The Automatic Earth

Jovcho Savov Guernica 2015

• The Market May Have Had Enough of Share Buybacks (Bloomberg)

• Debt Traders Send Warning On Corporate America’s Balance Sheet Fiesta (BBG)

• Money Is Flooding Out Of Canada At The Fastest Pace In The Developed World (BBG)

• The Self-Defeating, ‘Grand Delusion’ of Monetary Policy (WSJ)

• Foreign Banks Use US Repo Deals To ‘Window-Dress’ Risk (FT)

• China State Owned Enterprise Debt Explodes By $1 Trillion In September (Chiecon)

• Six Ways to Gauge How Fast China’s Economy Is Actually Growing (Bloomberg)

• China Financial Crackdown Intensifies as Funds, Banks Targeted (Bloomberg)

• VW Emissions Scandal Widens To Include Porsche, Audi Claims (Guardian)

• ECB Officials Met Regularly With Financial Institutions on Key Moments (WSJ)

• Standard Chartered Cuts 15,000 Jobs And Raises $5.1 Billion (BBC)

• TransCanada Requests Suspension of US Permit for Keystone XL Pipeline (WSJ)

• Coywolf: Greater Than The Sum Of Its Parts (Economist)

• Melting Ice In West Antarctica Could Raise Seas By 3 Meters (Guardian)

• Abrupt Changes In Food Chains Predicted As Southern Ocean Acidifies Fast (SMH)

• October’s Migrant, Refugee Flow To Europe Matched Whole Of 2014 (Reuters)

• Merkel Rejects Shutting Border Amid Standoff With Party Critics (Bloomberg)

• Erdogan’s Election Win Means He Can Dictate Terms To EU On Refugees (Guardian)

• Winter Is Coming: The New Crisis For Refugees In Europe (Guardian)

• No Place Left On Lesvos To Bury Dead Refugees (AP)

• Powerful Gestures: America and Refugees (New Yorker)

What will Apple do now?

• The Market May Have Had Enough of Share Buybacks (Bloomberg)

It’s no secret that companies have been borrowing in the bond market to pay their shareholders through generous buybacks. But Citigroup credit analysts, led by Stephen Antczak, suggest that the robbing Peter to pay Paul dynamic that has dominated the investment landscape in recent years may be coming to an end as the credit cycle begins to turn and a meaningful pickup looms in the corporate default rate. In fact, they say, there is evidence this is already happening.

“The three-fold increase in share buybacks in the past five years has been the key driver of corporate re-leveraging. In large part, buybacks have been the result of strong incentives provided to corporate managers by activists in particular and equity investors in general … Companies that spent more on shareholder handouts and less on investments have tended to get higher price/earnings ratios in the market. But there are signs that this may be changing. Recent conversations that we’ve had with equity [portfolio managers] suggest that they have become far more focused on revenue growth, and are placing far less of a premium on any financially engineered EPS growth. The fact that a basket of stocks that [has] been reducing shares outstanding is meaningfully underperforming the S&P 500 on a beta-adjusted basis suggests that this view may not be that of just the investors we talk to, but far more broadbased (Figure 1).”

The theory here is that as the credit cycle turns and the prospect of an increase in the corporate default rate becomes a reality for the first time in many years, shareholders who have a claim on the future cash flows of companies will stop rewarding behavior that might meaningfully jeopardize those cash flows. Corporate leverage, or company indebtedness, has already been rising, much to the detriment of bond investors.

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If the Fed doesn’t raise rates, the markets will.

• Debt Traders Send Warning On Corporate America’s Balance Sheet Fiesta (BBG)

Credit traders are sending an ominous message to U.S. companies: Either stop borrowing so much money or prepare to face some serious consequences. Investors are now demanding a 61% bigger premium over benchmark rates to own top-rated bonds of industrial companies compared with June 2014. Such debt has lost 4.2% in the period when stripping out gains from benchmark government rates, with relative yields rising to 1.8 percentage points from 1.1 percentage points 16 months ago, BoAML index data show. Part of this is just saturation in the face of yet another year of record-breaking bond sales. Investment-grade companies have issued more than a trillion dollars of bonds so far in 2015 on top of the $5 trillion in the previous five years, data compiled by Bloomberg show.

But this year’s weakness in credit markets isn’t just a technical blip; it highlights a significant deterioration in corporate balance sheets. After all, what have these companies done with the money they’ve raised? They’ve bought back their own shares and paid dividends to their shareholders. What they haven’t done is use the money to improve their businesses. It’s getting to the point where even stockholders are tiring of their companies’ repurchasing shares and borrowing money simply because it’s cheap. [..] equity investors are essentially asking corporations to be more conservative with their balance sheets. Here’s why: Top-rated non-financial companies have increased their median leverage to 2.2 times debt relative to income, compared with 1.6 times in 2011, according to JPMorgan Chase.

Bond investors, meanwhile, are still buying top-rated issues, because what else are they going to buy? Central banks from China to Europe are injecting more stimulus into their economies, driving yields lower even as the Federal Reserve debates raising benchmark rates in the U.S. All-in yields of 3.4% on U.S. investment-grade company bonds look pretty generous when compared with the 0.5% yields on 10-year German government bonds. “There are some fundamental problems here,” said Lisa Coleman, head of global investment-grade credit at JPMorgan Asset Management. “This is representative of late-cycle growth. We’re more cautious on credit.” Cracks are starting to form, and they’re getting deeper. This is the first year since 2009 that credit-rating downgrades are significantly outpacing upgrades. Also, the more debt these companies pile on, the more vulnerable they become to a bad blowup that will leave them with extremely bloated balance sheets relative to revenues.

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Where will the loonie go?

• Money Is Flooding Out Of Canada At The Fastest Pace In The Developed World (BBG)

Money is flooding out of Canada at the fastest pace in the developed world as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver. Canada’s basic balance — a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June, according to analysis from Kamal Sharma at Bank of America Merrill Lynch. That’s the fastest one-year deterioration among 10 major developed nations. More recent data on where companies and mutual-fund investors are putting their money show the trend extended into the second half of the year, suggesting demand for the Canadian dollar and the country’s assets is still ebbing.

The currency is already down 11% this year, after touching an 11-year low against the U.S. dollar in September. “This is Canadian investors that are pushing money abroad,” said Alvise Marino at Credit Suisse in New York. “The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.” Crude oil, among the nation’s biggest exports, has collapsed to about half its 2014 peak. The slump has derailed projects this year in Canada’s oil sands — one of the world’s most expensive crude-producing regions. Shell’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial.

Canadian companies, meanwhile, have been looking abroad for acquisitions. Royal Bank of Canada is expected to close its US$5.4 billion purchase of Los Angeles-based City National Corp. Monday, its biggest-ever takeover. It’s part of a net outflow of $73 billion this year for mergers and acquisitions, both completed and announced, according to Credit Suisse data. Nine of the 10 best-performing companies on the country’s benchmark stock index in the past two years have favored buying growth abroad rather than expanding at home. Individuals are following suit. While international appetite for Canadian financial securities has held steady this year, domestic mutual-fund investors have pulled money from Canada-focused funds and plowed it into global choices for six straight months, the longest streak in two years, according to data compiled by Bank of Montreal.

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Central banks need to have their powers cut.

• The Self-Defeating, ‘Grand Delusion’ of Monetary Policy (WSJ)

Signs persist that the global economy isn’t well. In China, the official manufacturing PMI remained at 49.8, under the 50-line that delineates expansion and contraction. In the U.S., the ISM’s October manufacturing survey fell to 50.1, its lowest rate in two years. Both reports are just the latest in what has largely been a string of disappointing data. Six years after the market bottomed, the data also highlights the struggles the world’s central banks have had lighting a fire under the global economy. The Fed alone has pumped more than $3.5 trillion into the economy since the financial crisis. Yet economic growth has continually fallen short of expectations. Now a growing chorus is arguing that these central-bank policies appears to be self-defeating.

The zero-rate environment is hampering the economy, J.P. Morgan’s David Kelly argued in a paper last week, by short-circuiting the kinds of fundamental trends that usually attend to healthy economies – savings, for example, and the wealth that comes from investment income when rates are higher. It also sends a distinctive signal about the Fed’s own expectations for the economy. Why should anybody feel confident, invest in their future, if the Fed itself isn’t confident enough to take rates off the floor? Through a series of granular arguments, he arrives at the conclusion that the Fed needs to start raising rates. Not aggressively, but modestly. It will encourage savings, which will improve wealth growth, since higher rates will lead to higher interest income for savers. It will encourage borrowing, as borrowers will want to lock in lower rates while they can.

It will also send a strong message that the Fed is confident in the economy. All this will ultimately boost demand, Mr. Kelly says, not sap it. “The most urgent point is simply that, right now, the economy could do with a little more demand,” he said. “We believe that the positive impacts of income, wealth, confidence and expectations effects are only slightly offset by negative price effects and thus the first few rate increases would actually boost demand.” He isn’t holding his breath, however. He doesn’t expect the Fed will at all be swayed by his arguments.

“After almost seven years full years of a zero-interest rate policy, this seems like wishful thinking,” he said. “Sadly, it is probably more likely that we get stuck in a ‘stagnation equilibrium’ where a zero interest rate policy actually reduces demand in the economy, prompting the Federal Reserve to prescribe even further doses of a medicine that, for a longtime, has been impeding rather than promoting economic recovery.” Ultimately, he says the Fed is operating from a false premise: that raising rates will hurt demand. Or he could have stated it more bluntly, as Ed Yardeni of Yardeni Research did in his Monday note: the Fed’s notion that it can control the business cycle, he said, is a “grand delusion.”

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“..routinely cutting about $170bn of balances at the end of each quarter to appear safer and more profitable..”

• Foreign Banks Use US Repo Deals To ‘Window-Dress’ Risk (FT)

Foreign banks operating in the US short-term debt markets are “window-dressing” their accounts, routinely cutting about $170bn of balances at the end of each quarter to appear safer and more profitable, says a new study. The study from the Office of Financial Research describes a pattern of behaviour that has prevailed since July 2008, and suggests that the banks are carrying more risk than their investors or customers can easily see. The study examines the vast market for repurchase agreements, or repos, where banks lend out assets in return for short-term financing. It finds that dealers sell heavily to customers in the last days of the quarter, and immediately buy assets back once the new quarter starts. By trimming their balance-sheets over that brief period, the foreign banks can report better quarter-end ratios of capital to total assets.

US banks, which have to report average daily balances over the quarter, do not make similar adjustments, the study found. This abrupt, seasonal rhythm .. is consistent with a pattern of ‘window-dressing’, wrote Greg Feldberg at the OFR, in a blog post. Analysts said the behaviour outlined in the study has shades of the notorious “Repo 105” trades that Lehman Brothers used to bring down its reported leverage in the quarters leading up to its collapse. In that programme, the broker accepted a relatively high 5% fee in order to count its repo transactions as true sales, even though it remained under a contractual obligation to buy the assets back. Joshua Ronen at New York Stern School of Business said the OFR’s study – which did not cite individual banks by name – showed that lenders with the lowest capital ratios were making the biggest quarter-end reductions.

One bank pointed out that foreign banks will have to adopt US-style daily leverage reporting requirements by January 2018, and that many had already begun to adjust their repo activities to comply with daily averaging — including reducing the absolute amounts and quarter-end adjustments. For now, though, outsiders should take the banks’ reported ratios with a pinch of salt, said Mayra Rodriguez Valladares of MRV Associates, a former official at the Federal Reserve Bank of New York. “If they’re moving assets around to look better it is a big problem for us, as we don’t get to see the day-to-day information,” she said.

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China is a Ponzi.

• China State Owned Enterprise Debt Explodes By $1 Trillion In September (Chiecon)

China’s state owned enterprises added almost 6 trillion yuan (around 1 trillion dollars) of debt in September, described by Luo Yunfeng, an analyst at Essence Securities, as “an unprecedented increase in leverage”. This means that not only is the government abandoning its deleverage policy, it is actually increasing leverage. Latest Ministry of Finance data shows that by the end of September total SOE debt had reached 77.68 trillion yuan, representing a increase of 5.93 trillion yuan on August, and an increase of over 11 trillion yuan in 2015. According to Luo “it’s possible that debt that was originally classified as government debt, has been reallocated as SOE debt”. This might be a reflection of how the government plans to tackle its massive debt.

Luo mentions that one of the obstacles to managing government debt is that it remains difficult to draw a line between government and SOE debt. The crux of current reform plans to increase the role of market forces is aimed at resolving this issue. If it really is the case of shifting government debt to SOEs, then it represents a step forward for this reform, and the prospect of revaluing credit risk. Another implication, it seems unlikely there will be a pause in government debt increase over the fourth quarter. This raises the more important question of what will be the impact of this enormous debt? Over the past few years credit expansion has surpassed economic growth, and with the governments aggressive leverage, will this lead to a greater waste of resources?

In order to protect economic growth, the Chinese government has increased leverage since 2008. According to calculations by The Economist, the proportion of total debt to GDP has risen sharply, already standing at more than 240%, with total debt reaching 161 trillion yuan ($25 trillion). In the past four years, this debt to GDP ratio increased by nearly 50%. The Economist points out this is a double-edged sword, as the incremental growth effects diminish with increasing leverage. Whereas in the six years prior to the financial crisis an increase in debt of 1 yuan resulted in Chinese economic output increasing by 5 yuan, these days it only results in an increase of 3 yuan.

Even if this is the case, with China experiencing slowing economic growth, and no turnaround on the horizon, its seems likely the Chinese government will continue to increase leverage. In September, China Merchants Securities stated that since Chinese government debt leverage ratio is still low, lower than the US, Europe and Japan, there is still more room for leverage. Haitong Securities said at the start of the year that in order to prevent systemic risk the focus over the next few years will be on government leverage. Based on the experience of other countries, monetary easing almost certainly follows an increase in government leverage, with interest rates in the long term trending to zero.

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No, I will not apologize for picking the lowest two estimates. I’m too inclined to think the likes of Bloomberg will be reluctant to publish really bad numbers, lest Beijing will restrict their access.

• Six Ways to Gauge How Fast China’s Economy Is Actually Growing (Bloomberg)

Statistics with Chinese characteristics make it difficult to get a handle on how well the world’s second-largest economy is doing. In particular, questions surrounding the way China adjusts its growth figures into real terms often leave investors searching for a better way to judge its economic momentum. Thankfully, Wall Street economists have developed a number of proxies, using an array of indicators, to gauge Chinese growth better. Recently, Bloomberg Intelligence Chief Asia Economist Tom Orlik compiled six of these metrics in a report for Bloomberg Briefs. “All of the proxies suggest growth in 2015 has been lower than the 6.9% reported by the National Bureau of Statistics for the third quarter,” he wrote.

“Most show an increasing divergence with the last year or two, suggesting the official numbers may be upward biased during downturns.” One common problem for economists in constructing these proxy indexes: the dearth of data on the Chinese services sector. Orlik notes that this may serve as a partial explanation for the difference between the proxy gauges and the official data, as the tertiary sector has been gaining ground on the industrial segments of the economy.

Capital Economics draws on five indicators to build its proxy for Chinese activity: freight volume, passenger numbers, electricity output, seaport cargo volume, and the area of floor space currently under construction. “The China Activity Proxy suggested that the official figures were broadly accurate until around 2012,” wrote chief Asia economist Mark Williams. “Since then, it has added weight to the view that the official GDP data overstate the true rate of economic growth—most recently by a couple of percentage points or more.” According to this metric, Chinese GDP growth came in at 4.4% in the third quarter, the slowest pace of expansion implied by all the proxies featured in the brief.

Lombard Street employs a novel approach in putting together its estimate for Chinese growth. The official statistics for real GDP growth have been too smooth over the years, economist Michelle Lam and head of research Diana Choyleva believe, suggesting that the manner in which the data are adjusted might be faulty. As such, the pair uses nominal GDP (not adjusted for price changes) as its starting point, then uses a range of price indexes to deflate the figures into “real” terms. “Our preliminary estimates show growth at an annual rate of just 2.9% in the third quarter of 2015, way lower than the official 7.4%,” they wrote.

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A typical newsline: “Agricultural Bank of China President Zhang Yun was taken away to assist authorities with an investigation..”

• China Financial Crackdown Intensifies as Funds, Banks Targeted (Bloomberg)

China’s crackdown on its financial industry is intensifying as authorities investigate strategies blamed for exacerbating a $5 trillion stock-market rout. Shanghai police raided hedge fund Zexi Investment on Sunday, taking away computers and other materials, according to a person familiar with the matter. General manager Xu Xiang was detained, the official Xinhua news agency reported. Executives at Yishidun International Trading and Huaxin Futures were arrested, Xinhua said in a separate report. Adding to evidence that a clampdown on the financial industry is spreading, Agricultural Bank of China President Zhang Yun was taken away to assist authorities with an investigation, people familiar with the matter said on Monday, without giving details.

The Communist Party’s Central Commission for Discipline Inspection is carrying out its first broad checks on the finance industry since President Xi Jinping became the party’s head in November 2012. The summer’s stock-market rout in China has triggered investigations that have snared executives from the country’s biggest securities firm as well as a fund managers and a top regulatory official. “The biggest-ever storm is brewing for China’s financial industry and more heads will roll,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology. Xu, who founded the top-performing hedge fund firm Zexi, was detained on charges including insider trading and stock manipulation, the Xinhua reported.

Two executives at Jiangsu-based Yishidun International Trading and the technical director at Shanghai-based Huaxin Futures were arrested after a police investigation showed they made 2 billion yuan ($316 million) in “illegal profit,” Xinhua reported separately, citing the Ministry of Public Security. Sina.com reported earlier on Monday that Agricultural Bank’s Zhang had been taken away and didn’t attend a disciplinary committee meeting. Assisting with an investigation doesn’t mean Zhang is accused of wrongdoing.

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The lies keep coming. A sign that things are set to get much worse, that there’s lots more in the closet?

• VW Emissions Scandal Widens To Include Porsche, Audi Claims (Guardian)

The Volkswagen diesel emissions scandal has deepened after US authorities accused the carmaker of installing defeat devices into luxury sports cars including Porsches. The Environmental Protection Agency (EPA), which uncovered the initial emissions rigging at VW, claims the carmaker installed defeat devices in VW, Audi and Porsche vehicles with three-litre engines in models with dates ranging from 2014 to 2016 This marks the first time that Porsche, which is owned by VW, has been dragged into the scandal. It is troubling for the new chief executive of VW, Matthias Müller, because he ran Porsche before becoming boss of the group.

The EPA has made the allegations after conducting further tests on diesel vehicles in the US since VW admitted in September it had used defeat devices to cheat emissions tests. The new allegations include the 2015 Porsche Cayenne as well as the 2014 VW Touareg and the 2016 Audi A6 Quattro, A7 Quattro, A8, A8L, and Q5. In total, it involves 10,000 vehicles in the US. In a statement VW denied it had fitted any devices on the vehicles. The statement said: “Volkswagen AG wishes to emphasise that no software has been installed in the 3-liter V6 diesel power units to alter emissions characteristics in a forbidden manner. Volkswagen will cooperate fully with the EPA clarify this matter in its entirety.”

VW has already admitted fitting a defeat device to 11m vehicles worldwide, but this related to cars with smaller engines and did not include any Porsche cars or SUVs. Cynthia Giles, assistant administrator for the office for EPA’s enforcement and compliance assurance, said: “VW has once again failed its obligation to comply with the law that protects clean air for all Americans. All companies should be playing by the same rules. EPA, with our state, and federal partners, will continue to investigate these serious matters, to secure the benefits of the Clean Air Act, ensure a level playing field for responsible businesses, and to ensure consumers get the environmental performance they expect.”

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Almost normal.

• ECB Officials Met Regularly With Financial Institutions on Key Moments (WSJ)

Top officials from the European Central Bank met regularly with representatives from financial institutions over the past 15 months, including one meeting that occurred on the same day as a key gathering of the ECB’s governing board, according to documents released Monday by the ECB. The disclosure of the appointment calendar of the ECB’s six-member executive board, as part of a public-access request, came amid changes to the ECB’s communications policies following the release of market-sensitive information in May to a closed-door conference that included hedge-fund managers. Such meetings aren’t unusual, but the calendar points to the delicate balance for officials who benefit from the market intelligence provided by private-sector economists and investors but must also avoid the perception that individual banks are benefiting from this access.

According to the calendars, ECB executive board member Benoît Coeuré met with representatives of BNP Paribas on the morning of Sept. 4, 2014, hours before the ECB announced a reduction in its interest rates and the creation of a new four-year lending program for banks. The day before that two-day meeting began, Mr. Coeuré met with UBS on Sept. 2, as did another executive board member, Yves Mersch, according to the meeting calendars. Mr. Mersch also met with BNP Paribas on Sept. 4 last year, although that was after the ECB meeting concluded. “The ECB does not operate in a vacuum. Regular contacts with different groups, including representatives from the financial sector help us understand the dynamics of the economy and financial markets. We make sure that at such meetings no financial market-sensitive information is disclosed,” an ECB spokeswoman said.

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Banks no longer need bankers.

• Standard Chartered Cuts 15,000 Jobs And Raises $5.1 Billion (BBC)

Standard Chartered, the Asia-focused UK bank, is to cut 15,000 jobs and raise $5.1bn to create a “lean, focused and well-capitalised” group. About $3bn being raised in the rights issue will cover restructuring costs. The strategic review was announced as Standard Chartered reported a “disappointing” third-quarter operating loss of $139m for the three months to September. That figure compared with a profit of $1.5bn a year earlier. Bill Winters, who replaced Peter Sands as Standard Chartered’s chief executive in June this year, announced a strategic review of the bank’s organisational structure when he took over. He put a new management team in place in July and analysts have been expecting the bank to seek additional capital to shore up its balance sheet for some time.

Standard Chartered shares fell 4% on the Hang Seng stock exchange in Hong Kong. Mr Winters acknowledged the challenging business environment within which the lender was operating. Growing regulatory costs and controls in the wake of the financial crisis have weighed on big lenders in the UK, US and Australia. Standard Chartered has already shed some businesses, in Hong Kong, China and Korea, to help improve its capital position. Among its various plans outlined on Tuesday, Standard Chartered said a “step-up in cash investment” by more than $1bn would be used to help reposition its retail banking, private banking and wealth management businesses, as well as upgrade its Africa franchise and yuan services.

“This comprehensive programme of actions will result in a lean, focused and well capitalised international bank, poised for growth across our dynamic and growing markets in Asia, Africa and the Middle East,” Mr Winters said. Temasek, Singapore’s state investor and Standard Chartered’s largest shareholder, supported the share sale, the bank said. Standard Chartered employs 86,000 people and makes about 90% of its profits from operations across Asia, the Middle East and Africa.

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It’s dead.

• TransCanada Requests Suspension of US Permit for Keystone XL Pipeline (WSJ)

The company behind the Keystone XL pipeline on Monday asked the U.S. government to suspend its permit application, throwing the politically fraught project into an indefinite state of limbo, beyond the 2016 U.S. elections. In a letter, TransCanada asked the State Department, which reviews cross-border pipelines, to suspend its application while the company goes through a state review process in Nebraska it had previously resisted. The move comes in the face of an expected rejection by the Obama administration and low oil prices that are sapping business interest in Canada’s oil reserves. “In order to allow time for certainty regarding the Nebraska route, TransCanada requests that the State Department pause in its review of the presidential permit application,” the Calgary, Alberta, company said in the letter.

TransCanada’s move comes as the State Department was in the final stages of review, with a decision to reject the permit expected as soon as this week, according to people familiar with the matter. It must now decide whether to accept the company’s request or proceed with a final decision. TransCanada in September signaled it was shifting its strategy when it dropped state legal challenges and efforts to seize land in Nebraska for the pipeline. Company officials hoped those moves would extend the review process in Washington—perhaps until a potential Republican administration in 2017 would approve the project—while details on the Nebraska portion of the route were worked out.

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“As well as having small territories, coywolves have adjusted to city life by becoming nocturnal. They have also learned the Highway Code, looking both ways before they cross a road.”

• Coywolf: Greater Than The Sum Of Its Parts (Economist)

Like some people who might rather not admit it, wolves faced with a scarcity of potential sexual partners are not beneath lowering their standards. It was desperation of this sort, biologists reckon, that led dwindling wolf populations in southern Ontario to begin, a century or two ago, breeding widely with dogs and coyotes. The clearance of forests for farming, together with the deliberate persecution which wolves often suffer at the hand of man, had made life tough for the species. That same forest clearance, though, both permitted coyotes to spread from their prairie homeland into areas hitherto exclusively lupine, and brought the dogs that accompanied the farmers into the mix Interbreeding between animal species usually leads to offspring less vigorous than either parent—if they survive at all.

But the combination of wolf, coyote and dog DNA that resulted from this reproductive necessity generated an exception. The consequence has been booming numbers of an extraordinarily fit new animal spreading through the eastern part of North America. Some call this creature the eastern coyote. Others, though, have dubbed it the “coywolf”. Whatever name it goes by, Roland Kays of North Carolina State University, in Raleigh, reckons it now numbers in the millions. The mixing of genes that has created the coywolf has been more rapid, pervasive and transformational than many once thought. Javier Monzón, who worked until recently at Stony Brook University in New York state (he is now at Pepperdine University, in California) studied the genetic make-up of 437 of the animals, in ten north-eastern states plus Ontario. He worked out that, though coyote DNA dominates, a tenth of the average coywolf’s genetic material is dog and a quarter is wolf.

The DNA from both wolves and dogs (the latter mostly large breeds, like Doberman Pinschers and German Shepherds), brings big advantages, says Dr Kays. At 25kg or more, many coywolves have twice the heft of purebred coyotes. With larger jaws, more muscle and faster legs, individual coywolves can take down small deer. A pack of them can even kill a moose. Coyotes dislike hunting in forests. Wolves prefer it. Interbreeding has produced an animal skilled at catching prey in both open terrain and densely wooded areas, says Dr Kays. And even their cries blend those of their ancestors. The first part of a howl resembles a wolf’s (with a deep pitch), but this then turns into a higher-pitched, coyote-like yipping.

The animal’s range has encompassed America’s entire north-east, urban areas included, for at least a decade, and is continuing to expand in the south-east following coywolves’ arrival there half a century ago. This is astonishing. Purebred coyotes never managed to establish themselves east of the prairies. Wolves were killed off in eastern forests long ago. But by combining their DNA, the two have given rise to an animal that is able to spread into a vast and otherwise uninhabitable territory. Indeed, coywolves are now living even in large cities, like Boston, Washington and New York. According to Chris Nagy of the Gotham Coyote Project, which studies them in New York, the Big Apple already has about 20, and numbers are rising.

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Interesting seemingly contradictory reports.

• Melting Ice In West Antarctica Could Raise Seas By 3 Meters (Guardian)

A key area of ice in west Antarctica may already be unstable enough to cause global sea levels to rise by 3m, scientists said on Monday. The study follows research published last year, led by Nasa glaciologist Eric Rignot, warning that ice in the Antarctic had gone into a state of irreversible retreat, that the melting was considered “unstoppable” and could raise sea level by 1.2m. This time, researchers at Germany’s Potsdam Institute for Climate Impact Research pointed to the long-term impacts of the crucial Amundsen Sea sector of west Antarctica, which they said “has most likely been destabilised.” While previous studies “examined the short-term future evolution of this region, here we take the next step and simulate the long-term evolution of the whole west Antarctic ice sheet,” the authors said in the Proceedings of the National Academy of Sciences.

They used computer models to project the effects of 60 more years of melting at the current rate. This “would drive the west Antarctic ice sheet past a critical threshold beyond which a complete, long-term disintegration would occur.” In other words, “the entire marine ice sheet will discharge into the ocean, causing a global sea level rise of about 3m,” the authors wrote. “If the destabilisation has begun, a 3m increase in sea level over the next several centuries to millennia may be unavoidable.” Even just a few decades of ocean warming can unleash a melting spree that lasts for hundreds to thousands of years. “Once the ice masses get perturbed, which is what is happening today, they respond in a non-linear way: there is a relatively sudden breakdown of stability after a long period during which little change can be found,” said lead author Johannes Feldmann.

The authors noted that Antarctica’s situation presents the largest uncertainty in sea level projections for the coming centuries, and that studying the vast region poses many challenges. And indeed, just days before the PNAS study was released, another scientific paper used Nasa satellite data form 2003 to 2008 to show that Antarctic ice had gained mass, and had packed on enough to exceed the amount lost in other areas. “We’re essentially in agreement with other studies that show an increase in ice discharge in the Antarctic peninsula and the Thwaites and Pine Island region of west Antarctica,” said a statement by Jay Zwally, a glaciologist with Nasa Goddard Space Flight centre whose study was published on 30 October in the Journal of Glaciology.

“Our main disagreement is for east Antarctica and the interior of west Antarctica – there, we see an ice gain that exceeds the losses in the other areas.” According to climatologist Michael Mann, who was not involved in either study, the use of older satellite data could be the cause for the disconnect. “It sounds to me as if the key issue here is that the claims are based on seven-year-old data, and so cannot address the finding that Antarctic ice loss has accelerated in more recent years,” he told AFP.

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We would do well to get a lot more material on acidification.

• Abrupt Changes In Food Chains Predicted As Southern Ocean Acidifies Fast (SMH)

The Southern Ocean is acidifying at such a rate because of rising carbon dioxide emissions that large regions may be inhospitable for key organisms in the food chain to survive as soon as 2030, new US research has found. Tiny pteropods, snail-like creatures that play an important role in the food web, will lose their ability to form shells as oceans absorb more of the CO2 from the atmosphere, a process already observed over short periods in areas close to the Antarctic coast. Ocean acidification is often dubbed the “evil twin” of climate change. As CO2 levels rise, more of it is absorbed by seawater, resulting in a lower pH level and reduced carbonate ion concentration. Marine organisms with skeletons and shells then struggle to develop and maintain their structures.

Using 10 Earth system models and applying a high-emissions scenario, the researchers found the relatively acidic Southern Ocean quickly becomes unsuited for shell-forming creatures such as pteropods, according to a paper published Tuesday in Nature Climate Change. “What surprised us was really the abruptness at which this under-saturation [of calcium carbonate-based aragonite] occurs in large areas of the Southern Ocean,” Axel Timmermann , a co-author of the study and oceanography professor at the University of Hawaii told Fairfax Media. “It’s actually quite scary.” Since the Southern Ocean is already close to the threshold for shell-formation, relatively small changes in acidity levels will likely show up there first, Professor Timmermann said: “The background state is already very close to corrosiveness.”

Below a certain pH level, shells of such creatures become more brittle, with implications for fisheries that feed off them since pteropods appear unable to evolve fast enough to cope with the rapidly changing conditions. “For pteropods it may be very difficult because they can’t run around without a shell,” Professor Timmermann said. “It’s not they dissolve immediately but there’s a much higher energy requirement for them to form the shells.” Given the sheer scale of the marine creatures involved, “take away this biomass, [and] you have avalanche effects for the rest of the food web”, he said.

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“Certainly in 2016, we have to expect this level of arrivals to continue, and that’s because the facts that are causing people to move aren’t going away..”

• October’s Migrant, Refugee Flow To Europe Matched Whole Of 2014 (Reuters)

The number of migrants and refugees entering Europe by sea last month was roughly the same as that for the whole of 2014, United Nations refugee agency UNHCR said on Monday. The monthly record of 218,394 also outstripped September’s 172,843, UNHCR spokesman Adrian Edwards said. “That makes it the highest total for any month to date and roughly the same as the entire total for 2014,” he said. The UNHCR puts 2014 arrivals by sea at about 219,000. At the peak, 10,006 arrived in Greece’s shores on a single day, Oct. 20. The vast majority of refugees and migrants to Europe have traveled via Turkey to Greece, a switch from the previously more popular African route via Libya to Italy. The largest group by nationality are Syrians, accounting for 53% of arrivals, as a result of the civil war that has driven hundreds of thousands from their homes.

Afghans come second, making up 18% of the total. The flow of refugees into Europe, however, is still dwarfed by the numbers in Syria’s neighbors. Turkey, Lebanon and Jordan have Syrian refugee numbers exceeding 2 million, 1 million and 600,000 respectively. Globally, 60 million people are refugees or displaced within their own country, not counting economic migrants. UNHCR said in October that it was planning for up to 700,000 refugees in Europe this year and a similar or greater number in 2016. But that plan has already been eclipsed, with 744,000 arriving so far. Some 3,440 are estimated to have died or gone missing in the attempt to escape to Europe. “Certainly in 2016, we have to expect this level of arrivals to continue, and that’s because the facts that are causing people to move aren’t going away,” said Edwards. “It is the new reality that we all have to deal with.”

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Merkel needs to call a ‘heavy’, highest-level UN emergency summit. Obama needs to be there, and Putin, Xi Jinping. Assad perhaps, Erdogan. Tsipras. Tens of billions of dollars must be assigned.

• Merkel Rejects Shutting Border Amid Standoff With Party Critics (Bloomberg)

Angela Merkel refused to bow to pressure to shut borders even as the German leader struggles to fix a rift in her governing coalition over how to tackle the country’s biggest influx of migrants since World War II. Facing unrest from within her Christian Democratic Union, the chancellor fielded questions from party members at an event Monday in the western city of Darmstadt. “I’m working, just as you expect, to ensure that the number of refugees goes down,” Merkel told CDU members. “But to all those who say we should shut the German border to Austria, I don’t think that will solve the problem.”

As Germany braces for as many as a million people seeking shelter from war and poverty this year, Merkel said the country can’t afford to turn inward, but has to instead embrace geopolitical challenges “much more actively.” The refugee crisis shows that Germany can’t resist the globalizing forces around it. “We’re experiencing something we’ve never experienced before, that conflicts that appear to be far away suddenly are here on our doorstep,” Merkel said. With public concern mounting and party support on the slide, the political veteran is navigating yet another stormy week as lawmakers return to Berlin for a parliamentary session that will again be dominated by the crisis. A Tuesday caucus meeting will provide a baromoter of anti-Merkel sentiment even if she’s in no immediate political danger.

After meeting for some 10 hours over the weekend with Bavarian Prime Minister Horst Seehofer, her biggest internal critic, Merkel offered qualified support for so-called transit zones to weed out economic migrants. Sending back migrants from safe-origin countries wouldn’t end the turmoil because “there are so many” making their way to Germany, she said. With Bavaria the main gateway to Germany for those pouring over the border from Austria, Seehofer has said the state government would take unspecified action if Merkel didn’t meet his demands. In the last two months, 344,000 refugees entered Bavaria, according to the state’s interior ministry. “The number of refugees has to be urgently limited or reduced,” Seehofer said.

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The EU is prepared to sell European souls and refugees’ lives to the devil.

• Erdogan’s Election Win Means He Can Dictate Terms To EU On Refugees (Guardian)

Europe is praying that the return of Turkey s ruling Justice and Development party (AKP) to a solid parliamentary majority will help it cope with the mass movement of people northwards and westwards from the Middle East. There is a strong chance the prayers will end in tears. On Monday the European commission had only good things to say about the triumph of Recep Tayyip Erdogan, Turkey s irascible leader. Sunday’s election ‘reaffirmed the strong commitment of the Turkish people to democratic processes’, Brussels said. The EU will work with the future government to enhance the EU-Turkey partnership and cooperation across all areas.

The main area is immigration since Turkey is the pivotal country between Europe and Syria and is the main source of the hundreds of thousands trekking up the Balkans to the gates of the EU. Brussels and Berlin are desperate to get Erdogan onside to stem the flow. At home, he is walking tall again. Thirteen years after leading his party into power, he has secured another parliamentary majority despite suffering a major setback to his ambitions in a stalemated poll in June. The power equation in the troubled Ankara-Brussels relationship has also just tilted decisively in his favour. The three weeks preceding Sunday s election saw an unseemly rush to Turkey by European politicians, the busiest bout of diplomacy between the two sides in years, solely driven by the migration crisis.

The German chancellor, Angela Merkel, cleared her diary to get to Istanbul. Erdogan came to Brussels. The commission watered down and delayed publication of a critical report on Turkey s authoritarian drift under Erdogan, while drafting in record time an ‘action plan for immigration control with Turkey’. Jean-Claude Juncker, the commission president, brushed aside concerns about human rights abuses and media crackdowns. He tried to get Turkey added to an EU list of third countries deemed to be safe for refugees. Merkel, too, is known to believe that when it comes to the immigration emergency and Turkey, European interests may have to hold sway over European values. It is arguable whether the sudden EU wooing of Erdogan helped him to his surprise majority.

The photo opportunities with Merkel, at the very least, did no harm. But while there was no proper government sitting in Ankara (which had been the case since June), it was clear there could be no quick deal on refugees. That has now changed. Erdogan rules the roost at home and he is a strong exponent of the winner-takes-all school of politics. He will also be dictating the terms for the Europeans. The price for any pact to contain the flow will be extortionate.

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How can Europe survive this?

• Winter Is Coming: The New Crisis For Refugees In Europe (Guardian)

Record numbers of migrants and refugees crossed the Mediterranean to Europe in October – just in time for the advent of winter, which is already threatening to expose thousands to harsh conditions. The latest UN figures, which showed 218,000 made the perilous Mediterranean crossing last month, confirm fears that the end of summer has not stemmed the flow of refugees as has been the pattern in previous years, partly because of the sheer desperation of those fleeing an escalating war in Syria and other conflicts. The huge numbers of people arriving at the same time as winter is raising fears of a new humanitarian crisis within Europe’s borders. Cold weather is coming to Europe at greater speed than its leadership’s ability to make critical decisions.

A summit of EU and Balkan states last week agreed some measures for extra policing and shelter for 100,000 people. But an estimated 700,000 refugees and migrants, have arrived in Europe this year along unofficial and dangerous land and sea routes, from Syria, Eritrea, Afghanistan, Iraq, north Africa and beyond. Tens of thousands, including the very young and the very old, find themselves trapped in the open as the skies darken and the first night frosts take hold. Hypothermia, pneumonia and opportunistic diseases are the main threats now, along with the growing desperation of refugees trying to save the lives of their families. Fights have broken out over blankets, and on occasion between different national groups. Now sex traffickers are following the columns of refugees, picking off young unaccompanied stragglers.

The United Nations refugee agency, UNHCR, is distributing outdoor survival packages, including sleeping bags, blankets, raincoats, socks, clothes and shoes, but the number of people it can reach is limited by its funding, which has so far been severely inadequate. Volunteer agencies have tried to fill the gaping hole in humanitarian provisions in Europe. Peter Bouckaert, the director of emergencies for Human Rights Watch, said that all the way along the route into Europe through the Balkans “there is virtually no humanitarian response from European institutions, and those in need rely on the good will of volunteers for shelter, food, clothes, and medical assistance”.

Europe has found itself ill-prepared to deal with its biggest influx of refugees since the second world war. It is hurriedly improvising new mechanisms so that it can respond collectively as a continent rather than individual nations, but it is a race against time and the elements – a race Europe is not guaranteed to win. “There is a risk of collapse”, said Federica Mogherini, the EU foreign policy chief. “Because when you’re facing a challenge and you don’t have the instruments to do it, you risk failing. So it could be that if we don’t manage to create common instruments to deal with this on a European level, we fall back on the illusion that we can face it through national instruments, which we see very clearly doesn’t work. Mogherini added: “Either we take this big step and adapt or yes, we do have a major crisis. I would say even an identity crisis”.

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Can it get any sadder?

• No Place Left On Lesvos To Bury Dead Refugees (AP)

The mayor of the Greek island of Lesvos says theres no more room to bury the increasing number of asylum-seekers killed in shipwrecks of smuggling boats coming in from nearby Turkey. Mayor Spyros Galinos told Greece’s Vima FM radio Monday there were more than 50 bodies in the morgue on his eastern Aegean island that he was still trying to find a burial location for. Galinos said he was trying to fast-track procedures so a field next to the main cemetery could be taken over for burials. Hundreds of thousands of people have made the short but dangerous crossing from Turkey to Greek islands this year. With rougher fall weather coming on, the bodies of 19 people were recovered from the Aegean in three separate incidents on Sunday alone.

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“In the end, the U.S. admitted more than a million Southeast Asian refugees.”

• Powerful Gestures: America and Refugees (New Yorker)

President Jimmy Carter championed human rights, but his Administration had been reluctant to open America’s doors to Cambodians fleeing starvation and fighting between Vietnam’s army of occupation and the guerrillas of the Khmer Rouge. In late 1979, as the crisis turned catastrophic, Carter came under pressure from his Democratic rival, Senator Edward Kennedy, and he sent his wife to the chaotic border camps. Rosalynn Carter walked among the hungry and the dying, trailed by a hundred and fifty reporters. She held a starving baby in her arms while speaking to the infant’s mother, who lay on the ground. “Give me a smile,” she told another woman, kissing her forehead. Afterward, Mrs. Carter said that she wanted to hurry home “and tell my husband.” The spotlight that her trip shone on the camps helped to mobilize international aid and resettlement efforts.

In the end, the U.S. admitted more than a million Southeast Asian refugees. Most of them proved adaptable to American values. It’s easy to forget that every act of American generosity toward refugees has had to overcome stiff resistance based in ignorance. Historically, Presidential action has made the difference. After the Second World War, Congress passed legislation that made resettlement in the U.S. harder for Jewish victims of Nazism than for Germans uprooted by the war Hitler started. The chairman of the Senate’s immigration subcommittee, Chapman Revercomb, of West Virginia, wrote, “Many of those who seek entrance into this country have little concept of our form of government. Many of them come from lands where Communism had its first growth and dominates the political thought and philosophy of the people.”

It took the angry persistence of President Harry Truman to get Congress to expand the numbers and remove the discriminatory provisions. There are four million refugees from the Syrian civil war, surpassing the staggering Indochinese numbers, and making this one of the biggest humanitarian crises since the end of the Second World War. Last month, as many as nine thousand people a day were crossing the Mediterranean to Europe. But the U.S. has accepted fewer than two thousand Syrians. In September, President Obama announced an increase in the quota for the coming year to ten thousand. That figure represents just half the monthly total of Indochinese refugees brought here in 1980. One refugee advocate called it “an embarrassingly low number.” And yet even this humble goal is unlikely to be reached.

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