spent!

Mind you I am 100% agnostic, politically-speaking. In fact, I don’t even think this election really matters! No, this is not a new trend; no, Clinton is not the answer… but what this is a generational repositioning and renegotiation of the social contract. The last time that this happened was in the 1960s, when the children of World War II went for peace, love, and a lot of drugs. Now we have the Berlin Wall generation coming of age, and this time the focus is anti-globalisation and anti establishment sentiment… and yes, again a lot of drugs. The real election issue in America, but also in Europe. is how to deal with a broken social contract.

Society has been pushed so far away from its natural equilibrium in terms of markets, social homogeneity, equality, and productivity that the move back to “normal” will bear both a political price and a penalty in terms of growth and outlook. Put differently, when we look throughout history we know that part of the process of evaluation is to smell, feel, taste, and experience what we don’t need in order to move towards what we do – a better version of society, but mainly a better one of ourselves. The next election cycle is about protest; it will be followed by crisis and then new beginnings.

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Boy what a mess. And all they can think of is blaming the Russians. And the media just copy that, no questions asked.

Hacked Memo Offers Angry Glimpse Into Conflicted ‘Bill Clinton Inc.’ (Pol.)

As a longtime Bill Clinton adviser came under fire several years ago for alleged conflicts of interest involving a private consulting firm and the Clinton Foundation, he mounted an audacious defense: Bill Clinton’s doing it, too. The unusual and brash rejoinder from veteran Clinton aide and Teneo Consulting co-founder Doug Band is scattered across the thousands of hacked emails published by WikiLeaks, but a memo released Wednesday provides the most detailed look to date at the intertwined worlds of nonprofit, for-profit, official and political activities involving Clinton and many of his top aides.

The memo at one point refers bluntly to the money-making part of Clinton’s life as “Bill Clinton Inc.” and notes that in at least one case a company – global education firm Laureate International Universities – began paying Clinton personally after first being a donor to the Clinton Foundation. The 12-page document, prepared in November 2011 by Band with input from Clinton adviser John Podesta, came as Chelsea Clinton was pressing for changes to the foundation’s governance and complaining that Band, Teneo co-founder Declan Kelly and others were profiting from their ties to her father and the foundation. In the memo, addressed to outside lawyers conducting a review of the foundation’s governance, Band insists that the relationship actually benefited the foundation financially, by bringing in new donors.

[..] A spokesman for the Clinton Foundation declined to comment on the memo or confirm the authenticity of the document, which was apparently stolen in a massive hack of Podesta’s Gmail account. Hillary Clinton’s campaign has taken a similar tack, declining to comment on the emails, while pointing to evidence that their release is part of a Russian government effort aimed at interfering in the presidential election.

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Morell’s perspective is in line with that of a new report on Middle East strategy released by the Center for American Progress and the thinking of Clinton’s top national-security aide Jake Sullivan, who recently declared, “We need to be raising the costs to Iran for its destabilizing behavior and we need to be raising the confidence of our Sunni partners.” On Tuesday, Morell put this sentiment in terms both more concise and grandiose: “We’re back and we’re going to lead again.”

Clinton Adviser Proposes Attacking Iran to Aid the Saudis in Yemen (NYMag)

Michael Morell is a former acting director of the CIA and a national security adviser to Hillary Clinton — one who is widely expected to occupy a senior post in her administration. He is also an opponent of the Iran nuclear agreement, a defender of waterboarding, and an advocate for making Russia “pay a price” in Syria by covertly killing Putin’s soldiers. On Tuesday, Morell added another title to that résumé: proponent of going to war with Iran, for the sake of securing Saudi Arabia’s influence in Yemen. “Ships leave Iran on a regular basis carrying arms to the Houthis in Yemen,” Morell said, in remarks to the Center for American Progress, the liberal think tank founded by Clinton campaign chairman John Podesta. “I would have no problem from a policy perspective of having the U.S. Navy boarding their ships, and if there are weapons on them, to turn those ships around.”

Morell did note, per Bloomberg’s Eli Lake, that this policy “raised questions of international maritime law.” Which is a bit like saying, “Breaking into someone’s home, putting a gun in their face, and demanding they hand over all their weapons raises questions about armed-robbery law.” Understatement aside, Morell’s stipulation suggests that he might be dissuaded from initiating a naval war with Iran if the legal issues prove too pesky. But the fact that a person who has Clinton’s ear on national security thinks this proposal makes sense from a “policy perspective” is alarming. Forcibly boarding another nation’s naval or civilian vessels (outside one’s own territorial waters) and confiscating their weapons can reasonably be construed as an act of war, a point that would be unmistakable if the roles here were reversed.

How many Americans (whose paychecks aren’t directly or indirectly subsidized by Gulf State monarchies) think keeping Yemen within Saudi Arabia’s sphere of influence is a cause worth entering another Middle Eastern war over? How many would think so if they knew that the Saudis had recently bombed a Yemeni funeral hall, killing 140 people and leading the Obama administration to reconsider its support for the Saudi intervention? Or that some observers of the conflict contend that the Saudis are exaggerating Iran’s role, in order to justify the kingdom’s own expansionist ambitions?

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And the west pretend they don’t know this. So we can create chaos and used it to take over resources.

Putin Tried to Warn Us About Syria Three Years Ago (TAM)

As Russia and the United States approach arguably the most dangerous crossroads in history — and as Western media continues to crucify Russia for its actions within Syria — a closer look at the rationale Putin used for intervening in the Syrian war paints a sane explanation of how we ended up at this juncture of a global conflict. Unsurprisingly, the explanation comes from the Russian president himself and was actually offered over 3 years ago. As expected, the Western corporate media and the Obama administration chose to ignore Vladimir Putin’s explanation for Russia’s stance on Syria and continued a number of policies that have completely exacerbated the conflict.

In a live interview with RT in June 2013, Putin was asked for an explanation regarding Russia’s support for Bashar al-Assad in Syria, even though this support has made some people very angry at Russia. Putin’s response was that Russia does not support the Assad government or Assad himself, but before defining Russia’s official position, he explained what Russia does not want to do within Syria or across the Middle East: “We do not want to interfere into the internal schism of Islam, between Shias and Sunnis. These are internal issues of the Islamic world. We have very good relations with much of the Arabic world, Iran for example, and others.” However, according to Putin, what worries Russia can be identified by having a look “at what is going on in the Middle East in general.”

“Egypt is not calm. Iraq is not calm – and it is not assured in its continued existence as one state. Yemen is not calm; Tunisia is not calm. Libya is witnessing inter-ethnic, inter-tribal conflict. So the entire region has been engulfed, at a minimum, into a state of conflict and undecidedness. And now Syria, down the same path.” In Putin’s eyes, these events are no accident. As he puts it, these events happened for a reason: “Some people, from the outside, think that if they can ‘comb’ the region to how they see fit – some of them call this ‘democracy’ – then the region will come into calmness and order. That’s not how it is. Without taking into account the history, the traditions, religious particularities, you must not do anything in the Middle East, especially as an outsider.”

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Don’t you guys have enough trouble at home?

UK Deploys Hundreds Of Troops And Aircraft To Eastern Europe (G.)

The UK is deploying hundreds of troops, as well as aircraft and armour to eastern Europe as part of the biggest build-up of Nato forces in the region since the cold war. The deployment is taking place during growing tensions over a series of high-profile Russian military manoeuvres. RAF Typhoon aircraft from RAF Coningsby will be sent to Romania for up to four months, while 800 personnel will be sent with armoured support to Estonia, 150 more than previously planned, the Ministry of Defence (MoD) has said. France and Denmark will also commit more troops, the British government said. The announcement was made soon after a Russian fleet, believed to be bound to take part in the fighting in Syria, passed close to the British Isles.

On Wednesday, Russia withdrew a request to refuel its boats in Spanish territory, as Nato put pressure on Madrid to deny permission. Tensions between Nato members and Russia have been heightened since Moscow annexed Crimea in 2014 and Ukraine descended into civil war as a result. The deployment of British troops to Estonia forms part of a wider Nato commitment to station four new battalions, totalling around 4,000 personnel, on the alliance’s eastern flank. David Cameron confirmed at Nato’s summit in Warsaw in July that the UK was to send 650 troops to Estonia. As well as announcing the extra 150, the MoD on Wednesday gave further details of the deployment, including the Typhoons, a detachment of drones and Challenger tanks.

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“The algorithms must be made public, so that one can inform oneself as an interested citizen on questions like: what influences my behavior on the internet and that of others?”

Merkel Accuses Facebook, Google Of “Distorting Perception” (ZH)

While Facebook and Google have been repeatedly accused of media bias and manipulating public opinion, especially during the US presidential campaign, an unexpected attack on the two media giants came today not from the US but from Germany, when Chancellor Angela Merkel launched a full-on attack at the two companies, accusing them of “narrowing perspective,” and demanding they disclose their privately-developed algorithms. Merkel previously blamed social media for anti-immigrant sentiment and the rise of the far right. “The algorithms must be made public, so that one can inform oneself as an interested citizen on questions like: what influences my behavior on the internet and that of others?” said Merkel during a media conference in Berlin on Tuesday cited by RT.

What she said next echoed similar complaints lobbed at the media giants by those considered less than mainstream: “These algorithms, when they are not transparent, can lead to a distortion of our perception, they narrow our breadth of information.” In a tech-driven world, Google uses an algorithm to decide which search results are first shown to a user (and which are not, for example when one searches about Hillary’s health), while Facebook arranges the order of the news feed, and decides to include certain posts from a user’s liked pages and friends, at the expense of others. Both sites also promote links to news articles, often based on a user’s own media interests. However, it is still a human’s job to write and calibrate these algorithms which are at the core of the intellectual property of any social media or search website, and comprise some of the most highly-protected trade secrets in the world, potentially worth billions.

No internet giant has ever revealed its inner workings. Merkel did not specifically name Facebook, Google or Twitter, but implied that the large platforms are creating “bubbles” of self-reinforcing views, and squeezing out smaller news providers. One could also call it propaganda. “The big internet platforms, via their algorithms, have become an eye of a needle which diverse media must pass through to reach users,” warned Merkel. “This is a development that we need to pay careful attention to.” In their defense, Google and Facebooks have retorted that the so-called social media bubble is largely a “myth”, and that online users have a wider access to differing views than under a pre-internet model, where most news would be acquired from just a handful of newspapers and one or two TV channels.

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It’s decomissioning that will be teh most expensive. Hey, US, what’s going on at Yucca mountain?

Nuclear Power Is Over In The US Without More Government Subsidies (BBG)

Nuclear power will come to an end in the U.S. if the industry doesn’t get more government support, according to Carlyle Group, one of the world’s largest investment firms. The nation’s nuclear reactors need more subsidies to keep running, such as a federal carbon tax that’ll reward them for their zero-emissions power, Bob Mancini, co-head of Carlyle Group’s power unit, said at a conference in New York. Carlyle, which has $176 billion in assets under management across funds, invests in natural gas- and coal-fired power plants and renewable energy projects. Its outlook comes as nuclear power generators including Exelon and Entergy make plans to shut reactors across the country.

Low power prices, fueled by an abundance of natural gas from shale drilling and weakening demand, have squeezed their profits just as their operating costs rise amid mounting regulation. “We will see the end of the nuclear industry in the next coming decades” without legislation, incentives or other support to keep reactors open or encourage new builds, Mancini said at S&P Global Platts’s Financing U.S. Power Conference on Tuesday.

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May 202016
 
 May 20, 2016  Posted by at 8:59 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


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.

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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.

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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.

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“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.

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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.

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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%.

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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.

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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.

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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.

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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.

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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.”

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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.”

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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.”

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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.

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“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.

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Mar 062016
 
 March 6, 2016  Posted by at 8:17 pm Finance Tagged with: , , , , , , ,  6 Responses »


Arnold Genthe San Francisco , Chinatown. The street of the gamblers at night 1900

China never had an actual economic model or growth model. It simply printed an obscene amount of money, especially after 2008, and used it to build factories, 30-story see-through apartment blocks and highways into nowhere cities, without giving much if any thought to where this would lead when their formerly rich western customers had less to spend on its ever increasing amount of ever more useless products, or when its workers would stop spending ever more on apartments as investments, or when no more roads and bridges were needed because nowhere was already in plain sight. Or all of the above. It was ‘to infinity and beyond’ from the start, but that’s a line from a kids’ fantasy story, not a 5-year plan or an economic model.

Going into its 10-day, 3,000 delegates National People’s Congress opening on Friday, China was facing -and very much still is- two major and interconnected problems. Both are problems that the country has never faced before -not a minor point to make. The first is a giant debt load, one that could easily be as high as $40 trillion, or 350% of GDP, once one includes the shadow banking system (watch the shadows!). The second is the Communist Party’s -economic- credibility.

The debt problem is impossible to solve without very far-reaching restructurings of both the debt itself and of the entire Chinese economy. There appears to be a problem within the problem, however: the Party neither looks prepared to truly tackle the debt nor does it seem to know how.

As for the credibility issue, the very fact that a 5-year plan will be unveiled is the perfect in-a-nutshell illustration of what’s ailing Beijing. Not only does it hark back to communist days of old, not exactly a confidence booster, but trying to look 5 years ahead in today’s global economy is in itself not credible. It forces the Party to make statements nobody in their right mind will believe. And to compound the issue, that is something the leadership doesn’t really seem to take seriously. President Xi Jinping, more than anything else, looks like a man in the tradition of ‘what I say is true because I say so”.

That may have worked for a long time inside the country, but the desire to be part of the global economy means the ‘because I say so’ attitude is now being questioned by people Xi can neither bully nor bend into submission. Something he doesn’t seem to have clued into yet. Surrounded as he will be over these ten days by people who’ll say Yes at any appropriate and inappropriate instance, and laugh at anything he says that might be construed as a joke, Xi won’t come out any the wiser. He’d probably be better off spending those days with someone like Kyle Bass, but he’s not doing that.

Everybody, including most NPC delegates, knows that China’s grossly overleveraged, overproducing and overcapacitated economy needs another round of mass layoffs. Some initial numbers relating to job losses have been ‘leaked’ prior to the Congress. First, it was 1.8 million jobs cut in the coal and steel sectors, and a few days later that became 6 million. But that can only possibly be just a start.

It’s all in the numbers. China has something in the order of a billion workers, give or take 100 million or so. Even with the largest mass migration in human history, in which 100s of millions moved from the countryside to the cities, there are still an estimated 300 million people working in agriculture. That’s the entire US population. It’s also 30% of the Chinese workforce. In the US just 2 or 3% work in farming.

But that still leaves 700 million Chinese in other jobs. Many of these jobs were ‘invented’ in the past 20 years, as China’s ‘miracle growth’ transformed it first into the world’s no. 1 trinket producer, then into a kind of powerhouse that built highways to nowhere cities, and today a powerhouse with a fast plummeting global consumer base.

Many millions of Chinese workers produce things that can’t be sold. This is by no means confined to just coal and steel. The sharply dropping Chinese import and export numbers, as well as the purchasing indices, tell a bleak story. It’s evident that China must re-invent itself. And while that may be exactly what it claims it’s doing, the -alleged- transition to a service- and/or consumer economy may sound good, but its practical success is far from guaranteed.

Transforming a factory worker into a service sector employee is not a matter of flicking a switch. Repeating this 10 million times over, or 20 or 30 million, is a nightmare in an economy that is seeing its growth rates plummet while at the same time needing to deleverage its debt levels.

What are all these people going to do that produces actual economic value? And what will be the character of the companies they produce this value at? China is still dominated by state-owned enterprises, with workers relying on the faith that Beijing will always make everything right that goes wrong.

Losing that faith may have far-reaching consequences. At the same time, China cannot get the international economic status it so desperately seeks if so many de facto work for the government.

Though most tend to forget this, China was in a similar situation not so long ago:

In the late 1990s, China drastically restructured its state-owned enterprises, privatizing some and shutting down others. The result: from 1995 to 2002, over 40 million jobs in the state sector were cut, along with nearly 30 million jobs lost in the manufacturing, mining, and utilities sectors.

Although many of these workers were able to pick up jobs in the newly-growing private sector, the societal and cultural shift entailed in the restricting should not be underestimated. Prior to that wave of reforms, state sector employees (the vast majority of China’s workforce) enjoyed the benefits of an “iron rice bowl,” absolute job security along with social benefits (such as healthcare and pensions) provided by the state.

70 million – unproductive- jobs cut in 7 years. An average 10 million per year. A problem the country ‘solved’ by throwing tens of trillions (in US dollars) into overleveraged overproduction at exports-driven manufacturing enterprises. And by moving hundreds of millions of people into the cities that housed the enterprises.

15 years later, many of these newly created jobs have in their turn become unproductive. And the country may have to start the same process all over again. With probably tens of millions more jobs to replace. Question is, how will it fare this time around? Will people accept it as obediently as 15 years ago?

The reforms of the 1990s resulted in massive lay-offs. Overnight, tens of millions of workers lost their “iron rice bowls.” There were people who didn’t want to accept it, even those who actively resisted, but the government ruled with an iron fist and eventually the reforms went through. Even today, some of these people have grown old on the edge of poverty. On a certain level, we sacrificed them in exchange for huge reforms to the economic system.

But before wondering about civil obedience, let’s ask again: what are all these people going to do that produces actual economic value? Service economy? Consumer economy? There is no move available this time into another giant and overleveraged export industry. They’re at the end of the -debt- line.

Those people that had some money have lost a lot -and will lose much more- in equities and housing markets. Moreover, the government’s attempts to make them feel more secure about their old age would take decades to convince the people. So those who have something to save will do just that. So.. what consumer economy?

Service economy? Much of that in China is in financial services. Which has no future. So what else is there? How about the US model of burger flippers? That looks like a winner…

See, here’s a depiction of Chinese debt:

And here’s what they plan to do about it:

It looks like subprime derivatives on steroids: China hopes to bundle together billions of dollars worth of non-performing loans and eventually sell them to global investors Such a massive securitisation programme would represent the latest tactic in China’s campaign to lift one of the biggest shadows cast over its slowing economy -a debt pile that is as big as 230% of GDP. It would whittle back debts at Chinese banks and move some of the risk outside the domestic financial system.

According to official figures, such debts at the banks have reached Rmb1.27tn ($194bn), while analysts estimate the real number is likely to be many times higher. Chinese media has reported that the regulator has granted a total of Rmb50bn for the first wave of products. Demand for the scheme, however, is expected to be significantly more modest than supply. “How many global investors have been interested in the traditional [bad debt in China]?” asked one Hong Kong-based investor with experience buying distressed debt in Asia. “Not many.. is a more complicated version of this going to change that soon? No.”

This’ll be great, as great as the western approach to drowning in debt. Mind you, the Chinese haven’t even started talking about ‘recovery’ like we have, they’re still thinking -or propagandizing- that they’re on an ever upward trail. Well, they’re not. One of the early notes coming out of the People’s Congress was this: “China Says Will Keep Yuan Basically Stable Against Basket Of Currencies ..”

That’s not happening. They know it, we know it, and Kyle Bass knows it. Perhaps once the Congress is over, they’ll come clean? Hard to say. What’s certain is that global markets WILL force a substantial re-adjustment of the yuan, and there’s nothing Xi or the entire Communist Party can do to prevent it. And then, after a 30% readjustment, take another look at that dollar-denominated debt!

And they’ll have to cut many millions of jobs, and try to ‘pacify’ the newly unemployed, and deleverage the insane debt levels they’ve created, and find a way to explain to their people where it all went so wrong.

China no longer lives in a kids’ fantasy Toy Story.

Mar 042016
 
 March 4, 2016  Posted by at 9:16 am Finance Tagged with: , , , , , , , , ,  1 Response »


Edward Meyer School victory garden on First Avenue New York 1944

China’s Coming Mass Layoffs: Past as Prologue? (Diplomat)
Red Ink Rising (Economist)
China Begins to Tackle Its ‘Zombie’ Factory Problem (WSJ)
PBOC Pulls $129 Billion in Biggest Weekly Withdrawal Since 2013 (BBG)
China To Increase Defence Spending By ‘7-8%’ In 2016 (AFP)
“I See Bubbles Bursting Everywhere” (CNBC)
UBS: “The Move In Oil Is TOTALLY Short Squeeze Led” (ZH)
EU Superstate Would Have No Democratic Legitimacy (Tel.)
Brazil’s Economy Slumps To 25-Year Low as GDP Falls 3.8% (Guardian)
Only The IMF Can Now Save Brazil (AEP)
Era Of Zero, Negative Interest Rates Could Last For Years: Barclays (Reuters)
Osborne’s Desire To Further Cut Spending Makes Little Sense (Wolf)
The Economy Simply Explained (AA)
Monsanto’s RoundUp Found in 14 Popular German Beers (NS)
Ballooning Bad Loans in Turkey Worsen as Tourists Flee (BBG)
The Syrian War Will Define The Decade (Reuters)
EU Fate At Stake On Muddy Greek Border (Reuters)
Pensioners Share Their Bread With Refugees At Greek Border (Reuters)
EU Mulls ‘Large-Scale’ Migrant Deportation Scheme (AP)

1990s: “Overnight, tens of millions of workers lost their “iron rice bowls.”

China’s Coming Mass Layoffs: Past as Prologue? (Diplomat)

China’s minister for human resources and social security has said that China will lay off 1.8 million workers in the coal and steel sectors, part of an overall plan to reduce overcapacity and streamline state-owned enterprises. Reuters, citing anonymous sources close to China’s leadership, puts the figure much higher, at 5 to 6 million in layoffs over the next two years. Beijing is aware of the risks such massive layoffs pose for social stability, and it’s already moving to control to damage. A Chinese official recently announced that the national government will set aside 100 billion renminbi ($15.3 billion) to help find new employment for those who lose their jobs to the restructuring.

On Wednesday, a spokesperson for the National Committee of the Chinese People’s Political Consultative Conference, which begins its annual session on Friday, assured journalists that the job losses would be “temporary.” At least publicly, Chinese officials are confident that growth in service sector jobs can absorb most of the layoffs from heavy industry. That may seem unlikely, given the sheer number of the coming layoffs, but remember that China has been through this before – and on an even grander scale. In the late 1990s, China drastically restructured its state-owned enterprises, privatizing some and shutting down others. The result: from 1995 to 2002, over 40 million jobs in the state sector were cut, along with nearly 30 million jobs lost in the manufacturing, mining, and utilities sectors.

Although many of these workers were able to pick up jobs in the newly-growing private sector, the societal and cultural shift entailed in the restricting should not be underestimated. Prior to that wave of reforms, state sector employees (the vast majority of China’s workforce) enjoyed the benefits of an “iron rice bowl,” absolute job security along with social benefits (such as healthcare and pensions) provided by the state. Yet as China transitioned to a capitalistic economy – as “socialism with Chinese characteristics” turned out to be – the state sector and its “iron rice bowl” were proving a financial disaster, particularly in the wake of the Asian Financial Crisis in the late 1990s.

Chinese blogger Yang Hengjun explained the resulting transition as follows: “The reforms of the 1990s resulted in massive lay-offs. Overnight, tens of millions of workers lost their “iron rice bowls.” There were people who didn’t want to accept it, even those who actively resisted, but the government ruled with an iron fist and eventually the reforms went through. Even today, some of these people have grown old on the edge of poverty. On a certain level, we sacrificed them in exchange for huge reforms to the economic system.”

This is the same situation China faces today: the need for economic restructuring that will inevitably cause economic turmoil for millions of Chinese. China’s reforms in the 1990s had obvious benefits for the Chinese economy; the painful transition toward capitalism help usher in the boom-time of double-digit economic growth during the 2000s. There were consequences as well, particularly noticeable in a wealth gap that has grown at the same breakneck pace as China’s economy. Yet, with all the benefits of hindsight, you’d be hard pressed to find a Chinese official who would argue against the state sector restructuring of the late 1990s.

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Ehh..: “..with the right policies, China could survive a deleveraging without too much pain.” That’s true only as long as you don’t understand why deleveraging takes place. You can’t escape it through more debt.

Red Ink Rising (Economist)

How worrying are China’s debts? They are certainly enormous. At the end of 2015 the country’s total debt reached about 240% of GDP. Private debt, at 200% of GDP, is only slightly lower than it was in Japan at the onset of its lost decades, in 1991, and well above the level in America on the eve of the financial crisis of 2007-08. Sooner or later China will have to reduce this pile of debt. History suggests that the process of deleveraging will be painful, and not just for the Chinese. Explosive growth in Chinese debt is a relatively recent phenomenon. Most of it has accumulated since 2008, when the government began pumping credit through the economy to keep it growing as the rest of the world slumped. Chinese companies are responsible for most of the borrowing. The biggest debtors are large state-owned enterprises (SOEs), which responded eagerly to the government’s nudge to spend.

The borrowing binge is still in full swing. In January banks extended $385 billion (3.5% of GDP) in new loans. On February 29th the People’s Bank of China spurred them on, reducing the amount of cash banks must keep in reserve and so freeing another $100 billion for new lending. Signs of stress are multiplying. The value of non-performing loans in China rose from 1.2% of GDP in December 2014 to 1.9% a year later. Many SOEs do not seem to be earning enough to service their debts; instead, they are making up the difference by borrowing yet more. At some point they will have to tighten their belts and start paying down their debts, or banks will have to write them off at a loss—with grim consequences for growth in either case. An IMF working paper published last year identified credit growth as “the single best predictor of financial instability”.

Yet China is not obviously vulnerable to the two most common types of financial crisis. The first is the external sort, like Asia’s in 1997-98. In such cases, foreign lending sparks a boom that eventually fizzles, prompting loans to dry up. Firms, unable to roll over their debts, must cut spending to save money. As consumption and investment slump, net exports rise, helping bring in the money needed to repay foreign creditors. China does not fit this mould, however. More than 95% of its debt is domestic. Capital controls, huge foreign-exchange reserves and a current-account surplus help defend it from capital flight. The other common form of crisis is a domestic balance-sheet recession, like the ones that battered Japan in the early 1990s and America in 2008. In both cases, dud loans swamped the banking system. Central banks then struggled to keep demand growing while firms and households paid down their debts.

China’s banks are certainly at risk from a rash of defaults. Markets now price the big lenders at a discount of about 30% on their book value. Yet whereas America’s Congress agreed to recapitalise banks only in the face of imminent collapse, the Chinese authorities will surely be more generous. The central government’s relatively low level of debt, at just over 40% of GDP, means it has plenty of room to help the banks. Indeed, with the right policies, China could survive a deleveraging without too much pain.

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Begins is the key word.

China Begins to Tackle Its ‘Zombie’ Factory Problem (WSJ)

China’s leaders two decades ago decided that a combination of restructuring, privatization and massive job cuts was needed to revitalize the economy and shake up state industries weighed down by debt, overcapacity and declining profits. An estimated 20 to 35 million people lost jobs in the late 1990s. The same ills are now back, and reform of the country’s swollen industries is expected to feature prominently in China’s next five-year plan as the National People’s Congress, China’s annual legislative session, starts Saturday in Beijing. But this time around, the government is taking a more modest approach to cutting off its “zombie” factories as it confronts slowing economic growth that has unnerved Chinese leaders and global markets and raised fears of social unrest.

Beijing has outlined plans to cut 1.8 million steel and coal workers over the next five years. To ease social pain, it will put 100 billion yuan ($15.3 billion) into a restructuring fund for severance, retraining and relocation. Economists query whether the initiatives are enough. Beijing aims to cut up to 150 million tons of capacity in its steel industry by 2020, for example, but the annual surplus is currently around 400 million tons, according to the China Iron and Steel Association. The outline of China’s restructuring vision can be seen in its traumatized northeastern rust belt. In Jixi, a coal-dust-covered town of boarded-up buildings and sagging chimneys, provincial money is helping the Heilongjiang LongMay Mining trim its bloated payroll.

Between November and January, some 20,000 LongMay workers were transferred to jobs in farming, forestry and sanitation, among others, said Guo Shenming, a security inspector at the company’s Dongshan mine in Jixi. Workers receive 1,800 yuan ($275) a month for three years from the province, after which the new employer picks up the tab, he said. “Coal is a twilight industry,” he said, “so it’s a good chance for workers to get out.” But the coal-industry retrenchment and the 2014 closure of a steel mill has hit Jixi hard, said Mr. Guo, whose family runs a restaurant. “Families used to buy 10 or more pig’s feet for the Lunar New Year holiday, but this year they only got three or four,” he said. LongMay, which had over 250,000 workers in its heyday, now has well below 200,000. But it still lost 2.23 billion yuan in the first half of 2015, according to China Bond Rating, which is affiliated with the central bank. In November, the provincial government stepped in with a 3.8 billion yuan bailout to help the company with its debts.

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Guess this is where you say: Make up your minds already! You can’t micro-manage this.

PBOC Pulls $129 Billion in Biggest Weekly Withdrawal Since 2013 (BBG)

China’s central bank drained the most funds from the financial system in three years, mopping up excess cash after a reserve-requirement ratio cut earlier this week boosted liquidity. The People’s Bank of China pulled a net 840 billion yuan ($129 billion) in the five days through Friday, data compiled by Bloomberg show. While that was the biggest weekly withdrawal since February 2013, money-market rates barely reacted with the RRR reduction releasing an estimated 685 billion yuan into the banking system. The PBOC kept its open-market seven-day interest rate unchanged at 2.25% on Friday. The seven-day repurchase rate, a benchmark gauge of interbank funding availability, fell one basis point Friday and five basis points for the week, according to a weighted average from the National Interbank Funding Center.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was little changed at 2.3%. “The PBOC didn’t seem to plan to add excessive liquidity,” said Qu Qing at Huachuang Securities. “Keeping the interest rate of the operations unchanged also indicated its intention to maintain prudent monetary policy. The RRR cut is only replacing the huge amount of reverse repos due this week.” The central bank auctioned 50 billion yuan of seven-day reverse repos on Friday, bringing this week’s total sales to 320 billion yuan. That’s less than a record 1.16 trillion yuan of contracts maturing this week that will drain funds from the financial system. The PBOC injected an unprecedented 1.7 trillion yuan via such operations in the five weeks running up to the Lunar New Year holidays.

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Where the newly unemployed can go.

China To Increase Defence Spending By ‘7-8%’ In 2016 (AFP)

China will raise its defence spending by between 7-8% this year, a senior official has said, a smaller increase than the double-digit rises of the past as Beijing seeks a more efficient military. China’s budget will rise to around around 980bn yuan ($150bn) as the Beijing regime increases its military heft and asserts its territorial claims in the South China Sea, raising tensions with its neighbours and with Washington. Defence spending last year was budgeted to rise 10.1% to 886.9bn yuan ($135.39bn), which still only represents about one-quarter that of the United States. The US defence budget for 2016 is $573bn. “China’s military budget will continue to grow this year but the margin will be lower than last year and the previous years,” said Fu Ying, spokeswoman for the national people’s congress (NPC), the Communist-controlled parliament.

“It will be between 7-8%.” The exact increase will be announced on Saturday at the opening of the NPC, Fu told reporters. The slowdown in spending comes as president Xi Jinping seeks to craft a more efficient and effective People’s Liberation Army (PLA), the world’s largest standing military. At a giant military parade in Beijing last year to commemorate the 70th anniversary of Japan’s World War II defeat, Xi announced the PLA would be reduced by 300,000 personnel. But the event also saw more than a dozen “carrier-killer” anti-ship ballistic missiles rolling through the streets of the capital, with state television calling them a “trump card” in potential conflicts and “one of China’s key weapons in asymmetric warfare”.

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As we’ve been saying for a very long time. The inevitability far trumps the timing.

“I See Bubbles Bursting Everywhere” (CNBC)

Deflationary tides are lapping the shores of countries across the world and financial bubbles are set to burst everywhere, Vikram Mansharamani, a lecturer at Yale University, told CNBC on Thursday. “I think it all started with the China investment bubble that has burst and that brought with it commodities and that pushed deflation around the world and those ripples are landing on the shore of countries literally everywhere,” the high-profile author and academic said at the Global Financial Markets Forum in Abu Dhabi. Price levels are already falling in parts of Europe. Inflation declined by an annualized 0.2% in the euro zone in February, according to an estimate from the European Union’s statistical body. Annualized inflation was flat in Japan in January (the latest month for which there is official data), but rose by a narrow 0.3% in the U.K.

On Thusday, Mansharamani said that financial bubbles had been fueled by “cheap money” created by highly accommodative monetary policy across developed economies. “I mean, we’ve got a bubble bursting, I would argue, in Australian housing markets — that is beginning to crack; South Africa – the whole economy; Canada – housing and the economy; Brazil. We can keep going on and on,” the academic told CNBC. Financial markets have suffered a rocky ride this year, with significant variation across the world. The U.S. benchmark S&P 500 equity index is down 2.8% since the start of 2016, while China’s Shanghai Composite index has tumbled more than 19%. On Thursday, though, markets were in “risk-on” mode. The CBOE’s VIX — a widely used indicator of risk aversion – dipped to its lowest level in 2016 and “safe-haven” U.S. Treasury notes traded at three-week lows.

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Banks drive up price of oil so borrowers, before going bankrupt, can pay back loans to … banks.

UBS: “The Move In Oil Is TOTALLY Short Squeeze Led” (ZH)

Today, one Wall Street firm confirms that indeed the recent move in oil has nothing to do with fundamentals, and everything to do with positioning, and as UBS explains, “the performance is TOTALLY short-squeeze led.” Here’s why:

RECENT ACTION/ SENTIMENT : Yesterday oil ended in the green despite a very large reported crude inventory build, a reflection of how biased to the downside sentiment and positioning already is. Today, crude started in the read and has been mixed from there but moving higher. And both days, the stocks have lead with energy the best performing subsector in the S&P. Now, there is no doubt that the performance today is TOTALLY short-squeeze led. Though it also shows how negative sentiment and positioning is. Interestingly, with energy outperforming the market the last few days for the first time in a very long while, I actually got a few long only generalist type calls yesterday. Nothing concrete but generalists who are underweight the space trying to figure out if this is a turning point…

WHAT HAS HELPED FUEL THIS SHORT SQUEEZE?
• Positioning and sentiment very biased to the short side/ underweight. And as we move up, the move is also exxacerbated by short gamma positions that have to cover at higher levels.
• Despite high oil inventories (and still building), most upstream producers (from Exxon on down) have guided to lower than expected production as a result of lower capex.
• Ongoing hopes of a potential agreement between OPEC and non-OPEC members (seems umlikely but now a meeting set for March 20th is reviving some market hopes).
• A couple of supply issues like Kirkuk/Ceyhan pipeline damage taking longer to repair than expected and Farcados force majeure in Nigeria still on going issue.
• Credit players covering equity shorts — evident today that “good credit names” are underperforming and “bad credit names” outperforming.
• We took a day break from equity issuances in the space ystd and this morning… despite energy’s strong performance. Though rest assured we haven’t seen the end of issuances yet (RRC WLL, RSPP, MUR, CRZO GPORare all top of mind)… by the same token all this energy issuances are helping the credit side of things which has also been the culprit of the issue.

One may wonder if the squeeze is forced, or simply momentum driven, although we would like to quickly point us that most of the recent equity offerings by O & G companies who have benefited from the rally have noted in the “use of proceeds” that the raised capital would be used to pay down secured debt, i.e., take out the banks. In other words, it is as if the banks are orchestrating a squeeze to allow the shale companies to raise capital which will then allow them to repay their secured debt to the banks, secured debt whose recoveries as we have recently shown are practically non-existent in bankruptcy.

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“As it stands, the people of the nations of monetary union are farther away from the idea of political union than at any time in the past.”

EU Superstate Would Have No Democratic Legitimacy (Tel.)

The eurozone’s fledgling attempts to create a full-blown fiscal union has no democratic legitimacy, one of the single currency’s founding fathers has warned. Professor Otmar Issing – a former chief economist at the ECB and architect of the euro – said EU policymakers would not dare put their plans to transfer budgetary sovereignty to Brussels before electorates as they would fail at the first hurdle. Speaking of the European Commission’s Five Presidents Report – which lays out plans to shore up the foundations of the euro – Mr Issing said it was a step towards creating a fiscal union “without democratic legitimacy”. “Those who have read [the Five Presidents] report know that. Without political union all transfers will lack democratic legitimacy.

And nobody can be as stupid as to think political union is around the corner,” he told a parliamentary committee at the House of Lords. Prof Issing – who has been a fierce critic of attempts to pool budgetary powers in the euro – said EU elites were afraid to “confront” voters, delaying their plans for integration until after 2017, the year France and Germany hold national elections. “The thrust of all these ideas is going through a back door towards fiscal union,” he said. “Voters in the end will understand what is going on. They will know they are being exploited.” His comments come after prominent voices such as former Bank of England governor Lord King predicted the euro would collapse under the weight of popular disillusion in its weakest economies. But Prof Issing said there was too much “political investment” in the project to allow the euro to collapse.

“It will stay – I am sure about that,” he said. Instead of calling for a giant leap in integration, which would create a euro “superstate” with an EMU parliament and treasury, the German central banker urged policymakers to “stabilise” the current system and return to the original principles of monetary union, which forbids transfers from stronger to weak nations. “In the end, governments are responsible for their own actions,” said Professor Issing. “As it stands, the people of the nations of monetary union are farther away from the idea of political union than at any time in the past.” He also criticised EU plans to set up a banking union that guarantees the deposits of citizens across the 19-country bloc, describing it as an “expropriation of taxpayer money in some countries”.

“The idea of a common deposit insurance is fine, but before you start, you have to clarify bank balance sheets and have a new start. But this is also tricky and complex – there is no simple way out.” Highlighting the democratic constraints the euro has faced since the financial crisis, Professor Issing said he was concerned by developments in Spain and Portugal – where two incumbent bail-out governments have failed to be re-elected after imposing punishing austerity measures. “People have decided for a policy that is different to what is needed for monetary union. This strikes at the core of democracy.”

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Going more wrong by the day.

Brazil’s Economy Slumps To 25-Year Low as GDP Falls 3.8% (Guardian)

Brazil’s economy suffered its worst slump for quarter of a century last year as a global commodity rout, a domestic political crisis and rising inflation forced businesses to slash spending and jobs. Economists warned that the country’s recession had further to run and could deepen amid fresh signs that a drop in demand has continued into 2016. Official figures showed Brazil’s GDP fell 3.8% in 2015, the steepest decline since 1990, when the country was battling hyperinflation. Last year finished on a gloomy note with fourth quarter GDP down 1.4% on the previous quarter against the backdrop of a deepening political corruption scandal. The Brazilian economy is expected to shrink again by more than 3.0% this year, the worst consecutive annual plunges since records began in 1901. Four years ago, the economy was growing by more than 4.0% a year.

The gloomy news will raise pressure on President Dilma Rousseff, who is fighting efforts to impeach her over charges that she used money from state-run banks to plug holes in the budget. More timely figures showed the private sector contracted at a record pace last month. The Brazil composite output index, published by data company Markit, dropped to its lowest since the survey began in 2007. The index, which tracks companies across the economy, dropped to 39 in February, marking the 12th month running below the 50-point mark that separates expansion from contraction. Brazil’s economy had been hit hard by a collapse in commodity and oil prices in the past two years, said Mihir Kapadia at Sun Global Investments. “The situation has been made worse by the high debt levels, especially in foreign currency – essentially in US dollars. Problems of governance, corruption and political issues have created a perfect storm for continued political instability,” Kapadia added.

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No, not even the IMF can.

Only The IMF Can Now Save Brazil (AEP)

Brazil is heading straight into the arms of the IMF. The sooner this grim reality is recognized by the country’s leaders, the safer it will be for the world. The interwoven political and economic crisis has gone beyond the point of no return. The government is frozen. The finance ministry has lost the trust of Brazilian investors and global markets in equal measure. Almost nothing credible is being done to stop the debt trajectory spinning into orbit. Few believe that the ruling Workers Party is either capable or willing to take the drastic austerity measures needed to break out of the policy trap, or that it would suffice at this late stage even if they tried. “There is an enormous fiscal crisis and we’re flirting with a return to hyperinflation. All the debt variables are going in the wrong direction,” said Raul Velloso, the former state secretary of planning.

“There is a loss of confidence in the ability of the government to manage its debts. We face the risk of default,” he said. Three quarters of the budget is effectively untouchable, locked in by a web of welfare payments and regional transfers. President Dilma Rousseff is battling impeachment. Whether she wins or loses over coming months, the congress is too fractured and enflamed to do much about a budget deficit running at over 10pc of GDP. “I have the feeling that nobody wants to take any bold steps, or make any sacrifices,” said Arminio Fraga, the former central bank governor. “Brazil ended up in this situation by doubling down on credit and fiscal expansion. It woke up with the nightmare of a paralyzed country and a ruined model that is not being corrected. It is an economic tragedy,” he told O Estado de Sao Paulo.

Mr Fraga said the collapse is desperately sad because Brazil seemed to be on the right path under president Luis Inacio da Silva, or Lula as everybody knows him. “There was a feeling that the country was getting ahead, and then it vanished. The country suddenly lost itself completely,” he said. It emerged this week that even Lula is under criminal investigation, the latest casualty of the Lava Jato (carwash) scandal. This began as a probe into the abuse of inflated contracts from the state oil giant Petrobras to fund the Workers Party, but is fast engulfing the country’s political elites in a broader purge – akin to Italy’s “mani pulite” scandals in the 1990s. In a sense it is an impressive show of judicial independence. But nobody knows how this will end, and the mood is turning tetchy.

The justice minister resigned this week, angry over pressure from his own Workers Party to rein in the probe. Rui Falcão, the party chief, retorted that basic rights are now being violated by prosecutors acting beyond the rule of law. “We’re seeing the abolition of habeas corpus. It is the democracy of the country that is at stake,” he said. Dilma lost her last chance to win back market trust when her Chicago-trained trouble-shooter, Joaquim Levy, threw in the towel after a year as finance minister, defeated by foot-dragging in the cabinet. Disbelief is by now so pervasive that her government would struggle to restore confidence even if it grasped the nettle. The IMF is the only way out of the impasse.

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Only as long as investors can profit, and banks. Not endless.

Era Of Zero, Negative Interest Rates Could Last For Years: Barclays (Reuters)

The era of zero or negative interest rates, notably in Japan and the euro zone, could extend for several more years as central banks battle persistently low growth and inflation, strategists at Barclays said on Thursday. The downward pressure on interest rates will be strongest in Japan and the euro zone, while the greater flexibility and resilience of the U.S. and UK economies should allow interest rates there to rise quicker, albeit extremely gradually. “Negative nominal interest rates are more than just a passing monetary fad,” Barclays said in its 61st annual Equity Gilt Study. Barclays said the natural rate of interest across the developed world, where borrowing costs are neither stimulative nor restrictive given an economy’s potential growth and inflation rates, is lower than where nominal rates currently stand.

The study finds that real equilibrium policy rates are near-zero across the developed world and may need to fall further below zero in the euro zone and Japan for interest rate policy there to become “sufficiently accommodative”. Michael Gapen, the bank’s chief U.S. economist and co-author of the report, said the way to avoid a repeat of Japan’s experience over the last two decades is to restructure “zombie” banks and firms so that the broader private sector can clean itself up and get itself in shape to start growing again. This could be most difficult in the euro zone, where the mix of slow growth, low inflation and a fractured banking system blighted by bad loans will make it difficult for the ECB to escape low or negative rates.

“The era of low or even negative interest rates across the developed world, particularly in Japan and the euro zone, could last for several years to come,” Gapen said. In 1995 the Bank of Japan lowered its main interest rate to 0.5% to try and reflate the flagging economy. Rates have never been higher since and the BOJ has also injected trillions of yen worth of stimulus via quantitative easing bond purchases. The BOJ is still fighting that battle against low growth and deflation. Earlier this year it adopted negative interest rates on certain bank deposits and became the first G7 rich country to have yields on its benchmark 10-year bonds fall below zero. “We don’t see a ‘Japanification’ of the world. But accommodative policy is here to stay,” said Christian Keller, head of economics research at Barclays and also a co-author of the study. “Before we get to the limits (of these policies), central banks will persist with zero and negative rates,” he said.

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“This is bad history and worse economics.”

Osborne’s Desire To Further Cut Spending Makes Little Sense (Wolf)

George Osborne wants to burnish his image as an iron chancellor of the exchequer. He has already committed to achieving a fiscal surplus by 2019-20. He now suggests that further tightening of fiscal policy may be needed in response to the “storm clouds” he identified when in Shanghai last week. Mr Osborne may be preparing for bad news in his Budget on March 16. The question is whether his plan makes sense. The answer is no. The fiscal objective is itself questionable. The aim is to achieve an overall surplus, unless growth drops below 1%. This is to offer respite in the event of a recession. Just compare what the government would do if a deficit opened up while the economy grew 1.1% for three years (namely, tighten policy), with what it would do if it grew 3%, 0.9% and then 2% (not tighten at all in the second year).

Why should an overall fiscal surplus be important, anyway? The answer is that it is a quicker way to lower the ratio of debt to GDP. But that would only be true if achieving the surplus did not itself slow the growth of GDP. As the Institute for Fiscal Studies notes in its Green Budget, “running a surplus is not necessary to bring debt down as a share of national income”. Moreover, if the government is in a position to invest by borrowing at low real interest rates, as now, it makes sense to do so. The government must worry about its balance sheet, not just its debt. Yet the absurdity of the target is brought out better still by the comments Mr Osborne made last week. He said, first, “this country can only afford what it can afford”; second, “the economy is smaller than we thought”; third, the UK must tighten further, to ensure “economic security”; and, finally, “the last time we didn’t [live within our means] we were right in the front rank of nations facing economic crisis”.

This is bad history and worse economics. It is a myth that the UK’s crisis was due to a failure of the government to live within its means. The truth is the opposite. The government did not have a fiscal crisis. The country had a financial crisis whose economic results were cushioned by the government’s deficits. Again, it is not true that running a fiscal surplus year after year is either necessary or sufficient to achieve “economic security”. It is more important to create a robust financial sector. Yet pressure from the Treasury today seems to be to relax constraints. That may well be far riskier for the UK economy in the long run than modest fiscal deficits.

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Ari Andicropoulos.

The Economy Simply Explained (AA)

Sometimes my friends tell me that they try to read them, but my posts are too complicated. I am using jargon that they don’t understand and probably they are too long and confusingly written. To remedy this, I have decided to try to write a simplified version of this piece I wrote about how the economy works.

How can one picture the economy? The economy should be viewed as a flow of money. This may seem straightforward, but mainstream economic models do not include money at all. And yet, a lot of the workings of the economy can be understood by looking at who receives money and how much of it they spend.

 If everyone is working and producing goods and services, then people need to buy these goods and services. In order for people to buy these products they need to have enough money.

Money received by people for producing things is then spent by these people on more things. This cycle repeats itself and makes the economy run.

What if people don’t have enough money? They can’t buy the goods and services. In a perfect world, the price of everything would go down so that all of what is produced can be bought. Unfortunately, in reality this is not the case.

Why can’t prices go down very easily? The reason that prices can’t adjust very easily to not enough money is that people’s wages tend not to go down. This is called ‘stickiness of wages’. Because people generally don’t like having pay cuts, producers can’t reduce prices or they will be making goods at a loss.

If they can’t reduce prices, what do they do? Instead they cut production and make people unemployed. This then, in turn, reduces the amount of money that people have to buy things. Leading to further job losses.

Eventually what would happen? Without any government intervention, in the end prices and wages would fall enough so that everyone could have a job again. But it is a long and painful process. It is much better to ensure that the correct amount of money is running therough the system.

How much money is the correct amount? A generally accepted nominal GDP growth target is 5% per year. This means that in total 5% more value in goods and services are produced each year. Some of this increase is due to inflation – one pays more for the same number of goods. And some of this is growth – more goods are produced.

But if 5% more £ worth of goods and services are produced, doesn’t that mean that people need to spend 5% more money each year than the year before? Exactly. Every year, for the economy to be healthy, 5% more money needs to be spent than the year before.

Where does this extra money come from? This is a very good question. And it is one that seems to be ignored by most economists.

The problem we have with the economy today is that actually it is being drained of money. If £1m of goods are produced and sold, then in the next year only approximately £970,000 will be spent. People are saving the other £30,000.

To be more exact, the gap between the amount people are saving and the amount of people’s savings from previous years that they are spending comes to 3%, maybe even 4%, of GDP.

Why is this gap so large? There are a number of reasons but it mainly has to do with the difference in spending of the people who receive the money. Working people on low and medium incomes tend to spend most of the money they receive. But savers receiving interest and dividends spend less of it in the economy.

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You expected something else? That German beer purity law (Reinheitsgebot) is 500 years old.

Monsanto’s RoundUp Found in 14 Popular German Beers (NS)

Want a round of Round Up with your beer? The German beer industry is in shock after finding that 14 different popular beer brands have traces of the ‘probably’ carcinogenic herbicide, glyphosate – an ingredient found in Monsanto’s best-selling weed killer, Round Up. Germany’s Agricultural minster is playing down the risks in order to save one of the countries’ best-selling exports. Glyphosate levels were as high as 30 micrograms per liter, even in beer that is supposed to be brewed from only water, malt, and hops. This finding by the Munich Environmental Institute calls into question the rampant spraying of Round Up on both GMO and non-GMO crops around the world, and casts doubt upon Germany’s 500-year-old beer purity law.

The EU Commission was looking to extend approval for the use of glyphosate in Germany, and other EU countries in April for another 15 years. The current license runs out this summer. Following the findings by France, that glyphosate is likely a human carcinogen, as well as the World Health Organization’s cancer research arm, the IARC, finding that glyphosate is a probable carcinogen, glyphosate in Germany’s coveted beer is not a positive discovery for the makers of this herbicide, which include companies like Monsanto. Germany’s farm federation has denied responsibility, saying that malt derived from glyphosate-sprayed barley has been banned. The group admits, though, that glyphosate could have been used on farms prior to the ban, meaning barley could still be grown in glyphosate-drenched soil.

The Bremen office of the brewery giant Anheuser-Busch described the institute’s findings as “not plausible,” citing a bill of health issued by Germany’s Federal Institute for Risk Assessment (BfR) that the amounts of glyphosate found in beer did not pose a threat to consumers. In a statement, the Institute said: “An adult would have to drink around 1,000 liters (264 US gallons) of beer a day to ingest enough quantities to be harmful to health.” As with other Big Ag deniers, they seem to forget that glyphosate exposure comes from multiple sources, aside from just contaminated beer.

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This will make Erdogan all the more dangerous.

Ballooning Bad Loans in Turkey Worsen as Tourists Flee (BBG)

The ailments afflicting Turkey’s economy that have triggered a surge in bad loans look poised to get worse before they get better. Non-performing loans at the nation’s lenders climbed to 3.18 percent of total credit in January, the sixth straight monthly increase and the highest proportion in almost five years, according to data this week from the Ankara-based Banking Regulation and Supervision Agency. BofA Merrill Lynch and Commerzbank said in Februrary corporate distress is deepening in Turkey, making it harder for companies to pay down debts. The rise in bad loans is compounding the challenges for Turkey’s $814 billion banking industry as a combination of currency depreciation, Russian sanctions and waning tourist visits amid a spate of terrorist attacks weigh on the economy.

As the central bank limits funding to tame inflation, the highest borrowing costs in four years and a slow down in loan growth are piling pressure on indebted businesses. “The trend is likely to increase and intensify,” said Apostolos Bantis, a Commerzbank credit analyst in Dubai, who said loans and lira-denominated bonds would be exposed. “While I don’t see the situation running out of control, the impact of Russian sanctions, the blow to the tourism industry, higher funding costs and the weaker currency will all take a toll on the corporate sector,” he said before the data.

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Would tend to agree. But don’t underestimate the coming financial crash.

The Syrian War Will Define The Decade (Reuters)

Many decades have a war that defines them, a conflict that points to much broader truths about the era — and perhaps presages larger things to come. For the 1930s, the Spanish Civil War, the three-year fight between Fascists (helped by Nazi German) and Republicans (armed by the Soviet Union) pointed to the far larger global disaster to come. For the 1980s, the Soviet battle to control Afghanistan, a bloody mess of occupation and insurgency, helped bring forward the collapse of the Soviet Union and set the stage for 9/11 and modern Islamist militancy. For the 1990s, you can take your pick of the Balkans, Somalia, Rwanda or Democratic Republic of Congo. For the 2000s, it was Iraq — the ultimate demonstration of the “unipolar moment” and the limits, dangers and sheer short-livedness of America’s status as unchallenged global superpower.

We are, of course, little more than half way through the current decade. Already, however, it looks as though it has to be Syria’s civil war. In pure human terms, the war dwarfs any other recent conflict. Estimates of the number of Syrian dead range from 270,000 to 470,000 people. The UN estimates up to 7.6 million Syrians are displaced within their own country, with up to 4 million fleeing their homeland. From its relatively small beginnings as a largely unarmed revolt, the Syrian conflict has now dragged in more than a half-dozen countries. Its broader implications continue to grow by the month. While not the sole cause of Europe’s migrant crisis, Syrians make up a significant proportion — perhaps even the majority — of new arrivals on the continent. The sheer numbers are producing political strains that have already torn up the ideal of a “borderless” Europe and may yet wreck the entire EU project.

Syria has exemplified what Financial Times columnist Gideon Rachmann calls a “zero-sum world.” From the beginning, rival regional powers — particularly Shi’ite Iran and Sunni states led by Saudi Arabia — approached the conflict with the assumption that neither side could afford to back down or compromise without letting the other win. From that perspective, Syria is part of a larger regional confrontation that encompasses the war in Yemen, the long-term sectarian battle for control of Iraq and, of course, attempts to rein in Iran, in general, and its nuclear program, in particular. Increasingly, though, the war in Syria has become part of the wider, potentially more dangerous confrontation between Western powers and Russia. That confrontation also goes back years — through Kosovo and the Balkans to the Cold War.

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It’s already lost.

EU Fate At Stake On Muddy Greek Border (Reuters)

In muddy fields straddling the border with Macedonia, a transit camp hosting up to 12,000 homeless migrants in filthy conditions is the most dramatic sign of a new crisis tearing at Greece’s frayed ties with Europe and threatening its stability. For the last year, Greece has largely waved through nearly a million migrants who crossed the Aegean Sea from Turkey on their way to wealthier northern Europe. Now, on top of a searing economic crisis that took it close to ejection from the euro zone a year ago, the European Union’s most enfeebled state is suddenly being turned into what Prime Minister Alexis Tsipras calls a “warehouse of souls”. At least 30,000 people fleeing conflict or poverty in the Middle East and beyond are bottled up in Greece after Western Balkan states effectively closed their borders.

Up to 3,000 more are crossing the Aegean every day despite rough winter seas. “This is an explosive mix which could blow up at any time. You cannot, however, know when,” said Costas Panagopoulos, head of ALCO opinion pollsters. Men, women and children from Afghanistan, Syria and Iraq are packed like sardines in a disused former airport terminal in Athens, crammed into an indoor stadium or sleeping rough in a central square, where two tried to hang themselves last week. The influx is severely straining the resources of a country barely able to look after its own people after a six-year recession – the worst since World War Two – that has shrunk the economy by a quarter and driven unemployment above 25%.

After years of austerity imposed by international lenders, who are now demanding deeper cuts in old-age pensions, ordinary Greeks say they feel abandoned by the European Union. A staggering 92% of respondents in a Public Issue poll published by To Vima newspaper last Sunday said they felt the EU had left Greece to fend for itself. The poll was taken before the European Commission announced €300 million in emergency aid this year to support relief organizations providing food, shelter and care for the migrants. But such promises do little to soften public anger. “I want to spit at them,” said 40-year-old Maria Constantinidou, who is unemployed. “Those European leaders .. should each take 10 migrants home, feed them, look after them and then see how difficult things are.”

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Greeks are Menschen.

Pensioners Share Their Bread With Refugees At Greek Border (Reuters)

Each day, Demetrios Zois buys two loaves of bread. One is for his family, and one for whoever comes knocking on his door. In the past year, there have been plenty of unexpected visitors. He is among 100 mainly elderly people living in Greece’s border community of Idomeni, which has become the focal point of a growing migrant crisis that is proving too big for the country to handle. Around 30,000 migrants and refugees were stranded in Greece on Thursday, with just over a third of them at Idomeni, waiting for the border with Former Yugoslav Republic of Macedonia (FYROM) to open. “We feel very bad for them. We understand they are hungry, but they are 10,000 and we are 100. If more come what will happen?” Zois, an 82-year-old pensioner, told Reuters.

He and his friend Theodoros Moutaftsis watch with growing concern as a tent city in the meadows outside their homes get bigger by the day. “It’s the first thing we check when we wake up in the morning, whether they have gotten closer to the village,” said Moutaftsis, 79. “That and if anything is missing,” he adds. Ten hens disappeared from his garden last month, and he thinks it was people from the camp. “These poor people are hungry. The state isn’t here to help them. It’s totally absent,” he said. There were anything between 11,000 and 12,000 people at the transit camp on Thursday, waiting for the border gate to open to continue their trek further in to Europe.

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This is flat-out illegal. In general, push back is not permitted. International law says that at the very minimum they would have to weigh every single case on an individual basis.

EU Mulls ‘Large-Scale’ Migrant Deportation Scheme (AP)

Turkey is under growing pressure to consider a major escalation in migrant deportations from Greece, a top EU official said Thursday, amid preparations for a highly anticipated summit of EU and Turkish leaders next week. European Council President Donald Tusk ended a six-nation tour of migration crisis countries in Turkey, where 850,000 migrants and refugees left last year for Greek islands. “We agree that the refugee flows still remain far too high,” Tusk said after meeting Turkish Prime Minister Ahmet Davutoglu. “To many in Europe, the most promising method seems to be a fast and large-scale mechanism to ship back irregular migrants arriving in Greece. It would effectively break the business model of the smugglers.”

Tusk was careful to single out illegal economic migrants for possible deportation, not asylum-seekers. And he wasn’t clear who would actually carry out the expulsions: Greece itself, EU border agency Frontex or even other organizations like NATO. Greek officials said Thursday that nearly 32,000 migrants were stranded in the country following a decision by Austria and four ex-Yugolsav countries to drastically reduce the number of transiting migrants. “We consider the (FYROM) border to be closed … Letting 80 through a day is not significant,” Migration Minister Ioannis Mouzals said. He said the army had built 10,000 additional places at temporary shelters since the border closures, with work underway on a further 15,000. But a top U.N. official on migration warned that number of people stranded in Greece could quickly double.

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Mar 022016
 
 March 2, 2016  Posted by at 10:21 am Finance Tagged with: , , , , , , , , , ,  3 Responses »


Christopher Helin Flint auto, Ghirardelli Square, San Francisco 1924

China To Lay Off 5 To 6 Million Workers (Reuters)
Deflation Defeats Impotent Central Banks (A. Gary Shilling)
Smells Like Subprime (BBG)
China Credit Outlook Cut to Negative by Moody’s (BBG)
China’s Secret Weapon: Used Car Salesmen (FT)
China Reserve Ratio Cut ‘No Signal Of Impending Large-Scale Stimulus’ (Reuters)
Debts Rise At China’s Big Steel Mills, Consumption Falls (Reuters)
Natural Gas Prices Plunge To 17-Year Lows (CNBC)
Europe’s Biggest Oil Hub Fills as Ship Queue at Seven-Year High (BBG)
UAE Says Oil Collapse Will Force All Producers to Cap Volumes (BBG)
Negative Rates … Negative Outcomes (Corrigan)
Trumpocalypse Now (Guardian)
Euro Depression Is ‘Deliberate’ EU Choice, Says Mervyn King (Telegraph)
Why Austria’s Asylum Cap Is So Controversial (Economist)
EU Nations Urged To Lift Border Checks To Save Passport-Free Zone (Guardian)
Rights Groups Accuse France Of Brutality In Calais Eviction (AP)
Greece Seeks EU Aid For 100,000 Refugees (AFP)

Big risk for Xi. He must be desperate.

China To Lay Off 5 To 6 Million Workers (Reuters)

China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution, two reliable sources said, Beijing’s boldest retrenchment program in almost two decades. China’s leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years. The overall figure is likely to rise as closures spread to other industries and even more funding will be required to handle the debt left behind by “zombie” state firms. The term refers to companies that have shut down some of their operations but keep staff on their rolls since local governments are worried about the social and economic impact of bankruptcies and unemployment.

Shutting down “zombie firms” has been identified as one of the government’s priorities this year, with China’s Premier Li Keqiang promising in December that they would soon “go under the knife”.. The government plans to lay off five million workers in industries suffering from a supply glut, one source with ties to the leadership said. A second source with leadership ties put the number of layoffs at six million. Both sources requested anonymity because they were not authorized to speak to media about the politically sensitive subject for fear of sparking social unrest. The ministry of industry did not immediately respond when asked for comment on the reports. The hugely inefficient state sector employed around 37 million people in 2013 and accounts for about 40% of the country’s industrial output and nearly half of its bank lending.

It is China’s most significant nationwide retrenchment since the restructuring of state-owned enterprises from 1998 to 2003 led to around 28 million redundancies and cost the central government about 73.1 billion yuan ($11.2 billion) in resettlement funds. [..] China aims to cut capacity gluts in as many as seven sectors, including cement, glassmaking and shipbuilding, but the oversupplied solar power industry is likely to be spared any large-scale restructuring because it still has growth potential, the first source said. The government has already drawn up plans to cut as much as 150 million tonnes of crude steel capacity and 500 million tonnes of surplus coal production in the next three to five years. It has earmarked 100 billion yuan in central government funds to deal directly with the layoffs from steel and coal over the next two years, vice-industry minister Feng Fei said last week.

The Ministry of Finance said in January it would also collect 46 billion yuan from surcharges on coal-fired power over the coming three years in order to resettle workers. In addition, an assortment of local government matching funds will also be made available. However, the funds currently being offered will do little to resolve the problems of debts held by zombie firms, which could overwhelm local banks if they are not handled correctly. “They have proposed this dedicated fund only to pay the workers, but there is no money for the bad debts, and if the bad debts are too big the banks will have problems and there will be panic,” said Xu Zhongbo, head of Beijing Metal Consulting, who advises Chinese steel mills.

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Nothing they could ever do. Deflation must and will have its day.

Deflation Defeats Impotent Central Banks (A. Gary Shilling)

Central banks are deadly fearful of deflation. That’s why the Federal Reserve, the European Central Bank, the Bank of Canada, the Bank of Japan and Sweden’s Riksbank, among others, have 2% inflation targets. They don’t love rising prices, but they worry about the consequences of a general decline in consumer prices, so they want a firebreak. Unfortunately, they seem powerless to meet their targets in the current economic environment. The guardians of monetary policy are riveted by Japan, where consumer prices have declined in 48 of the last 83 quarters. This pattern of deflation long ago convinced Japanese buyers to hold off purchases in anticipation of lower prices. But the result is excess inventories and too much productive capacity, which force prices even lower.

That confirms expectations, resulting in yet more buyer restraint. The result of this deflationary spiral has been a miserable economy with an average growth in real GDP of just 0.8% at annual rates since the beginning of 1994. Central banks also fret that in a deflationary environment, debt burdens remain fixed in nominal terms, but the ability to service them drops along with falling nominal incomes and waning corporate cash flows. So bankruptcies leap, while borrowing, consumer spending and capital investment all weaken.

As I argued on Monday, deflation remains a clear and present danger. Worryingly, the remedies central bankers are using aren’t working. First, in reaction to the financial crisis, they knocked their short-term reference rates down to essentially zero, and bailed out their stricken banks and other financial institutions. That may have forestalled financial collapse but it did little to stimulate borrowing, spending, capital investment and economic activity. Creditworthy borrowers already had ample liquidity and few attractive spending and investment outlets; slashing borrowing costs to record lows stimulated asset prices such as equities, with little economic benefit.

Furthermore, banks were too scared to lend. And as they resisted attempts to break them up and eliminate the too-big-to-fail problem, regulators bereaved them of profitable activities such as proprietary trading and building and selling complex derivatives. That forced them back toward less lucrative traditional spread lending – borrowing short-term money cheaply and lending it for longer at a profit – just as the shrinking gap between short- and long-term funds made that business even less attractive. With the amount of capital banks are obliged to set aside against their trading activities also leaping, they’re now regulated to such an extent that many of them probably wish they had been broken up.

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And Beijing claims Kyle Bass is wrong?

Smells Like Subprime (BBG)

Chinese bankers often pride themselves on having studied in the U.S. or the U.K and true to form, they’re bringing home a lot of the intricate financing that helped people overseas get loans for homes, cars and education. But these financiers are taking creative structures one step further.On Monday, Bloomberg News reported that China will allow domestic banks to issue as much as 50 billion yuan ($7.6 billion) of asset-backed securities that would be paid back using the proceeds from nonperforming loans. (Yes, you read that correctly.) The structure they’re employing is similar to the method that was used to repackage subprime mortgages in the U.S. ahead of the global financial crisis. But when bankers in America were bundling those low-doc mortgages into AAA-rated bonds, they still expected most of the loans would be repaid.

In this case, the debt has already gone bad. Considering hardly any Chinese asset-backed securities have ever received a less than AA score from a local rating company to date, chances are these ones will be awarded the same grade. Of course, investors buying these bonds should be aware they’re backed with debt that’s already soured, regardless of its credit score. Yet, the move is worrying because it’s the latest in a string of revivals in China of dangerous structures that were common in the West before being all but abandoned after 2008. Many of the instruments are helping banks disguise or unload their exposure to troubled companies in the same way issuance of asset-backed securities helped U.S. and British lenders mask their exposure to souring home payments as loans became delinquent.

Ironically, China had pretty much banned asset-backed securities until 2013 because of what happened during the credit crisis. Since authorities began allowing them again, they’ve spread like wildfire. Official data indicate that 593 billion yuan of ABS were sold last year, 79% more than in 2014. Less comprehensive Chinabond data show some 678 billion yuan being issued over the past two years. The first quota of 50 billion yuan is just a test. If there’s enough demand you can bet there will be plenty more of these repackaged bad-loan bonds floating around China in coming years. The amount of debt classed as nonperforming at Chinese commercial banks jumped 51% from a year earlier to 1.27 trillion yuan as of Dec. 31, the highest since June 2006, data from the China Banking Regulatory Commission showed last month.

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CDS look very ugly.

China Credit Outlook Cut to Negative by Moody’s (BBG)

China’s credit-rating outlook was lowered to negative from stable at Moody’s Investors Service, which highlighted the country’s surging debt burden and questioned the government’s ability to enact reforms just days before leaders gather to approve a five-year road map for the economy. The government’s financial strength may come under pressure if it takes on liabilities from troubled state-owned companies, while capital outflows have limited policy makers’ scope to stimulate the weakest economy in a quarter century, the ratings company said in a statement on Wednesday. State intervention in equity and foreign-exchange markets has heightened uncertainty about the leadership’s commitment to reform, Moody’s said.

While markets shrugged off the outlook cut on Wednesday, it highlights concern among global investors that the ruling Communist Party will struggle to overhaul Asia’s largest economy at a time when capital is flowing out of the country and debt levels have climbed to an unprecedented 247% of GDP. Chinese leaders will begin nearly two weeks of policy meetings on Saturday to map out how to tackle the nation’s economic challenges and meet the government’s goal of doubling per-capita income by 2020. “The government’s ability to absorb shocks has diminished and we want to signal this in the negative outlook,” Marie Diron, a senior vice president at Moody’s, said in an interview on Bloomberg Television. Authorities “have stepped backward in their reform steps and so that is creating some uncertainty.”

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Growth market. Next up: scrapyards.

China’s Secret Weapon: Used Car Salesmen (FT)

You have probably read, in the Financial Times and elsewhere, that China is the world’s largest car market. It is not. It is the world’s largest new car market, with sales of 21.1m units last year compared with 17.4m in the US. When used cars are included, the US auto market swells to more than 40m units, against less than 30m total passenger car sales in China. In value terms, the gap between the two markets is even larger. In 2014, the overall value of US car sales was almost $1.2tn, more than twice as large as China’s $470bn. This is not surprising, considering that two-thirds of cars on Chinese roads are less than five years old and 80% of all buyers are first-time drivers. The latter fact explains why crossing an intersection in China can be a harrowing experience for pedestrians.

Put another way, an industry that most Americans, Europeans and Japanese have grown up with and now take for granted does not yet even exist in China. Dismiss a shady character as a “used car salesman” and most Chinese people will not understand the reference. As Chinese leaders gather at their annual parliamentary session later this week, it is worth bearing in mind that they are doing so in a country where one cannot very easily buy a used car. That fact should reassure Chinese politicians and multinational executives worried about the pace of growth in the world’s second-largest economy, which will be a topic of much discussion at the National People’s Congress.

Government officials insist that the rising “new economy” will balance out the declining “old economy”, allowing the country to grow at an average rate of 6.5% through 2020. The creation of entirely new industries will further support growth. The inevitable rise of what will soon be the world’s largest used car market is one such example. While its emergence will initially cannibalise some new car sales — primarily those of cheap domestic brands — the potential for growth is huge. In most developed auto markets, there are at least two used car sales for every one new car sale. In China the ratio is inverted, with roughly three new car transactions for every used car sold.

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Just a signal of panic.

China Reserve Ratio Cut ‘No Signal Of Impending Large-Scale Stimulus’ (Reuters)

China’s move to cut banks’ reserve requirement ratio (RRR) indicates a slight easing bias in China’s “prudent” monetary policy, but that is by no means a signal of any coming large-scale stimulus, the official Xinhua news agency said in a commentary late on Tuesday. The Xinhua commentary follows rising market expectations that China could implement a version of the massive stimulus it adopted during the global financial crisis, launching in late 2008 a 4 trillion yuan ($610 billion)stimulus package to boost the economy. The news agency said strong stimulus was not needed because China still had monetary policy tools available and China’s economy was growing at a reasonable rate, with no signs of chaos or crisis in the global economy. Xinhua stated that because China would stick to its prudent monetary policy, there would be no changes in the way the government adjusted liquidity, which would be kept at a reasonable and flexible level, it said.

That meant China’s lending and total social financing would grow at a steady and reasonable rate, Xinhua noted. Xinhua’s view was echoed by state-owned People’s Daily, which reported on Wednesday, citing economists, that the RRR cut was not stimulus, but only reflected increasing policy flexibility aimed at supporting economic development. Late on Monday, the People’s Bank of China announced a cut in the amount of cash that banks must hold as reserves – the reserve ratio requirement (RRR) – by 50 basis points. It frees up an estimated $100 billion in cash for new lending. Hong Hao at BOCOM International said the RRR cut was largely liquidity neutral, because the move was intended to offset the decline in China’s foreign currency reserves and to accommodate more than 1 trillion yuan of open market operations facilities due this week.

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So they can’t go broke, right?!

Debts Rise At China’s Big Steel Mills, Consumption Falls (Reuters)

China’s major steel mills added to their debt pile in 2015 while consumption of steel products fell for the first time in two decades, a senior official said on Wednesday, adding to the industry’s difficulties as it tries to tackle a crippling glut. The debt ratio of major steel mills rose 1.6 %age points to 70.1% from a year ago, taking the big mills’ debt to 3.27 trillion yuan ($499 billion), Li Xinchuang, the vice secretary general of the China Iron & Steel Association (CISA), told a conference. At the same time, steel product consumption in China fell 5.4% to 664 million tonnes in 2015 from a year ago, the first drop since 1996, said Li, who is also head of the China Metallurgical Industry Planning and Research Institute.

China is trying to rein in its bloated steel sector, and aims to cut crude steel capacity by 100 million to 150 million tonnes within the next five years, as well as ban new steel projects and eliminate so-called “zombie” mills. However, slower demand and rising debt will put further pressure on the industry, with prices already at multi-year lows. China’s major steel mills produced a combined 601 million tonnes of steel last year, accounting for nearly three-quarters of the country’s total output, Li said. CISA earlier said the country’s total annual crude steel capacity now stands at 1.2 billion tonnes. Total production reached 803.8 million tonnes last year, down 2.3%, the first drop since 1981. The drive to cut industrial capacity will force China to lay off probably 1.8 million workers from coal and steel sectors, and the central government will allocate 100 billion yuan to deal with job losses and tackle debt.

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“..Australian LNG production is expected to grow 50% in the five years through to 2020..”

Natural Gas Prices Plunge To 17-Year Lows (CNBC)

Natural gas prices have crashed to 17-year-lows in the past week, underscoring burgeoning supply in the global market just as U.S. exports its first ever shale gas cargo. On Monday, natural gas prices on the New York Mercantile Exchange settled 4.5% lower to their lowest level since 1999 after U.S. weather forecasts signaled warmer weather in the weeks ahead, curbing demand for natural gas used for heating. The decline brought February losses in natural gas to 26%. Prices recovered on Tuesday but the outlook remains depressed. Japan, the world’s largest importer of natural gas, is restarting its nuclear reactors six years after the 2011 Fukushima disaster, with three out of 43 nuclear reactors brought back online since August and more expected to come.

Japan is likely to bring back more reactors online, which will make the country less dependent on LNG for electricity generation. In January, shipments of LNG into Japan fell the most in more than six years, according to Bloomberg calculations. This does not bode well for Australia, which has pumped more than $160 billion in LNG investments just before the commodities rout that has taken oil prices down 70% since the summer of 2014. Australian LNG production is expected to grow 50% in the five years through to 2020 even as certain producers cut capital expenditures and reduce spending on upstream activities, said Fitch Group unit BMI Research in a note last week.

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“..people will be filling up their “swimming pools” with it this year.”

Europe’s Biggest Oil Hub Fills as Ship Queue at Seven-Year High (BBG)

The queue of ships waiting outside Europe’s biggest port and oil-trading hub of Rotterdam has grown to the longest in seven years as a global supply glut fills storage capacity. As many as 50 oil tankers, twice as many as normal, are waiting outside Rotterdam because storage sites are almost full, the port’s spokesman Tie Schellekens said by phone on Tuesday. “This is a clear sign of the oversupply filling up storage to the brim,” Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich, said by phone. “People are preferring to store oil rather than cut production. These are bearish signs.” The world is so awash with oil that BP CEO Bob Dudley said last month people will be filling up their “swimming pools” with it this year.

Traders are taking advantage of a market contango, where forward prices are higher than current prices, by buying oil cheap, storing it and selling the commodity later. As onshore storage fills up, companies could start stockpiling at sea in a repeat of a strategy last seen in 2008 and 2009. Crude oil in storage tanks in Rotterdam stood at 51.3 million barrels on Feb. 19, the highest for the time of year in data starting in 2013, according to Genscape, which monitors inventories. Royal Vopak NV, the world’s largest oil-storage company, last week reported a fourth-quarter occupancy rate of 96% at its 11 terminals in the Netherlands compared with 85% a year earlier. The situation in Rotterdam mirrors that in the biggest U.S. storage hub of Cushing in Oklahoma, where stockpiles are at a record high.

“In Cushing and probably Rotterdam storage is filling up very quickly,” said Giovanni Staunovo at UBS in Zurich, Switzerland. “In China, given high oil imports, there are too many ships and the infrastructure seems not be able to handle that.” Saudi Arabia, the world’s biggest oil exporter, said last month it won’t cut production to ease global oversupply, while Iran has pledged to increase output after sanctions were lifted in January. Still, oil climbed on Tuesday from the highest close in more than seven weeks on speculation that monetary stimulus in China could help revive flagging economic growth in the world’s second-biggest fuel consumer.

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It will bankrupt them first.

UAE Says Oil Collapse Will Force All Producers to Cap Volumes (BBG)

The oil-price collapse will compel all producers to freeze output and no early OPEC meeting can take place without such a move, the United Arab Emirates’ energy minister said. “This is the reality,” Suhail Al Mazrouei said Tuesday in Abu Dhabi. “Current prices will force everyone to freeze production; stubbornness doesn’t make sense.” Saudi Arabia – the world’s largest crude exporter – Russia, Venezuela and Qatar have proposed that producers cap production at January levels to bolster prices that have tumbled almost 70% in two years. OPEC member Iran, which is ramping up output following the removal of sanctions in January, has said the plan is “ridiculous” and saddles it with “unrealistic demands.”

Venezuela is among members of the Organization of Petroleum Exporting Countries to call for a meeting of oil producers this month, while Saudi Arabian Oil Minister Ali al-Naimi has said he hopes for such a gathering. The group’s next scheduled meeting is in June. Mazrouei said he hasn’t received an invitation for an early meeting and a summit won’t be necessary if producers don’t agree in advance to freeze output. That runs counter to Iran’s plans to increase volumes by 1 million barrels a day this year. “The idea of bringing a lot of production in a short period is not practical,” Mazrouei said.

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Laws of nature.

Negative Rates … Negative Outcomes (Corrigan)

There has been much head-scratching of late as to why, with interest rates lower than they have been since the Universe first exploded out of the Void, businesses are not undertaking any where near as much investment as that hoped for beforehand by the academic cabal whose ‘effective demand’ and ‘transmission channel’ fixations have helped drive rates to today’s mind-boggling levels. This is obviously a complex topic in which there are many different factors at work – not the least of which is that the prevalence of overly-low interest rates for much of the recent past has meant that all too much of such investment as is now desired has not only already been done, but done in what has turned out to be so misguided a fashion, that there is less appetite – as well as fewer means, in many cases – to undertake much more of it today.

If the cure for higher prices – as the saying in commodity markets goes – is higher prices, then the cause of lower rates is almost certainly lower rates! Be that as it may, on a more fundamental level, it might also be possible to tease out at least one aspect of the answer to the conundrum with the aid of a little straightforward logic, as we shall now attempt to do here. In theory, positive interest rates reflect the primal truth that goods fit for our enjoyment today are worth more to their potential consumer than those same goods which are only available tomorrow. Moreover, since producer goods are otherwise inedible, unwearable, uninhabitable, etc., in their present form, they only derive their value in respect of their quality of being innate consumer goods-to-be.

Hence, the means of producing the day’s goods for some future date are always to be discounted back using that same ratio (which is none other than the natural rate) as the one which prevails between consumables-now and consumables-then. Doing so gives us a positive IRR (or, if you prefer, assuring that NPV>0) for the process. Here it goes without saying that since the natural rate is inherently unobservable, the market interest rate will be used in its place – an unavoidable substitution which demands that this latter quantity be subject to as few falsifications as possible (a vexed topic suitable for a forthcoming, much deeper treatment).

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Oh, wait, Drumpfocalypse.

Trumpocalypse Now (Guardian)

There will be those in the Republican and conservative establishment who will try to spin the Super Tuesday results. Some among the GOP chattering classes will tell you that Trump didn’t get the knock-out punch he wanted – that there is still a chance to restore order. Don’t believe it. The numbers make it clear that, for the Republican party, it’s Trumpocalypse Now. While Ted Cruz won his home state of Texas as well as Oklahoma, and Rubio ran him close in Virginia and actually managed to win Minnesota, Trump dominated elsewhere. His success extended from Massachusetts to Georgia to Alabama to Tennessee to Oklahoma. He won in Ted Cruz’s south, and he won in the north-east, where a more establishment-friendly candidate like Marco Rubio was supposed to prevail.

Trump is winning with men and women, moderates and conservatives, with the young and the old. Trump is winning despite a weekend of unforced errors – after failing to repudiate former Klu Klux Klan Grand Wizard David Duke. Trump is winning even after taking political napalm from Marco Rubio since last week’s debate – with Rubio ridiculing his rival on the trail for days. Trump is winning despite the fact that the Republican speaker of the House and majority whip in the Senate both criticized him this week. He is winning in spite of the fact that almost every big name Republican officer-holder and mega-donor is lined up behind his opponents. The race is not technically over. While Trump will win the lion’s share of delegates tonight, both Cruz and Rubio will pick up delegates and spend the next couple of weeks trying to convince voters and donors that they can stop the frontrunner – that they have a path to the nomination.

Whether or not either of these men can really achieve that at this point – and I remain highly skeptical, despite Cruz’s two-state win – the day of reckoning for the Republican party has arrived. Whatever happens, what neither Cruz nor Rubio nor anyone else can do is to stop the forces that Trump’s candidacy has unleashed. It’s no longer possible to say the Republican party is a conservative party. You can’t even say the Republican party’s base is conservative. It appears that a new, populist-nationalist wing has wrested control of the of the GOP away from its familiar constituency. This is no longer the party of William F Buckley and Jack Kemp. It’s now the party of Pat Buchanan and Ross Perot.

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“I never imagined that we would ever again in an industrialised country have a depression deeper than the United States experienced in the 1930s and that’s what’s happened in Greece.”

Euro Depression Is ‘Deliberate’ EU Choice, Says Mervyn King (Telegraph)

Europe’s deep economic malaise is the result of “deliberate” policy choices made by EU elites, according to the former governor of the Bank of England. Lord Mervyn King continued his scathing assault on Europe’s economic and monetary union, having predicted the beleaguered currency zone will need to be dismantled to free its weakest members from unremitting austerity and record levels of unemployment. Speaking at the launch of his new book, Lord King said he could never have envisaged an economic collapse of the depths of the 1930s returning to Europe’s shores in the modern age. But the fate of Greece since 2009 – which has suffered a contraction eclipsing the US depression in the inter-war years – was an “appalling” example of economic policy failure, he told an audience at the London School of Economics.

“In the euro area, the countries in the periphery have nothing at all to offset austerity. They are simply being asked to cut total spending without any form of demand to compensate. I think that is a serious problem. “I never imagined that we would ever again in an industrialised country have a depression deeper than the United States experienced in the 1930s and that’s what’s happened in Greece. “It is appalling and it has happened almost as a deliberate act of policy which makes it even worse”. Lord King – who spent a decade fighting the worst financial crisis in history at the Bank of England – has said the weakest eurozone members face little choice but to return to their national currencies as “the only way to plot a route back to economic growth and full employment”.

“The long-term benefits outweigh the short-term costs,” he writes in The End of Alchemy. The former Bank governor has said popular disillusion with EU economic policies are likely to lead to disintegration of the single currency rather than a move towards “completing” monetary union. Two of the eurozone’s debtor nations – Ireland and Spain – are currently locked in electoral stalemate after their pro-bail-out governments failed to win the backing of voters. But the European Commission has defended itself against claims that punishing austerity measures have made incumbent European regimes unelectable, arguing that Brussels’ economic policy represents a “virtuous triangle” of austerity, structural reforms and investment.

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Nobody cares about the laws they signed up for.

Why Austria’s Asylum Cap Is So Controversial (Economist)

Europe is divided on how to handle the largest number of refugees since the second world war. Still, Austria’s move to cap asylum claims at 80 per day at its southern border and limit the daily number of people travelling through Austria to seek asylum in Germany to 3,200 has sparked outrage. After Austria, which lies on the migrant route from the Balkans into Germany, announced its plan, Dimitris Avramopoulos, European Commissioner for migration, home affairs and citizenship, wrote to Austria’s interior minister to protest. The move, he said, was “plainly incompatible” with EU law. The minister replied, on television: “they have their legal adviser and I have legal advisers.” The Geneva Convention and the EU Charter of Fundamental Rights clearly state that asylum is a right.

Human-rights activists argue that a cap runs counter to the spirit of these texts; lawyers know that, as fundamental as they are, rights are never absolute. But Austria would seem to be flouting some EU directives. One (which was voted for by Austria) says that asylum applications must be officially registered (that is, given a number) no more than ten days after they have been lodged; a daily limit would seem to make following that difficult. Last year, around 700,000 migrants entered Austria and around 90,000 applied for asylum. According to another rule, refugees are supposed to apply for asylum in the first “safe country” they are in, rather than moving on to another. EU rules have been woefully stretched by Europe’s immigration crisis already of course. In 2011, European judges criticised Greece for failing to register asylum applications at the border.

All applications, they said, were being made on one day a week at one police station in Athens. More recently, the European Commission criticised Greece for not being able to control its border and letting people hike up north. In 2011, Italy issued thousands of temporary residency permits, which allow immigrants to travel around Europe, to Tunisians who had arrived on its shores. In response, France closed its border with Italy. No action was taken. Mr Avramopoulos is adamant that Austria’s measures are unlawful, but it is not clear what he intends to do about it. The European Commission’s legal services are building up their case but judges might never hear it. Further angry exchanges seem more likely than legal action. Meanwhile, Austria’s move has led to border slowdowns for migrants across the Balkans. EU leaders have announced they will hold a summit in early March with Turkey to attempt to seek fresh solutions to the crisis.

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Never mind. Schengen’s long dead.

EU Nations Urged To Lift Border Checks To Save Passport-Free Zone (Guardian)

European Union countries are being urged to lift internal border controls before the end of the year, to save the “crowning achievement” of the passport-free travel zone from total collapse, according to a draft report by the European commission. Walls, fences and border checks have returned across Europe as the EU struggles to cope with the biggest inflow of refugees since the end of the second world war. Since September 2015, eight countries in the 26-nation passport-free Schengen zone have re-instated border checks. These controls “place into question the proper functioning of the Schengen area of free movement”, according to the draft report seen by the Guardian, which will be published on Friday. “It is now time for member states to pull together in the common interest to safeguard one of the union’s crowning achievements.”

Separately, the European commissioner for humanitarian aid is expected to announce on Wednesday that €700m (£544m) will be spent over three years in helping refugees in the western Balkans. Much of the money is destined for Greece, as EU leaders scramble to help Athens deal with its own crisis. 24,000 refugees are in need of permanent shelter and 2,000 people are arriving on Greek shores each day. EC president Donald Tusk has described helping Greece as “a test of our Europeanness”. The passport-free travel zone, which stretches from Iceland to Greece but does not include the UK or Ireland, has been under unprecedented pressure; its collapse could unravel decades of European integration. The commission wants member states to lift border controls “as quickly as possible” and with “a clear target date of November 2016”. But Brussels also wants tighter control of the EU’s external border and will repeat warnings that Greece could be kicked out of Schengen if it fails to improve border management by May.

[..] Greece is under growing pressure to hand over management of its borders to the EU, as it struggles to cope with the numbers. According to this latest plan, EU authorities will carry out an inspection of Greece’s borders in mid April to determine whether controls are adequate, with a final decision on Greece’s place in Schengen to be taken in May. The EU executive also reaffirms its intention to overhaul rules governing asylum claims. Under the current rules, known as the Dublin system, asylum seekers have to lodge their claim in the first country they enter. The Dublin regime was effectively finished last year when the chancellor, Angela Merkel, opened Germany’s borders to any Syrian who wanted to claim asylum there, regardless of where they arrived in the EU. In mid-March the commission will set out a list of options for reforming EU asylum policy. The favoured idea is a permanent system of relocation, where refugees are shared out around the union, depending on the wealth and size of a country.

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Second hand citizens.

Rights Groups Accuse France Of Brutality In Calais Eviction (AP)

More than a dozen humanitarian organizations on Tuesday accused authorities of brutally evicting migrants from their makeshift dwellings in a sprawling camp in northern France, as fiery protests of the demolition continued. Thousands of migrants fleeing war and misery in their homelands use the port city of Calais as a springboard to try to get to Britain on the other side of the English Channel. However, authorities are moving to cut short that dream by closing a large swath of the slum camp in the port city of Calais. In the stinging accusation at the close of the second day of a state-ordered mass eviction and demolition operation, the organizations charged that authorities have failed to respect their promise of a humane and progressive operation based on persuading migrants to vacate their tents and tarp-covered homes.

“Refugees, under threats and disinformation, were given one hour to 10 minutes to leave their homes,” a statement said. Police pulled out some who refused, making arrests in certain cases, while others were not allowed to gather their belongings or identity papers, the statement charged. Migrants and pro-migrant activists protested against the eviction Tuesday, some climbing onto shanty rooftops to briefly stall the tear-down, and others by starting a night fire. Tents and tarp-covered lean-tos were also set afire on Monday and earlier Tuesday. The protesting organizations alleged that police aimed flash-balls at the roof protesters, then clubbed them and made some arrests. Tear gas, water cannons and other tactics have been used excessively, the statement charged.

Organizations respected for their humanitarian work with migrants, such as Auberge des Migrants (Migrants’ Shelter), GISTI and Secours Catholique were among the 14 who signed the list of charges. The mass evictions from the southern sector of the camp were announced Feb. 12 with promises by Interior Minister Bernard Cazeneuve that there would be no brutality. However, the Monday start of operations came as a surprise. The regional prefecture in charge of the demolition says the hundreds of police present are needed to protect workers in the tear-down and state employees advising migrants of their options. France’s government has offered to relocate uprooted migrants into heated containers nearby or to centers around France where they can decide whether to apply for asylum. Officials have blamed activists from the group No Borders for the ongoing unrest. But many migrants resist French offers of help, afraid of hurting their chances of reaching Britain.

Officials say the evictions concern 800-1,000 migrants, but organizations working in the camp say the real number is more than 3,000.

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Crazy they even have to ask.

Greece Seeks EU Aid For 100,000 Refugees (AFP)

Greece has asked the EU for €480 million ($534 million) in emergency funds to help shelter 100,000 refugees, the government said Tuesday, warning that the migrant influx threatened to overwhelm its crisis-hit resources. “Greece has submitted an emergency plan to the European Commission .. corresponding to around 100,000 refugees,” government spokeswoman Olga Gerovassili told reporters. “We cannot bear the strain of all the refugees coming here… these are temporary measures, there needs to be a permanent solution on where the refugees will be relocated,” she added. “Greece has made it clear that it will use every diplomatic means available to find the best possible solution,” Gerovassili said.

With Austria and Balkan states capping the numbers of migrants entering their soil, there has been a swift build-up along the Greek border with Former Yugoslav Republic of Macedonia (FYROM). Athens had previously warned that it could be stuck with up to 70,000 people trapped on its territory. Gerovassili said there were 25,000 migrants and refugees currently in the country and that FYROM was only allowing “a few dozen” through every day. Over 7,000 people – many of them stranded in near the Idomeni border crossing for days – spent a freezing night and awoke under wet canvas among sodden wheat fields.

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Feb 292016
 
 February 29, 2016  Posted by at 8:53 am Finance Tagged with: , , , , , , , , ,  3 Responses »


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

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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.

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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.

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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.

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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.

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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.

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“..$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.

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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.

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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.”

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“..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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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“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.

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Feb 272016
 
 February 27, 2016  Posted by at 9:09 am Finance Tagged with: , , , , , , , , , ,  5 Responses »


Ben Shahn “Scene in Jackson Square, New Orleans” 1935

World Trade Falls 13.8% In Dollar Terms (FT)
Scepticism Rife Over G20 Move To Calm FX (FT)
G20 To Say World Needs To Look Beyond Ultra-Easy Policy For Growth (Reuters)
As China’s Economic Picture Turns Uglier, Beijing Applies Airbrush (NY Times)
Chinese Accounting Is ‘Highly Questionable’ (CNBC)
China Commodities Industry Resists Cuts Despite Production Glut (BBG)
Yuan Uncertainty Scares Funds Away From China Bond Market (BBG)
Germany Lays the Foundations for a New Eurozone Debt/Banking Crisis (Fazi)
Societe Generale Slashes Forecast For European Stocks (BBG)
Japan Builds $124 Billion Cash Hoard Even as It Cuts Treasuries (BBG)
“Peak Stupidity” – Where We Go From Here (Beversdorf)
Bankers Have Not Learnt The Lessons Of The Great Crash (Tel.)
Bank Of America Preparing Big Layoffs In Investment Banking And Trading (BI)
UBS Accused of Money Laundering in Belgian Tax Case (BBG)
With No Unified Refugee Strategy, Europeans Return to Old Alliances (NY Times)
More Migrants Trapped In Greece As Balkan Countries Enforce Limits (Kath.)
EU Med Countries Oppose Unilateral Actions On Refugee Crisis (AP)

Reality.

World Trade Falls 13.8% In Dollar Terms (FT)

Weaker demand from emerging markets made 2015 the worst year for world trade since the aftermath of the global financial crisis, highlighting rising fears about the health of the global economy. The value of goods that crossed international borders last year fell 13.8% in dollar terms — the first contraction since 2009 — according to the Netherlands Bureau of Economic Policy Analysis’s World Trade Monitor. Much of the slump was due to a slowdown in China and other emerging economies. The new data released on Thursday represent the first snapshot of global trade for 2015. But the figures also come amid growing concerns that 2016 is already shaping up to be more fraught with dangers for the global economy than previously expected.

Those concerns are casting a shadow over a two-day meeting of G20 central bank governors and finance ministers due to start on Friday. Mark Carney, the Bank of England governor, was set to warn the gathering that the global economy risked “becoming trapped in a low growth, low inflation, low interest rate equilibrium”. His comments will echo the IMF, which this week warned it was poised to downgrade its forecast for global growth this year, saying the world’s leading economies needed to do more to boost growth. The Baltic Dry index, a measure of global trade in bulk commodities, has been touching historic lows. China, which in 2014 overtook the US as the world’s biggest trading nation, this month reported double-digit falls in both exports and imports in January.

In Brazil, which is now experiencing its worst recession in more than a century, imports from China have collapsed. Exports from China to Brazil of everything from cars to textiles shipped in containers fell 60% in January from a year earlier while the total volume of imports via containers into Latin America’s biggest economy halved, according to Maersk Line, the world’s largest shipping company. “What we are seeing right now from China is not only a phenomenon for Brazil; we are seeing the same all over Latin America, declining [Chinese export] volumes into all the markets,” said Antonio Dominguez, managing director for Maersk Line in Brazil, Paraguay, Uruguay and Argentina. “It has been going on for several quarters but is getting more evident as we move into the year [2016].”

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Currency war Mexican standoff.

Scepticism Rife Over G20 Move To Calm FX (FT)

Scepticism is rife that the G20 gathering of finance ministers will agree to co-ordinate currency policy but there is some belief it could provide a short-term boost to risk appetite. Japan has led calls for the two-day meeting in Shanghai to bring calmness to an unstable market with a broad-based FX strategy, seen by some market commentators as a reprise of the 1985 Plaza Accord that succeeded in weakening a rampant dollar. But those hopes have been knocked back by China and the US, and market expectations have been subdued in the run-up to the G20 meeting that ends with a communique on Saturday. “A grand solution like the Plaza Accord feels far-fetched”, said Peter Rosenstrich at the online bank Swissquote.

“G20 members were ‘too unique’ to agree which currencies were mispriced, while to decide who wins and who loses would be ‘far too complex'” , he said. Some FX strategists are braced for a negative market reaction to the G20 meeting, basing their fears on the experience of previous gatherings. “Our fear is that…there may yet be a sense of despondency, an ‘is that it’ moment, should the G20 be seen to be papering over some rather large cracks in an all too familiar fashion“, said Neil Mellor at BNY Mellon. Market turmoil has driven a sharp rise in the value of the yen against the dollar, causing alarm at the Bank of Japan and jeopardising the government’s Abenomics growth strategy.

Japan’s negative interest rates policy, which came under attack as the G20 meeting began, has failed to reverse the yen’s rise, leading to heightened expectation of unilateral FX intervention by the BoJ. David Bloom, head of FX research at HSBC, said that possibility had been put on hold in the build-up to the G20 meeting, given the potential backlash from other G20 members. “But once that peer pressure passes after the meeting, FX intervention could be back on the table, he warned”. “Any push in USD-JPY towards 110 could be enough to trigger the green light on direct intervention”, said Mr Bloom. The best that can be hoped for from the meeting, said Steven Englander at Citigroup, was a communique that convinced investors that global policymakers are ‘sufficiently on the same page to add to global confidence’.

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A whole lot of nothing. They -make that we- are going to regret this. But the political climate is not there to act.

G20 To Say World Needs To Look Beyond Ultra-Easy Policy For Growth (Reuters)

The world’s top economies are set to declare on Saturday that they need to look beyond ultra-low interest rates and printing money if the global economy is to shake off its torpor, while promising a new focus on structural reform to spark activity. A draft of the communique to be issued by the Group of 20 (G20) finance ministers and central bankers at the end of a two-day meeting in Shanghai reflected myriad concerns and policy frictions that have been exacerbated by economic uncertainty and market turbulence in recent months. “The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth,” the leaders said in a draft seen by Reuters. “Monetary policies will continue to support economic activity and ensure price stability … but monetary policy alone cannot lead to balanced growth.”

Geopolitics figured prominently, with the draft noting risks and vulnerabilities had risen against a backdrop that includes the shock of a potential British exit from the European Union, which will be decided in a June 23 referendum, rising numbers of refugees and migrants, and downgraded global growth prospects. But there was no sign of coordinated stimulus spending to spark activity, as some investors had been hoping after the market turmoil that began 2016. Divisions have emerged among major economies over the reliance on debt to drive growth and the use of negative interest rates by some central banks, such as in Japan. Germany had made it clear it was not keen on new stimulus, with Finance Minister Wolfgang Schaeuble saying on Friday the debt-financed growth model had reached its limits.

“It is even causing new problems, raising debt, causing bubbles and excessive risk taking, zombifying the economy,” he said. The G20, which spans major industrialized economies such as the United States and Japan to the emerging giants of China and Brazil and smaller economies such as Indonesia and Turkey, reiterated in the communique a commitment to refrain from targeting exchange rates for competitive purposes, including through devaluations. While G20 host China has ruled out another devaluation of the yuan after surprising markets by lowering its exchange rate last August, there still appeared to be concerns that some members may seek a quick fix to domestic woes through a weaker currency.

Japanese finance minister Taro Aso said late on Friday he had urged China to carry out currency reform and map out a mid-term structural reform plan with a timeframe. U.S. Treasury Secretary Jack Lew also encouraged China on Friday to shift to a more market-oriented exchange rate in “an orderly way” and “refrain from policies that would be destabilizing and create an unfair advantage”.

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“Data disappears when it becomes negative..”

As China’s Economic Picture Turns Uglier, Beijing Applies Airbrush (NY Times)

This month, Chinese banking officials omitted currency data from closely watched economic reports. Weeks earlier, Chinese regulators fined a journalist $23,000 for reposting a message that said a big securities firm had told elite clients to sell stock. Before that, officials pressed two companies to stop releasing early results from a survey of Chinese factories that often moved markets. Chinese leaders are taking increasingly bold steps to stop rising pessimism about turbulent markets and the slowing of the country’s growth. As financial and economic troubles threaten to undermine confidence in the Communist Party, Beijing is tightening the flow of economic information and even criminalizing commentary that officials believe could hurt stocks or the currency.

The effort to control the economic narrative plays into a wide-reaching strategy by President Xi Jinping to solidify support at a time when doubts are swirling about his ability to manage the tumult. The persistence of that tumult was underscored on Thursday by a 6.4% drop in Chinese stocks, which are now down more than a fifth since the beginning of this year alone. The government moved to bolster confidence on Saturday by ousting its top securities regulator, who had been widely accused of contributing to the stock market turmoil. Mr. Xi is also putting pressure on the Chinese media to focus on positive news that reflects well on the party. But the tightly scripted story makes it ever more difficult to get information needed to gauge the extent of the country’s slowdown, analysts say. “Data disappears when it becomes negative,” said Anne Stevenson-Yang, co-founder of J Capital Research, which analyzes the Chinese economy.

The party’s attitude has raised further questions among executives and economists over whether Chinese policy makers know how to manage a quasi-market economy, the second-largest economy in the world, after that of the United States. Economists have long cast some doubt on Chinese official figures, which show a huge economy that somehow manages to avoid the peaks and valleys that other countries regularly report. In recent years, China made efforts to improve that data by releasing more information more frequently, among other measures. It also gave its financial media greater freedom, even as censors kept a tight leash on political discourse. But the party now sees reports of economic turbulence as a potential threat. The same goes for data. “Many economic indicators are on a downward trend in China, and economic data has become quite sensitive nowadays,” said Yuan Gangming, a researcher at the Center for China in the World Economy at Tsinghua University.

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Analysts are not ging to leave this alone anymore.

Chinese Accounting Is ‘Highly Questionable’ (CNBC)

Financial reporting in China was back in the spotlight again Friday, with one strategist claiming Chinese businesses were using “accounting trickery” to mask underlying credit problems. China looks like it’s heading towards a credit bust, Chris Watling, CEO and chief market strategist at Longview Economics told CNBC on Friday, explaining that cash borrowed by mainland firms is primarily being used to service debts. “We’ve been looking a lot at Chinese accounting recently and it is highly questionable,” he said. The corporate sector is increasing borrowing to pay interest, while instances of fraud and default are on the rise, he added in a note published Thursday. He said there were many examples where operating profit has been high, while cash flow has been negative — a “classic sign” that firms aren’t generating a profit, he added.

Watling highlighted that the balance sheets of commercial banks were particularly worrying. “In an economy which has undergone a credit boom, all of the lending is not necessarily readily apparent from the top level data,” he said. “Accounting trickery is often at work,” Watling claimed. Chinese corporates would reject the accusations, but this isn’t the first time there has been speculation over the accuracy of Chinese figures. Back in September, the state’s statistics bureau announced it would officially change the way it calculated gross domestic product amid skepticism over the credibility of the numbers as the government sought to sooth reaction to China’s economic slowdown. Watling now claims lenders are using tricks like labelling loan collateral as revenue in their balance sheets, rather than as a creditor.

And it may be helping inflate banks’ balance sheets, which in aggregate have increased tenfold in 10 years to over three times gross domestic product at $30 trillion, he said. However, whether this will help lead to a devastating credit bust isn’t clear, Watling explained, saying that while the cracks are starting to show, the economy is managed so differently that normal market rules don’t necessarily apply. A current slowdown in Chinese growth comes at a time when the country’s leadership is stepping up regulation, curbing an overheated credit market and switching an export-focused economy into a consumer-driven one. After double-digit growth for the last decade, investors and officials in China are coming to terms with growth that has fallen below 7%, hitting a 25- year low.

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“China produces more than double the steel of Japan, India, the U.S., and Russia—the four next-largest producers—combined..”

China Commodities Industry Resists Cuts Despite Production Glut (BBG)

China has had an overcapacity problem in its aluminum, chemical, cement, and steel industries for years. Now it’s reaching crisis levels. “The situation has gone so dramatically bad that action has to happen very soon,” said Jörg Wuttke, president of the European Union Chamber of Commerce in China, at a press conference in Beijing on Feb. 22, where a chamber report on excess capacity was released. That report’s conclusion: “The Chinese government’s current role in the economy is part of the problem,” while overcapacity has become “an impediment to the party’s reform agenda.” Many of the unneeded mills, smelters, and plants were built or expanded after China’s policymakers unleashed cheap credit during the global financial crisis in 2009. The situation in steel is especially dire.

China produces more than double the steel of Japan, India, the U.S., and Russia—the four next-largest producers—combined, according to the EU Chamber of Commerce. That’s causing trade frictions as China cuts prices. On Feb. 12 the EU announced it would charge antidumping duties of as much as 26.2% on imports of Chinese non-stainless steel. Steel mills are running at about 70% capacity, well below the 80% needed to make the operations profitable. Roughly half of China’s 500 or so steel producers lost money last year as prices fell about 30%, according to Fitch Ratings. Even so, capacity reached 1.17 billion tons, up from 1.15 billion tons the year before. With about one-quarter of China’s steel production coming from Beijing’s neighboring province of Hebei, excess production is a major contributor to the capital’s smoggy skies.

And with average steel prices likely to fall an additional 10% in 2016, fears of spiraling bad debts are growing. A survey released in January by the China Banking Association and consulting firm PwC China found that more than four-fifths of Chinese banks see a heightened risk that loans to industries with overcapacity may sour. [..] China will “actively and steadily push forward industry and resolve excess capacity and inventory,” the People’s Bank of China said on Feb. 16 after a meeting with the National Development and Reform Commission, the banking regulatory commission, and other agencies.

The government may find it hard to achieve that goal. The steel industry will lose as many as 400,000 jobs as excess production is shuttered, Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, predicted in January. Hebei and the industrial northeastern provinces of Heilongjiang, Jilin, and Liaoning, home to much of China’s steel production, don’t have lots of job-creating companies to absorb unemployed steelworkers. “They are concerned about the possibility of social unrest with workers’ layoffs,” says Peter Markey at consultants Ernst & Young. “As you can see around the world, steelworkers are pretty feisty people when it comes to protests.”

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The big kahuna that should dominate the G20.

Yuan Uncertainty Scares Funds Away From China Bond Market (BBG)

Yield versus yuan. That’s the crux of the investment decision now facing the global funds given more access to China’s bond market. While it offers the highest yields among the world’s major economies, PIMCO and Schroder Investment say exchange-rate risk is damping global demand for Chinese assets. Barclays said this week there’s a growing chance China will announce a sharp, one-time devaluation to change sentiment toward the currency and suggested such a move would need to be in the region of 25% to be effective. “Uncertainty around currency policy remains one of the larger hurdles for foreign investors,” said Rajeev De Mello at Schroder Investment in Singapore. “This should be resolved as the year progresses and would then be a signal to increase investments in Chinese government bonds.”

The People’s Bank of China said Wednesday that most types of overseas financial institutions will no longer require approvals or quotas to invest in the 35 trillion yuan ($5.4 trillion) interbank bond market, which had foreign ownership of less than 2% at the end of January. The nation’s 10-year sovereign yield of 2.87% compares with 1.74% in the U.S., which offers the highest rate among Group of 10 countries, and sub-zero in Japan and Switzerland. The yuan has weakened 5% versus the dollar since a surprise devaluation in August, even as the central bank burnt through more than $400 billion of the nation’s foreign-exchange reserves over the last six months trying to support the exchange rate amid record capital outflows.

China is opening its capital markets to foreign investors to try and draw money as the slowest economic growth in a quarter century drives funds abroad, pressuring the yuan. Freer access will help the nation’s bonds gain entry to global benchmarks, bolstering appetite for the securities as a restructuring of local-government debt spurs record issuance. Uncertainty on the currency is preventing investors from buying onshore assets now, according to Luke Spajic, an emerging markets money manager at Pimco, whose developing-nation currency fund has outperformed 82% of peers during the past five years. “If you buy these bonds, collect coupons, make some profits, how can you take the money out, are there any issues.” Spajic said in an interview in Shanghai on Thursday. “What we want to clarify is how this process works now, given the capital control environment.”

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“.. in the case of a country like Italy, where the banks own around €400 billion of government debt and are already severely undercapitalised, the effects on the banking system would be catastrophic.”

Germany Lays the Foundations for a New Eurozone Debt/Banking Crisis (Fazi)

In recent weeks, Germany has put forward two proposals for the future viability of the EMU that, if approved, would radically alter the nature of the currency union. For the worse. The first proposal, already at the centre of high-level intergovernmental discussions, comes from the German Council of Economic Experts, the country s most influential economic advisory group (sometimes referred to as the ‘five wise men’). It has the backing of the Bundesbank, of the German finance minister Wolfgang Sch‰uble and, it would appear, even of Mario Draghi.

Ostensibly aimed at severing the link between banks and government (just like the banking union) and ensuring long-term debt sustainability , it calls for: (i) removing the exemption from risk-weighting for sovereign exposures, which( essentially means that government bonds would longer be considered a risk-free asset for banks (as they are now under Basel rules), but would be ‘weighted’ according to the ‘sovereign default risk’ of the country in question (as determined by the fraud-prone rating agencies depicted in The Big Short); (ii) putting a cap on the overall risk-weighted sovereign exposure of banks; and (iii) introducing an automatic sovereign insolvency mechanism that would essentially extend to sovereigns the bail-in rule introduced for banks by the banking union, meaning that if a country requires financial assistance from the European Stability Mechanism (ESM), for whichever reason, it will have to lengthen sovereign bond maturities (reducing the market value of those bonds and causing severe losses for all bondholders) and, if necessary, impose a nominal ‘haircut’ on private creditors.

The second proposal, initially put forward by Schaeuble and fellow high-ranking member of the CDU party Karl Lamers and revived in recent weeks by the governors of the German and French central banks, Jens Weidmann (Bundesbank) and François Villeroy de Galhau (Banque de France), calls for the creation of a eurozone finance ministry , in connection with an independent fiscal council . At first, both proposals might appear reasonable – even progressive! Isn’t an EU- or EMU-level sovereign debt restructuring mechanism and fiscal authority precisely what many progressives have been advocating for years? As always, the devil is in the detail.

As for the proposed ‘sovereign bail-in’ scheme, it s not hard to see why it would result in the exact opposite of its stated aims. The first effect of it coming into force would be to open up huge holes in the balance sheets of the banks of the riskier countries (at the time of writing, all periphery countries except Ireland have an S&P rating of BBB+ or less), since banks tend to hold a large percentage of their country’s public debt; in the case of a country like Italy, where the banks own around €400 billion of government debt and are already severely undercapitalised, the effects on the banking system would be catastrophic.

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“..in light of the downgraded U.S. economic outlook,..”

Societe Generale Slashes Forecast For European Stocks (BBG)

The biggest bull on European stocks just buckled. Societe Generale, among the few firms that hadn’t cut 2016 estimates in response to global-growth concerns, now has the most bearish forecast. The bank sees the Euro Stoxx 50 Index ending 2016 at 3,000, up just 4.3% from Thursday’s close. It’s a far cry from only two weeks ago. Europe’s equities were at a 2 1/2-year low, yet the bank’s call for an year-end level of 4,000 translated to an almost 50% advance. Societe Generale also cut its estimate for the Stoxx Europe 600 Index to 340, indicating a 4.1% rise from the last close. “We trim our equity market forecasts in light of the downgraded U.S. economic outlook,” strategists led by Roland Kaloyan wrote in a report.

“We nevertheless maintain a positive stance on equities, as the recent correction already prices in this scenario to a certain extent. Equity indices should recover in the second quarter from oversold levels, followed by low single-digit quarterly declines in the second half of the year.” Societe Generale favors French and Italian stocks, citing “improving economic momentum,” while saying weakness in China will likely pressure the DAX Index. Along with the Swiss Market Index, the German benchmark is among the bank’s least-preferred markets in Europe. European equity funds had a third straight week of outflows, according to a Bank of America note on Friday citing EPFR Global data. Societe Generale analysts also expect the U.K. equity market to benefit from “rising Brexit fever.” It now expects the FTSE 100 Index to end the year at 6,400, up 6.4% from yesterday’s closing level.

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The power of the dollar.

Japan Builds $124 Billion Cash Hoard Even as It Cuts Treasuries (BBG)

Japan has stockpiled a record amount of cash at central banks as part of its currency reserves, after selling Treasuries, as policy makers around the world adjust to rising U.S. interest rates and falling bond-market liquidity. Foreign-exchange deposits in the vaults of overseas institutions ballooned to $124.1 billion as of Jan. 31, from $14 billion at the end of 2014, according to data from Japan’s Ministry of Finance. That’s the most based on figures going back to 2000, and accounts for about 10% of the nation’s total reserves. While the figure isn’t broken down, it coincides with a surge in greenbacks held by global central banks at the Fed. Any shift away from Treasuries would protect Japan’s reserves from potential losses as the Fed extends monetary policy tightening and concerns rise over bond-market liquidity.

Dollar holdings kept in cash stand to benefit from higher U.S. interest rates and a stronger currency, even as monetary authorities in Japan and across Europe start charging banks for some deposits. “Everybody’s devaluing their currencies, everywhere across the planet, except the U.S. dollar,” said John Gorman at Nomura, the nation’s biggest brokerage. “People are more comfortable putting their reserves in a currency that’s appreciating rather than a currency that’s depreciating. An official in the office of foreign exchange reserve management in the Ministry of Finance declined to comment on the matter, saying it can affect markets. The increase in Japan’s cash at foreign institutions is a change in the composition of the country’s foreign-exchange reserves. The overall stockpile, the world’s largest after China’s, has fallen almost 3% to $1.19 trillion since it reached a record at the start of 2012.

Japan, America’s largest overseas creditor after China, is cutting its Treasuries position. The stake among both government and private investors dropped 8.8% in 2015, the first sales since 2007, based on the most recent Treasury Department data. The reduction dovetails with a decline in foreign securities in Japan’s foreign exchange reserves. Since November 2014, bond holdings fell $126.4 billion, while deposits rose $116.9 billion. The strategy of selling Treasuries and holding dollars would allow investors to get out of older U.S. government securities that can be difficult to trade and may get even tougher to transact if the Fed raises rates further. Declining liquidity in the Treasury market is driving demand for the newest, easiest-to-sell securities. When policy makers increased benchmark borrowing costs in December, they indicated they will act four more times in 2016. Even so, the Bloomberg U.S. Treasury Bond Index has advanced 3.4% so far in 2016 in a flight from riskier assets.

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Something tells me we can always get stupider.

“Peak Stupidity” – Where We Go From Here (Beversdorf)

A reminder of what the market actually represents is a good place to start.  The stock market is simply an asset with some intrinsic value based on an expectation of future free cash flows to equity holders.  Those cash flows are generated from revenues less costs of the underlying companies that make up the market.  Let’s use the Wilshire 5000 Full Price Cap Index as the proxy market for this discussion as it is the broadest measure of total market cap for US corporations.  It’s level actually represents market capital in billions.

Screen Shot 2016-02-25 at 8.29.51 PM

So the market has put a valuation on those expected future cash flows to equity holders (as of today) at around $19.7T (a 55% increase from Jan of 2012) down from around $22.5T (a 77% increase from Jan of 2012) at the market peak last summer.  So let’s take a look at the growth in cash flows of US corporations over that same period.  We should expect to find a growth pattern in free cash flows similar to the above growth pattern in the overall market valuation (the Wilshire is a statistically large enough sample to be representative of total US corporations).  Let’s have a look…
Screen Shot 2016-02-26 at 11.53.09 AM

The above chart depicts corporate free cash flows (blue line) indexed to 100 in Jan 2012.  It is obtained by taking the BEA’s Net Cash Flow with IVA and CCAdj adding back depreciation and net dividends and subtracting net capex.  (The actual definitions of these can be found here.) What we find is that while the current valuation of expected future free cash flows to equity holders (i.e. market cap of Wilshire) has increased by some 55% since the end of 2011, the actual free cash flows of US corporations have only increased by 4%.

This becomes a very difficult fact to reconcile inside the classroom.  Why would market participants be baking in so much growth when the actual data simply doesn’t support it?

Well there are plenty of potential explanations.  For instance, rarely are investors rational.  While buy low and sell high is rational investing behaviour, often market euphoria comes at the market top right before a major sell off, leading to a buy high and sell low strategy.  Another reason is that the Fed has been providing a free put to all investors for the past 7 years essentially significantly reducing naturally occurring risk factors.  But whatever the reason this dislocation between expected and realized growth begs the question, how long can it last?  So let’s explore this issue.

Below is a longer term growth chart of the Wilshire vs US corporate free cash flows to equity holders both indexed to 1995 (i.e. 1995 = 100).

Screen Shot 2016-02-25 at 7.31.21 PM

And so over the past 20 years we’ve seen this same type of dislocation three times.  That is, we see expectations of growth far exceeding actual growth of free cash flows to equity holders.  In the previous two dislocations we reached a peak dislocation (peak stupidity) followed by a reversion to reality (epiphany) where expected growth moves back in line with actual growth.

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“Whereas US banking sector assets were worth only 80% of its GDP, Britain’s were worth 500%..”

Bankers Have Not Learnt The Lessons Of The Great Crash (Tel.)

Barack Obama used to talk about the audacity of hope. Mervyn King was Governor of the Bank of England during ‘the biggest financial crisis this country has faced since 1914’. Its lesson, he says, is that we now need ‘the audacity of pessimism’. Only when we fully understand how badly things went wrong – and why they are still wrong today – can we start to put them right. His new book suggests how. I meet Lord King in his modest office at the London School of Economics. Typically, he is just off to the West Midlands for a dinner for famous sons of Wolverhampton. He is a proud provincial boy, not a City slicker. I ask him to recall the moment he first understood the depth of the problem facing the world. Back in September 2007, when he ‘it was already clear that Northern Rock would need support’, King recalls, he was in Basel for a conference.

There was alarm in the United States because ‘sub-prime’ mortgages were collapsing. The central bank supervisors at the conference insisted that sub-prime failure could not bring down the system. But King talked to his friend Stan Fischer, then Governor of the Bank of Israel. They shared their fears: ‘If the only thing that goes wrong is sub-prime, ok. But what else could go wrong? What if the unimaginable happens?’ It did. Over the next two months, says King, he became obsessed with the need for more equity capital in the banking system. The banks resisted at first and ‘The politicians [Gordon Brown’s government] were susceptible to pressure from the banks’. But ‘we limped along till the bankruptcy of Lehman Brothers’ in September 2008. Then ‘the banking of the entire industrial world was at risk of collapse’.

Britain – without a proper ‘bank resolution regime’ which, says King, ‘could have solved the problem of Northern Rock in a weekend, without fuss’ – was enormously vulnerable. Whereas US banking sector assets were worth only 80% of its GDP, Britain’s were worth 500%, a terrifying ratio. New Labour, having turned its back on nationalisation, had to revert to it: ‘It must have been galling for them.’ In Mervyn King’s mind, the credit crunch was brought about by something profoundly wrong. Bankers had been encouraged to take enormous risks with the customers’ money, enrich themselves and then dump the losses on the taxpayer. Huge pay increases for senior executives had produced a ‘very unattractive culture when clever people started to say to themselves: “I’m smart, I can make money out of people who don’t understand this”.’

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One by one they fall: “..the firm’s investment-banking revenues are forecast to be down 25% in the first quarter. Markets revenues are down 20% year-on-year..”

Bank Of America Preparing Big Layoffs In Investment Banking And Trading (BI)

Bank of America is preparing for significant job cuts across its global banking and markets business, according to people with knowledge of the matter. Senior executives in the division were tasked with identifying potential job cuts a few weeks ago, and this week were asked to increase their size, according to people familiar with the situation. The cuts are likely to be over 5% of staff, the people said. Some business lines will face deeper cuts than others, and the details haven’t been finalized. Employees could be told of the cuts as soon as March 8, one of the people said, which is weeks sooner than managers were initially expecting. The people didn’t know the reasons the cuts had been pushed forward.

BofA is joining firms across Wall Street in paring back staff amid one of the worst quarters for investment-banking and trading revenues. Business Insider reported on Monday that Deutsche Bank was cutting 75 staff in fixed income, while Morgan Stanley and Barclays have also recently cut staff. Daniel Pinto, CEO of JPMorgan’s corporate and investment bank, said on Tuesday that the firm’s investment-banking revenues are forecast to be down 25% in the first quarter. Markets revenues are down 20% year-on-year, Pinto said, speaking at JPMorgan’s Investor Day conference.

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Their shareholders will pay the fine.

UBS Accused of Money Laundering in Belgian Tax Case (BBG)

Belgian authorities accused UBS of money laundering and fiscal fraud over allegations it helped clients evade taxes, citing help from France where the Swiss bank is fighting similar accusations. The investigating judge also accused UBS of illegally approaching Belgian clients directly rather than through its Belgian unit, according to an e-mailed statement Friday from the Brussels prosecutor’s office. UBS said it will continue to defend itself against any unfounded allegations. The probe is continuing and the investigating judge will present his findings to prosecutors at a later date. The accusations are based on strong evidence of guilt uncovered by the investigative magistrate, said Jennifer Vanderputten, a spokeswoman at the prosecutor’s office. UBS will be given the right to access evidence supporting the allegations, she said.

The Belgian prosecutor cited “excellent collaboration” with authorities in France, where UBS is awaiting a decision on whether it will face trial for allegedly helping clients evade taxes. UBS is also accused in France of laundering proceeds from tax evasion. Investigating judges in France wrapped up their formal investigation earlier this month, turning the case over to the national financial prosecutor who will make a recommendation on whether it goes to trial. The bank, which has called the French allegations “unfounded,” was forced to post a bail of 1.1 billion euros ($1.2 billion). Friday’s decision came after the head of UBS’s Belgium unit was similarly accused in 2014 of money laundering and fiscal fraud as part of the probe. Marcel Bruehwiler was questioned for several hours before being released in June 2014.

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Yeah, like Middle Ages.

With No Unified Refugee Strategy, Europeans Return to Old Alliances (NY Times)

Roughly five weeks ago, Donald Tusk, one of the EU’s most powerful political figures, issued a blunt warning to its 28 countries: Come up with a coherent plan to tackle the refugee crisis within two months, or risk chaos. Surprisingly, given the plodding pace of European Union policy making, three weeks before Mr. Tusk’s deadline, many of Europe’s national leaders are now moving swiftly, announcing tough new border policies and guidelines on asylum — even with three weeks remaining on the deadline set by Mr. Tusk, president of the European Council. The problem is that the leaders are not always adhering to European rules, possibly not sticking to international law and not acting with the unity envisioned by Mr. Tusk. In some cases, they instead seem to be reverting to historical alliances rather than maintaining the EU’s mantra of solidarity.

This week, Austria joined with many of the Balkan countries to approve a tough border policy in what some are wryly calling the return of the Hapsburg Empire. Four former Soviet satellites, led by Poland and Hungary, have become another opposition power bloc. All the while, a call for unity by Chancellor Angela Merkel of Germany is increasingly being ignored, even as she struggles to tamp down on a political revolt at home while searching for a formula to reduce the number of refugees still trying to reach Germany. “We are now entering a situation in which everybody is trying to stop the refugees before they reach their borders,” said Ivan Krastev, chairman of the Center for Liberal Strategies, a research institute in Sofia, Bulgaria. Mr. Krastev added, “The basic question is, which country turns into a parking lot for refugees?”

For many months, European Union officials, joined by Ms. Merkel, have tried to share the burden by distributing quotas of the refugees already in Greece and Italy to different member states. Many states have balked, and the program is largely paralyzed. European Union leaders also agreed to pay 3 billion euros, roughly $3.3 billion, to aid organizations in Turkey to help stanch the flow of migrants departing the Turkish coast for the Greek islands. But record numbers of migrants keep coming.

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What will this lead to?

More Migrants Trapped In Greece As Balkan Countries Enforce Limits (Kath.)

The European Commission said Friday that it is putting together a humanitarian aid plan for Greece as Balkan countries placed further restrictions on the numbers of refugees and migrants that could cross their territories. As of last night, authorities in the Former Yugoslav Republic of Macedonia (FYROM) had not allowed any refugees to pass from Greece. Earlier, Slovenia, Croatia and Serbia said they would each restrict the number of migrants allowed to enter their territories to 580 per day. The clampdown comes in the wake of Austria last week introducing a daily cap of 80 asylum seekers and saying it would only let 3,200 migrants pass through each day. As border restrictions north of Greece have been stepped up, the number of migrants and refugees stuck in the country has increased.

The government is attempting to stem the flow of migrants to mainland Greece by asking ferry companies to delay crossings from the Aegean islands, but between 2,000 and 3,000 people are arriving in Greece each day. It is estimated that there are currently 20,000 to 25,000 in the country. Some of them are out in the open, having chosen not to remain in transit centers or other temporary shelters provided by Greek authorities. Several thousand have reached the village of Idomeni at the border with FYROM, where conditions were said to be deteriorating last night as a result of bad weather.

The government launched a hotline for people or companies who want to donate items that are in need at the moment, such as non-perishable food, sneakers, towels and plastic cutlery. European Commission spokeswoman Natasha Bertaud admitted Friday that due to the changing situation in Greece, Brussels is putting together an “emergency plan” to avert a humanitarian crisis in Greece. Speaking at an economic forum in Delphi yesterday, Migration Commissioner Dimitris Avramopoulos warned that the upcoming summit between EU members and Turkey on March 7 would be crucial to addressing the growing crisis. “If there is no convergence and agreement on March 7, we will be led to disaster,” the former Greek minister said.

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Is this the bombshell?!: UN’s Peter Sutherland says: “Any country that unilaterally rejects an EU law duly enacted on migration or otherwise cannot remain a member of the Union”

EU Med Countries Oppose Unilateral Actions On Refugee Crisis (AP)

The rift over how to handle Europe’s immigration crisis ripped wide open Friday. As nations along the Balkans migrant route took more unilateral actions to shut down their borders, diplomats from EU nations bordering the Mediterranean rallied around Greece, the epicenter of the crisis. Cypriot Foreign Minister Ioannis Kasoulides — speaking on behalf of colleagues from France, Spain, Italy, Portugal, Malta and Greece — said decisions on how to deal with the migrant influx that have already been made by the 28-nation bloc cannot be implemented selectively by some countries. “This issue is testing our unity and ability to handle it,” Kasoulides told a news conference after an EU Mediterranean Group meeting. “The EU Med Group are the front-line states and we all share the view that unilateral actions cannot be a solution to this crisis.”

Kasoulides urged EU countries to enact all EU decisions on immigration so there “will be no unfairness to anybody.” Greek Foreign Minister Nikos Kotzias blasted some European nations for imposing border restrictions on arriving migrants, saying that police chiefs are not allowed to decide to overturn EU decisions. He said Mediterranean colleagues were “unanimous” in their support for Greece’s position on the refugee crisis and that there was “clear criticism to all those who are seeking individual solutions at the expense of other member states.” The Greek government is blaming Austria — a fellow member of Europe’s Schengen Area — for the flare-up in the crisis. Austria imposed strict border restrictions last week, creating a domino effect as those controls were also implemented by Balkan countries further south along the Balkans migration route.

Greece recalled its ambassador to Austria on Thursday and rejected a request to visit Athens by Austrian Interior Minister Johanna Mikl-Leitner. The United Nations secretary-general expressed “great concern” Friday at the growing number of border restrictions along the migrant trail through Europe. Ban Ki-moon’s spokesman said the U.N. chief is calling on all countries to keep their borders open and says he is “fully aware of the pressures felt by many European countries.” The statement noted in particular the new restrictions in Austria, Slovenia, Croatia, Serbia and Macedonia. Thousands of migrants are pouring into Greece every day and officials fear the country could turn into “a giant refugee camp” if they are unable to move north due to borders closures.

In Munich, German Chancellor Angela Merkel echoed the Mediterranean EU ministers in calling for a unified European approach to tackle the migrant crisis. Merkel, who has said that those fleeing violence deserve protection, said she was encouraged by the recent deployment of NATO ships to the Aegean Sea alongside vessels from the European Union border agency Frontex. “NATO has started to work in collaboration with the Turkish coast guard and Frontex. It is too early to see the effects of this measure. All 28 (EU) member states want to stop illegal immigration,” she said. But NATO Secretary-General Jens Stoltenberg said the ships would only be providing a support role. “NATO ships will not do the job of national coastguards in the Aegean. Their mission is not to stop or turn back those trying to cross into Europe,” he wrote.

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Sep 152015
 
 September 15, 2015  Posted by at 9:43 am Finance Tagged with: , , , , , , , , , , ,  6 Responses »


John Vachon Rain. Pittsburgh, Pennsylvania Jun 1941

China Stocks Sink Again: Shanghai Down 3.52% (Bloomberg)
China Sells Record FX In August, Shows Pressure After Devaluation (Reuters)
China Spending Surge Means Debts Will Only Get Larger (WSJ)
China Grabs Unused Funds To Spend On New Projects As Growth Slows (Reuters)
Brazil Downgrade Leaves Firms With $270 Billion Debt Hangover (Bloomberg)
Pimco, Fidelity Stung by Collapse of Petrobras’s 100-Year Bond (Bloomberg)
Deutsche Bank To Cut 23,000 Jobs, A Quarter Of Its Workforce (Reuters)
UniCredit, Italy’s Biggest Bank, Plans To Cut Around 10,000 Jobs (Reuters)
‘Syria Is Emptying’ (WaPo)
Refugees Confounded By Merkel’s Decision To Close German Borders (Guardian)
Thousands Of Refugees To Lose Right Of Asylum Under EU Plans (Guardian)
EU Plan To Share 120,000 Refugees Has Fallen Apart (FT)
Border-Free Europe Unravels As Migrant Crisis Hits Record Day (Reuters)
Europe Fortifies Borders as Germany Predicts 1 Million Refugees (Bloomberg)
EU Governments Set To Back New Internment Measures (Guardian)
Hungary Transports Refugees To Austria Before Border Clampdown (Guardian)
Cameron Invents The Humanitarian Offside Rule (Frankie Boyle)
US Officials Cover Up Housing Bubble’s Scummy Residue (David Dayen)
Defining Neoliberalism (Jeremy Smith)
One In Six Americans Go Hungry. We Can’t Succeed On An Empty Stomach (Guardian)

It just keeps going. Nobody in China trusts stocks anymore, because Beijing has failed to restore that trust.

China Stocks Sink Again: Shanghai Down 3.52% (Bloomberg)

China’s stocks slumped for a second day in thin turnover amid concern government measures to support the world’s second-largest equity market and economy are failing. The Shanghai Composite Index dropped 3.5% to 3,005.17 at the close, led by commodity producers and technology companies. About 14 stocks declined for each one that rose on the gauge, while volumes were 36% below the 30-day average. The index completed its biggest two-day loss in three weeks with a decline of 6.1%.

Mainland Chinese equity funds lost 44% of their value at the end of last month compared with July, data showed Monday, as unprecedented state measures to stop a $5 trillion selloff failed to avert redemption. Data this month showed five interest-rate cuts since November and plans to boost state spending have yet to revive an economy weighed down by overcapacity and producer-price deflation. Yuan positions at the central bank and financial institutions fell by the most on record in August, a sign that policy makers stepped up intervention to support the currency.

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Intervening in all asset markets at the same time…

China Sells Record FX In August, Shows Pressure After Devaluation (Reuters)

China’s central bank and commercial banks sold a net 723.8 billion yuan ($113.69 billion) of foreign exchange in August, by far the largest on record, highlighting how capital outflows intensified in the wake of the yuan’s devaluation last month. The previous largest outflow, in July, totaled 249.1 billion yuan ($39.13 billion). The figures are based on Reuters calculations using central bank data, the latest of which was released on Monday. The figures show the price China is paying to keep its currency from falling further in the face of concerns about the health of the economy and as financial markets anticipate a rise in U.S. interest rates. Shen Jianguang, an economist at Mizuho Securities in Hong Kong, said the figures suggest selling pressure on the yuan remains strong.

“It also shows that the central bank will continue to intervene in the FX market in the coming months as depreciation expectation is still there,” Shen said. Still, traders said the net outflow was within market forecasts. Some had expected a net outflow of $130 billion, said a senior trader at a Chinese commercial bank in Shanghai. This person declined to be identified. “Purchases are likely to fall from September on but uncertainties remain, including the yuan’s own volatility and the dollar’s performance in global markets in line with the Fed’s policy moves,” the trader said. China’s central bank, the People’s Bank of China, surprised global markets on Aug 11 by devaluing the yuan by nearly 3%.

Since the devaluation, China has scrambled to keep the yuan steady, running down its foreign exchange reserves by a record amount in August to stabilize the onshore rate. The central bank has instituted a raft of new policies aimed at discouraging speculation on further yuan depreciation and traders suspect it also intervened in offshore yuan markets. Authorities have also frantically tried to prevent a precipitous slide in equities markets from turning into a market crash with a flurry of policies to prop up prices and restore confidence.

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It starts to smell of desperation. But then, Xi and Li have nothing to lose but their heads.

China Spending Surge Means Debts Will Only Get Larger (WSJ)

China is falling back on infrastructure spending to stimulate its sputtering economy. The move may support growth, but it is also a setback to getting the country’s debt load under control. Government agencies have publicly confirmed a new willingness to spend on infrastructure in recent weeks. Already in August, infrastructure investment rose 21% from a year earlier, up from 15.8% growth in July, according to calculations by SocGen. That far outpaced total fixed-asset-investment growth, which clocked in at just 9.2%. What is less clear is where the money is coming from. In recent years, much of the infrastructure development has been funded chiefly by off-balance sheet local government financing platforms, which helped get around limits on public borrowing.

This avenue seemed to be cut off by a new budget law in late 2014, which ostensibly banned new borrowing by such financing vehicles. But it quickly became clear that this amounted to a kind of fiscal cliff for the economy. Beijing quietly backtracked, and is now allowing the platforms to keep borrowing for approved projects. Still, China will be eager to keep a lid on borrowing by provinces and towns. An official audit of total local government debt, released earlier this month, found it reached 24 trillion yuan ($3.8 trillion) at the end of 2014, up 34% over 18 months. Beijing doesn’t want to see that pace of growth continue. It is already working hard to clean up the last infrastructure spending boom with its 3.2 trillion yuan program to allow local government-linked high-cost loans to be swapped into lower interest bonds with longer durations.

But this merely reduces financing costs on previous projects. The amount that it frees up for new spending is minimal. So if the central government wants more infrastructure spending, it has to find another way. The plan appears to be to rely on government-controlled policy banks, including China Development Bank and the Agricultural Development Bank. These lenders can access loans directly from the central bank. For fresh funding, they have also issued over 1.8 trillion yuan ($280 billion) of bonds this year, up more than 70% from all of last year, according to Nomura.

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Something tells me those funds were already in use, for instance as collateral for the shadow banks.

China Grabs Unused Funds To Spend On New Projects As Growth Slows (Reuters)

Chinese authorities have seized up to 1 trillion yuan ($157 billion) from local governments who failed to use their budget allocations, sources said, as Beijing looks for ways to spend its way out of an economic slowdown. The exclusive Reuters report came after China’s stocks fell following data suggesting economic growth was running below the 2015 target level of about 7%, heightening concerns about the health of the world’s second largest economy. “China’s economy faces relatively big downward pressure, so investor sentiment remains weak,” said Gu Yongtao, strategist at Cinda Securities. Two sources close to the government said budget funds repossessed from local governments would be used to pay for other investments.

The huge underspend, linked to officials’ reluctance to splash out on big-ticket projects while authorities crack down on corruption, supports the argument of some economists that Chinese state investment has grown too slowly this year. “In the past, local governments had asked for the money. Money was given, but no one acted,” said one of the two sources. On Monday, China’s powerful economic planner, the National Development and Reform Commission (NDRC), said it had approved feasibility studies for two road projects worth a total of 6.2 billion yuan ($973.65 million). Last week, the NDRC gave the green light for railway, highway and bridge projects worth a combined $23 billion, in a sign authorities are focusing on infrastructure spending rather than deeper reforms to shore up growth in the short term.

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Brazil is in for a very deep fall.

Brazil Downgrade Leaves Firms With $270 Billion Debt Hangover (Bloomberg)

Brazilian companies that piled on $270 billion in international debt during the boom years are seeing their funding costs rise after the nation’s credit rating was cut to junk. The spread for five-year credit-default swaps to protect against a government default, one benchmark for setting what Brazilian companies must pay for external funding, has jumped 7.5% to 400 basis points since the downgrade, the highest since 2009. Adding to the pain, the dollar surged to a 13-year high, making principal and interest on international borrowing more costly for local firms. “Even very small, unknown companies issued international bonds when Brazil was considered one of the most promising economies after the 2008 financial crisis,” Salvatore Milanese at Pantalica Partners said in Sao Paulo. “Now many of them are facing the consequences.”

Standard & Poor’s last week lowered Brazil’s sovereign credit rating one level to BB+ and said it might cut it further in response to the administration’s inability to shore up fiscal accounts as the economy falters. President Dilma Rousseff has failed to win support for her initiatives amid an investigation into corruption at the state-controlled oil company, some of which allegedly occurred while she was its chairwoman, sending her popularity to a record low and generating calls for her impeachment. Federal, state and municipal governments oversaw only modest increases in external debt during the seven years Brazil had an investment-grade credit rating, increasing it 4.5% from December 2007 to March 2015, to $69 billion, according to central bank data. For banks and non-financial companies, the story is different: They more than doubled their dollar-denominated debt to $154 billion and $114.7 billion, respectively.

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Because 100-year bonds never looked stupid?

Pimco, Fidelity Stung by Collapse of Petrobras’s 100-Year Bond (Bloomberg)

When Petroleo Brasileiro SA sold 100-year bonds in June, the move was largely seen as a sign the corruption-tainted oil producer had put the worst of its problems behind it. For investors like Pimco, Fidelity and Capital Group – the three biggest holders of the securities – that turned out to be a costly miscalculation. Since the $2.5 billion offering, the bonds have tumbled 15%. That’s four times the average loss for emerging-market company debt. The plunge deepened last week, when the securities sank to a record-low 69.5 cents on the dollar after Petrobras, as the Brazilian company is known, had its credit rating cut to junk by Standard & Poor’s. The world’s most-indebted major oil producer was stripped of its investment grade by Moody’s Investors Service seven months earlier as a widening probe into alleged bribes paid to former executives at the state-controlled oil company caused it to delay reporting earnings.

“Everything was priced for perfection, and sadly, except for soccer players, Brazil seldom achieves perfection,” Russ Dallen, the head trader at Caracas Capital Markets, said from Miami. Pimco didn’t respond to e-mailed requests for comment. Fidelity and Capital Group declined to comment. Petrobras didn’t respond to an e-mail seeking comment on the performance of its bonds. The company has already borrowed enough to finance its projects for the medium term, it said in a statement Sept. 10. Yields on Petrobras’s 6.85% bonds, which mature in 2115, have soared 1.5 percentage points to a record 9.86% since they were issued on June 2, according to data compiled by Bloomberg.

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Of things to come.

Deutsche Bank To Cut 23,000 Jobs, A Quarter Of Its Workforce (Reuters)

Deutsche Bank aims to cut roughly 23,000 jobs, or about one quarter of total staff, through layoffs mainly in technology activities and by spinning off its PostBank division, financial sources said on Monday. That would bring the group’s workforce down to around 75,000 full-time positions under a reorganization being finalised by new Chief Executive John Cryan, who took control of Germany’s biggest bank in July with the promise to cut costs. Cryan presented preliminary details of the plan to members of the supervisory board at the weekend. Deutsche’s share price has suffered badly under stalled reforms and rising costs on top of fines and settlements that have pushed the bank down to the bottom of the valuation rankings of global investment banks. It has a price-book ratio of around 0.5, according to ThomsonReuters data.

The bank unveiled a broad restructuring plan in April but co-chief executives Anshu Jain and Juergen Fitschen quit shortly afterwards, handing over its execution to Cryan. “This is the first time ever that you had the feeling that somebody is talking straight,” said one of the sources. “But the problem is he has to deliver soon.” Deutsche is mainly reviewing cuts to the parts of its technology and back office operations that process transactions and work orders for staff who deal with clients. A significant number of the roughly 20,000 positions in that area will be reviewed for possible cuts, a financial source said. Back-office jobs in the group’s large investment banking division will be concentrated in London, New York and Frankfurt, the source said.

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No coincidence.

UniCredit, Italy’s Biggest Bank, Plans To Cut Around 10,000 Jobs (Reuters)

Italy’s biggest bank by assets, is planning to cut around 10,000 jobs, or 7% of its workforce, as it seeks to slash costs and boost profits, a source at the bank told Reuters on Monday. The planned cuts will be concentrated in Italy, Germany and Austria, several sources said, adding that they include 2,700 layoffs in Italy that have already been announced. A UniCredit spokesman declined comment beyond noting that the bank’s CEO Federico Ghizzoni had on Sept. 3 said there were no concrete numbers on potential lay-offs, after a report said it was considering eliminating 10,000 positions in coming years.

Ghizzoni is reworking a five-year strategic plan, unveiled only last year, that will aim to boost revenue and cut costs. The revised plan is expected to be announced in November. “The plans are for 10,000 job cuts,” the bank’s insider said, speaking on condition of anonymity. “They will be mainly in Italy, Austria and Germany.” UniCredit, which has 146,600 employees across 17 countries, is under pressure to boost its profits as low interest rates are expected to keep hurting its earnings in coming years.

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Why Putin wants to talk to Obama.

‘Syria Is Emptying’ (WaPo)

A new exodus of Syrians is fueling the extraordinary flow of migrants and refugees to Europe as Syria’s four-year-old war becomes the driving force behind the greatest migration of people to the continent since World War II. Syrians account for half of the 381,000 refugees and migrants who have sought asylum in Europe so far this year, which is in turn almost a doubling of the number in 2014 — making Syrians the main component of the influx. The continued surge through Europe prompted Hungary, Austria and Slovakia to tighten border controls Monday, a day after Germany projected that in excess of a million people could arrive by year’s end and began to impose restrictions on those entering the country.

How many more Syrians could be on the way is impossible to know, but as the flow continues, their number is rising. In July, the latest month for which figures are available, 78% of those who washed up on inflatable dinghies on the beaches of Greece were Syrian, according to the U.N. High Commissioner for Refugees. Some were already among the 4 million refugees who have sought sanctuary in neighboring countries, but many also are coming directly from Syria, constituting what Melissa Fleming of the UNHCR called a “new exodus” from the ravaged country. They are bypassing the refugee camps and heading straight for Europe, as the fallout from what President Barack Obama once called “someone else’s civil war” spills far beyond Syria’s borders.

More are on the way. Syrians are piled up on the streets of the Turkish port city of Izmir waiting for a place on one of the flimsy boats that will ferry them across the sea to Greece, and they say they have friends and family following behind. “Everyone I know is leaving,” said Mohammed, 30, who climbed three mountains to make his way across the Turkish border from the city of Aleppo with his pregnant wife, under fire from Turkish border guards. “It is as though all of Syria is emptying.” Analysts say it was inevitable it would come to this, that Syrians would eventually tire of waiting for a war of such exceptional brutality to end. At least 250,000 have been killed in four ferocious years of fighting, by chemical weapons, ballistic missiles and barrel bombings by government warplanes that are the biggest single killer of civilians, according to human rights groups.

Men on both sides die in the endless battles between the government and rebels for towns, villages and military bases that produce no clear victory. The Islamic State kills people in the areas it controls with beheadings and other brutal punishments. The United States is leading a bombing campaign against the Islamic State but has shown scant interest in solving the wider Syrian war, which seems destined only to escalate further with the deepening involvement of Russian troops. “It should surprise no one. Hopelessness abounds,” said Fred Hof, a former State Department official who is now with the Atlantic Council. “Why would any Syrian with an option to leave and the physical ability to do so elect to stay?”

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“Everybody is coming,” said Iyad, a Syrian student. “They are coming, coming, coming.”

Refugees Confounded By Merkel’s Decision To Close German Borders (Guardian)

Angela Merkel, Germany’s chancellor, has cut a chequered figure this summer: scorned for taking Greece to the wall, and praised for welcoming large numbers of Syrians to Germany. But nowhere and at no time has she been more of an enigma than she was in Vienna’s central station on Monday where crowds of refugees struggled to reconcile how the same “Mama Merkel” had opened Germany’s borders one week, and closed them again barely eight days later – leaving those at the station stranded. “She said she will bring big boats from Turkey to rescue Syrians!” said Maria, a Syrian who fled the bombs of Damascus six weeks ago. “And now why has she closed the border?” asked Maria’s daughter.

For a week, refugees had been able to freely board trains to Germany from Vienna – but Sunday’s developments returned the status quo to how it was in late August. Station staff said on Monday that the rail border had reopened at 7am, less than a day after Germany had stopped all inbound rail services. But the ticket machines would not let people book journeys to German destinations. And while some had managed to get fares from the ticket office, it was unclear to many people whether the border had reopened or not. Pacing around the concourse with her two children, Galbari al-Hussein saw the constant changes in border policy as a cruel game played at the expense of vulnerable refugees.

“We’ve travelled so far, thousands of kilometres, and now they’re closing the borders,” said Hussein, who reached Vienna barely a week after escaping Islamic State territory, hidden in an unfamiliar niqab. “Is it open, is it closed? It’s very unfair.” Among Syrians, there lingered the suspicion that their chances had been spoilt by people hoping to piggyback on the generosity shown by Germany to the victims of the Syrian civil war. “Not everyone here is Syrian,” said Josef, from Damascus, who disclosed his exact address in an attempt to prove his nationality. “People say they are Syrians, but they are from somewhere else. And that’s why this is happening..” [..] As rumours swirled, even non-Syrian refugees couldn’t help but wonder whether they were the real targets of the German border shenanigans. Hany, an Iraqi engineering student, smiled wistfully. “Germany is very good to Syrians,” he said. “It wants all the Syrians to come, but maybe not the Iraqis.”

There was one thing on which everyone could agree. Whatever Germany does or doesn’t do with its border, refugees will still keep fleeing to Europe. “Everybody is coming,” said Iyad, a Syrian student. “They are coming, coming, coming. My brother will leave Syria in two days.” Iyad’s friend Amal nodded in agreement. “The only people who will stay are those who don’t have any money,” said Amal. “People are selling their cars and homes to come here.”

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How to use a crisis.

Thousands Of Refugees To Lose Right Of Asylum Under EU Plans (Guardian)

European governments are aiming to deny the right of asylum to innumerable refugees by funding and building camps for them in Africa and elsewhere outside the European Union. Under plans endorsed in Brussels on Monday evening, EU interior ministers agreed that once the proposed system of refugee camps outside the union was up and running, asylum claims from people in the camps would be inadmissible in Europe. The emergency meeting of interior ministers was called to grapple with Europe’s worst modern refugee crisis. It broke up in acrimony amid failure to agree on a new system of binding quotas for refugees being shared across the EU and other decisions being deferred until next month.

The lacklustre response to a refugee emergency that is turning into a full-blown European crisis focussed on “Fortress Europe” policies aimed at excluding refugees and shifting the burden of responsibility on to third countries, either of transit or of origin. The ministers called for the establishment of refugee camps in Italy and Greece and for the detention of “irregular migrants” denied asylum and facing deportation but for whom “voluntary return” was not currently “practicable”. The most bruising battle was over whether Europe should adopt a new system of mandatory quotas for sharing refugees. The scheme, proposed by the European commission last week, is strongly supported by Germany which sought to impose the idea on the rejectionists mainly in eastern Europe.

Hungary’s hardline anti-immigration government said it would have no part of the scheme, from which it would benefit, while Thomas de Maizière, the German interior minister, complained that the agenda for the meeting was inadequate. The ministers agreed “in principle” to share 160,000 refugees across at least 22 countries, taking them from Greece, Hungary, and Italy, but delayed a formal decision until next month, made plain the scheme should be voluntary rather than binding and demanded ‘flexibility’. De Maizière, by contrast, called for precise definitions of how refugees would be shared. Luxembourg, chairing the meeting, signalled that there was a sufficient majority to impose the quotas, but that the meeting had balked at forcing a vote.

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They’ll pull aid funds from whoever won’t comply.

EU Plan To Share 120,000 Refugees Has Fallen Apart (FT)

EU efforts to agree a binding plan to share out 120,000 refugees fell apart after a minority of countries led by Czech Republic and Hungary objected to a heavily watered down proposal. After six hours of argument, member states failed to reach unanimous agreement on the plan, although a majority — including France and Germany — supported the scheme. Countries in favour of the plan will now try to force through a deal with a qualified majority at another meeting in October, setting the stage for a bitter diplomatic fight in the intervening period. Although qualified majority votes are acceptable under EU law, they are rarely used to force through decisions on politically sensitive topics against vocal opposition.

Hungary was supposed to be one of the beneficiaries of the scheme but has opposed it, arguing that it is not a front-line country and that it has only suffered a huge influx of migrants because Greece has failed to manage its borders. Officials also say that it would risk turning the country into a holding pen for migrants who do not want to stay there. French interior minister Bernard Cazeneuve criticised those countries opposed to the measures. “Europe is not Europe a la carte. If Europe wants to surmount this humanitarian challenge, it is necessary that all countries live up to their responsibilities.” The Czech Republic also refused to sign up to the proposals, saying that it would oppose efforts to introduce an automatic relocation scheme. Romania and Slovakia were also against the scheme.

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7,437 migrants recorded entering Hungary from Serbia yesterday. Times 365 equals 2.7 million.

Border-Free Europe Unravels As Migrant Crisis Hits Record Day (Reuters)

Two decades of frontier-free travel across Europe unraveled on Monday as countries re-established border controls in the face of an unprecedented influx of migrants, which broke the record for the most arrivals by land in a single day. Germany’s surprise decision to restore border controls on Sunday had a swift domino effect, prompting neighbors to impose checks at their own frontiers as thousands of refugees pressed north and west across the continent while Hungary sealed the main informal border crossing point into the European Union. A majority of EU interior ministers, meeting in Brussels, agreed in principle to share out 120,000 asylum seekers on top of some 40,000 distributed on a voluntary basis so far, EU president Juncker said.

But details of the deal, to be formalized on Oct. 8, were vague with several ex-Communist central European states still rejecting mandatory quotas. Austria said it would dispatch its military to help police carry out checks at the border with Hungary after thousands of migrants crossed on foot overnight, filling up emergency accommodation nearby, including tents at the frontier. Thousands more raced across the Balkans to enter Hungary before new rules take effect on Tuesday, which Budapest’s right-wing government says will bring a halt to the illegal flow of migrants across its territory. By 1400 GMT on Monday, police said 7,437 migrants had been recorded entering Hungary from Serbia, beating the previous day’s record of 5,809.

Then helmeted Hungarian police, some on horseback, closed off the main informal crossing point, backed by soldiers as a helicopter circled overhead. A goods wagon covered with razor wire was moved into place to block a railway track used by migrants to enter the EU’s Schengen zone of border-free travel. Hungary later declared the low-level airspace over its border fence closed but allowed a trickle of refugees to enter the country at an official crossing point. As the shockwaves rippled across Europe, Slovakia said it would impose controls on its borders with Hungary and Austria. The Netherlands announced it would make spot checks at its borders. Other EU states from Sweden to Poland said they were monitoring the situation to decide whether controls were needed.

“If Germany carries out border controls, Austria must put strengthened border controls in place,” Vice Chancellor Reinhold Mitterlehner told a joint news conference with Chancellor Werner Faymann. “We are doing that now.” The army would be deployed in a supporting role.

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How the end begins.

Europe Fortifies Borders as Germany Predicts 1 Million Refugees (Bloomberg)

One day after Germany curbed the freedom of movement in the region by temporarily reinstating border controls, the country’s vice chancellor estimated that as many as 1 million refugees may arrive by the end of the year as other nations moved to fortify their frontiers. The prediction from Sigmar Gabriel, who leads the Social Democrats, underscored how quickly the numbers fleeing to Germany are spiraling upward. The official government estimate, released just a few weeks ago, is for roughly 800,000 in 2015, nearly four times the 2014 figure.

European Union interior and justice ministers will try to bridge a divide over the region’s worst refugee crisis since World War II when they meet Monday in Brussels to hammer out an agreement over binding quotas redistributing 160,000 migrants who have flooded into Hungary, Greece and Italy. Eastern European countries including Poland and the Czech Republic have opposed such measures. Germany, which supports the EU proposal, on Sunday introduced the temporary controls on the southern border with Austria, where thousands of migrants have been crossing into the country. Austria responded Monday by sending 2,200 troops to its frontier with Hungary, while Slovakia reinstated checks along its border with both countries.

“Of course, the idea is not to prolong this, but it’s a short-term measure that should be in place for as short a time as possible,” Felix Braz, the justice minister of Luxembourg, which currently holds the rotating EU presidency — said in an interview. “A lot will depend on what comes out of Brussels this afternoon.” Germany’s move risks creating widespread disruption as governments weigh a further tightening of frontier controls across Europe.

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EU leaders are a much bigger threat to the union than refugees.

EU Governments Set To Back New Internment Measures (Guardian)

EU governments are expected to back radical new plans for the internment of “irregular migrants”, the creation of large new refugee camps in Italy and Greece and longer-term aims for the funding and building of refugee camps outside the EU to try to stop people coming to Europe. A crunch meeting of EU interior ministers in Brussels, called to grapple with Europe’s largest refugee crisis since the second world war, was also expected to water down demands from the European commission, strongly supported by Germany, for the obligatory sharing of refugees across at least 22 countries. A four-page draft statement, prepared on Monday morning by EU ambassadors before the ministers met, focused on “Fortress Europe” policies amid increasing confusion as a number of countries set up border controls in the Schengen free-travel area that embraces 26 countries.

The draft statement, obtained by the Guardian, said “reception facilities will be organised so as to temporarily accommodate people” in Greece and Italy while they are identified, registered, and finger-printed. Their asylum claims are to be processed quickly and those who fail are to be deported promptly, the ministers say in the draft statement. “It is crucial that robust mechanisms become operational immediately in Italy and Greece to ensure identification, registration and fingerprinting of migrants; to identify persons in need of international protection and support their relocation; and to identify irregular migrants to be returned.” The Europeans are to set up “rapid border intervention teams” to be deployed at “sensitive external borders”. Failed asylum seekers who are expected to try to move to another EU country from Greece or Italy can be interned, the statement says.

“When voluntary return is not practicable and other measures on return are inadequate to prevent secondary movements, detention measures … should be applied.” The European commission demanded last week that at least 22 EU countries accept a new system of quotas for refugees, with 160,000 redistributed from Greece, Italy and Hungary under a binding new system. Germany is insisting on the binding nature of the proposed scheme and its unilateral decision on Sunday to re-establish national border controls within the Schengen area was widely seen as an attempt to force those resisting mandatory quotas to yield. The resistance is strongest in eastern and central Europe.

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TEXT

Hungary Transports Refugees To Austria Before Border Clampdown (Guardian)

Hungary is transporting thousands of refugees by train and dumping them on the border with Austria, the UN refugee agency has said, as EU states scrambled to follow Germany’s lead and introduce new controls on their borders. Special trains were taking refugees on a four-hour journey from camps in southern Hungary directly to Austria, the UNHCR said. There are signs that Hungary’s prime minister, Viktor Orban, wants to empty refugee camps before a law comes into force on Tuesday criminalising the act of crossing or damaging a newly built border fence. At least three trains carrying 2,000 people left on Sunday from the Hungarian town of Röszke, the UNHCR’s regional representative Erno Simon said. He added: “During the night our colleagues saw police waking people up at the [Hungarian] border collection point.”

Austria said it was sending troops to its border to help with security. The numbers entering from Hungary had reached overwhelming levels, police said, with 14,000 arriving on Sunday and another 7,000 by mid-Monday, and more expected. Austria’s vice-chancellor, Reinhold Mittelehner, said: “If Germany carries out border controls, Austria must put strengthened border controls in place. We are doing that now.” Slovakia said it was introducing checks on its borders with Hungary and Austria and would deploy 220 extra officers. Polandd’s prime minister, Ewa Kopacz, said Warsaw would restore border controls in response to “outside threats”.

On Sunday Berlin announced new controls on its border with Austria and halted train traffic between Austria and Germany. Germany’s interior minister, Thomas de Maizière, said the measures were necessary because record numbers of refugees, many of them from Syria, had stretched the system to breaking point. The measures are likely to remain in place for weeks if not months, German officials have indicated. Police patrols have been set up on road crossings between Austria and Bavaria, leading to four-mile tailbacks on Monday. Similar measures will be rolled out in the federal state of Saxony, on the border with the Czech Republic.

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“I certainly don’t want to see Islamic State in a war with our troops because – let’s be honest – they are just impressionable young men who have been manipulated into a life of murder by those who teach hate, and Isis isn’t much better.“

Cameron Invents The Humanitarian Offside Rule (Frankie Boyle)

David Cameron visited a refugee camp in Lebanon on Monday. Our prime minister, a man who can normally muster all the moral authority of Roman Polanski’s penis, has discovered his soul. Amazing what a three-week break away from parliament can do. It only took David Cameron six years to finally come out and take a moral stand, and all it took was the death of one toddler. You may call the Tories’ glacial crawl towards respecting human life a political and personal train crash. I call it compassion. In Europe we have the stereotype that Africans view life cheaply, but we’ve spent much of the summer watching van loads of Syrians being washed in by the tide and all we worried about was whether this meant the beach might be closed during the October holidays.

There were Greek kids incorporating human remains into their sandcastles and yet the big story here was that the drinks trolley didn’t make it down the Eurostar. One dog locked in a car on a sunny day – Britain goes apeshit. Seventy-one dead migrants roasted in a truck – oh that reminds me, Bake Off’s on tonight. It seems we are naive about the workings of this modern culture, where people Skype each other masturbating before a first date, and forget that the general populace now don’t believe children are dying unless you show them a closeup picture of a dead child. The Kurdi family were trying to get from Turkey to Kos, so many people said, “Why would they want to leave Turkey? Turkey is nice!”

Turkey is nice if you’re a sunburnt Brit with a taste for overpriced kebabs, cheap jeans and waterslides. It’s not so nice for a member of their oppressed minority who speak a language that’s been banned by law. What we haven’t heard is that children get washed up on the shore at Bodrum every single day. What are Turkish journalists doing? Generally about two to four years’ hard labour. Of course there are many people who say we shouldn’t be helping refugees when there are homeless people here that we can do nothing to help first. Indeed Britain may have entirely forgotten how to be welcoming. We’ll probably welcome refugees by putting the word Syrian in the sidebar of xHamster. We are only taking people from camps – we don’t want refugees already in Europe as they cheated and didn’t wait to shout “What’s the Time Mr Wolf?” We don’t want any refugees who are already close to us, like there’s some kind of humanitarian offside rule.

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Fraudulent Foreclosure Documents

US Officials Cover Up Housing Bubble’s Scummy Residue (David Dayen)

Every day in America, mortgage companies attempt to foreclose on homeowners using false documents. It’s a byproduct of the mortgage securitization craze during the housing bubble, when loans were sliced and diced so haphazardly that the actual ownership was confused. When the bubble burst, lenders foreclosing on properties needed paperwork to prove their standing, but didn’t have it — leading mortgage industry employees to forge, fabricate and backdate millions of mortgage documents. This foreclosure fraud scandal was exposed in 2010, and acquired a name: “robo-signing.” But while some of the offenders paid fines over the past few years, nobody cleaned up the documents. This rot still exists inside the property records system all over the country, and those in a position of authority appear determined to pretend it doesn’t exist.

In two separate cases, activists have charged that officials and courts are hiding evidence of mortgage document irregularities that, if verified, could stop thousands of foreclosures in their tracks. Officials have delayed disclosure of this evidence, the activists believe, because it would be too messy, and it’s easier to bottle up the evidence than deal with the repercussions. “All they’re doing is making a mockery of our judicial system,” said Bill Paatalo, a private investigator and one of the activists. Like many other anti-foreclosure activists, Paatalo got involved with the issue through a case involving his own property — in Absarokee, Montana. Like many homeowner loans purchased during the housing bubble, Paatalo’s was packaged into a mortgage-backed security.

The process worked like this: The loans were eventually sold into a tax-exempt REMIC (Real Estate Mortgage Investment Conduit) trust; the REMIC trust received monthly mortgage payments from homeowners; and the payments were passed along to investors in the mortgage-backed securities. The trust where Paatalo’s mortgage ended up is known as “WaMu Mortgage Pass-Through Certificates Services 2007-OA3 Trust.” When he faced foreclosure, the trust, as the nominal owner of the mortgage, was the plaintiff. In doing research for his own trial, Paatalo discovered that all “foreign business trusts” established outside of Montana have to register with the Secretary of State in order to transact business, under Title 35-5-201 of the Montana code. Trustees must file an application, along with legal affidavits affirming its trust agreement and identifying all trustees, and pay a $70 filing fee. WaMu Mortgage Pass-Through Certificates Services 2007-OA3 Trust – based in Delaware — didn’t.

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“Neoliberalism’s ultimate purpose, and its finality, is that of transformation to a single global economy and society governed and disciplined by finance capital.”

Defining Neoliberalism (Jeremy Smith)

In a twitter exchange today, involving Duncan Weldon, Tony Yates, George Magnus, Jo Michell and PRIME’s Ann Pettifor, the question arose (not for the first time!) over the definition of “neoliberalism.” It is often argued that the term has no distinct or discernible meaning, and certainly Wikipedia’s entry for Neoliberalism only adds to confusion. Ann tweeted this: “puzzle over definition of “neoliberalism. Definition elastic? Insult? Help Twitter..” Well I’m not going to try and make my offer via twitter, because I can’t manage a decent definition in the allotted 140 characters. But I am convinced that neoliberalism does have a clear meaning – and offer the following as my contribution to the discussion:

Neoliberalism: The utopian politico-economic system and ideology, under constant and conscious construction by its “priesthood”, under which the interests of society are to be subordinated to the interests of actors in financial markets and the dominance of finance capital, minimally regulated and flowing unfettered across frontiers. Under this system, the role and remit of the state and public sphere, beyond protection and furtherance of those interests and that dominance, are to be reduced to their practical minimum. Neoliberalism’s ultimate purpose, and its finality, is that of transformation to a single global economy and society governed and disciplined by finance capital.

My definition owes much to Karl Polanyi’s approach. In “The Great Transformation” Polanyi wrote:

This paradox [of the need for a strong central executive under laissez-faire] was topped by another. While laissez-faire economy was the product of deliberate state action, subsequent restrictions on laissez-faire started in a spontaneous way. Laissez-faire was planned; planning was not. If ever there was conscious use of the executive in the service of a deliberate government-controlled policy, it was on the part of the Benthamites in the heroic period of laissez-faire. (p.141)

Polanyi also draws attention to the disastrous contribution of “economic liberalism at its height” in the 1920s. He argues (p.142):

The repayment of foreign loans and the return to stable currencies were recognized as the touchstones of rationality in politics; and no private suffering, no infringement of sovereignty was considered too great a sacrifice for the recovery of monetary integrity. The privations of the unemployed made jobless by deflation; the destitution of public servants dismissed without a pittance; even the relinquishment of national rights and the loss of constitutional liberties were judged a fair price to pay for the fulfilment of the requirements of sound budgets and sound currencies, these a priori of economic liberalism.

This nicely captures the consciousness of the creation of globalising “economic liberalism”, as well as – once programmed correctly – the way it rolled out the consequences automatically, via a kind of austerity algorithm. This coincides with what we see today in the way neoliberalism works. And that is why I call it both an ideology (or philosophy if you feel kinder) and a system.

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We just don’t care.

One In Six Americans Go Hungry. We Can’t Succeed On An Empty Stomach (Guardian)

As millions of kids head back to school this month, some of them are missing summer, but many are excited to once again receive regular meals. Many low-income children are able to get the food they need through the federal nutrition programs such as free school lunches. But, only half of these kids also get a nutritious school breakfast. And 75% of them struggle over the summer to get enough to eat. One child out of every five in the United States is fighting to learn, grow and prosper while combating the gnawing stress of hunger. In fact, kids make up nearly half of all people living in households struggling with hunger. That’s why lawmakers on Capitol Hill are currently working to reauthorize the laws that govern, among other things, whether or not more kids have access to summer meal programs.

Last month, a bipartisan group of six senators introduced the “Hunger Free Summer for Kids Act.” If the policies in this bill make it into law this year, it could mean as many as 6.5 million can get the nutrition they need during the summer holidays. These nutrition laws expire on September 30th, so Congress needs to act quickly. And we need to be doing more. Hunger impacts every American. According to the latest “food insecurity” numbers by the United States Department of Agriculture, 14% of all households struggle to have enough to eat. That’s 48 million of our friends, neighbors and fellow Americans. And that is one in six Americans — not just in the inner city, but in the suburbs, rural areas and every primary and battleground state across the country. These numbers show how many American households struggle to consistently provide all of its family members enough food for an active, healthy lifestyle. It could mean some days the cupboards are completely bare.

It could mean a mother is skipping meals to ensure food for her son at night. It could mean a family is choosing between food and medicine, or food and rent. It does mean there is never enough. Hunger has a devastating effect on the food insecure, but, it is not just those with empty bellies who suffer. Hunger impacts education, health and the economy at large. Children struggling with hunger struggle with schoolwork and tend to have lower test scores and are less likely to graduate. People are not getting the nutrition they need, and are at higher risk for expensive, avoidable health conditions, like diabetes, heart disease and asthma. As a nation, we spend billions on the fall-out from hunger, including avoidable health care costs and the rising cost of poor education outcomes, all while losing productivity in the workplace.

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Apr 152015
 
 April 15, 2015  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , ,  2 Responses »


George N. Barnard Federal picket post near Atlanta, Georgia 1864

China GDP Tumbles To Lowest In 6 Years Amid Dismal Data (Zero Hedge)
China Walks $264 Billion Tightrope as Margin Debt Powers Stocks (Bloomberg)
Hong Kong’s Peg to Instability (Pesek)
‘Timebomb’ UK Economy To Explode After Election – Albert Edwards (Guardian)
IMF Fears ‘Cascade’ Of Woes As Fed Crunch Nears (AEP)
Prudential Chief Echoes Dimon Saying Liquidity Is Top Worry (Bloomberg)
Syriza Against the Machine (Tom Voulomanos)
Greek Finance Minister to Meet With Obama (WSJ)
Greece Confident Of Reaching Agreement Before 24 April Deadline (Guardian)
More Than Half Of US Welfare Spending Goes To Working Families (Zero Hedge)
American Oil Layoffs Hit 100,000 and Counting (WSJ)
Oil-Rich Nations Sell Off Petrodollar Assets at Record Pace (Bloomberg)
Australia Gets First-Time Negative Yield At Sale Of Inflation Linked Bonds (AFR)
New Zealand Central Bank Calls For Housing Capital Gains Tax (NZ Herald)
Our America (Raul Castro)
The Making of Hillary Clinton (Cockburn And St. Clair)
400 Believed To Have Drowned Off Libya After Migrant Boat Capsizes (Guardian)
Nuclear Reactors in Japan Remain Closed by Judge’s Order (NY Times)
The Inequality Bubble Accelerates, Worse Than ‘29, Even 1789 (Paul B. Farrell)

They said it would be 7%, and 7% it is…

China GDP Tumbles To Lowest In 6 Years Amid Dismal Data (Zero Hedge)

A month ago we warned "Beijing, you have a big problem," and showed 10 charts to expose the reality hiding behind a stock market rally up over 100% in the last year. Tonight we get confirmation that all is not well – China GDP fell to 7.0% (its lowest in 6 years) with QoQ GDP missing expectations at +1.3% (vs 1.4%). Then retail sales rose 10.2% YoY – the slowest pace in 9 years (missing expectations of 10.9%). Fixed Asset Investment rose 13.5% – the lowest since Dec 2000 (missing expectations). And finally Industrial Production massively disappointed, rising only 5.6% YoY (weakest since Dec 2008). Finally, as a gentle reminder to the PBOC-front-runners, a month ago Beijing said there was no such thing as China QE (and no, the weather is not to blame.. but the smog?). [..] all this leading us to the most important chart of all: home prices in China, which are crashing…

… at a pace faster than in what happened to US housing in the immediate aftermath of the Lehman collapse!

And the reason why this is such a problem for China is that unlike the US where the bulk of household wealth is in financial assets (i.e., the market), in China it is the reverse:

nearly three quarters of all household assets are in real estate: real estate which is deflating, if not crashing, at an unprecedented pace.

Finally, here is a chart which leaves even us speechless. If indeed Chinese rail freight is indicative of underlying economic trends, then the hard landing is already here.

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To keep people from revolting, Beijing allows for the reality of major real estate losses to be hidden by virtual stock market gains.

China Walks $264 Billion Tightrope as Margin Debt Powers Stocks (Bloomberg)

Confident that China’s stock market rally still has legs, Jiang Lin recently began borrowing money from her brokerage to buy more shares. Her newly-opened margin finance account with state-owned China Investment Securities Co. has allowed Jiang, a 29-year-old marketing executive in Beijing, to double up her bets on the vertigo-inducing rally in Chinese share prices. “It’s worth the risk,” said Jiang, while admitting she doesn’t fully understand how margin finance works because she hasn’t had her broker explain it to her. Investors such as Jiang are part of a $264 billion dilemma facing the country’s securities regulator, the China Securities Regulatory Commission, after the Shanghai Composite Index climbed on Monday to a seven-year high.

Should it tighten its rules governing margin finance and risk triggering a crash, or continue tinkering with regulations and see stock purchases on credit rise to potentially perilous levels? Traders are betting that the regulator will shy away from any serious steps to curb an explosion of margin finance, which fueled a 93% one-year surge in Shanghai’s benchmark gauge. Securities firms’ outstanding loans to investors for stock purchases were a record 1.64 trillion yuan ($264 billion) as of April 10, up 50% in less than three months, despite bans imposed by the CSRC in January and April on lending to new clients by four Chinese brokerages. China’s margin finance now stands at about double the amount outstanding on the New York Stock Exchange, after adjusting for the relative size of the two markets.

“Regulators are aware of the risk of rising margin debt but they can’t afford to puncture the equities bubble with very draconian measures,” said Lu Wenjie, a Shanghai-based analyst at UBS. “They want to pelt the mice without smashing the china.” With growth faltering and real estate prices heading lower, China is wary of adding a stock market crash to its economic problems, according to Mole Hau at BNP Paribas. There’s also a political dimension because equity markets are dominated by small retail investors, some of whom may face ruin if a market slump prompts brokers to call in loans. Individual investors make up about 90% of equity trading in China, according to the CSRC.

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The biggest money-printing wager ever is starting to spread its desolation.

Hong Kong’s Peg to Instability (Pesek)

For years, any call for Hong Kong to scrap its peg to the U.S. dollar was deflected with a single word: stability. The city’s monetary authority has consistently treated the 32-year-old link as the linchpin to the economy’s international credibility. But with Chinese money now swamping the city, the opposite may be true. China this week announced limits on mainland visitors to Hong Kong, who have been a longstanding source of tension in the city. But the flow of money from the mainland shows no sign of slowing. Politically-connected Chinese tycoons, who have a longstanding habit of squirreling their money abroad (the better to hide it from authorities in Beijing), are increasingly turning to Hong Kong’s stock and property markets.

As Louis-Vincent Gave of fund manager GaveKal puts it: “In its troubled marriage with China, it looks very much as if Hong Kong is about to get more money and less mainlanders.” And this is likely only to increase tensions in Hong Kong. Although last year’s enormous protests in the city were presented in the international press as a call for democracy, they were as much about income inequality fueled by money from the mainland. As of 2011, Hong Kong’s Gini coefficient, a measure of inequality, was 0.537. That was the highest since record-keeping began in 1971 and puts Hong Kong well above the 0.4 level analysts associate with social unrest. It’s no coincidence that record protests flared up at the same time as residential home prices surged by 13%.

By the start of 2015, prices had more than doubled since 2009, spurred in part by money flowing in from China. To their credit, locals officials tightened rules in February to keep homeownership from rising further out of the reach of local residents. But those efforts will likely soon be overwhelmed by tidal waves of mainland cash. It’s safe to expect higher living costs in a city already plagued by a scandalous rich-poor divide. If Hong Kong authorities want to cool down their overheating economy, they should start by addressing its undervalued currency. That’s a key reason why Hong Kong’s inflation is growing 4.6% compared with 1.4% in China and 0.4% in South Korea. It has also forced the Hong Kong Monetary Authority into an increasingly uncomfortable position.

Since August, it has been forced to defend its conversation rate to the U.S. currency by selling off massive amounts of Hong Kong dollars. But those efforts have allowed mainlanders to get a cheaper conversion rate than if the Hong Kong dollar traded freely. Unsurprisingly, they’ve been rushing to take advantage of it, by pouring more money into the city. Hong Kong’s peg, in other words, has outlived its usefulness. But Hong Kong authorities have been reluctant to scrap the peg, because they see it as the source of their credibility with western investors. Chinese President Xi Jinping – who has ultimate authority over Hong Kong – might have his own reasons for feeling risk-averse, given the magnitude of economic challenges facing China at the moment.

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“..George Osborne’s scheme to boost the housing market as one of the “most stupid economic ideas” of the past 30 years..” (Hello, Auckland!)

‘Timebomb’ UK Economy To Explode After Election – Albert Edwards (Guardian)

The UK economy is a ticking time bomb set to explode after the general election, according to a leading City commentator who has warned of a fresh crisis for the pound. Albert Edwards, who heads the global strategy team at investment bank Société Générale and is well known for downbeat views, chides the coalition for a legacy of “grotesquely wide deficits” in both the public sector finances and on the UK’s current account – its overall trading position with the rest of the world. In a note for the bank, Edwards wrote: “As the UK general election rapidly approaches, we take a look at the UK economic situation. We say what we see, and after five years of the Conservative and Liberal Democrat coalition government, the UK economy looks like a ’ticking time bomb’waiting to explode after the election.”

Edwards says his commentary is apolitical and notes he previously heaped scathing criticism on the UK economic situation under Labour in 2008. The difference with his latest critique, he says, is that this time the UK compares particularly badly with other economies. He added: “At least back then [January 2008] the UK was not alone in reaping the sour fruits of economic mismanagement – the US and the eurozone periphery were all sailing in similarly unstable, leaky boats. But now the UK economy stands alone, up to its eyeballs in macro manure. Eventually the stench will fill the nostrils of currency markets with the inevitable result – another sterling crisis.”

Edwards, who has previously taken aim at chancellor George Osborne’s scheme to boost the housing market as one of the “most stupid economic ideas” of the past 30 years, says a push to cut the deficit has failed. To the extent the UK economy has recovered, it is not because the public sector deficit cutting has worked as the government claim, but because, for the last three years, the government has quietly abandoned all pretence at fiscal cuts, kicking the can into the next parliament,” he says. He is not alone in his concern over the UK’s large current account deficit, which reflects the gap between money paid out by the UK and money brought in, and was the widest for more than 60 years in 2014. It emerged last week that the Bank of England is worried the gap could cause financial markets to turn against the British economy in a time of stress.

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Emerging markets are about to be obliviated.

IMF Fears ‘Cascade’ Of Woes As Fed Crunch Nears (AEP)

The United States is poised to raise rates much more sharply than markets expect, risking a potential storm for global asset prices and a dollar shock for much of the developing world, the International Monetary Fund has warned. The IMF fears a “cascade of disruptive adjustments” as the US Federal Reserve finally pulls the trigger for the first time in eight years, ending an era of cheap and abundant dollar liquidity for the international system. The Fed’s long-feared inflexion point is doubly treacherous because investors seem ill-prepared for what lies ahead, and levels of dollar debt outside the US have reached an unprecedented extreme. The Fund said future contracts are pricing in a “much slower” pace of monetary tightening than the Fed itself is forecasting.

The crunch comes as the world economy remains becalmed in 2015 with stodgy growth of 3.5pc, held back by another set of brutal downgrades for Russia and string of countries in Latin America. Emerging markets face a fifth consecutive year of slippage as they exhaust the low-hanging fruit from catch-up growth and hit their structural limits. The IMF’s World Economic Outlook forecast that rich economies will clock up respectable growth of 2.4pc this year after 1.8pc in 2014 as fiscal austerity fades and quantitative easing lifts the eurozone off the reefs, but there will be no return to the glory days of the pre-Lehman era. “Potential growth in advanced economies was already declining before the crisis. Ageing, together with a slowdown in total productivity, were at work. The crisis made it worse,” said Olivier Blanchard, the IMF’s chief economist.

“Legacies of both the financial and the euro area crises — weak banks and high levels of public, corporate and household debt — are still weighing on growth. Low growth in turn makes deleveraging a slow process.” The world will remain stuck in a low-growth trap until 2020, and perhaps beyond. The Fund called for a blast of infrastructure spending by Germany and others with fiscal leeway to help break out of the impasse. The report said markets may have been lulled into a complacency by the lowest bond yields in history and a strange lack of volatility, seemingly based on trust that central banks will always come to the rescue. Any evidence that the fault lines of the global financial system are about to be tested could “trigger turmoil”, it warned. “Emerging market economies are particularly exposed: they could face a reversal in capital flows, particularly if US long-term interest rates increase rapidly, as they did during May-August 2013,” it said.

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“The total inventory of Treasuries readily available to market makers today is $1.7 trillion, down from $2.7 trillion at its peak in 2007.”

Prudential Chief Echoes Dimon Saying Liquidity Is Top Worry (Bloomberg)

Prudential Investment Management CEO David Hunt says the No. 1 concern among bond buyers globally is liquidity and its rapid disappearance. “The biggest worry of the buy side around the world is that there has been a dramatic decline in liquidity from the sell side for many fixed income products,” said Hunt, 53, who heads Prudential’s investment management unit, which had $934 billion in assets at the end of 2014. “I think it’s a big risk and is one of the unintended consequences” of regulators trying to prevent another financial crisis, he said. While the size of the U.S. bond market has swelled 23% since the end of 2007 through the end of last year, trading has fallen 28% in the period, Securities Industry & Financial Markets Association data show.

Regulators, seeking to reduce risk, have made it less attractive for banks to hold an inventory of tradable bonds. JPMorgan CEO Jamie Dimon warned in a report last week the next financial crisis could be exacerbated by a shortage of U.S. Treasuries. “If we had a major political event or something that caused rates to spike and traders needed to get out of the current position they have, and there was a lot of people that wanted to do that, I think it would be quite difficult,” Hunt, in Tokyo last week for various management meetings, said. The liquidity drain in bond markets spans Treasuries to corporate notes, Dimon said in a letter to shareholders dated April 8.

“Liquidity can be even more important in a stressed time because investors need to sell quickly, and without liquidity, prices can gap, fear can grow and illiquidity can quickly spread,” he wrote. “The likely explanation for the lower depth in almost all bond markets is that inventories of market-makers’ positions are dramatically lower than in the past.” Inventories are lower, Dimon said, because of multiple new rules that affect market making, including “far higher” capital requirements. The total inventory of Treasuries readily available to market makers today is $1.7 trillion, according to JPMorgan, down from $2.7 trillion at its peak in 2007.

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“..the German establishment convinced large sectors of the German working class that they are bailing out their southern European neighbors who are too lazy, too corrupt or too disorganized to run a modern successful economy. ”

Syriza Against the Machine (Tom Voulomanos)

It was obvious that the European establishment was not happy with the election of Syriza and it wanted to nib this problem in the bud before other countries, like Spain, Ireland, Portugal, or Italy get any ideas or even worse, before a European wide movement takes shape against the neo-liberal structure of the EU and begins discussing and agitating for alternatives. Unlike what the citizens of Europe may have thought they were getting into, the EU is not a democratic confederation of peoples, but an economic space completely under the control of the European establishment namely, the Financial and Corporate elite, the traditional European oligarchs, the neo-liberal politicians (no matter what meaningless party label they use) and unelected technocrats in their service.

Of course, the German state is the hegemon of this establishment, but its interests more or less converge with the interests of the European ruling class. This is the true architecture of the European Union. Syriza is a disturbance to this order that must be quashed. In order to fully appreciate the current impasse between Syriza and its creditors, it must be seen outside the narrow nationalist paradigm of Germans vs Greeks and be seen for what it truly is, a class war. The German state is simply the most powerful guarantor of the privileges of this European establishment, after the US of course. As such, the German establishment convinced large sectors of the German working class that they have common interests and that they are bailing out their southern European neighbors who are too lazy, too corrupt or too disorganized to run a modern successful economy.

The European media made sure that simple facts were not known to the public of the northern European states. They were not told that the loans to Greece were not for bailing out Greeks but for bailing out European banks, as these loans simply financed debt repayments. With each loan, the debt increased further, forcing more loans on condition that the country privatizes its resources, destroys its social state, throws people into unemployment and poverty. All of which shrink the economy decreasing the country’s ability to service its debt and pay its creditors, forcing it to borrow even more conditional bailout money, further increasing its debt and accelerating austerity and so on and so forth; a vicious cycle that is leading to the third worldization of the European periphery countries. This was the EU against which Syriza campaigned and won.

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Nice twist. I’m thinking Obama likes Yanis’ style.

Greek Finance Minister to Meet With Obama (WSJ)

Greece’s finance minister Yanis Varoufakis is due to meet President Barack Obama in Washington Thursday, according to a senior finance minister. “Mr. Varoufakis is going to attend celebrations for the Greek Independence Day at the White House, where he will have a private meeting with the U.S. president,” the official said Tuesday. The meeting comes as Greece’s Syriza-led government has been locked in negotiations with its international creditors since coming to power in late January, with progress so far being very slow. Greece needs a deal to secure billions of euros in bailout aid to avoid defaulting on its debts by this summer and potentially tumbling out of the euro.

But the overhauls that creditors want, including further pension cuts and tax increases, in a country reeling from years of drastic austerity, could split or bring down the government of left-wing Prime Minister Alexis Tsipras, which was elected in January on an antiausterity ticket. The Greek finance minister, as well as Bank of Greece Governor Yannis Stournaras will be in Washington to attend the spring meetings of the World Bank Group and the International Monetary Fund. Earlier Thursday, Mr. Varoufakis is scheduled to speak at a conference organized by the Brookings Institution think tank. His German counterpart Wolfgang Schäuble is also going to speak at the same conference on Thursday. The Greek Finance Minister is also expected to meet the European Central Bank’s President Mario Draghi.

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Well, that’s would I would say if I were them…

Greece Confident Of Reaching Agreement Before 24 April Deadline (Guardian)

Greece has vigorously rebutted speculation that it will declare a debt default and plunge out of the eurozone if it fails to strike a deal with lenders to keep its bankrupt economy afloat. Acknowledging that the Syriza-led anti-austerity government had faced the “teething problems” of any administration new to power, the minister tasked with overseeing the country’s international economic relations expressed confidence that a deal with creditors would be reached even if negotiations went to the wire. “I can assure you we are working flat out for the good scenario,” said deputy foreign minister Euclid Tsakalotos. “I am absolutely confident an agreement will be reached on 24 April. Deals are always done five or three or one minute before midnight, it’s not unusual that they should go right to the brink.”

In what is widely seen as a make-or-break date for the debt-stricken nation, eurozone finance ministers have said they will pass judgment on the reform package Athens has been told to submit next week when they gather in the Latvian capital, Riga, on 24 April. With the country facing a series of debt repayments in May and June – when its existing bailout agreement ends – and the Greek economy forced to survive on emergency funding from the European Central Bank, failure to endorse the proposals could spell disaster for the continent’s most indebted state.

The reform-for-cash deal, an interim accord before Greece signs up to an anticipated third bailout later this year, would unlock €7.2bn (£5.2bn) in financial assistance withheld since August as Athens has argued with creditors at the EU, ECB and IMF over the extent of austerity measures required to release aid. In the 10 weeks since prime minister Alexis Tsipras assumed power, the state of the economy has become ever more perilous as the government has struggled to meet debt obligations and keep up with public sector pensions and salaries while surviving on ever-waning reserves of credit.

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“..nearly 75% of those receiving some form of public assistance come from working families..” “..bad jobs may be a bigger problem than no jobs..”

More Than Half Of US Welfare Spending Goes To Working Families (Zero Hedge)

We’ve talked quite a bit over the past several months about wage growth or, more appropriately, a lack thereof. The problem in the US is that for the 80% of workers the BLS classifies as “non-supervisory” (i.e. Hillary Clinton’s “everyday Americans”), higher pay is proving to be a rather elusive concept. The same cannot be said for America’s bosses however, who have seen their wages grow at a healthy pace. We’ve also argued that this doesn’t bode well for the US economic “recovery” (which we’ve only been waiting on for six years) because when three quarters of workers are suffering under stagnant wages and when the engine that drives three quarters of economic output (consumer spending) is almost perfectly correlated (0.93) with wage growth, you have a recipe for lackluster GDP prints and if the Atlanta Fed’s nowcast is any indication, that’s just what we can expect going forward.

Another consequence of forcing America’s workforce to subsist on low paying jobs with little hope of pay hikes is that it puts extra pressure on the welfare state because if you can’t make ends meet on what you make you can either make more (which, as it turns out, is easier said than done) or turn to the government for assistance. According to a new report from UC Berkeley, nearly 75% of those receiving some form of public assistance come from working families, confirming that when it comes to straining the public purse, bad jobs may be a bigger problem than no jobs. From UC Berkeley:

Even as the economy has at last begun to expand at a more rapid pace, growth in wages and benefits for most American workers has continued its decades-long stagnation. Real hourly wages of the median American worker were just 5% higher in 2013 than they were in 1979, while the wages of the bottom decile of earners were 5% lower in 2013 than in 1979. Trends since the early 2000s are even more pronounced. Inflation-adjusted wage growth from 2003 to 2013 was either flat or negative for the entire bottom 70% of the wage distribution. Compounding the problem of stagnating wages is the decline in employer provided health insurance, with the share of non-elderly Americans receiving insurance from an employer falling from 67% in 2003 to 58.4% in 2013.

Stagnating wages and decreased benefits are a problem not only for low-wage workers who increasingly cannot make ends meet, but also for the federal government as well as the 50 state governments that finance the public assistance programs many of these workers and their families turn to. Nearly three-quarters (73%) of enrollees in America’s major public support programs are members of working families; the taxpayers bear a significant portion of the hidden costs of low-wage work in America

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“The closer your job is to the actual oil well, the more in jeopardy you are of losing that job..”

American Oil Layoffs Hit 100,000 and Counting (WSJ)

Thousands of oil-field workers are in the same shoes or, more accurately, steel-toed boots. Since crude prices began tumbling last year, energy companies have announced plans to lay off more than 100,000 workers around the world. At least 91,000 layoffs have already materialized, with the majority coming in oil-field-services and drilling companies, according to research by Graves, a Houston consulting firm. Now the cutbacks are slowly showing up in federal employment data. Direct employment in oil and gas extraction, which had grown by more than 50,000 jobs since 2007, has fallen by about 3,000 jobs since it peaked in October at 201,500, according to the Bureau of Labor Statistics; 12,000 jobs have disappeared from the larger category of energy support since it reached 337,600 jobs in September. And the layoffs are continuing. Last week alone, the Texas Workforce Commission said it received notices of close to 400 layoffs from energy-related companies.

Among them, FTS International, a privately owned oil-field-services business, said it was laying off 194 workers, while Lufkin, a subsidiary of GE that makes oil-field equipment, said it was cutting 149 workers, adding to the 426 workers it has cut since the year began. While layoffs in the industry have hit office workers and high-skilled employees such as geologists and petroleum engineers, it is the roughnecks who are feeling the brunt of the cuts. “The closer your job is to the actual oil well, the more in jeopardy you are of losing that job,” said Tim Cook, oil and gas recruiter and president of PathFinder Staffing in Houston. “Each time an oil rig gets shut down, all the jobs at the work site are gone. They disappear.” The number of working U.S. oil and gas rigs has dropped 46% so far this year to 988, the lowest level in more than five years, according to data from Baker Hughes, an oil-field-services company that is merging with industry giant Halliburton.

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It’s not just oil, it’s commodoties in general. And much comes from poor countries, not Saudi Arabia.

Oil-Rich Nations Sell Off Petrodollar Assets at Record Pace (Bloomberg)

In the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club. Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets. If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets.

“This is the first time in 20 years that OPEC nations will be sucking liquidity out of the market rather than adding to it through investments,” said David Spegel, head of emerging markets sovereign credit research at BNP Paribas. Saudi Arabia, the world’s largest oil producer, is the prime example of the swiftness and magnitude of the selloff: its foreign exchange reserves fell by $20.2 billion in February, the biggest monthly drop in at least 15 years, according to data from the Saudi Arabian Monetary Agency. That’s almost double the drop after the financial crisis in early 2009, when oil prices plunged and Riyadh consumed $11.6 billion of its reserves in a single month. The IMF commodity index, a broad basket of natural resources from iron ore and oil to bananas and copper, fell in January to its lowest since mid-2009.

Although the index has recovered a little since then, it still is down more than 40% from a record high set in early 2011. A concomitant drop in foreign reserves, revealed in data from national central banks and the IMF, is affecting nations from oil producer Oman to copper-rich Chile and cotton-growing Burkina Faso. Reserves are dropping faster than during the last commodity price plunge in 2008 and 2009. In Angola, reserves dropped last year by $5.5 billion, the biggest annual decline since records started 20 years ago. For Nigeria, foreign reserves fell in February by $2.9 billion, the biggest monthly drop since comparable data started in 2010. Algeria, one of the world’s top natural gas exporters, saw its funds fall by $11.6 billion in January, the largest monthly drop in a quarter of century. At that rate, it will empty the reserves in 15 months.

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Welcome to reality. From a Goldman report today: “Australia is getting “older, fatter and forgetful”.

Australia Gets First-Time Negative Yield At Sale Of Inflation Linked Bonds (AFR)

Australia sold inflation-linked notes at an average yield below zero for the first time, as gains in crude oil and a drop in the local currency underscored the allure of debt offering protection versus consumer-price gains. The government sold $200 million ($US152 million) of 1% indexed bonds due in November 2018 at an average yield of minus 0.076% on Tuesday, the Australian Office of Financial Management said on its website. With the yield on similar conventional debt at around 1.74% and the principal adjusted for consumer-price gains, the result signals bets inflation will accelerate from the 1.7% annual pace recorded in the fourth quarter of 2014.

The Australian dollar has weakened 7% this year, adding to the potential for higher prices on imported goods. Crude oil has rebounded over the past month, undermining prospects that last year’s decline in fuel prices will have a lasting impact on inflation. “The headline rate may go up because of oil prices going up or the Australian dollar coming down,” said Roger Bridges, the chief global strategist for interest rates and currencies at Nikko Asset Management Australia in Sydney. “The nominal yield has gone to a level way below what people think inflation’s going to be. It makes real assets look attractive.” The company bought some of the bonds, Bridges said. It oversees the equivalent of $US18.3 billion. Ten-year break-even rates show expectations for 2.21%, which is higher than Australian yields on bonds due in as long as seven years.

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“..one of the few advanced economies that hasn’t had a major house price correction in the past 45 years..”

New Zealand Central Bank Calls For Housing Capital Gains Tax (NZ Herald)

The Reserve Bank has urged the government to take another look at a tax on investment in housing, allow increased high-density development and cut red tape for planning consents to address an over-heated Auckland property market. Deputy governor Grant Spencer said in a speech to the Rotorua Chamber of Commerce that housing market imbalances “are presenting an increasing risk to financial and economic stability” in New Zealand, one of the few advanced economies that hasn’t had a major house price correction in the past 45 years. He said there was “considerable scope” to streamline approval processes for residential developments and a need for a more integrated approach to planning and funding of new infrastructure, some of which may be delivered via amendments to the Resource Management Act.

“The proposed RMA reforms have the potential to significantly improve the planning and resource consenting processes,” he said. The government and Auckland Council could also focus on increasing designated areas for high-density housing, because building more apartments was “the best prospect for substantially increasing the supply of dwellings over the next one or two years,” Spencer said. Annual house price inflation in Auckland reached almost 17% last month and the central bank has estimated the city faces a shortfall of between 15,000 and 20,000 properties to meet population growth as the country experiences record migration. Spencer said today there were “practical difficulties” in attempting to use migration policy to mitigate Auckland’s overheated housing market and with inflation so tame, there was little scope for monetary policy to provide assistance. However, there were measures that could counter the growth in investor and credit based demand for housing, he said.

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Castro’s speech before an audience that included Obama. Do read the entire thing.

Our America (Raul Castro)

The ideals of Simón Bolívar on the creation of a “Grand American Homeland” were a source of inspiration to epic campaigns for independence.In 1800, there was the idea of adding Cuba to the North American Union to mark the southern boundary of the extensive empire. The 19thcentury witnessed the emergence of such doctrines as the Manifest Destiny, with the purpose of dominating the Americas and the world, and the notion of the ‘ripe fruit’, meaning Cuba’s inevitable gravitation to the American Union, which looked down on the rise and evolution of a genuine rationale conducive to emancipation. Later on, through wars, conquests and interventions that expansionist and dominating force stripped Our America of part of its territory and expanded as far as the Rio Grande.

After long and failing struggles, José Martí organized the “necessary war”, and created the Cuban Revolutionary Party to lead that war and to eventually found a Republic “with all and for the good of all” with the purpose of achieving “the full dignity of man.” With an accurate and early definition of the features of his times, Martí committed to the duty “of timely preventing the United States from spreading through the Antilles as Cuba gains its independence, and from overpowering with that additional strength our lands of America.” To him, Our America was that of the Creole and the original peoples, the black and the mulatto, the mixed-race and working America that must join the cause of the oppressed and the destitute. Presently, beyond geography, this ideal is coming to fruition.

One hundred and seventeen years ago, on April 11, 1898, the President of the United States of America requested Congressional consent for military intervention in the independence war already won with rivers of Cuban blood, and that legislative body issued a deceitful Joint Resolution recognizing the independence of the Island “de facto and de jure”. Thus, they entered as allies and seized the country as an occupying force. Subsequently, an appendix was forcibly added to Cuba’s Constitution, the Platt Amendment that deprived it of sovereignty, authorized the powerful neighbor to interfere in the internal affairs, and gave rise to Guantánamo Naval Base, which still holds part of our territory without legal right. It was in that period that the Northern capital invaded the country, and there were two military interventions and support for cruel dictatorships.

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I will not get caught up in the Hillary over-attention-hype nonsense. Let’s leave it at this portrait.

The Making of Hillary Clinton (Cockburn And St. Clair)

If any one person gave Hillary her start in liberal Democratic politics, it was Marian Wright Edelman who took Hillary with her when she started the Children’s Defense Fund. The two were inseparable for the next twenty-five years. In her autobiography, published in 2003, Hillary lists the 400 people who have most influenced her. Marion Wright Edelman doesn’t make the cut. Neither to forget nor to forgive. Peter Edelman was one of three Clinton appointees at the Department of Health and Human Services who quit when Clinton signed the Welfare reform bill, which was about as far from any “defense” of children as one could possibly imagine. Hillary was on Mondale’s staff for the summer of ’71, investigating worker abuses in the sugarcane plantations of southern Florida, as close to slavery as anywhere in the U.S.A.

Life’s ironies: Hillary raised not a cheep of protest when one of the prime plantation families, the Fanjuls, called in their chips (laid down in the form of big campaign contributions to Clinton) and insisted that Clinton tell Vice President Gore to abandon his calls for the Everglades to be restored, thus taking water Fanjul was appropriating for his operation. From 1971 on, Bill and Hillary were a political couple. In 1972, they went down to Texas and spent some months working for the McGovern campaign, swiftly becoming disillusioned with what they regarded as an exercise in futile ultraliberalism. They planned to rescue the Democratic Party from this fate by the strategy they have followed ever since: the pro-corporate, hawkish neoliberal recipes that have become institutionalized in the Democratic Leadership Council, of which Bill Clinton and Al Gore were founding members. In 1973, Bill and Hillary went off on a European vacation, during which they laid out their 20-year project designed to culminate with Bill’s election as president.

Inflamed with this vision, Bill proposed marriage in front of Wordsworth’s cottage in the Lake District. Hillary declined, the first of twelve similar refusals over the next year. Bill went off to Fayetteville, Arkansas, to seek political office. Hillary, for whom Arkansas remained an unappetizing prospect, eagerly accepted, in December ’73, majority counsel John Doar’s invitation to work for the House committee preparing the impeachment of Richard Nixon. She spent the next months listening to Nixon’s tapes. Her main assignment was to prepare an organizational chart of the Nixon White House. It bore an eerie resemblance to the twilit labyrinth of the Clinton White House 18 years later. Hillary had an offer to become the in-house counsel of the Children’s Defense Fund and seemed set to become a high-flying public interest Washington lawyer. There was one impediment. She failed the D.C. bar exam. She passed the Arkansas bar exam. In August of 1974, she finally moved to Little Rock and married Bill in 1975.

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Brussels risks being accused of genocide.

400 Believed To Have Drowned Off Libya After Migrant Boat Capsizes (Guardian)

Survivors of a capsized migrant boat off Libya have told the aid group Save the Children that around 400 people are believed to have drowned. Even before the survivors were interviewed, Italy’s coast guard said it assumed that there were many dead given the size of the ship and that nine bodies had been found. The coast guard had helped rescue some 144 people on Monday and immediately launched an air and sea search operation in hopes of finding others. No other survivors or bodies have been recovered. On Tuesday, Save the Children said its interviews with survivors who arrived in Reggio Calabria indicated there may have been 400 others who drowned.

The UN refugee agency said the toll was likely given the size of the ship. The deaths, if confirmed, would add to the skyrocketing numbers of migrants lost at sea. The International Organization of Migration estimates that up to 3,072 migrants are believed to have died in the Mediterranean in 2014, compared to an estimate of 700 in 2013. But the IOM says even those estimates could be low. Overall, since the year 2000, IOM estimates that over 22,000 migrants have lost their lives trying to reach Europe. Earlier Tuesday, the European Union’s top migration official said the EU must quickly adapt to the growing numbers of migrants trying to reach its shores, as new figures showed that more than 7,000 migrants have been plucked from the Mediterranean in the last four days.

“The unprecedented influx of migrants at our borders, and in particular refugees, is unfortunately the new norm, and we will need to adjust our responses accordingly,” the EU’s commissioner for migration, Dimitris Avramopoulos, told lawmakers in Brussels. More than 280,000 people entered the European Union illegally last year. Many came from Syria, Eritrea and Somalia and made the perilous sea journey from conflict-torn Libya.

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Abe’s last steps.

Nuclear Reactors in Japan Remain Closed by Judge’s Order (NY Times)

Fukui Prefecture, with 13 commercial nuclear reactors clustered along a short, rugged coastline, has earned the area a reputation as a political stronghold for the atomic power industry. Nuclear-friendly politicians dominate most of Fukui’s government offices, and the region is nicknamed Genpatsu Ginza, or Nuclear Alley. Fukui has now emerged as a battleground for the Japanese government’s effort to rebuild the nuclear industry and reverse the economic impact of the reactor shutdowns. On Tuesday, a local judge blocked the latest attempt to get atomic power back on the grid, issuing an injunction forbidding the restarting of two nuclear reactors at the Takahama power plant in the region.

The nuclear industry has been in a state of paralysis since the meltdowns at the Fukushima Daiichi nuclear plant four years ago. None of the 48 usable reactors in Japan are back online. Business groups say that delays in returning at least some plants to service are wrecking their bottom line. The price of electricity has increased by 20% or more, reflecting the cost of importing more oil and natural gas to make up for the lost nuclear power. That translates to the equivalent of several tens of billions of dollars a year in added expenses for households and companies, according to government estimates.

It is a potential stumbling block for Prime Minister Shinzo Abe’s efforts to rekindle economic growth, which have focused on increasing corporate profits and consumer spending. Because of the increased use of fossil fuels, Japan’s carbon emissions have also risen in the four years since the country began taking its reactors offline. The decline in oil prices, which have fallen about 50% since June, has taken some of the pressure off the economy. But the government nonetheless sees a revival of nuclear power as critical to supporting growth and slowing an exodus of Japanese industry to lower-cost countries.

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History and perspective.

The Inequality Bubble Accelerates, Worse Than ‘29, Even 1789 (Paul B. Farrell)

A couple years ago a Credit Suisse Global Wealth Report gave us a snapshot of just where this explosive inequality bubble is headed, reminding us of something far worse than the 1929 Crash, but of the 1790s when inequality triggered the French Revolution, and 17,000 lost their heads under the guillotine. The Credit Suisse data reveals that just 1% own 46% of the world, while two-thirds of the world’s people have less than $10,000. Forbes also reports that just 67 billionaires already own half of Planet Earth’s assets. Credit Suisse predicts a world with 11 trillionaires in a couple generations, as the rich get richer and the gap widens. Can this trend continue? Or will it trigger a revolutionary economic guillotine?

Nobel economist Joseph Stiglitz, author of “The Price of Inequality,” is not as optimistic as Credit Suisse: “America likes to think of itself as a land of opportunity.” But today the “numbers show that the American Dream is a myth … the gap’s widening … the clear trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom.” History is warning us: Inequality is a recipe for disaster, rebellions, revolutions and wars. Not in two generations. Much, much sooner, a reminder of the Pentagon’s famous 2003 prediction: “As the planet’s carrying capacity shrinks, an ancient pattern of desperate, all-out wars over food, water, and energy supplies will emerge … warfare will define human life on the planet by 2020.” Yes, much sooner than two generations.

Early warnings of a crash are dismissed over and over (“a temporary correction”). They gradually numb us about the big one. Time after time we forget history’s lessons. Until finally a big surprise catches us totally off-guard. Financial historian Niall Ferguson put it this way: Before the crash, our world seems almost stationary, deceptively so, balanced, at a set point. So that when the crash finally hits, as inevitably it will, everyone seems surprised. And our brains keep telling us it’s not time for a crash. Till then, life just goes along quietly, hypnotizing us, making us vulnerable, till shockers like Bear Stearns or Lehman Brothers upset the balance. Then, says Ferguson, the crash is “accelerating suddenly, like a sports car … like a thief in the night.”

It hits, shocks us wide awake. In our denial, we may keep telling ourselves it’s just another short-term correction in a hot bull market. Until suddenly, it’s accelerating Mack truck hits. Angry masses, let resentment build, fuming inside. Their Treasury was bankrupt. High interest on national debt consumed half their tax revenues. Why? Earlier wars, a decedent aristocracy, an incompetent King Louis XVI. The anger so intense that during the 1792-93 “Reign of Terror” even the King was guillotined, along with 17,000, many who were innocent, as inequality ripped apart the France nation. Why? The aristocracy, intellectuals and the rich were oblivious of the needs of the masses, much like our leaders today.

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