Apr 202017
 
 April 20, 2017  Posted by at 9:04 am Finance Tagged with: , , , , , , , ,  5 Responses »
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Fra Filippo Lippi 1406-1469 The Virgin Mary

 


The IMF Says Austerity Is Over (Tel.)
Reflation Trades of 2016 Deflate With Remarkable Speed (R.)
IMF Warns High US Corporate Leverage Could Threaten Financial Stability (WSJ)
Securities-Based Loans Are Scaring Fiscal Experts (NYP)
Telling the Truth: (P + G) – M = I (MarkGB)
You’re Hired! A Guaranteed Job For Anyone Who Wants One (DJ)
Japan’s Middle-Aged ‘Parasite Singles’ Face Uncertain Future (R.)
The EU’s Collapse Is Now “Imminent” (Doug Casey)
Greece Needs To Start Having Babies Again or Face Financial Oblivion (Ind.)
40% of Spanish Children Live in Poverty (EurA)
Ontario Set to Unveil Its Plan to Cool Toronto Housing (BBG)
Feds Knew of 700 Wells Fargo Whistleblower Cases in 2010 (CNN)
So It Goes (Oliver Stone)
A Melting Arctic Changes Everything (BBG)

 

 

Yeah, sure, just come look in Greece. Where the IMF itself demands ever more austerity. While claiming austerity is over.

The IMF Says Austerity Is Over (Tel.)

Austerity is over as governments across the rich world increased spending last year and plan to keep their wallets open for the foreseeable future. After five years of belt tightening, the IMF says the era of spending cuts that followed the financial crisis is now at an end. “Advanced economies eased their fiscal stance by one-fifth of 1pc of GDP in 2016, breaking a five-year trend of gradual fiscal consolidation,” said the IMF in its fiscal monitor. “Their aggregate fiscal stance is expected to remain broadly neutral in 2017 as well as in the following years.” The British Government is still trying to reduce the deficit but at a slower pace, as Philip Hammond, the Chancellor, wanted to ease spending cuts following the vote for Brexit last year.

Although extra spending may be welcomed by those who want funds for specific projects or public services, the IMF is worried that governments are still heavily indebted and need to be careful with their budgets. The US government, for instance, should use the current economic growth spurt as a chance to get its finances under control. “In the United States, where the economy is close to full employment, fiscal consolidation could start next year to put debt firmly on a downward path,” the IMF said. That contrasts heavily with President Donald Trump’s plans to spend more on infrastructure and defence while cutting taxes, a combination that risks ramping up the budget deficit. “These policies are expected to generate rising deficits over the medium term.

As a result, the US debt ratio is projected to increase continuously over the five-year forecast horizon,” the IMF warned. Overall the IMF believes government debts “should stabilise in the medium term, averaging more than 100pc of GDP, rather than decline as previously expected.” With debts that high, governments have to walk a fine line to use fiscal policy to support sustainable economic growth, but avoid dangerous over-indebtedness. “Fiscal policy is generally seen as a powerful tool for promoting inclusive growth and can contribute to stabilising the economy, particularly during deep recessions and when monetary policy has become less effective,” said the IMF.

Read more …

How can anyone get this right if they can’t even properly define inflation?

Reflation Trades of 2016 Deflate With Remarkable Speed (R.)

Stocks, bond yields and the dollar are all falling, yield curves are flattening and sterling is marching higher. The “reflation” trades of 2016 that were supposed to mark a turning point in global markets are fading. Fast. The question for investors is whether this is the play book for the rest of the year, or whether the trends of 2016 will resume in the second half of the year. What is clear is that much of the conviction with which investors went into 2017 has been lost. This week, Goldman Sachs ditched its long-standing bullish call on the U.S. dollar, and Deutsche Bank did likewise with their gloomy sterling outlook. Following the developed world’s two most seismic events last year – the U.S. presidential election and Brexit – investors around the world had positioned for a broad-based reflation trade.

Trump’s surprise election victory was supposed to unleash a wave of tax cuts, banking deregulation and fiscal largesse that would lift U.S. – and global – growth. Meanwhile, sterling’s 20% plunge after the Brexit vote was supposed to pave the way for a surge in UK equities and inflation. This, indeed, is how it played out as 2017 got underway. The Federal Reserve raised interest rates twice, the dollar reached a 14-year peak, Wall Street hit record highs, and government bond yield curves around the world steepened to the benefit of banks and financial stocks. But it is now unraveling, in large part due to a clear slowdown in U.S. growth and signs that global inflation is leveling off. Flatter yield curves where short- and long-term bond yields are close to each other suggest economic uncertainty.

[..] Citi’s economic surprises indexes for most of the world’s major economies have been heading south for the past month. The U.S. index has suddenly tumbled to lows not seen since November, and is below all its peers apart from Japan’s. And inflation expectations are showing signs of peaking too. The dollar is now down 2.5% year-to-date (but still up 2% since the U.S. election; U.S. bank stocks are down 10% from their February peak (but still up 20% from the election); and sterling is down 13% against the dollar since the Brexit vote last June (but it has been down as much as 20%). Estimates of first quarter U.S. growth have been slashed in recent weeks, with the Atlanta Fed’s closely-watched GDPNow model pointing to just 0.5% compared with around 2.5% less than two months ago.

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All it takes is a few rate hikes.

IMF Warns High US Corporate Leverage Could Threaten Financial Stability (WSJ)

U.S. corporate debt has ballooned on cheap credit to levels exceeding those prevailing just before the 2008 financial crisis, a potential threat to financial stability, the IMF warned in its latest review of the top threats to markets and banks. High corporate leverage could become problematic as the Federal Reserve raises short-term interest rates, the IMF warned, since higher borrowing costs could hinder the ability of firms to service debts. While borrowing costs remain low, debt servicing as a proportion of income has risen to its highest level since 2010, raising questions over firms’ ability to service their debts, according to the IMF’s study of nearly 4,000 U.S. firms accounting for about half of the economywide corporate sector balance sheet.

Companies have added $7.8 trillion of debt and other liabilities since 2010, while issuing $3 trillion of equity, net of buybacks, according to the IMF. The IMF’s message stands in contrast to the one being sent by the corporate bond market, which has been rallying for more than a year now. In early March, the average spread between junk-rated corporate bond yields and U.S. Treasury yields reached 3.44 percentage points, its lowest point since July 2014, according to Bloomberg Barclays data. It was most recently at 3.92 percentage points, still a very low level by historical standards, indicating that investors don’t see the debt as very risky.

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So you buy mortgage backed securities, and then use them as collateral for a loan that lets you buy more securities. The serpent and the tail.

Securities-Based Loans Are Scaring Fiscal Experts (NYP)

Forget subprime mortgages – one of Wall Street’s biggest risks doesn’t even show up on most banks’ balance sheets. Financial insiders are getting increasingly worried over the popularity of securities-based loans, or SBLs – a risky form of debt marketed to wealthy investors who typically use it to buy big assets like houses. The loans, which are taken against pools of stocks and bonds, offer borrowers cheap money fast without having to sell their underlying securities – an attractive option when the Dow is rising. But if markets crash, brokers can unload their clients’ holdings at fire-sale prices – and go after the house to cover the the vig. Fears of such ugly scenarios are growing as the Fed hikes interest rates, stocks are hitting all-time highs, and high-net-worth individuals are using this form of “shadow margin” to borrow more against stocks and bonds in their portfolios than ever before.

It’s not clear how much debt has been taken out in the form of SBLs, and a lack of regulatory oversight is partly to blame. Finra, the brokerage regulator, doesn’t track it, nor does the Securities and Exchange Commission — even though both have warned investors about the risks. However, several advisers surveyed by The Post estimated there is between $100 billion and $250 billion in outstanding SBLs among all brokerages. At least one concerned financial executive is in talks with lawyers to file a whistleblower case over the issue against a major bank with the Securities and Exchange Commission, The Post has learned. “When the market does turn, and it will at some point, it will be a major disaster,” said the exec, who requested confidentiality in exchange for speaking on the issue with The Post.

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Here’s what I think will lead to UBI: poor old people. I skipped all the examples and links provided here. Do read them. “Where ‘P’ is pensions, ‘G’ is ‘government intervention’, ‘M’ is media oversight, and ‘I’ is insolvency.”

Telling the truth: (P + G) – M = I (MarkGB)

Telling the truth has never been popular with politicians. They believe that it would prevent them from getting elected. Making new promises that will never be kept, and covering up the unaffordability of old promises…is how politicians get elected. The pattern is well worn and predictable: they use promises to ‘bribe’ people to vote for them, then they fail to deliver, then they blame someone else, then they change the subject…rinse and repeat…meanwhile the really important stuff get’s brushed under the carpet or kicked down the road…choose your own metaphor. There are few greater examples of this than the approaching crisis in pensions: A tale that has been decades in the telling, the climax will be a calamity that the corporate media doesn’t want to look at, and politicians never mention or acknowledge. Short of being strapped to a metal chair and entertained with an electrical massage they never will…which is a nice thought but regrettably still illegal, at least on the mainland.

[..] Despite the dark pleasure it would give me to label our political and economic elites: ‘as thick as two short planks’…the truth is that many of them are not. It’s far worse than that I’m afraid. They are ‘liars’. The politicians, central bankers, economists and journalists who understand the situation we face, but do nothing to address it, are discrediting the positions of responsibility that they hold…by lying through omission, by obfuscation, through denial, by issuing false and/or misleading information, and via the good old fashioned ‘art’ of bull$hitting straight to camera. Finally, and on a slightly lighter note, for anyone reading this who has been brainwashed with the idea that any theory or observation that can’t be reduced to an equation, is not real ‘economics’…here is an equation for you (but don’t expect your professor to like it):

(P + G) – M = I

Where ‘P’ is pensions, ‘G’ is ‘government intervention’, ‘M’ is media oversight, and ‘I’ is insolvency. Throughout recorded history, this equation has never failed to balance eventually…ask any legionnaire.

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Another -more palatable?!- way of phrasing UBI.

You’re Hired! A Guaranteed Job For Anyone Who Wants One (DJ)

Democrats have begun the presidency of Donald Trump exiled to the political wilderness. They’ve lost the White House, both houses of Congress, a shocking number of state governments, while the “blue state” vote has turned out to be really just the “blue city” vote. The party has cast about for solutions, battling it out over identity politics, the proper opposition strategy, and more. But Democrats might consider taking a cue from Trump himself. Namely, his relentless promises to bring back good-paying American jobs. “It’s the first and most consistent thing he discusses,” observed Mike Konczal, a fellow at the Roosevelt Institute, after reviewing Trump’s speeches. The President understands, as The New York Times’s Josh Barro noted, that most Americans think the purpose of private business is to provide good jobs, not merely turn a profit.

Even Trump’s xenophobia and white nationalism are not totally separate from this: Kicking out all the immigrants and rolling foreign competitors are critical components of how he would restore jobs. Democrats tend to treat jobs as the happy by-product of other goals like infrastructure revitalization or green energy projects. Or they treat deindustrialization and job dislocation as regrettable inevitabilities, offering training, unemployment insurance, health care, and so on to ameliorate their effects. All these policies are worthy. But a job is not merely a delivery mechanism for income that can be replaced by an alternative source. It’s a fundamental way that people assert their dignity, stake their claim in society, and understand their mutual obligations to one another. There’s pretty clear evidence that losing this social identity matters as much as the loss of financial security.

The damage done by long-term joblessness to mental and physical health is rivaled only by the death of a spouse. It wreaks havoc on marriages, families, mortality rates, alcoholism rates, and more. The 2008 crisis drove long-term unemployment into the stratosphere, and today it remains near a historic high. Trump went right at this problem, telling Michigan in October of 2016: “I am going to bring back your jobs.” Period. Democrats should consider making the same moon shot promise. But unlike Trump, they should back it up with a policy plan. And there’s an idea that could do the trick. It emerges naturally from progressive values. It’s big, bold, and could fit on a bumper sticker. It’s generally called the “job guarantee” or the “employer of last resort.” In a nutshell: Have the federal government guarantee employment, with benefits and a living wage, to every American willing and able to work.

Read more …

More pension troubles. Today Japan, tomorrow your neck of the woods.

Japan’s Middle-Aged ‘Parasite Singles’ Face Uncertain Future (R.)

Their youth long gone, members of Japan’s generation of “parasite singles” face a precarious future, wondering how to survive once the parents many depended on for years pass away. Some 4.5 million Japanese aged between 35 and 54 were living with their parents in 2016, according to a researcher at the Statistical Research and Training Institute on a demographic phenomena that emerged two decades ago, when youthful singles made headlines for mooching off parents to lead carefree lives. Now, without pensions or savings of their own, these middle-aged stay-at-homes threaten to place an extra burden on a social welfare system that is already creaking under pressure from Japan’s aging population and shrinking workforce.

Hiromi Tanaka once sang backup for pop groups, and epitomized the optimism of youth. “I got used to living in an unstable situation and figured somehow it would work out,” Tanaka told Reuters as she sat at the piano in a small parlor of an old house connected to her elderly mother’s next door. Now aged 54, Tanaka relies on income from giving private singing lessons to a dwindling number of students, and her mother’s pension to make ends meet. She has no pension plan of her own, and has used up most of her savings. “My father died last year so pension income was halved,” she said. “If things go on like this, my mother and I will fall together.” Tanaka is one of the growing ranks of “life-time singles,” whose numbers hit a record in 2015, according to data released this month that showed that among 50-year-olds, 1 in 4 men and 1 in 7 women were unmarried.

“During the ‘bubble economy’ until the mid-1990s, the 20-somethings were happily amusing themselves. They thought by the time they were in their 30s, they’d be married,” said Masahiro Yamada, a Chuo University sociologist who coined the term “parasite singles” in 1997. “But one-third never married and are now around age 50,” Yamada said. The trend is not only a factor behind Japan’s low birthrate and shrinking population. It also puts an extra damper on consumption since new household formation is a key driver of private spending. And since about 20% of the middle-aged stay-at-home singles rely on parents for support, they also threaten to weigh on social safety nets. “Once they use up inherited assets and savings, when nothing is left, they will go on the dole,” Yamada said.

Read more …

Casey gets lots of things spectacularly wrong. The EU did need trade pacts etc., to enhance, guarantee quality control. The EU did a lot of good things. But it got taken over by the shit that floats to the top: “The European Union in Brussels is composed of a class of bureaucrats that are extremely well paid, have tremendous benefits, and have their own self-referencing little culture. They’re exactly the same kind of people that live within the Washington, D.C. beltway.”

The EU’s Collapse Is Now “Imminent” (Doug Casey)

A free trade pact between different governments is unnecessary for free trade. An individual country interested in prosperity and freedom only needs to eliminate all import and export duties, and all import and export quotas. When a country has duties or quotas, it’s essentially putting itself under embargo, shooting its economy in the foot. Businesses should trade with whomever they want for their own advantage. But that wasn’t the way the Europeans did it. The Eurocrats, instead, created a treaty the size of a New York telephone book, regulating everything. This is the problem with the EU. They say it is about free trade, but really it’s about somebody’s arbitrary idea of “fair trade,” which amounts to regulating everything. In addition to its disastrous economic consequences, it creates misunderstandings and confusion in the mind of the average person.

Brussels has become another layer of bureaucracy on top of all the national layers and local layers for the average European to deal with. The European Union in Brussels is composed of a class of bureaucrats that are extremely well paid, have tremendous benefits, and have their own self-referencing little culture. They’re exactly the same kind of people that live within the Washington, D.C. beltway. The EU was built upon a foundation of sand, doomed to failure from the very start. The idea was ill-fated because the Swedes and the Sicilians are as different from each other as the Poles and the Irish. There are linguistic, religious, and cultural differences, and big differences in the standard of living. Artificial political constructs never last. The EU is great for the “elites” in Brussels; not so much for the average citizen.

Meanwhile, there’s a centrifugal force even within these European countries. In Spain, the Basques and the Catalans want to split off, and in the UK, the Scots want to make the United Kingdom quite a bit less united. You’ve got to remember that before Garibaldi, Italy was scores of little dukedoms and principalities that all spoke their own variations of the Italian language. And the same was true in what’s now Germany before Bismarck in 1871. In Italy 89% of the Venetians voted to separate a couple of years ago. The Italian South Tyrol region, where 70% of the people speak German, has a strong independence movement. There are movements in Corsica and a half dozen other departments in France. Even in Belgium, the home of the EU, the chances are excellent that Flanders will separate at some point.

Read more …

Another feature brought to you by the Troika.

Greece Needs To Start Having Babies Again or Face Financial Oblivion (Ind.)

People in Greece can’t afford to have more than one child, and many are opting to have none at all. Fertility doctor Minas Mastrominas tells the New York Times that some women have decided not to conceive, and single-child parents have been asking him to destroy their remaining embryos. He said: “After eight years of economic stagnation, they’re giving up on their dreams.” It isn’t just Greece suffering low birth rates. In fact the trend spreads to most of Europe, with Spain, Portugal and Italy also reporting dangerously low rates. Unemployment continues to be a serious issue in Greece. Rates are slightly lower than in 2016 when they were 23.9%, but are still very high at 23.5%. The slump has affected women more, with unemployment rates at 27% compared to 20% of men.

Child tax breaks and subsidies for large families have decreased, and the country stands at having to lowest budget in the EU for family and child benefits. During the height of the crisis, women postponed childbirth in favour of working. As the years dragged on, the rate of fertility decreased, making it biologically more difficult to conceive. Additionally, gender equality came to a standstill, and many women of ‘childbearing age’ were denied employment, or had their contract changed to part time involuntarily, as soon as they got pregnant. One of the most prominent areas that will be detrimentally affected is pensions and the welfare system. Additionally, according to Eurostat, such low birth rates – under 2.1 – could create a demographic disaster. This will have a knock-on effect on pensions, with fewer young people working.

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And the children we do have, we treat like this. No wonder there are fewer of them.

40% of Spanish Children Live in Poverty (EurA)

Spain has the EU’s third highest rate of child poverty, after Romania and Greece. EURACTIV Spain reports. After the economic crisis and years of austerity, child poverty is on the rise in wealthy countries, according to Unicef. In Spain, the proportion of children living below the poverty line increased by 9 percentage points between 2008 and 2014, to reach almost 40%. While child poverty in general rose significantly, the sharpest increase (56%) was among households of four people (two adults and two children) living on less than €700 per month, or €8,400 per year. Spain has the third widest gap in the EU, behind Latvia and Cyprus, between the levels of social protection offered to children and people over 65. During the crisis, Spain’s oldest citizens were much better protected than its youngest.

According to the Spanish Statistical Office, cited by Unicef, investment in the social protection of families fell by €11.5 billion between 2009 and 2015. Unicef also highlighted that families with children, large families, single-parent families and teenagers suffered the most from the effects of poverty. As for Madrid’s response to the crisis, the UN’s agency for children criticised its failure to contain child poverty. “Social protection policies are very fragmented and very unequal, with little focus on children,” Unicef said. For the organisation, this is due, among other causes, to the strong link between social security and workers’ contributions, and the fact that many of the state’s family aid programmes take the form of tax credits, which have little impact on low earners.

Read more …

They’ll get it awfully wrong. It’s too late in the game.

Ontario Set to Unveil Its Plan to Cool Toronto Housing (BBG)

Ontario is expected to impose a tax on “non-resident speculators” when it announces new measures Thursday to cool the red-hot housing market in Toronto, according to people familiar with the plans. The measures are intended to improve housing affordability, and address both supply and demand, the people said, speaking on condition of anonymity because the plans are not yet public. The measures are also said to include a new tax aimed at curbing purchases from non-resident speculators. [..] Home prices in the Toronto area climbed 6.2% last month, the biggest one-month gain on record, according to a benchmark price index by the Canadian Real Estate Association, and are up almost 30% in the past 12 months. Bank of Canada Governor Stephen Poloz said last week the price gains are “divorced” from the typical measures of demand, such as income growth and demographics, and said they are unsustainable.

“The focus has to be on runaway prices, more so than affordability per se,” Robert Hogue, a senior economist at Royal Bank of Canada, said in a phone interview. “The risk now is about expectations in the market, or market psychology, as you have both sellers and buyers expecting much higher prices.” The Toronto Star reported earlier, without saying where it got the information, that Sousa will announce some 10 measures ranging from rent controls to a new tax on speculators. The move comes a week before the province tables its budget on April 27, and two days after Sousa said the government recognizes that “now” is the time to address runaway home prices. Sousa on Tuesday met Canadian Finance Minister Bill Morneau and Toronto Mayor John Tory, who said that possible steps include taxing homes left empty for speculative purposes. Rent increases on newer buildings may be limited to about 1.5% above the inflation rate, which was at 2% in February, the Star reported.

Read more …

Daddy, please tell the story again of why we have regulators!

Feds Knew of 700 Wells Fargo Whistleblower Cases in 2010 (CNN)

America’s chief federal banking regulator admits it failed to act on numerous “red flags” at Wells Fargo that could have stopped the fake account scandal years earlier. One particularly alarming red flag that went unheeded: In January 2010, the regulator was aware of “700 cases of whistleblower complaints” about Wells Fargo’s sales tactics. An internal review published on Wednesday by the Office of the Comptroller of the Currency found that the regulator didn’t live up to its responsibilities. The report found that oversight of Wells Fargo was “untimely and ineffective” and federal examiners overseeing the bank “missed” several opportunities to uncover the problems that led to the creation of millions of fake accounts. The review painted a damning picture of the OCC’s ability to spot what in retrospect should have been obvious problems at one of the nation’s biggest banks.

The OCC did confront Carrie Tolstedt, then head of Wells Fargo’s community bank, about the stunning number of whistleblower claims. However, there are no records that show that federal inspectors “investigated the root cause,” or force Wells Fargo to probe it. It’s now clear that root cause of Wells Fargo’s problems – both the creation of fake accounts and the related 5,300 firings – was the notoriously aggressive sales goals targets set by senior management. At one point, rank and file bankers were asked to open as many as eight accounts per customer. That’s why the bank has eliminated them. From top management to Wells Fargo’s board of directors, everyone turned a blind eye to these issues. There’s evidence now that some of this was flagged as early as 2004 to management.

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Stone states the obvious.

So It Goes (Oliver Stone)

I confess I really had hopes for some conscience from Trump about America’s wars, but I was wrong – fooled again! – as I had been by the early Reagan, and less so by Bush 43. Reagan found his mantra with the “evil empire” rhetoric against Russia, which almost kicked off a nuclear war in 1983 – and Bush found his ‘us against the world’ crusade at 9/11, in which of course we’re still mired. It seems that Trump really has no ‘there’ there, far less a conscience, as he’s taken off the handcuffs on our war machine and turned it over to his glorified Generals – and he’s being praised for it by our ‘liberal’ media who continue to play at war so recklessly. What a tortured bind we’re in. There are intelligent people in Washington/New York, but they’ve lost their minds as they’ve been stampeded into a Syrian-Russian groupthink, a consensus without asking – ‘Who benefits from this latest gas attack?’

Certainly neither Assad nor Putin. The only benefits go to the terrorists who initiated the action to stave off their military defeat. It was a desperate gamble, but it worked because the Western media immediately got behind it with crude propagandizing about murdered babies, etc. No real investigation or time for a UN chemical unit to establish what happened, much less find a motive. Why would Assad do something so stupid when he’s clearly winning the civil war? No, I believe America has decided somewhere, in the crises of the Trump administration, that we will get into this war at any cost, under any circumstances – to, once again, change the secular regime in Syria, which has been, from the Bush era on, one of the top goals – next to Iran – of the neoconservatives. At the very least, we will cut out a chunk of northeastern Syria and call it a State.

Abetted by the Clintonites, they’ve done a wonderful job throwing America into chaos with probes into Russia’s alleged hacking of our election and Trump being their proxy candidate (now clearly disproved by his bombing attack) – and sadly, worst of all in some ways, admitting no memory of the same false flag incident in 2013, for which again Assad was blamed (see Seymour Hersh’s fascinating deconstruction of this US propaganda, ‘London Review of Books’ December 19, 2013, “Whose sarin?”). No memory, no history, no rules – or rather ‘American rules.’ No, this isn’t an accident or a one-off affair. This is the State deliberately misinforming the public through its corporate media and leads us to believe, as Mike Whitney points out in his brilliant analyses, “Will Washington Risk WW3” and “Syria: Where the Rubber Meets the Road,” that something far more sinister waits in the background.

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BBG can’t even run a story on climate anymore without adding “..the emerging risk of an emboldened and growing Russian empire..”, and more of such useful hints.

A Melting Arctic Changes Everything (BBG)

The story of the Arctic begins with temperature but it’s so much more—this is a tale about oil and economics, about humanity and science, about politics and borders and the emerging risk of an emboldened and growing Russian empire. The world as a whole has warmed about 0.9 degrees Celsius (1.7 degrees Fahrenheit) since 1880. Arctic temperatures have risen twice that amount during the same time period. The most recent year analyzed, October 2015 to September 2016, was 3.5C warmer than the early 1900s, according to the 2016 Arctic Report Card. Northern Canada, Svalbard, Norway and Russia’s Kara Sea reached an astounding 14C (25F) higher than normal last fall. Scientists refer to these dramatic physical changes as “Arctic amplification,” or positive feedback loops. It’s a little bit like compound interest.

A small change snowballs, and Arctic conditions become much less Arctic, much more quickly. “After studying the Arctic and its climate for three-and-a-half decades,” Mark Serreze, director of the National Snow and Ice Data center, wrote recently. “I have concluded that what has happened over the last year goes beyond even the extreme.” The heat is making quick work of its natural prey: ice. Scientists track the number of “freezing-degree days,” a running seasonal tally of the amount of time it’s been cold enough for water to freeze. The 2016-2017 winter season has seen a dramatic shortfall in coldness—more than 20% below the average, a record. Sea ice has diminished much faster than scientists and climate models anticipated. Last month set a new low for March, out-melting 2015 by 23,000 square miles.

Compared with the 1981-2010 baseline, the average September sea-ice minimum has been dropping by more than 13% per decade. A recent study in Nature Climate Change estimated that from 30-50% of sea ice loss is due to climate variability, while the rest occurs because of human activity. Receding ice decreases the Earth’s overall reflectivity, making the Arctic darker and therefore absorbing even more heat. The ice is not all the same age or thickness, although it has become somewhat more uniform. In 1985, about 45% of Arctic sea ice was made up of older and thicker multi-year ice. By 2016, that number shrank to 22%.

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Dec 122016
 
 December 12, 2016  Posted by at 8:53 am Finance Tagged with: , , , , , , , , , , ,  5 Responses »
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‘Daly’ Store, Manning, South Carolina July 1941


CIA’s Blatant Lies Demolished By A Little Simple Logic (Craig Murray)
Chinese Media Hit Out At Trump Over ‘One China’ Comments (CNBC)
Dollar Debt Issuance Soars As Central Banks Take A Back Seat – BIS (CNBC)
Market ‘Paradigm Shift’ May Be Under Way, More Volatility Likely – BIS (R.)
China’s Highly Leveraged Real Estate Developers Face Tough 2017 (BBG)
Top Tech Executives To Attend Trump Summit On Wednesday (R.)
Italy’s Monte dei Paschi To Seek Private Sector-Led Rescue (AFP)
Saudi’s Willing To Cut Oil Output Even More Than Agreed (BBG)
India Workers Abandon Building Sites After Cash Crackdown (R.)
Foxconn Puts 25% Of Its India Workers On Bench After Demonetization (ET)
Venezuela Pulls Most Common Banknote From Circulation To ‘Beat Mafia’ (R.)
Syria’s Palmyra Falls To ISIS Once More (DW)
Vienna Will Veto EU Membership Talks With Turkey – Austrian FM (RT)
Economic Migrants Put Extra Strain On Greek Asylum System (Kath.)
Greece Is Rock Bottom In EU’s Social Justice Rankings (Kath.)
Happiness Depends On Health And Friends, Not Money (G.)

 

 

A merciless put-down by Craig Murray, former British ambassador to Uzbekistan, and former Rector of the University of Dundee. Close associate of Assange.

CIA’s Blatant Lies Demolished By A Little Simple Logic (Craig Murray)

I have watched incredulous as the CIA’s blatant lie has grown and grown as a media story – blatant because the CIA has made no attempt whatsoever to substantiate it. There is no Russian involvement in the leaks of emails showing Clinton’s corruption. Yes this rubbish has been the lead today in the Washington Post in the US and the Guardian here, and was the lead item on the BBC main news. I suspect it is leading the American broadcasts also. A little simple logic demolishes the CIA’s claims. The CIA claim they “know the individuals” involved. Yet under Obama the USA has been absolutely ruthless in its persecution of whistleblowers, and its pursuit of foreign hackers through extradition.

We are supposed to believe that in the most vital instance imaginable, an attempt by a foreign power to destabilise a US election, even though the CIA knows who the individuals are, nobody is going to be arrested or extradited, or (if in Russia) made subject to yet more banking and other restrictions against Russian individuals? Plainly it stinks. The anonymous source claims of “We know who it was, it was the Russians” are beneath contempt. As Julian Assange has made crystal clear, the leaks did not come from the Russians. As I have explained countless times, they are not hacks, they are insider leaks – there is a major difference between the two.

And it should be said again and again, that if Hillary Clinton had not connived with the DNC to fix the primary schedule to disadvantage Bernie, if she had not received advance notice of live debate questions to use against Bernie, if she had not accepted massive donations to the Clinton foundation and family members in return for foreign policy influence, if she had not failed to distance herself from some very weird and troubling people, then none of this would have happened. The continued ability of the mainstream media to claim the leaks lost Clinton the election because of “Russia”, while still never acknowledging the truths the leaks reveal, is Kafkaesque.

[..] both Julian Assange and I have stated definitively the leak does not come from Russia. Do we credibly have access? Yes, very obviously. Very, very few people can be said to definitely have access to the source of the leak. The people saying it is not Russia are those who do have access. After access, you consider truthfulness. Do Julian Assange and I have a reputation for truthfulness? Well in 10 years not one of the tens of thousands of documents WikiLeaks has released has had its authenticity successfully challenged. As for me, I have a reputation for inconvenient truth telling.

Contrast this to the “credible sources” Freedland relies on. What access do they have to the whistleblower? Zero. They have not the faintest idea who the whistleblower is. Otherwise they would have arrested them. What reputation do they have for truthfulness? It’s the Clinton gang and the US government, for goodness sake. In fact, the sources any serious journalist would view as “credible” give the opposite answer to the one Freedland wants. But in what passes for Freedland’s mind, “credible” is 100% synonymous with “establishment”. When he says “credible sources” he means “establishment sources”. That is the truth of the “fake news” meme. You are not to read anything unless it is officially approved by the elite and their disgusting, crawling whores of stenographers like Freedland.

The worst thing about all this is that it is aimed at promoting further conflict with Russia. This puts everyone in danger for the sake of more profits for the arms and security industries – including of course bigger budgets for the CIA. As thankfully the four year agony of Aleppo comes swiftly to a close today, the Saudi and US armed and trained ISIS forces counter by moving to retake Palmyra. This game kills people, on a massive scale, and goes on and on.

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He’s not trying to trade the policy.

Chinese Media Hit Out At Trump Over ‘One China’ Comments (CNBC)

Donald Trump attracted stinging criticism from China’s state media after the President-elect stated that the U.S. did not necessarily have to stick to the “One China” policy. Communist Party-owned paper, Global Times, published in an opinion piece with the headline: “Trump, please listen clearly, the One China policy cannot be traded” as it warned Trump that China cannot “cannot be easily bullied”. “If Trump abandons the one-China principle, why should China need to be U.S.’ partner in most international affairs?” said the paper, which is known for its extreme nationalistic views. Most would think Trump is “ignorant like a child” in handling diplomacy, the paper added.

Its English language editor was less strident, with the paper citing a foreign affairs analyst chalking up Trump comments to “inexperience” in a piece entitled “Prevent ‘immature’ Trump being manipulated by conservative forces: analyst”. “As a businessman, he thinks it’s quite normal to do business, but he hasn’t realized that the Taiwan question is not a business to China. The Taiwan question is not negotiable,” China Foreign Affairs University professor Li Haidong was quoted as saying. Li also said Trump didn’t have a plan to challenge the “One China” policy. China and Taiwan parted ways in 1949, when the Nationalist Party (KMT) was forced to retreat to Taiwan by the Chinese Communist Party and China views the territory as a renegade province that can be re-taken by force if necessary. Washington embraced the “One China” policy in 1979 under which Beijing views Taiwan, Hong Kong and Macau as part of China.

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And at the end of the day central banks are going to buy up all the devalued paper again?

Dollar Debt Issuance Soars As Central Banks Take A Back Seat – BIS (CNBC)

The amount of dollar-denominated debt issued by financial institutions stepped up to reach a record high during the third quarter as the influence of central banks receded, according to the latest quarterly review from the Bank of International Settlements (BIS), released on Sunday. “Developments during this quarter stand out for one reason: For once, central banks took a back seat,” Claudio Borio, head of the BIS’ monetary and economic department was quoted as saying in the review. “It is as if market participants, for once, had taken the lead in anticipating and charting the future, breaking free from their dependence on central banks’ every word and deed,” he continued. Total issuance of international debt securities during the third quarter slipped 10% to hit $1.4 trillion.

Within advanced economies, a below-average pace of repayments meant quarterly net issuance jumped 40% with the year-to-date net figure at its highest level since 2009. Turning to emerging markets, quarterly net issuance dropped 35% from its abnormally large amount the previous quarter but the year-to-date figure still showed a 73% jump over 2015’s equivalent number. The lower EM net issuance figure this quarter particularly reflected a sharp slowdown in sovereign borrowing by oil-producing governments. However, looking ahead, fourth-quarter figures should be bolstered once again by Saudi Arabia’s $17.5 billion bond issue placed in October and it is worth remembering the heady pace of issuance during the second quarter, driven by oil exporters such as Oman, Qatar and the United Arab Emirates.

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Who needs central banks?

Market ‘Paradigm Shift’ May Be Under Way, More Volatility Likely – BIS (R.)

Financial markets have been remarkably resilient to rising bond yields and sudden shift in outlook following last month’s shock U.S. election result, but the sheer scale of uncertainties ahead means the adjustment will be “bumpy”, the BIS said on Sunday. While the resilience to recent market swings following the U.S. election and Brexit vote have been welcome, investors should be braced for further bouts of extreme volatilty and “flash crash” episodes like the one that hit sterling in October, the Bank for International Settlements said. “We do not quite fully understand the cause of such unusual price moves … but as long as such moves remain self-contained and do not threaten market functioning or the soundness of financial institutions, they are not a source of much concern: we may need to get used to them,” said Claudio Borio, Head of the Monetary and Economic Department at the BIS.

“It is as if market participants, for once, had taken the lead in anticipating and charting the future, breaking free from their dependence on central banks’ every word and deed,” Borio said. This suggests investors may finally be learning to stand on their own two feet after years of relying on central bank stimulus, signaling a potential “paradigm shift” for markets, he said. “But the jury is still out, and caution is in order. And make no mistake: bond yields are still unusually low from a long-term perspective,” Borio said. [..] Bond yields have risen sharply since the middle of the year. The benchmark 10-year U.S. Treasury yield has jumped 100 basis points since July’s multi-decade low, with a growing number of investors saying the 35-year bull run in bonds is now over.

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I say it almost every day: shadow banks.

China’s Highly Leveraged Real Estate Developers Face Tough 2017 (BBG)

For China’s highly leveraged real estate developers, 2017 could be the year that the borrowing binge finally catches up with them. Regulators have choked off a key source of funding, with the Shanghai Stock Exchange raising the threshold for property firms to sell bonds on their platform in October. Since then, builders haven’t sold any notes in a market that played host to about 40% of their onshore debentures over the past two years, data compiled by Bloomberg show. The curbs couldn’t have come at a worse time, with a record $17.3 billion of developer bonds due next year, and another $27.9 billion in 2018. China’s government is treading a fine line with the curbs on debt issuance as it tries to gently deflate the real-estate bubble while avoiding wider fallout in an industry that accounts for as much as 20% of Asia’s largest economy.

The sector is also threatened by a broader increase in funding costs, with the yield premium on AAA-rated domestic corporate notes reaching the widest since July 2015, amid a global pullback in bonds and targeted central bank steps to stem leverage. Smaller developers will be the hardest hit, with bigger players still able to sell exchange-regulated bonds, according to NN Investment Partners. “Overall, funding conditions will become more challenging in 2017,” said Clement Chong, senior credit analyst in Singapore at NN Investment. “Only stronger developers can issue onshore bonds, subject to a number of conditions. But smaller builders will be forced to come to the offshore market to issue bonds, which will be subject to regulatory approval.”

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Most of them were strong Hillary supporters.

Top Tech Executives To Attend Trump Summit On Wednesday (R.)

Top executives from Alphabet Inc, Apple Inc and Facebook Inc are among a small group of tech leaders invited to a summit to be held on Wednesday by U.S. President-elect Donald Trump, Recode reported, citing sources. Executives from Microsoft Corp, Intel Corp and Oracle Corp will also be among “a very heady group of less than a dozen, comprising most of the key players in the sector” to attend the summit, Recode said. Billionaire entrepreneur and Tesla Motors Inc CEO Elon Musk will also be in attendance, the Wall Street Journal reported, citing people familiar with the matter.

“I plan to tell the president-elect that we are with him and are here to help in any way we can,” Oracle CEO Safra Catz told Reuters in an emailed statement. “If he can reform the tax code, reduce regulation, and negotiate better trade deals, the U.S. technology community will be stronger and more competitive than ever.” Amazon.com Inc CEO and founder Jeff Bezos was also invited and is likely to attend, Recode said citing sources with knowledge of the situation.

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What’s in it for Qatar?

Italy’s Monte dei Paschi To Seek Private Sector-Led Rescue (AFP)

Italy’s troubled Monte dei Paschi di Siena (BMPS) bank on Sunday announced it would go ahead with plans to seek a private sector-led rescue, narrowly avoiding the need to seek a government bailout. The world’s oldest bank’s woes have raised concerns over the eurozone’s third-largest economy, particularly in the aftermath of prime minister Matteo Renzi’s resignation after a crushing referendum defeat. The bank’s prospects appeared somewhat less alarming Sunday however, after Italian President Sergio Mattarella asked Renzi’s ally Paolo Gentiloni to form a new government. BMPS’s stock tumbled Friday over reports that the ECB had denied it more time to raise the cash it needed to avoid being wound down, triggering speculation it would be forced to seek a government bailout.

The bank – seen as the weak link in Italy’s economy – had asked to be given until January 20 to avoid collapse. The request was reportedly refused, with the ECB’s board believed to have ruled that two weeks of extra time would be of little use in turning around the historic bank. In a statement published late Sunday after a board meeting in Milan, BMPS said it had “decided to go ahead” with plans to seek a market-led rescue by December 31. The bank had initially announced its plan to seek a private sector-led rescue in July. The bank, whose stock has fallen more than 80% this year, plans the sale of €27.6 billion in non-performing loans. It also aims for a capital injection of up to €5 billion. Italian media reports say the Qatar Investment Authority – the Gulf nation’s state-owned holding company – may be willing to contribute €1 billion.

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Everyone’s willing to cut outputs, but not if it costs money or market share. Not going to work.

Saudi’s Willing To Cut Oil Output Even More Than Agreed (BBG)

Saudi Arabia signaled it’s ready to cut oil production more than expected, a surprise announcement made minutes after Russia and several non-other OPEC countries pledged to curb output next year. Taken together, OPEC’s first deal with its rivals since 2001 and the Saudi comments represent a forceful effort by producers to wrest back control of the global oil market, depressed by persistent oversupply and record inventories. “This is shock and awe by Saudi Arabia,” said Amrita Sen at Energy Aspects in London. “It shows the commitment of Riyadh to rebalance the market and should end concerns about OPEC delivering the deal.” Oil prices have surged more than 15% since OPEC announced Nov. 30 it will cut production for the first time in eight years, rising this week briefly above $55. The price rise has propelled the shares of energy groups from Exxon Mobil to shale firms such as Continental Resources.

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Everyone needs a bank account, but the banks have no yime for that since they’re exchanging old for new money. Sounds like a plan.

India Workers Abandon Building Sites After Cash Crackdown (R.)

Hundreds of thousands of construction workers have returned home since Prime Minister Narendra Modi abolished high-denomination banknotes, leaving some building sites across the country facing costly delays. A month after Modi’s shock move to take away 86% of cash in circulation to crush the shadow economy, the growing labour shortage threatens to slow a recovery in India’s construction industry, which accounts for 8% of gross GDP and employs 40 million people. Work at SARE Homes’ residential projects, spanning six cities, has slowed dramatically as migrant workers, who are out of cash and have no bank accounts to draw from, have little choice but to return to their villages. “Construction work at all projects has slowed down in a big way,” managing director Vineet Relia told Reuters.

Property enquiries, meanwhile, have slumped by 80% around the Indian capital since the cash crackdown, according to property portal 99acres. Getamber Anand, president of Indian builders’ association CREDAI, said projects nationwide had been hit, and estimated that roughly half of the migrant workforce, numbering in the low millions, had left for home. Road developers have also reported a slowdown as they struggle to find sufficient labour. The exodus shows little sign of reversing, risking damage to construction activity and the wider economy into 2017, despite Modi’s assurances that hardships from his radical “demonetisation” should be over by the end of the year. [..] for now, millions of workers who depend on daily wages for food and shelter are struggling. Many have never held a bank account, and even if they wanted one, some do not have the necessary documents to do so.

CREDAI’s Anand predicts activity on construction sites will not return to normal until April, and only once labourers are able to open accounts at banks still struggling to serve long queues of people desperate for cash. “Right now the banks say they don’t have time to open accounts. It’s the biggest challenge,” Anand said.

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Modi said it would all be fine by the end of the year. Not going to happen.

Foxconn Puts 25% Of Its India Workers On Bench After Demonetization (ET)

Foxconn, the world’s largest contract manufacturer and poster boy of the government’s Make in India project, has asked nearly a fourth of its 8,000 factory workers to go on paid leave for two weeks after last month’s demonetisation of high value notes sparked a severe cash crunch that saw sales slump almost 50%, forcing the company to slash production by half. The government’s move to ban Rs 500 and Rs 1,000 notes from November 9 has had a domino effect on the mobile phone industry, where a large majority of mobile phones are bought for less than Rs 5,000 and most of the transactions happen through cash.

Consumer purchase power has been reduced dramatically – mobile phone monthly sales halved to Rs 175-200 crore post demonetisation – and sales revival is not looking up, as was perceived earlier, industry insiders said. Leading local players including Intex, Lava and Karbonn are planning to lay off or bench 10-40% of their workforce, as they cut production to control inventory pile-ups in retail channels with consumers delaying cash purchases after Nov 8 demonetisation sucked out cash from the market. Lava is shutting down its plant – which employs around 5000 people -for a week starting December 12, while others could soon follow, industry insiders said.

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Failure of Maduro or intervention from abroad? Venezuela still has a lot of oil.

Venezuela Pulls Most Common Banknote From Circulation To ‘Beat Mafia’ (R.)

Venezuela, mired in an economic crisis and facing the world’s highest inflation, will pull its largest bill, worth two US cents on the black market, from circulation this week ahead of introducing new higher-value notes, President Nicolás Maduro said on Sunday. The surprise move, announced by Maduro during an hours-long speech, is likely to worsen a cash crunch in Venezuela. Maduro said the 100-bolivar bill will be taken out of circulation on Wednesday and Venezuelans will have 10 days after that to exchange those notes at the central bank. Critics slammed the move, which Maduro said was needed to combat contraband of the bills at the volatile Colombia-Venezuela border, as economically nonsensical, adding there would be no way to swap all the 100-bolivar bills in circulation in the time the president has allotted.

Central bank data showed that in November, there were more than six billion 100-bolivar bills in circulation, 48% of all bills and coins. Authorities on Thursday are due to start releasing six new notes and three new coins, the largest of which will be worth 20,000 bolivars, less than $5 on the streets. No official inflation data is available for 2016 though many economists see it in triple digits. Economic consultancy Ecoanalitica estimates annual inflation this year at more than 500%. The oil-producing nation’s bolivar currency has fallen 55% against the US dollar on the black market in the last month.

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Putin won’t like this.

Syria’s Palmyra Falls To ISIS Once More (DW)

On Sunday, the “Islamic State” (IS) retook the desert city of Palmyra in Syria after being driven out of the city hours earlier by heavy Russian aerial attacks, a group monitoring the country’s conflict reported. “Despite the ongoing air raids, IS retook all of Palmyra after the Syrian army withdrew south of the city,” said Rami Abdel Rahman, who heads the Britain-based Syrian Observatory of Human Rights. The Amaq news agency, which has links to the IS militants, also reported that the group had retaken “full control” of the city after first taking Palmyra’s citadel (above photo), which overlooks the historic site.

After launching an offensive in the region a few days before, IS pushed into the city on Saturday, only to be forced to withdraw by a fierce Russian bombing campaign that killed scores of its fighters. The Observatory reported that the militants regrouped on the outskirts of the city and made a successful attempt to retake control. IS has had possession of the city once before, in May last year, destroying many of its ancient treasures, and Palmyra’s recapture could put the remaining artifacts and monuments in extreme danger. The group considers certain artifacts and monuments to be “idolatrous,” and has severely damaged important historic sites and objects across areas of Syria and Iraq that it controls.

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Nothing else makes sense.

Vienna Will Veto EU Membership Talks With Turkey – Austrian FM (RT)

Any further negotiations with Ankara over its future European Union membership will be blocked by Vienna, the Austrian Foreign Minister said, slamming Ankara’s alleged human rights violations in the post-coup crackdown on any opposition. The European Parliament passed a non-binding resolution on November 24 to freeze Turkey’s EU accession process, citing Ankara’s crackdown after July’s failed coup. The final verdict on Turkey’s immediate EU future will be decided following the European Council meeting that is scheduled to take place on December 15-16. Granting visa liberalization to Turkish citizens will also be on the table during the discussions. Before the crucial meeting, the EU’s General Affairs Council of foreign ministers, which meets once a month, will convene to discuss the potential role of Ankara in the EU.

At the meeting, Austria intends to block the continuation of EU accession talks with Turkey, the country’s Foreign Minister, Sebastian Kurz, told Spiegel online. “The European Parliament has adopted a courageous and correct resolution demanding that the accession negotiations with Turkey be frozen. In the conclusions of the Foreign Ministers, there must also be a reaction to developments in Turkey. We must also propose that the accession talks be frozen,” Kurz said. The minister added that the Netherlands and Bulgaria seem to share Vienna’s position on Turkey. The 30-year-old politician said that his country believes that Turkey does not share EU values. He called for a clear response from the European Union to the events which followed the July 15 failed coup.

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Over 300 arrivals a day. Numbers are rising again.

Economic Migrants Put Extra Strain On Greek Asylum System (Kath.)

The numbers of migrants crossing from Turkey to the eastern Aegean islands are on the rise, but the%age of those who merit international protection is on the wane, say authorities, who are looking for ways to speed up asylum procedures. Speaking to Kathimerini on condition of anonymity, local officials told the newspaper that refugee families currently stranded on the islands are reluctant to share a roof with economic migrants, mostly young men from the Maghreb region (Morocco, Tunisia, Algeria) who allegedly often display delinquent behavior and are on the front lines of riots at reception centers. Migration Policy Minister Yiannis Mouzalas recently admitted that between 70 and 80% of arrivals were now migrants while before it was refugees escaping conflict and war.

Whereas the latter appear aware that the Balkan route to Western Europe is officially closed, the groups of young male economic migrants appear more willing to take the risks of reaching Europe. A total 324 undocumented migrants crossed from Turkey on Friday, most of them from Africa and Pakistan. Another 330 reached Greece on Saturday. Rising numbers are putting a big strain on Greece’s asylum system as virtually all newcomers make a claim for asylum despite knowing that they do not fulfill the necessary criteria for international protection. “Even so, we are still obliged to follow the formal procedure and fulfill the European directives,” Maria Stavropoulou, director of the Greek Asylum Service, told Kathimerini.

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Firdt you put them down, then you write a report on it.

Greece Is Rock Bottom In EU’s Social Justice Rankings (Kath.)

Greece came out worst among the bloc’s 28 member-states in the EU’s annual report on social justice for 2015, reflecting the impact of the financial crisis on society, social cohesion and the competitiveness of the Greek economy. The “Social Justice in the EU” report shows that not only is Greece the bloc’s laggard, but the situation in the country is deteriorating, with the gap between Greece and Romania – the second to last in the rankings – growing. Furthermore, the report indicates that the gap between the European North and South is also widening. The social and economic inequality that has emerged in Greece during the crisis is now taking on a permanent structural character, while the local economy appears to be losing its most important comparative advantage – human capital.

The report examines six social justice sectors: poverty prevention, equal rights in education, labor market access, social cohesion, and the absence of discrimination in healthcare and justice. It argues that those sectors have seen a downturn across the EU in the last seven years, reaching their lowest point in the period from 2012 to 2014. On the poverty and social exclusion front, the situation in Greece is particularly worrying, as 35.7% of the population faces the risk of poverty, with the figure for children even higher, at 37.8%, from 36.7% in 2014. The %age of children living in conditions of serious material deprivation has grown to 25.7% from 23.8% in 2014 and 10.4% in 2008. The situation is also disturbing in the labor market: In 2015 just 50.8% of Greeks of working age actually worked – the lowest rate in the EU.

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What happened to the warm gun?

Happiness Depends On Health And Friends, Not Money (G.)

Most human misery can be blamed on failed relationships and physical and mental illness rather than money problems and poverty, according to a landmark study by a team of researchers at the London School of Economics (LSE). Eliminating depression and anxiety would reduce misery by 20% compared to just 5% if policymakers focused on eliminating poverty, the report found. Lord Richard Layard, who led the report, said on average people have become no happier in the last 50 years, despite average incomes more than doubling. The economist and former adviser to Tony Blair and Gordon Brown said the study, called Origins of Happiness, showed that measuring people’s satisfaction with their lives should be a priority for every government. T

he researchers analysed data from four countries including the US and Germany. Extra spending on reducing mental illness would be self-financing, the researchers added, because it would be recovered by the government through higher employment and increased tax receipts together with a reduction in NHS costs from fewer GP visits and hospital A&E admissions. “Tackling depression and anxiety would be four times as effective as tackling poverty. It would also pay for itself,” he said. The report supports the arguments put forward by Layard over several decades that social and psychological factors are more important to the wellbeing of individuals than income levels. “Having a partner is as good for you as being made unemployed is bad for you,” he said.

The report claims that state-run organisations, including schools, must become more focused on tackling anxiety and mental health issues. “This evidence demands a new role for the state – not ‘wealth creation’ but ‘wellbeing creation’,” Layard said. “In the past, the state has successively taken on poverty, unemployment, education and physical health. But equally important now are domestic violence, alcoholism, depression and anxiety conditions, alienated youth, exam mania and much else. These should become centre stage.”

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Dec 032016
 
 December 3, 2016  Posted by at 9:51 am Finance Tagged with: , , , , , , , , , , ,  1 Response »
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DPC “Car ferry Michigan Central turning in ice, Detroit River” 1900


Italian Stock Exchange CEO: There Are ‘Colossal’ Short Positions On Italy (R.)
Markets Eye Europe’s ‘Fear Gauge’ As Italian Referendum Approaches (CNBC)
Is the Yellen Fed TRYING to Crash Stocks To Hurt Trump? (Summers)
China Blames Taiwan For President’s ‘Petty’ Phone Call With Trump (R.)
China Bond Yields Jump As Investors Head For Exit (MNI)
China’s ‘Extraordinary Leverage’ Tops BOE List Of Concerns (CNBC)
Do We Want House Prices Up Or Down? (AFR)
Cash Is Still King In Eurozone – Deutsche (CNBC)
Iceland Pirate Party To Try To Form Government (BBC)
UK Politicians Exempt Themselves From New Wide-Ranging Spying Laws (Ind.)
The New American Dream – A Life In Hock (Peters)
California Pensions Underfunded By $1 Trillion Or $93k Per Household (ZH)
Why US ‘News’ Media Shouldn’t Be Trusted (Zuesse)
Everything You Read About The Wars In Syria And Iraq Could Be Wrong (Ind.)
US Veterans Build Barracks For Pipeline Protesters In Cold (R.)

 

 

By Monday morning, Europe could be shaking on its brittle foundations.

Italian Stock Exchange CEO: There Are ‘Colossal’ Short Positions On Italy (R.)

Big international investors are holding huge short positions on Italian assets, the CEO of the Italian exchange said on Tuesday, days before the country holds a referendum on constitutional reform that could unseat Prime Minister Matteo Renzi. “There are colossal short positions on Italy from the U.S. and other countries where big investors are based,” said Raffaele Jerusalmi during a conference in Milan. Opinion polls conducted until a blackout period began last week showed the “no” vote comfortably in the lead, raising concerns of a political crisis and fueling market volatility. Renzi has said he would resign if Italians reject the reform.

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Spread with Bunds.

Markets Eye Europe’s ‘Fear Gauge’ As Italian Referendum Approaches (CNBC)

The Italian referendum is the current hot concern for investors, who are worrying and waiting to see if voters will reject government attempts to reform the country’s political system. Prime Minister Matteo Renzi has staked his reputation and job on the outcome, arguing a change in the legislature will usher in a nimbler, more productive Italy. However some see the predicted rejection of Renzi’s wishes as a potential opportunity for anti-European populist to gain momentum. Jan Randolph, Director of Sovereign Risk at IHS Markit said in an email Friday that worries over a potential European break-up can be measured by Europe’s “fear gauge”: The difference in yield between Italian and German debt.

“The markets are certainly focusing on this ‘spread’ – what we used to call in the old British banking days the ‘country risk spread’ as viewed by the financial markets,” Randolph said. In recent weeks, the yield spread between Italian and German 10-year government bonds has risen by more than 60 points in 60 days. Last week the spread hit a two-and-a-half year high of 188 basis points, however Reuters reported Friday that investors may be short covering as the gap between Italian and German bond yields has narrowed to 167 basis points. Jan Randolph said any blow-out of Italian yields may well be prevented by the poker hand being played by ECB President Mario Draghi’s massive bond-buying program, which many analysts expect to be extended next year.

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Entertaining ideas.

Is the Yellen Fed TRYING to Crash Stocks To Hurt Trump? (Summers)

Is Janet Yellen trying to crash stocks to screw Trump? Ever since the $USD began its bull market run in mid-2014, the Fed, lead by Janet Yellen, has intervened whenever the $USD cleared 98. The reason for this was the following… Over 47% of US corporate sales come from abroad. With the $USD spiking, pushing all other major currencies generally lower, US corporate profits began to implode. As we write this today, profits have fallen to 2012 levels. Note when this whole profit massacre began. Because of this, the Fed has “talked down” the $USD anytime it began to push higher. Until today…

Since it was announced that Trump won the Presidency, the Fed has allowed the $USD to ramp straight up. It is currently over 101…and the Fed hasn’t said a word. So we ask again… is Janet Yellen trying to crash stocks to screw Trump? We all know the Yellen Fed is one of the most political in history with Fed officials openly donating money to the Clinton campaign. Now Trump has won… the $USD soars to 101… and suddenly the Fed is silent? Not one Fed official has appeared to talk about putting off a rate hike or some other statement that might push the $USD lower…

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Entire books have been written about this in the past 12 hours or so. That, too, is fake news.

China Blames Taiwan For President’s ‘Petty’ Phone Call With Trump (R.)

U.S. President-elect Donald Trump spoke by phone with President Tsai Ing-wen of Taiwan, the first such contact between the two sides in nearly four decades, but China dismissed the call as a “petty action” by the self-ruled island it claims as its own. The 10-minute telephone call with Taiwan’s leadership was the first by a U.S. president-elect or president since President Jimmy Carter switched diplomatic recognition from Taiwan to China in 1979, acknowledging Taiwan as part of “one China”. Hours after Friday’s call, Chinese Foreign Minister Wang Yi blamed Taiwan for the exchange, avoiding what could have been a major rift with Washington just before Trump assumes the presidency. “This is just the Taiwan side engaging in a petty action, and cannot change the ‘one China’ structure already formed by the international community,” Wang said at an academic forum in Beijing, state media reported.

“I believe that it won’t change the longstanding ‘one China’ policy of the United States government.” In comments at the same forum, Wang noted how quickly President Xi Jinping and Trump had spoken by telephone after Trump’s victory, and that Trump had praised China as a great country. Wang said the exchange “sends a very positive signal about the future development of Sino-U.S. relations”, according to the Chinese Foreign Ministry’s website. Taiwan was not mentioned in that call, according to an official Chinese transcript. Trump said on Twitter that Tsai had initiated the call he had with the Taiwan president. “The President of Taiwan CALLED ME today to wish me congratulations on winning the Presidency. Thank you!” he said. Alex Huang, a spokesman for Tsai, said: “Of course both sides agreed ahead of time before making contact.”

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“When everyone heads for the exit at the same time, there’s a risk of injury in the stampede.”

China Bond Yields Jump As Investors Head For Exit (MNI)

When everyone heads for the exit at the same time, there’s a risk of injury in the stampede. Chinese bond investors are getting a taste of just how that feels as they scramble to offload their holdings in what could turn out to be a nasty correction. Some investors have already been dumping their government bonds as yields started to rebound from record lows, while others, who only got in recently when yields were around 2.8-2.9%, been holding on in the hope that bond yields will fall back soon. In the secondary market, the yield on the benchmark 10-year Chinese Government Bond (CGB) broke above 3% on Thursday for the first time since early June and was at 2.995% in Friday morning trade, up nearly 15 basis points for the week, the biggest weekly rise since May 2015.

For November as a whole, the yield jumped 8.88%, the biggest monthly gain since October 2010. Treasury futures also plunged this week with March contracts for 10-year CGB and five-year CGB both having their biggest weekly loss since the contracts started trading in June. A Shanghai-based trader with a joint stock bank said he believes the yield on the 10-year CGB could rise as high as 3.2% before falling back. The brutal sell-off has been triggered by a triple whammy – expectations of tighter liquidity conditions and higher inflation on the domestic front, and externally, rising bond yields in the U.S.

A surge in redemptions from worried investors has hit the market hard. One major state-owned bank is said to have redeemed around CNY200 billion from money market funds while the Industrial and Commercial Bank of China, the country’s largest commercial bank, is also said to have told fund managers managing some of its money to cut bonds holdings and stockpile cash in line with ICBC’s own liquidity management. Domestic investors have swarmed over China’s bond market like bees around a honey pot over the last couple of years amid a dearth of more attractive investment opportunities as economic growth slowed. The stock market rout in the summer of 2015 only encouraged investors to move more funds to fixed income products.

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Sounds about right.

China’s ‘Extraordinary Leverage’ Tops BOE List Of Concerns (CNBC)

China, euro zone sovereign debt and the potential fallout from Brexit top the escalating list of concerns for the Bank of England (BOE), according to a report published on Wednesday which warns that risks to global stability have spiked in the past six months. The U.K.’s central bank’s semi-annual Financial Stability Report states, “Vulnerabilities stemming from the global environment and financial markets, which were already elevated, have increased further since July.” China’s burgeoning debt levels and rapid rate of credit expansion are singled out as significant red flags, with the report noting a 100 percentage point spike in the country’s non-financial sector debt relative to GDP since the 2008 financial crisis. The ratio currently stands at around 260% of GDP.

“This is extraordinary leverage for an advanced, let alone, an emerging economy,” the BOE Governor Mark Carney said at a press conference to launch the report. The “near-record” pace of net capital outflows from China during the third quarter and a 3% depreciation in the Chinese renminbi against the U.S. dollar since the publication of the BOE’s July report were also highlighted as reasons for concern. Turning to nearer neighbors, the governor broke down the key risks emanating from some euro area economies into, firstly, existing sovereign debt dynamics and, secondly, threats to the resilience of parts of the trading bloc’s banking system.

Carney noted the vulnerability of elevated sovereign debt levels to a leap in borrowing costs or diminished growth prospects on the back of either trade or political headwinds. Moving even closer to home, the governor raised the looming specter of the U.K.’s impending departure from the EU, noting banks located domestically currently supply over half of the debt and equity issuance from continental firms and account for over 75% of foreign exchange and derivatives activity in the U.K.

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“We” can’t make up our minds about this one. Because our minds are stuck in a bubble.

Do We Want House Prices Up Or Down? (AFR)

Just as market forces were about to push the price of housing down in Australia, the Treasurer stepped in with some new regulation. Phew. Some first home buyer’s nearly snatched a good deal, but luckily the Treasurer was there to protect the property developers from the oversupply their building bonanza created. No issue creates a bigger flood of nonsensical econobabble in Australia than “housing affordability”. It’s a meaningless term engineered for the sole purpose of allowing politicians to pretend they are simultaneously on the side of home buyers and home sellers. What’s remarkable is the willingness of the media and others to play along. Most politicians are adamant that they want petrol, fresh food and health insurance to be less expensive.

We talk about the price of petrol and the price of milk. We don’t talk about “petrol affordability” or “bread affordability” let alone create an index of the price of bread divided by median household income. Talking endlessly about “housing affordability” allows politicians to duck the simple question of whether house prices are “too high”, “too low” or “just right”. The absurdity of this situation was revealed during the federal election campaign when the Coalition attacked the ALP’s plans to reform negative gearing on the basis that such changes would, wait for it, put downward pressure on house prices. Oh, the humanity! The Coalition’s rhetorical solution to the imaginary issue of housing affordability is to reject changes to the tax treatment of investment houses and instead blame environmentalists and state governments for “restricting the supply of housing”.

Of course this week’s redefinition of “second-hand property” by Treasurer Morrison makes a mockery of such a position. Having spent years pretending that increasing the housing supply would make housing “more affordable” the Treasurer has now acted to prevent an increase in apartment supply from pushing apartment prices down. The Coalition playbook makes clear that when it’s not the environmentalists’ fault, it must be the unions’ fault. On cue Malcolm Turnbull recently empathised with the terrible plight of “young Australian couples that can’t afford to buy a house because their costs are being pushed up by union thuggery”. A quick look at the data suggests no such link, but if Donald Trump taught conservatives anything it’s that data is for losers.

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And it should be.

Cash Is Still King In Eurozone – Deutsche (CNBC)

While cash is facing several challenges in the euro area with an increasing number of people moving towards cashless payments and digital banking, the reports of the demise of cash are greatly exaggerated, Deutsche Bank has said in its latest research note. “Cash is facing many challenges in the euro area. The ECB has decided to cease production of the €500 ($532) note due to concerns over its facilitation of illicit activities,” the bank said while adding that the cash in circulation is three times more than what it was in 2003.

While many would attribute this to the never-ending stream of money that the central banks have been pumping into the economy through QE and ultra-low interest rates, Deutsche Bank’s Heike Mai believes that most of the increase in cash since 2008 comes from abroad and hoarders. Cash held outside the euro area was worth €80 billion and cash hoarded domestically by the real economy is estimated to be valued at €120 billion. “There are good reasons to believe that cash won’t disappear anytime soon from the euro area. First, it is debatable that a cashless society would mean less crime,” Mai said, adding, that the ratio of damage caused by card fraud to the value of counterfeit notes in circulation is more than 10 to 1.

“Second, the political value of cash should not be underestimated. Some economies like using cash, for example, Germany, Spain, Italy and Austria. The most robust data protection is provided by cash,” Mai, an economist at Deutsche Bank, said in the note. The research note that focuses on Europe argued that by the end of third-quarter of 2016, euro currency in circulation amounted to €1.1 trillion, three times as much as in the first quarter of 2003. While small-value notes such as €5, €10 and €20 are used to a great extent for day-to-day payments, bigger-value notes such as €50 and €100 are used for both payments and cash hoarding.

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Beware of frozen quicksand. Everyone wants the Pirates to fail.

Iceland Pirate Party To Try To Form Government (BBC)

Iceland’s anti-establishment Pirate Party has been asked by the president to try to form a new government, following October’s snap elections. President Gudni Johannesson made the announcement after talks with Pirates head Birgitta Jonsdottir. The Pirates, who vowed radical reforms, came third in the elections in which no party won an outright majority. Two earlier rounds of coalition talks involving first the Independence Party and then the Left-Greens failed. “Earlier today, I met the leaders of all parties and asked their opinion on who should lead those talks. After that I summoned Birgitta Jonsdottir and handed her the mandate,” President Johannesson said on Friday.

Ms Jonsdottir said afterwards she was “optimistic that we will find a way to work together”. In the elections, the Pirate Party – which was founded in 2012 – more than tripled its seats to 10 in the 63-member parliament. The election was called after Prime Minister Sigmundur Gunnlaugsson quit in April in the wake of the leaked Panama Papers, which revealed the offshore assets of high-profile figures. The Pirates want more political transparency and accountability, free health care, closing tax loopholes and more protection of citizens’ data.

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Color me stunned.

UK Politicians Exempt Themselves From New Wide-Ranging Spying Laws (Ind.)

Politicians have exempted themselves from Britain’s new wide-ranging spying laws. The Investigatory Powers Act, which has just passed into law, brings some of the most extreme and invasive surveillance powers ever given to spies in a democratic state. But protections against those spying powers have been given to MPs. Most of the strongest powers in the new law require that those using them must be given a warrant. That applies to people wanting to see someone’s full internet browsing history, for instance, which is one of the things that will be collected under the new law. For most people, that warrant can be issued by a secretary of state. Applications are sent to senior ministers who can then approve either a targeted interception warrant or a targeted examination warrant, depending on what information the agency applying for the warrant – which could be anyone from a huge range of organisations – wants to see.

But for members of parliament and other politicians, extra rules have been introduced. Those warrants must also be approved by the prime minister. That rule applies not only to members of the Westminster parliament but alos politicians in the devolved assembly and members of the European Parliament. The protections afforded to politicians are actually less than they had hoped to be given. Earlier in the process, the only amendment that MPs had submitted was one that would allow extra safeguards for politicians – forcing any request to monitor MP’s communications to go through the speaker of the House of Commons as well as the prime minister.

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Eric Peters sells cars. And he’s right that cheap credit drives car sales and gadgetry. But not about the need for cars in the first place.

The New American Dream – A Life In Hock (Peters)

We live in a society driven by debt. Cars, for example, have become hugely expensive (even on the low end) relative to what people can afford – because of the easy availability of credit. Which is the nice word used to speak about debt, intended to encourage us to get into it. It takes at least $15,000 or so to drive home in a “cheap” new car, once all is said and done. And the “cheap” car will have to be registered, plated and insured. It runs into money. And most new cars cost a lot more money. Which most people haven’t got. So they get debt. A loan. Which, when it becomes commonly resorted to as a way to live beyond one’s means as a lifestyle, drives up the cost of life for everyone. Including those who try to live within their means – or better yet, below them.

When most people (when enough people) are willing – are eager – to go into hock for the next six years in order to have a car with an LCD touchscreen, leather (and heated) seats, six air bags, a six-speaker stereo, electronic climate control AC and power everything – which pretty much every new car now comes standard with – the car companies build cars to satisfy that artificial demand. Artificial because based on economic unreality. That is a good way to think about debt. It is nonexistent wealth. You are promising to pay with money you haven’t earned yet. And maybe won’t. The car market has become like the housing market – which has also been distorted by debt to a cartoonish degree. The typical new construction home is a mansion by 1960s standards.

Not that there’s anything wrong with living in a mansion. Or driving a car with heated leather seats and climate control AC and a six-speaker surround-sound stereo and six air bags and all the rest of it. Provided you can afford it. Most people can’t. Normally, that fact would keep things in check. There would be mansions, of course – and high-end cars, too. But only for those with the high-end incomes necessary to afford them. Everyone else would live within their means. We wouldn’t be living in this economic Potemkin village that appears prosperous but is in fact an economic Jenga Castle that could collapse at any moment. There would be a lot less pressure to “keep up with the Joneses”… as they head toward bankruptcy and foreclosure.

As society heads that way. Like the housing industry, the car industry has ceased building basic and much less expensive cars because of easy and grotesque debt-financing. Which is tragic. There ought to be (and would be) a huge selection of brand-new cars priced under $10,000 were it not for the ready availability of nonexistent wealth (.e., debt and credit). Cars many people could pay cash for.

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Still waiting for a politican or government to come clean about the Pension Ponzi.

California Pensions Underfunded By $1 Trillion Or $93k Per Household (ZH)

Earlier today the Kersten Institute for Governance and Public Policy highlighted an updated pension study, released by the Stanford Institute for Economic Policy Research, which revealed some fairly startling realities about California’s public pension underfunding levels. After averaging $77,700 per household in 2014, the amount of public pension underfunding for the state of California jumped to a staggering $92,748 per household in 2015. But don’t worry, we’re sure pension managers can grow their way out of the problem…hedge fund returns have been stellar recently, right?

Stanford University’s pension tracker database pegs the market value of California’s total pension debt at $1 trillion or $93,000 per California household in 2015. In 2014, California’s total pension debt was calculated at $77,700 per household, but has increased dramatically in response to abysmal investment returns at California’s public pension funds that hover at or below 0% annual returns.

Looking back to 2008, the underfunding levels of California’s public pension have skyrocketed 157% on abysmal asset returns and growing liabilities resulting from lower discount rates. Perhaps this helps shed some light on why CalPERS is having such a difficult time with what should have been an easy decision to lower their long-term return expectations to 6% from 7.5% (see “CalPERS Weighs Pros/Cons Of Setting Reasonable Return Targets Vs. Maintaining Ponzi Scheme”)…$93k per household just seems so much more “manageable” than $150k.

Oddly enough, California isn’t even the worst off when it comes to pension debt as Alaska leads the pack with just over $110,000 per household. Of course, at this point the question isn’t “if” these ponzi schemes will blow up but rather which one will go first? We have our money on Dallas Police and Fire…

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Oh, there are thousands of reasons.

Why US ‘News’ Media Shouldn’t Be Trusted (Zuesse)

Nassim Nicholas Taleb headlined on November 22nd a devastating takedown of U.S. ‘news’ media and academia, «Syria and the Statistics of War», and he began there by exposing the highly honored Harvard fraud, Dr. Steven Pinker, but then went pretty much through the entire U.S. ‘intellectual’ Establishment, including all of its major ‘news’ media, as being untrustworthy on the part of any intelligent person. (Regarding Professor Pinker specifically, Taleb linked to a scientific paper that Taleb had co-authored, which shredded one of Pinker’s highly honored and biggest-selling books. Taleb and his colleague mentioned there an article that had appeared in Britain’s Guardian raising serious questions about Pinker’s work, and they were here offering statistical proof of the fraudulence of that work.)

The scenario of exposing intellectual fraud is so common: the only reason why it’s not better known among the public is that usually the disproofs of highly honored work have no impact, and fail to dislodge the prejudices that the given established fraud has ‘confirmed’. Another good example of that occurred when the University of Massachusetts graduate student Thomas Herndon issued his proof of the fraudulence of the extremely influential economics paper by Kenneth Rogoff and Carmine Rinehart, «Growth in a Time of Debt», which had been widely cited by congressional Republicans and other conservatives as a main ‘justification’ for imposing draconian economic austerity on the U.S. and other nations during the recovery from the 2008 economic crash.

Years later, that graduate student is still a graduate student (i.e., unemployed), while Kenneth Rogoff remains, as he was prior to his having been exposed: one of Harvard’s most prominent professors of economics, and a member of the Group of 30 — the world’s 30 most influential and powerful economists. Carmen Rinehart likewise retains her position also as a Harvard Professor. Previously, the Harvard Economics Department had guided communist Russia into a crony-capitalist (or fascist) ‘democracy’, but then Vladimir Putin took over Russia and got rid of the worst excesses of Harvard’s «capitalism» and so became hated by the U.S. aristocracy and its ‘news’ media — hated for having tried to establish Russia’s national independence, Russia’s independence from the U.S. aristocracy (which expected, and still craves, to control Russia).

And now after Donald Trump’s victory against the super-neoconservative hater of Russia, Hillary Clinton, the U.S. Establishment, through its voices such as the Washington Post, is trying to smear — like Joseph R. McCarthy smeared America’s non-fascists back in the 1950s — the tiny independent newsmedia that had been reporting truthfully about U.S.-Russian relations and America’s coups and invasions trying to weaken and ultimately to conquer Russia even if that means nuclear war.

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Fake news as far as the eye can see. Next up: Putin eats babies.

Everything You Read About The Wars In Syria And Iraq Could Be Wrong (Ind.)

The Iraqi army, backed by US-led airstrikes, is trying to capture east Mosul at the same time as the Syrian army and its Shia paramilitary allies are fighting their way into east Aleppo. An estimated 300 civilians have been killed in Aleppo by government artillery and bombing in the last fortnight, and in Mosul there are reportedly some 600 civilian dead over a month. Despite these similarities, the reporting by the international media of these two sieges is radically different. In Mosul, civilian loss of life is blamed on Isis, with its indiscriminate use of mortars and suicide bombers, while the Iraqi army and their air support are largely given a free pass. Isis is accused of preventing civilians from leaving the city so they can be used as human shields.

Contrast this with Western media descriptions of the inhuman savagery of President Assad’s forces indiscriminately slaughtering civilians regardless of whether they stay or try to flee. The UN chief of humanitarian affairs, Stephen O’Brien, suggested this week that the rebels in east Aleppo were stopping civilians departing – but unlike Mosul, the issue gets little coverage. One factor making the sieges of east Aleppo and east Mosul so similar, and different, from past sieges in the Middle East, such as the Israeli siege of Beirut in 1982 or of Gaza in 2014, is that there are no independent foreign journalists present. They are not there for the very good reason that Isis imprisons and beheads foreigners while Jabhat al-Nusra, until recently the al-Qaeda affiliate in Syria, is only a shade less bloodthirsty and generally holds them for ransom.

These are the two groups that dominate the armed opposition in Syria as a whole. In Aleppo, though only about 20 per cent of the 10,000 fighters are Nusra, it is they – along with their allies in Ahrar al-Sham – who are leading the resistance. Unsurprisingly, foreign journalists covering developments in east Aleppo and rebel-held areas of Syria overwhelmingly do so from Lebanon or Turkey. A number of intrepid correspondents who tried to do eyewitness reporting from rebel-held areas swiftly found themselves tipped into the boots of cars or otherwise incarcerated.

Experience shows that foreign reporters are quite right not to trust their lives even to the most moderate of the armed opposition inside Syria. But, strangely enough, the same media organisations continue to put their trust in the veracity of information coming out of areas under the control of these same potential kidnappers and hostage takers. They would probably defend themselves by saying they rely on non-partisan activists, but all the evidence is that these can only operate in east Aleppo under license from the al-Qaeda-type groups.

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Could get tricky for Trump. Luckily for him, there’s still 7 weeks to go until January 20.

US Veterans Build Barracks For Pipeline Protesters In Cold (R.)

U.S. military veterans were building barracks on Friday at a protest camp in North Dakota to support thousands of activists who have squared off against authorities in frigid conditions to oppose a multibillion-dollar pipeline project near a Native American reservation. Veterans volunteering to be human shields have been arriving at the Oceti Sakowin camp near the small town of Cannon Ball, where they will work with protesters who have spent months demonstrating against plans to route the Dakota Access Pipeline beneath a lake near the Standing Rock Sioux Reservation, organizers said. The Native Americans and protesters say the $3.8 billion pipeline threatens water resources and sacred sites.

Some of the more than 2,100 veterans who signed up on the Veterans Stand for Standing Rock group’s Facebook page are at the camp, with hundreds more expected during the weekend. Tribal leaders asked the veterans, who aim to form a wall in front of police to protect the protesters, to avoid confrontation with authorities and not get arrested. Wesley Clark Jr, a writer whose father is retired U.S. Army General Wesley Clark, met with law enforcement on Friday to tell them that potentially 3,500 veterans would join the protest and the demonstrations would be carried out peacefully, protest leaders said. The plan is for veterans to gather in Eagle Butte, a few hours away, and then travel by bus to the main protest camp, organizers said, adding that a big procession is planned for Monday.

[..] The protesters’ voices have also been heard by companies linked to the pipeline, including banks that protesters have targeted for their financing of the pipeline. Wells Fargo said in a Thursday letter it would meet with Standing Rock elders before Jan. 1 “to discuss their concerns related to Wells Fargo’s investment” in the project. There have been violent confrontations near the route of the pipeline with state and local law enforcement, who used tear gas, rubber bullets and water hoses on the protesters, even in freezing weather. The number of protesters in recent weeks has topped 1,000. State officials on Monday ordered them to leave the snowy camp, which is on U.S. Army Corps of Engineers land, citing harsh weather, but on Wednesday they said they would not enforce the order. “There is an element there of people protesting who are frightening,” North Dakota Attorney General Wayne Stenehjem said on Thursday. “It’s time for them to go home.”

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Oct 182016
 
 October 18, 2016  Posted by at 9:06 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Russell Lee Hollywood, California. Used car lot. 1942


US Bondholders Risk a $1.1 Trillion Hit if Rates Spike (BBG)
US First Home Buyers Even More Leveraged Than During Housing Bubble (MW)
China’s Bad Credit (Balding)
Foreigners Shun Gilts On Hard Brexit Talk, As Hallowe’en Verdict Awaits (AEP)
The Cashless Society Is a Creepy Fantasy (BBG)
Greece in 2050: A Country For Old Men (Kath.)
Judge Rejects Riot Charges For Journalist Amy Goodman On Pipeline Protest (G.)
State Department Official Pressured FBI To Declassify Clinton Email (R.)
RBS Backtracks Over Closure Of RT Bank Accounts (RT)
The Odor of Desperation (Jim Kunstler)
Pentagon Backtracks, Voices Caution On Latest Yemen Missile Incident (R.)
We Have To Begin To Look Outside. Because There Is More Out There (Adam Curtis)

 

 

As Gilts sell off… Very reassuring.

US Bondholders Risk a $1.1 Trillion Hit if Rates Spike (BBG)

First they came for the yield, then they came for the duration. A Goldman Sachs analysis says investors could be mired in a world of pain if yields on long-dated assets snap higher. Just a modest backup in rates could inflict outsized losses on bond portfolios — a sobering prospect in light of the recent jump in longer-dated bond yields that’s already eating into bondholders’ capital returns. A 1% increase in interest rates could inflict a $1.1 trillion loss to the Bloomberg Barclays U.S. Aggregate Index, analysts at Goldman calculate, representing a larger loss for bondholders than at any other point in history. With the bank predicting the selloff in bonds has further to run, that remains “far from a tail scenario,” its analysts write.

Bets on longer-maturity obligations had paid off handsomely for most of the year amid a global bond rally triggered by expectations that weak economic activity will persuade central banks in advanced economies to postpone tightening monetary policy. Asset purchases by the BOJ, BOE and the ECB helped the average maturity of new U.S. corporate bonds climb to a peak of 11.3 years in August. With average bond maturities worldwide now more than double the inflation-adjusted level of 2009, and three times that of 1994, Goldman says there’s an elevated risk of losses if rates spike higher. “We see potential for the rates market to continue to sell off, and the notional amount of duration dollars at risk is unprecedentedly large,” Goldman fixed-income analysts, led by Marty Young, wrote in the report on Monday.

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“..lack of affordability. “We have our eye on the wrong ball..”

US First Home Buyers Even More Leveraged Than During Housing Bubble (MW)

Ever since the shock of the financial crisis ebbed and buyers began to return to the housing market, one truth has dominated: mortgage lending is tight. But is it? It’s true that only the borrowers with the highest credit scores get home loans now. So much lending to people with higher credit scores and so little to those on the lower end of the spectrum has shifted the average FICO score up about 40 points since before the bubble burst. But measured in another way, lending is shockingly loose. And, according to one economist, that tells us a lot not just about the housing market, but about the economy as a whole. The 20% down payment may linger in Americans’ imagination, but it’s even less real today than Jimmy Stewart’s small-town banker from 1946.

American homeowners, particularly those at the lower end of the market, are increasingly leveraged to pay for their houses, says Sam Khater, deputy chief economist at data provider CoreLogic. In fact, owners of entry-level homes, those in the $150,000 to $300,000 range — have more debt and less equity now than they did in 2005, at the height of mortgage mania. For Khater, that says less about credit markets and more about another defining feature of the post-recession housing market — its lack of affordability. “We have our eye on the wrong ball,” he told MarketWatch. “What I worry about is the leverage not from a default perspective but from an affordability perspective. Demand for credit has been weak. But the much bigger issue is the supply of housing, not supply of credit.”

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Swaps won’t rescue China’s bad debt. It’s just multiple state-owned firms selling each other the things.

China’s Bad Credit (Balding)

There is good news when it comes to China’s scary and still-growing pile of debt: At least the government recognizes the problem. Its attempts to mitigate those risks, however, seem doomed to fall short. The government’s recent decision to create a market for credit default swaps is a case in point. The idea, as elsewhere, is to give banks and investors a means of pricing and trading the risk of Chinese companies defaulting on their debts. The need is obvious: Official measures of non-performing loans are worsening, while unofficial estimates say their share may have reached anywhere from 8% to 20%. Anything that spreads that risk should improve financial stability. Yet, as envisioned, this new CDS market is unlikely to do much to improve the situation.

For one thing, all but the largest companies already have to purchase credit insurance when taking out loans from giant state banks. There’s no pricing differential on this insurance, of course. But for the new system to function effectively, the government would have to let markets freely set the price of credit risk. China doesn’t exactly have a stellar record of allowing markets to set prices in any field, whether in stocks, real estate or currencies. If credit default swaps started to indicate a rising risk of default at a major state-owned company, it’s hard to imagine officials wouldn’t intervene to reverse that impression. This is dangerous on multiple levels. Already, several Chinese credit insurance firms have collapsed because they underestimated credit risk, forcing government bailouts. Continuing to underprice risk will only encourage the over-allocation of credit that’s gotten China into trouble thus far.

There’s also little reason to think that creating a CDS market would shift risk away from the most vulnerable banks. In a heavily concentrated banking and lending market such as China, where major financial institutions all trade with each other, swaps are likely to produce no net change to risk levels. Think of a simple example. Assume that Bank A has loans totaling 100 billion yuan but wants to protect itself against the risk of default by buying a CDS from Bank B that covers these companies. Now assume that Bank B does the same to cover its 100 billion yuan of loans, with A as the counter-party. If we assume these are similar baskets of loans – a reasonable assumption for major banks within a single country – then there’s been no net change in credit risk for either bank.

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It doesn’t get much more serious than this: “The UK faces a balance of payments crisis..”

Foreigners Shun Gilts On Hard Brexit Talk, As Hallowe’en Verdict Awaits (AEP)

The bond vigilantes are sharpening their knives. The last five trading sessions have seen a sudden and potentially ominous shift in the reflexes of the Gilts market, a sign that ‘hard Brexit’ rhetoric has rattled global debt managers. “For the first time, foreign investors are beginning to question the credit-worthiness of the United Kingdom,“ said Vatsala Datta, UK rates strategist at RBC. We will find out how serious it is on October 31 – Hallowe’en day – when the UK Debt Management Office publishes its monthly data on foreign holdings of Gilts. Central banks, sovereign wealth funds, and the like, currently hold £503bn of British public debt or 27pc of the total, a bigger share than UK pension funds and insurance companies.

Yields on 10-year Gilts have spiked by 62 basis points to 1.14pc from their trough in August. Until last week this was pure a ‘reflation trade’, a turbo-charged variant of what has been happening in the US and other parts of the world as markets price in accelerating global growth and a commodity rebound. Britain got a double-dose because the sharp fall in sterling automatically pushed up the likelihood of future inflation, and that is what bondholders hate most. It is easy to measure the inflation component of moves by tracking how the ‘break-even inflation rate’ rises in tandem with the headline bond yield. “The correlation was exact. It has now broken down,” said Ms Datta. Break-even rates stopped rising last week, yet this time Gilt yields spiked higher, a divergence of 18 basis points.

RBC said the pattern in the interlocking currency and debt markets is clear: sterling is no longer trading like a bona fide reserve currency. “The parallel sell-off in gilts and sterling is potentially a worrying development, consistent with the UK’s having growing difficulty funding its internal and external deficits,” it said. What typically happens when a blue chip currency like the US dollar or the Swiss franc falls is that central banks and fund managers buy more of that country’s bonds to keep a constant weighting. This is a mechanical practice. It happens unless managers take a conscious decision to override their model. It is why foreign holdings of UK Gilts have risen by 20pc over the last year, and why they surged at an even faster rate after the referendum.

This foreign rush into Gilts happened not in spite of the falling pound, but because of it. All of a sudden this has stopped. Loose proxies such as ‘swap spreads’ suggest an outright exodus from Gilts even as the pound weakens. It is symptomatic that the Japanese bank Nomura has issued a string of tough reports about what could happen if the British government opts to leave the EU single market, warning that an erratic UK can no longer count on the “kindness of strangers” to fund its current account deficit. “The UK faces a balance of payments crisis,” it says, menacingly.

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“..if we’re going to cite unlawful transactions as a rationale for banning cash, it only makes sense to ban banks and accounting firms first.”

The Cashless Society Is a Creepy Fantasy (BBG)

It’s fun to imagine a world without cash. Liberated from the burden of physical currency, consumers could make purchases from the convenience of a mobile device. Every transaction would come equipped with fraud protection, reward points and a digital record of its time and location. Comprehensive tracking could help the Internal Revenue Service reclaim billions of tax dollars lost to unreported income, like the $80 I made selling a used refrigerator on Craigslist. Drug dealers, helpless without an anonymous medium of exchange, would acquire wholesome professions. El Chapo might become a claims adjuster. Such is the utopia recently described by Nathan Heller in the New Yorker and by a former chief economist of the International Monetary Fund, Kenneth Rogoff, in a new book, “The Curse of Cash.”

But this universe is missing one of the fundamental aspects of human civilization. A world without cash is a world without money. Money belongs to its current holder. It doesn’t matter if a banknote was lost or stolen at some point in the past. Money is current; that’s why it’s called currency! A bank deposit, however, grants custody of money to the bank. An account balance is not actually money, but a claim on money. This is an important distinction. A claim is only as good as its enforceability, and in a cashless society every transaction must pass through a financial gatekeeper. Banks, being private institutions, have the right to refuse transactions at their discretion. We can’t expect every payment to be given due process.

This means that politically unpopular organizations could easily be deprived of economic access. Past attempts to curb money laundering have already inadvertently cut off financial services for legitimate individuals, businesses, and charities. The removal of paper currency would undoubtedly leave similar collateral damage. The crime-fighting case against cash is overstated. Last year, a risk assessment of money laundering and terrorist financing conducted by the U.K. government found that regulated institutions such as banks (like HSBC) and accountancy service providers (like the Panamanian tax-shelter specialist Mossack Fonseca) posed the highest risk of facilitating the illicit storage or movement of funds. Cash came in a close third, but if we’re going to cite unlawful transactions as a rationale for banning cash, it only makes sense to ban banks and accounting firms first.

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Extrapolating trends is a pretty much useless exercise.

Greece in 2050: A Country For Old Men (Kath.)

By 2050, Greece’s population is expected to shrink by 800,000 to 2.5 million people to between 8.3 and 10 million, and one in three of its residents will be over the age of 65 (30-33% compared to the present 21% and 7% in 1951), while under-14s will represent just 12-14.8% from 15% today and 28% in 1951. This dystopian view of the country – with empty schools and offices – emerges from a recent study on Greece’s demographic prospects, presented by the Athens-based Dianeosis research organization. The study explored eight different scenarios, all of which calculated a significant drop in the population by 2050. The most optimistic saw a reduction of 800,000 people and the rapid aging of society. The median age is seen reaching 49-52 years from 44 today and 26 in 1951.

By then, the study says, 50-year-olds will be the young ’uns. The number of school-age children (3-17) will drop from 1.6 million today to 1.4 million in the optimistic scenario and 1 million in the pessimistic one and the economically active population will shrink from 4.7 million people today to between 3 and 3.7 million, meaning that a much lower number of people will be able to work to cover the country’s needs. The study by Dianeosis reflects trends that are already being noted: On January 1, 2015, Greece’s population came to 10.8 million from 11.1 million in 2011, marking the first time since 1951 that the number of the country’s residents has gone down.

There are three factors that affect population fluctuations – births, deaths and migration – which can be separated into two categories, the natural process of births and deaths, and the migration factor, which includes both inflows and outflows. Today, births are decreasing and deaths going up due to sliding standards of living and a crumbling public healthcare system. Meanwhile, the outflow of mainly young Greeks and foreigners from the country is on the rise, while, despite the arrival of thousands of migrants, the crisis is preventing their numbers from being made up by fresh inflows.

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It helps when politicians actually know the law.

Judge Rejects Riot Charges For Journalist Amy Goodman On Pipeline Protest (G.)

A North Dakota judge rejected prosecutors’ “riot” charges against Democracy Now! host Amy Goodman for her reporting on the oil pipeline protests, a decision that advocates hailed as a major victory for freedom of the press. After the award-winning broadcast journalist filmed security guards working for the Dakota access pipeline using dogs and pepper spray on protesters, authorities issued a warrant for Goodman’s arrest and alleged that she participated in a “riot”, a serious offense that could result in months in jail. On Monday, judge John Grinsteiner ruled that the state lacked probable cause for the riot charge, blocking prosecutors from moving forward with the controversial prosecution.

“I feel vindicated. Most importantly, journalism is vindicated,” Goodman told reporters and supporters on a live Facebook video Monday afternoon. “We have a right to report. It’s also critical that we are on the front lines. Today, the judge sided with … freedom of the press.” The case stems from a 3 September report when Goodman traveled to the Native American-led protest against a controversial $3.8bn oil pipeline that the Standing Rock Sioux tribe says is threatening its water supply and cultural heritage. Goodman’s dispatch on the use of dogs went viral and has since garnered 14m views on Facebook and also prompted coverage from many news outlets, including CBS, NBC, NPR and CNN.

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I picked the Reuters take on this. There are many others, some much more negative. The crux: This is getting way out of hand. Trying to interfere with classified material is crazy and desperate. And very illegal.

State Department Official Pressured FBI To Declassify Clinton Email (R.)

A senior State Department official sought to shield Hillary Clinton last year by pressuring the FBI to drop its insistence that an email on the private server she used while secretary of state contained classified information, according to records of interviews with FBI officials released on Monday. The accusation against Patrick Kennedy, the State Department’s most senior manager, appears in the latest release of interview summaries from the Federal Bureau of Investigation’s year-long investigation into Clinton’s sending and receiving classified government secrets via her unauthorized server.

Although the FBI decided against declassifying the email’s contents, the claim of interference added fuel to Republicans’ belief that officials in President Barack Obama’s administration have sought to protect Clinton, a Democrat, from criminal liability as she seeks to succeed Obama in the Nov. 8 election. The FBI recommended against bringing any charges in July and has defended the integrity of its investigation. Clinton has said her decision to use a private server in her home for her work as the U.S. secretary of state from 2009 to 2013 was a mistake and has apologized. One FBI official, whose name is redacted, told investigators that Kennedy repeatedly “pressured” the various officials at the FBI to declassify information in one of Clinton’s emails.

The email was about the deadly 2012 attack on a U.S. compound in Benghazi, Libya, and included information that originated from the FBI, which meant that the FBI had final say on whether it would remain classified. The dispute began in the summer of 2015 as officials were busy reviewing the roughly 30,000 emails Clinton returned to the State Department ahead of their court-ordered public release in batches in 2015 and 2016. The official said the State Department’s office of legal counsel called him to question the FBI’s ruling that the information was classified, but the FBI stood by its decision. Soon after that call, one of the official’s FBI colleagues received a call from Kennedy in which Kennedy “asked his assistance in altering the email’s classification in exchange for a ‘quid pro quo.'”

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From the Times (behind paywall): “The state-owned bank withdrew its planned punitive action after Moscow claimed it would freeze the BBC’s finances in Russia and report Britain to international watchdogs for breaching commitments to freedom of speech.”

RBS Backtracks Over Closure Of RT Bank Accounts (RT)

The Royal Bank of Scotland (RBS) appears to have backtracked from its earlier statement that the looming closure of RT accounts is not up for discussion. In a letter to RT, the bank said the situation is being reviewed and the bank is contacting the customer. The e-mailed response began with apologies for the delay in the reply. These decisions are not taken lightly. We are reviewing the situation and are contacting the customer to discuss this further. The bank accounts remain open and are still operative,” Sarah Hinton-Smith, Head of Corporate & Institutional, Commercial & Private Media at RBS Communications, wrote. However, the response by Hinton-Smith contradicted an earlier statement by RBS, which said that the decision to suspend banking services to RT was final and not up for discussion.

The broadcaster addressed the Royal Bank of Scotland representative over the contradiction, pointing out that “your statement seems to suggest that the bank will contact RT and that there will be a review and further discussion.” “There’s not much more of a steer I can give other than what is in the statement,” Hinton-Smith replied via email. Earlier Monday, the National Westminster Bank (NatWest), which is part of RBS Group, informed RT UK’s office in London that it will no longer have the broadcaster among its customers, without providing any explanation for the decision.

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“..the fact that the US polity now so desperately has to fight for survival shows how frail its legitimacy is.”

The Odor of Desperation (Jim Kunstler)

It must be obvious even to nine-year-old casual observers of the scene that the US national election is hacking itself. It doesn’t require hacking assistance from any other entity. The two major parties could not have found worse candidates for president, and the struggle between them has turned into the most sordid public spectacle in US electoral history. Of course, the Russian hacking blame-game story emanates from the security apparatus controlled by a Democratic Party executive establishment desperate to preserve its perks and privileges . (I write as a still-registered-but-disaffected Democrat).

The reams of released emails from Clinton campaign chairman John Podesta, and other figures in HRC’s employ, depict a record of tactical mendacity, a gleeful eagerness to lie to the public, and a disregard for the world’s opinion that are plenty bad enough on their own. And Trump’s own fantastic gift for blunder could hardly be improved on by a meddling foreign power. The US political system is blowing itself to pieces. I say this with the understanding that political systems are emergent phenomena with the primary goal of maintaining their control on the agencies of power at all costs. That is, it’s natural for a polity to fight for its own survival. But the fact that the US polity now so desperately has to fight for survival shows how frail its legitimacy is.

It wouldn’t take much to shove it off a precipice into a new kind of civil war much more confusing and irresolvable than the one we went through in the 1860s. Events and circumstances are driving the US insane literally. We can’t construct a coherent consensus about what is happening to us and therefore we can’t form a set of coherent plans for doing anything about it. The main event is that our debt has far exceeded our ability to produce enough new wealth to service the debt, and our attempts to work around it with Federal Reserve accounting fraud only make the problem worse day by day and hour by hour. All of it tends to undermine both national morale and living standards, while it shoves us into the crisis I call the long emergency.

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If anything ever smelled like a flase flag, it was this. Mere days after the world turned on the US and its Saudi friends for bombing a funeral procession, the Houthis supposedly shot at a US destroyer, missed by a mile and a half, and next thing you knew all of a sudden the US was itself involved in the so-called war, which is really just slaughter.

Pentagon Backtracks, Voices Caution On Latest Yemen Missile Incident (R.)

The Pentagon declined to say on Monday whether the USS Mason destroyer was targeted by multiple inbound missiles fired from Yemen on Saturday, as initially thought, saying a review was under way to determine what happened. Any determination that the USS Mason guided-missile destroyer was targeted on Saturday could have military repercussions, since the United States has threatened to retaliate again should its ships come under fire from territory in Yemen controlled by Iran-aligned Houthi fighters. The United States carried out cruise missile strikes against radar sites in Yemen on Thursday after two confirmed attempts last week to hit the USS Mason with coastal cruise missiles. “We are still assessing the situation. There are still some aspects to this that we are trying to clarify for ourselves given the threat – the potential threat – to our people,” Pentagon spokesman Peter Cook told a news briefing.

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Unfortunately, Curtis’ film Hypernormalization is for now still only available in Britain. Far as I know.

We Have To Begin To Look Outside. Because There Is More Out There (Adam Curtis)

Power is all around us. It’s just that it has shifted and mutated into a massive system of management and control, whose tentacles reach into all parts of our lives. But we can’t see it because we still think of power in the old terms – of politicians telling us what to do. The aim of the film I have made – HyperNormalisation – is to bring that new power into focus, and show its true dimensions. It ranges from a giant computer high up in the mountains of northeast America that manages and controls over 7% of the worlds total wealth, to the complex algorithms that constantly monitor every move and choice you make online, to modern scientific ideas about what the normal human being should be – in their weight and in their feelings and moods.

What links all these systems is an overriding aim is to keep the world stable. To avoid all change. The giant computer constantly compares events happening around the world to events in the past. If it sees a dangerous pattern, it immediately adjusts its trillions of dollars to keep things stable. That is real power. The algorithms on social media constantly look at the patterns of what you like and then feed you more of that – so you enter into an echo chamber that constantly feeds you back to you. So again nothing changes – and you learn nothing new that would contradict how you feel. That too is real power. What results is a system which cocoons us and makes us feel safe. And that means we have become terrified of all change.

But that fear of change is in the interest of a system that wants to hold everything stable. And stops us from ever challenging it. But it is impossible to keep things frozen forever. The world is dynamic. Things happen that you can never predict just by reading the past. This is why more and more we are being hit by events – the horror in Syria, Brexit, Trump, the waves of refugees – that neither we nor our leaders have the mental map to understand let alone deal with. Because we have bought into the dream that the world can be held stable and safe. The short film I have made for VICE is about how, if you pull back and look at the everyday life all around you, you can see the cracks appearing through the shiny surface of the cocoon we are living in.

So much of the modern world is beginning to feel odd, unreal and sometimes fake. I think these are the dynamic forces outside beginning to pierce through as the system begins to fail. It will fail – because a system of power that has no vision of the future can never last. It cannot deal with change. We have to begin to look outside. Because there is more out there…

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Mar 232016
 
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Jack Delano Atchison, Topeka and Santa Fe, Sibley, Missouri 1943


Bank Earnings Get Mauled by “Leveraged Loan” Time Bomb (WS)
Former Stock Darlings Japan, Europe Rebuked as Stimulus Gets Costly (BBG)
Technical Analysts Warn This Stock Rally Is Not Going to Last (BBG)
London House Prices Rose Almost £500 A Day In January (Guardian)
Property Bubble Ghost Haunts Central Bankers Trying to Boost Prices (BBG)
US Mining Losses Last Year Wipe Out Profits From Past Eight Years (WSJ)
Mounting Debts Derail China Plans To Cut Steel, Coal Glut (Reuters)
China May Adopt Tobin Tax on Short-Term Capital Flows (BBG)
Trade Deficits Come Due Someday (BBG)
Michael Hudson On Killing The Host (NC)
What Happens When The US Dollar Is No Longer A Hedge Fund Hotel? (BBG)
French Central Banker Wants Eurozone Finance Minister With Sweeping Powers (FT)
It’s Not Going To End Well BUT Central Banks Have Plenty Of Ammo Left (Faber)
Plant-Growing Season In UK Now A Month Longer Than In 1990 (Guardian)
A Violent Coming-of-Age For Europe (Papachelas)
NGOs Withdraw As Greece Refugee Camps Turn Into Detention Centers (Kath.)
UN Slams Refugee ‘Detention Facilities’ In Greece (AFP)

From junk bonds to junk loans.

Bank Earnings Get Mauled by “Leveraged Loan” Time Bomb (WS)

Banks have a few, let’s say, issues, among them: a source of big-fat investment banking fees is collapsing before their very eyes. S&P Capital IQ reported today that there was an improvement in the “distress ratio” of junk bonds, after nearly a year of brutal deterioration that had pushed it beyond where it had been right after Lehman’s bankruptcy. The recent surge in oil prices seems to have lifted all boats for a brief period. But not “leveraged loans.” Their distress ratio spiked to the highest levels since the Financial Crisis! Leveraged loans are the loan-equivalent to junk bonds. They’re issued by junk-rated companies to fund M&A, special dividends to the private equity firms that own the companies, or other “general corporate purposes.” They form an $800-billion market and trade like securities.

But the SEC, which regulates securities, considers them “loans” and doesn’t regulate them. No one regulates them. This gives banks a lot of leeway. But they’re too risky for banks to keep on their balance sheet. Instead, they sell them to loan mutual funds or ETFs, or they slice and dice them and repackage them into Collateralized Loan Obligations (CLO) to sell them to institutional investors, such as mutual-fund companies. Regulators have been exhorting banks to back off. Banks can get stuck with them when markets get woozy just when the loans blow up, as they did during the Financial Crisis – or as they’re doing right now…. The S&P/LSTA Leveraged Loan Index Distress Ratio for February spiked to 12.96 from 11.13 in January, from 9.07 in December, from 7.77 in November… from 1.06 just last June!

It was the highest level since February 2010, when distress was on the way down from the Financial Crisis. It’s where it had been in June 2008, when distress was blowing out as the Financial Crisis was cracking the slick veneer of the banks. Lehman went bankrupt in September 2008. By December, the distress ratio had reached a catastrophic 79.8. This chart, based on data from S&P Capital IQ, shows that before the Financial Crisis, as the bubble was reaching its final stages, the distress ratio was near zero! This happened again in 2014. Even in 2015, leveraged loans held up well, as junk bonds were already falling apart. The happy times lasted till July, when the distress ratio began to spike relentlessly:

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Extend and pretend.

Former Stock Darlings Japan, Europe Rebuked as Stimulus Gets Costly (BBG)

Japan and Europe, former darlings of stock investors, are now bottom of the heap. The Topix index lost 13% from the start of the year through last week and foreign investors have yanked $10.7 billion out of Japanese equities. The world’s worst-performing developed markets are found in Tokyo and across Europe, where a regional benchmark gauge lost 6.8% and strategists expect shares to tread water for the rest of 2016. For Tatsushi Maeno at Pinebridge Investments Japan, it’s no coincidence that those are the two regions where central banks have established negative interest rates. “The feeling is that we can’t ride our hopes on the monetary easing policies of the European Central Bank and the Bank of Japan any more,” Maeno said.

“They want to continue with negative interest rates, but there’s push back. They want additional easing, but we’re beginning to see the limits to that too.” As company profits decline and the yen and euro strengthen, investors are questioning the effectiveness of the stimulus that’s underpinned Japanese and European equities since 2012. In contrast, the easing is working elsewhere around the world, including emerging markets where equities are staging a 20% rally and as shares in the U.S. have erased losses for the year. The moves so far this year are a stark reversal of 2015’s investment trends, which saw shares in Japan and Europe rise 9.9% and 6.8%, respectively, while global equities fell 4.3% and emerging markets tumbled 17%. Bank of America’s monthly survey of fund managers consistently showed Europe and Japan as one of the most preferred markets throughout last year.

The latest example of diverging reactions to stimulus was on display this month, when the ECB’s decision to cut all three key rates and boost bond buying did little to spur a strong rebound. In Japan, Bank of Japan Governor Haruhiko Kuroda’s suggestion on Wednesday that he could cut interest rates to as low as 0.5% sent the nation’s banks and insurers tumbling, which weighed on the overall market. “Equities cannot really rally on monetary stimulus anymore,” Stephen Jen of SLJ Macro Partners and a former IMF economist, wrote in an e-mail. “As long as the earnings outlook continue to deteriorate, the basis for additional multiples expansion is not compelling.”

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“..the S&P 500 has reached its most overbought position since 2009..”

Technical Analysts Warn This Stock Rally Is Not Going to Last (BBG)

U.S. stocks are up a stunning 12% from their February depths, yet plenty of doubts persist about the strength of the recent rally. Some have attributed the recent increase to a need by investors to buy equities to cover so-called short positions. Others have warned that corporate buybacks have pushed the market to unsustainable price levels. Meanwhile, technical analysts who look at charts to divine the direction of stocks have joined the doubters; some are urging clients to proceed with caution when it comes to U.S. equities. Analysts at Bespoke Investment Group noted that while the latest rally has pushed more than 93% of stocks in the S&P 500-stock index above their 50-day moving averages—which smooths out price moves over the past 50 days—there may yet be cause for concern.

The strongest moving average reading since the start of the bull market in 2009 is not necessarily a bullish sign for markets, they warned, as it could indicate that stocks have surged past fair value. “In the coming weeks we expect this breadth measure to cool off a bit as the market works off extreme overbought measures. If you’ve been waiting to buy and haven’t yet, it’s best to wait for a pullback at this point,” Bespoke analysts wrote in a note. Still, Bespoke is far from bearish. The research firm points out that greater breadth is positive for the market’s strength over a longer-term time frame. “Strong breadth is a sign that all stocks are participating instead of just a few,” the team said. “This action is the complete opposite of the weak breadth we saw in the early part of last year when the S&P 500 was making new highs but fewer stocks were doing the same. Eventually, we saw a significant correction later in the year.”

Technical Analysts at UBS AG seem far less optimistic. “With the rally of the last few weeks and looking at our daily trend work, the S&P 500 has reached its most overbought position since 2009!!” wrote analysts Michael Riesner and Marc Muller, with added grammatical emphasis. “We see the market vulnerable for a significant reversal this week, which we would see as the beginning of a tactical top building process and subsequent correction into deeper [second quarter]. We reiterate … [that we] would not chase the market on current elevated levels.” They recommend that investors sell now, rather than await further price increases.

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Be afraid.

London House Prices Rose Almost £500 A Day In January (Guardian)

London house prices increased by almost £500 a day in January, according to government figures that provide fresh evidence of a “two-speed” property market. The latest data from the Office for National Statistics (ONS) reveals that while London and the south-east are powering ahead with double-digit annual growth rates, the property markets in Wales, Scotland and Northern Ireland appear to have stuttered to a halt. Overall, the average price of a UK home had just under £4,000 added to its value during January, lifting the typical figure to £291,504. This is almost £40,000 higher than the figure of £251,935 recorded two years earlier, in January 2014. The average London house price hit a record £551,000, said the ONS. This was £15,000 up on December’s figure of £536,000 and translates into an increase of £484 a day.

Annual house price growth in the south-east, London and the east of England is running at 11.7%, 10.8% and 9.8% respectively. By contrast, prices fell in Wales over the same period – by 0.3% – and notched up rises of just 0.1% in Scotland, 0.8% in Northern Ireland and 0.9% in north-east England. The strong price growth in the south-east may reflect the fact that growing numbers of homeowners in the capital are cashing in on London’s turbo-charged performance and buying properties in commuter belt towns and cities. Jonathan Hopper, the managing director of Garrington Property Finders, said that “seldom has the gulf between Britain’s two-speed property market been so stark”. However, he added that it was likely that the numbers were given a boost by a last-minute “stamp duty stampede”, as buy-to-let investors rushed to complete purchases before April’s 3% hike in stamp duty.

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You can’t taper a Ponzi.

Property Bubble Ghost Haunts Central Bankers Trying to Boost Prices (BBG)

The property market is an animal almost every central banker is worried about and hardly anyone can control. As the Federal Reserve downshifts into go-slow mode while the ECB and other monetary authorities ease, expect to hear a lot of concern about property prices. Here’s the dilemma: How do you cut rates to goose too-low inflation and support growth without lighting a fuse under real estate? The U.S. is still feeling the consequences of a housing-market collapse that is widely blamed for triggering the Great Recession. The world’s largest economy stopped contracting in the second quarter of 2009, but house prices continued to fall over the next three years.

While property costs since then have risen at a faster annual pace than an aggregate of 23 countries tracked by the Dallas Fed, prices are still 3.8% below their peak. Since the global property market bottomed out at the start of 2012, house prices have risen most in New Zealand, Australia and South Africa. Increases of more than 30% in the three countries compare with an average gain of 11% in the sample. Prices are still declining in some of Europe’s largest economies. One exception is Germany, where property costs have surged more than 17% after prices slid for a decade and a half starting in the mid 1990s.

Central bankers want to see their low rates transmit into economic activity. Prices and transactions in real-estate markets can serve as indicators for buyers’ confidence in the economy, the strength of the labor market and spending prospects.
Too much froth in property markets can also be an obstacle to cutting rates further.

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“..a collective $227 billion after-tax loss last year..”

US Mining Losses Last Year Wipe Out Profits From Past Eight Years (WSJ)

The U.S. mining industry—a sector that includes oil drillers—lost more money last year than it made in the previous eight. Mining corporations with assets of $50 million or more recorded a collective $227 billion after-tax loss last year, according to Commerce Department data released Monday. That loss essentially wipes out all the profits the industry had made since 2007. A crash in oil prices last year caused significant losses for what had been an upstart domestic energy industry propelled by petroleum reserves accessed via fracking. Crude oil prices fell from above $100 a barrel in the middle of 2014 to less than $40 by the end of last year.

That meant many of those new wells were suddenly operating at a loss. What’s more, other types of mining operations were stung by falling commodity prices tied to weak demand from China and other parts of the globe. Mining revenues also fell sharply, down 38% in the fourth quarter from a year earlier. A faltering global economy also stung the manufacturing sector, though the industry remained profitable. The sector recorded a $510 billion annual profit, down from $609 billion in 2014. But manufacturing revenue declined 7.8% in the fourth quarter from a year earlier. Falling revenues suggest weaker global demand for U.S.-made goods. That’s likely a symptom of a stronger dollar making American products relatively more expensive overseas.

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Not good. Too much debt to lay off workers. Or dispose of bad loans.

Mounting Debts Derail China Plans To Cut Steel, Coal Glut (Reuters)

China’s campaign to slim down its bloated industries could be derailed by more than $1.5 trillion of debt in its steel, coal, cement and non-ferrous metal sectors, which threatens to overwhelm local banks. Tackling industrial overcapacity has become a priority for Beijing to make its slowing economy more efficient and address a supply glut that has hammered coal and steel prices. China is providing more than 100 billion yuan ($15 billion) in the next two years to handle layoffs from coal and steel, but that will only be made available once debts have been settled. Critics say there is no clear mechanism for tackling the debt burden, which will put huge strain on the weakest sections of the banking sector. The debt figures, revealed in papers submitted to China’s parliament this month, highlight the dilemma facing state firms grappling with surplus capacity and how difficult it will be to pull off this central plank of Beijing’s economic reform plans.

Costs for the estimated 1.3 million coal-sector layoffs alone are as much as 195 billion yuan, and coal industry delegates attending parliament urged government to provide more support to deal with the mounting debts of hundreds of stricken “zombie” firms. The four sectors targeted in the battle against overcapacity owe around 10.2 trillion yuan ($1.56 trillion), according to documents submitted to parliament by Wang Mingsheng, head of coal firm Huaibei Mining. China’s statistics bureau puts coal and steel debts alone at 8 trillion yuan, of which about a third is bank debt. If 20% of that were to go bad in 2016, which industry analysts say is not unrealistic, it would raise Chinese banks’ non-performing loans by nearly half. Bankers say city and regional banks set up by party or provincial government officials are most exposed, and that official NPLs, which already doubled last year, underestimate the scale of their problem lending.

“China needs to set up a new organization, a special bank just to take over these debts in order to avoid the local banks going bankrupt,” said steel industry consultant Xu Zhongbo. China’s banking regulator didn’t return a request for comment, though earlier in March sent notices to joint-stock banks and city commercial lenders to boost risk assessment and collateral valuations to control exposure to industries suffering overcapacity. A lawyer who handles steel industry non-performing loans for mid-sized Chinese banks said: “Banks’ fear is not without reason. The steel sector’s continued slump increases the difficulty of disposing of outstanding non-performing loans.”

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It doesn’t matter what Beijing tries anymore, money will find a way to flow out.

China May Adopt Tobin Tax on Short-Term Capital Flows (BBG)

China may impose a tax on currency trading to manage short-term cross-border capital flows as the U.S. Federal Reserve raises interest rates, the country’s foreign-exchange regulator said Tuesday. Interest rate hikes by the Fed will spur capital outflows and add pressure on yuan management, Wang Yungui, a director with the State Administration of Foreign Exchange’s General Affairs Department, told a news briefing in Beijing. A levy on trading is one of several tools under consideration to cope with the situation, Wang said. China’s central bank has drafted rules for a tax on foreign-exchange transactions that would help curb currency speculation, people with knowledge of the matter have said.

UBS has said a so-called Tobin tax would be a step back for China’s credibility on currency management, while Citi Private Bank said the proposal was “short-sighted” and would drive away foreign investors. Imposing a levy on foreign-exchange trading would be one of the most extreme steps yet by policy makers to prevent speculative bets against the Chinese currency, after state-run banks intervened repeatedly to prop up the yuan and the government intensified a crackdown on capital outflows. People’s Bank of China Deputy Governor Yi Gang said Saturday the tax is currently an academic subject. While SAFE last week said capital outflows have eased significantly, China is still grappling with economic data pointing to a deepening slowdown. Exports slumped 25% in February from a year earlier and the trade surplus almost halved from January’s level, making a case against yuan gains.

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Ain’t that the truth: “..at some point, someone is going to decide to use the dollar-valued asset to get something of real, usable value. And where do you spend dollars? In the U.S.”

Trade Deficits Come Due Someday (BBG)

In a recent interview on the EconTalk podcast, Massachusetts Institute of Technology economist David Autor said that a trade deficit represents a loan that has to be paid back. This is an important issue, since the U.S. has run a large trade deficit for several decades now. I was happy to hear someone talk about this fact, which is rarely acknowledged. But not everyone was pleased. When I repeated Autor’s statement, Dan Ikenson, director of the Herbert A. Steifel Center for Trade Policy Studies at the Cato Institute, said that I don’t understand how trade works, and that a trade deficit isn’t a loan. Ikenson is wrong, and this provides an important opportunity to explain how trade deficits work.

Suppose there are two countries, Germany and the U.S. And suppose that one fine day, Germany gives the U.S. a car. But Germany isn’t running a charity; it doesn’t just go around handing out cars – the U.S. has to give something in return. If the U.S. gets the car from Germany for free, it’s called aid, not trade. So what does the U.S. give Germany in exchange? It could send over a real, usable good or service – some bushels of corn, perhaps, or some copies of Windows 10. If the U.S. gives corn and software equal to the value of the car, that’s called balanced trade. Alternatively, if the U.S. doesn’t feel like growing any corn or writing any software today, it could write Germany an IOU. The U.S. could pay for the car not with corn or software, but with dollar bills.

The Germans might then use the dollar bills to buy some long-term American financial asset, such as a U.S. Treasury bond or some shares of Apple stock. In this case, we say that the U.S. ran a trade deficit with Germany, because it got something of real value from Germany (a car), while all Germany got in return was a slip of paper. But at some point, Germany is going to want to exchange its slip of paper for something of real value – something some German person can use and enjoy. Whoever in Germany is holding onto the American financial asset can’t use it within his or her own country – Germany uses euros, not dollars! He or she could sell the dollar-valued asset to another German for a euro-valued asset, but that just delays the issue – at some point, someone is going to decide to use the dollar-valued asset to get something of real, usable value. And where do you spend dollars? In the U.S.

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“..finance and property ownership claims are not “factors of production.” They are external to the production process. But they extract income from the “real” economy.”

Michael Hudson On Killing The Host (NC)

The financial sector today is decoupled from industrialization. Its main interface with industry is to provide credit to corporate raiders. Their objective isasset stripping, They use earnings to repay financial backers (usually junk-bond holders), not to increase production. The effect is to suck income from the company and from the economy to pay financial elites. These elites play the role today that landlords played under feudalism. They levy interest and financial fees that are like a tax, to support what the classical economists called “unproductive activity.” That is what I mean by “parasitic.” If loans are not used to finance production and increase the economic surplus, then interest has to be paid out of other income. It is what economists call a zero-sum activity.

Such interest is a “transfer payment,” because it that does not play a directly productive function. Credit may be a precondition for production to take place, but it is not a factor of production as such. The situation is most notorious in the international sphere, especially in loans to governments that already are running trade and balance-of-payments deficits. Power tends to pass into the hands of lenders, so they lose control – and become less democratic. To return to my use of the word parasite, any exploitation or “free lunch” implies a host. In this respect finance is a form of war, domestically as well as internationally. At least in nature, “smart” parasites may perform helpful functions, such as helping their host find food. But as the host weakens, the parasite lays eggs, which hatch and devour thehost, killing it.

That is what predatory finance is doing to today’s economies. It’s stripping assets, not permitting growth or even letting the economy replenish itself. The most important aspect of parasitism that I emphasize is the need of parasites to control the host’s brain. In nature, a parasite first dulls the host’s awareness that it is being attacked. Then, the free luncher produces enzymes that control the host’s brain and make it think that it should protect the parasite – that the outsider is part of its own body, even like a baby to be specially protected. The financial sector does something similar by pretending to be part of the industrial production-and-consumption economy.

The National Income and Product Accounts treat the interest, profits and other revenue that Wall Street extracts – along with that of the rentier sectors it backs (real estate landlordship, natural resource extraction and monopolies) – as if these activities add to GDP. The reality is that they are a subtrahend, a transfer payment from the “real” economy to the Finance, Insurance and Real Estate Sector. I therefore focus on this FIRE sector as the main form of economic overhead that financialized economies have to carry. What this means in the most general economic terms is that finance and property ownership claims are not “factors of production.” They are external to the production process. But they extract income from the “real” economy.

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Any USD downturn is temporary.

What Happens When The US Dollar Is No Longer A Hedge Fund Hotel? (BBG)

In the wake of last week’s dovish decision from the Federal Reserve, investors have been throwing in the towel on the U.S. dollar. But Bank of America Merrill Lynch’s proprietary positioning data suggests there’s still another major shoe to drop for the greenback. In a note to clients, FX Strategists Myria Kyriacou and Athanasios Vamvakidis illustrate that hedge funds’ long position in the U.S. dollar remains substantial relative to the past 12 months and to other investors. “Real money is now short USD for the year, but hedge funds remain long, pointing to risks for a further squeeze USD lower,” they conclude. Real money, in this case, refers to pension funds, real estate investment trusts, smaller asset managers, and the like.

The strategists note that these parties often use foreign exchange positions to carry out trades in equities or debt, and therefore they may not be expressing a view on the currency itself. However, the positioning of this ‘real money’ does imply something about the appetite for assets denominated in U.S. dollars, an important factor for the currency. During an interview on Bloomberg TV, Vamvakidis said that any advances in the U.S. dollar going forward, both against other developed market currencies and their emerging market peers, would not be broad based. “We’re not going to see an overall strengthening trend of the dollar across the board,” he said. “We do expect the dollar to be stronger against the euro, not against the yen.”

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Centralization is the biggest threat to the EU and the eurozone.

French Central Banker Wants Eurozone Finance Minister With Sweeping Powers (FT)

France’s central bank governor has attacked the country’s government over its botched attempt to overhaul its labour markets, saying President François Hollande’s backtracking on vital measures has threatened growth. François Villeroy de Galhau, who succeeded Christian Noyer at the Banque de France last November, said officials across the eurozone needed to build trust by passing much-needed economic reforms. More trust between Germany and other member states would pave the way for the economic integration that he said was essential to improve the region’s longer-term economic prospects. Mr Villeroy de Galhau said the nascent recovery in the French economy, the second largest in the eurozone, was partly down to previous pro-business measures, such as €40bn in tax credits, introduced by Mr Hollande two years ago.

But a retreat by the French president, triggered by union opposition and student protests, had undermined businesses’ faith. “Confidence is a key issue for entrepreneurs,” Mr Villeroy de Galhau said in the palatial surroundings of the Banque de France’s headquarters in central Paris. “This question is very often raised: how can we better translate the favourable economic conditions created by the ECB’s monetary policy and low oil prices into a sustainable recovery? The key for that is investment, especially corporate investment, and the key for corporate investment is confidence. The method used for this labour market law didn’t help confidence.” Describing France’s labour market, he said: “The status quo is not an option.”

The reproach directed at Mr Hollande, who picked Mr Villeroy de Galhau for the Banque de France’s top job, comes as the president is battling unions and his own majority over a bill that hands companies more power to negotiate longer working hours with employees and facilitate lay-offs. Mr Villeroy de Galhau, a former banker at BNP Paribas, is more in line with Mr Hollande when it comes to eurozone integration. He is pushing for the creation of a eurozone finance ministry with sweeping powers to exert control on fiscal spending and “sanction” countries that refuse structural reforms.

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Helicopter money will not be accepted in quite a few economies.

It’s Not Going To End Well BUT Central Banks Have Plenty Of Ammo Left (Faber)

The magicians at central banks, they always come out with a new trick and these negative interest rates that we have today, this is for the first time in recorded human history from the times of Babylon up to today that we have negative interest rates, and it’s not going to end well. That, I can tell you. But the sequence of how it will not end well, I’m not so sure. But they still have a lot of ammunition. What they can do is helicopter money. In other words, they can send you and Mr. Bloomberg and me and everybody, say a check for $10,000, and that is like throwing gasoline into a fire…. will it help the economy? That is the question. It won’t help in the long run. You cannot grow an economy by just throwing money at people.

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That’s crazy.

Plant-Growing Season In UK Now A Month Longer Than In 1990 (Guardian)

The growing season for plants has become a month longer than it was a few decades ago, Met Office figures show. In the last 10 years, the growing season, measured according to the central England temperature daily record, which stretches back hundreds of years, has been on average 29 days longer than in the period 1961-1990, the data show. And while more of the year is warm enough for plants to grow, there has also been a decline in the number of frosty days in recent decades, the Met Office said. Between 2006 and 2015, the plant growing season, which begins and ends with periods of consecutive days where daily temperatures average more than 5C (41F) and is without any five-day spells of temperatures below 5C, averaged 280 days.

Figures also reveal that six of the 10 longest growing seasons have occurred in the last 30 years, with 2014 topping the list at 336 days, or about 11 months of the year, while 2015 was 10th, with 303 days – about 10 months. Only three of the 10 shortest growing seasons have taken place in the last century – in 1979, 1941 and 1922 – while the years with the shortest season were in 1782 and 1859, at just 181 days. Mark McCarthy, manager of the Met Office’s national climate information centre, said: “Between 1861 and 1890, the average growing season by this measure was 244 days, and measuring the same period a century later, the average growing season had extended by just over a week. For the most recent 10 years, between 2006 and 2015, the average growing season has been 29 days longer at 280 days, when compared with the period between 1961 and 1990.”

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Nice try, but I think Europe has a lot more, and deeper problems. The deepest of all is that it has no heart and no soul.

A Violent Coming-of-Age For Europe (Papachelas)

The most serious problem right now is that the West appears helpless in the face of major threats and challenges. Not that it is about to come tumbling down like a paper tower. The continent has been through too much for a hasty futurologist to discard it. But Europe does face two crucial issues: the flows of refugees and migrants and Islamic extremism. Large movements of populations are a recurring phenomenon throughout history. It’s hard to stop them. Europe is currently trying to do this through NATO and the closing of borders. NATO, however, is operating more along the lines of a think tank, as opposed to a military alliance. The alliance’s frigates may be state-of-the-art and look very threatening, but in reality they do not have the authority to halt a boat carrying refugees or migrants.

This is becoming evident to the rest of the world and paints a picture of weakness. The same is true of terrorism. Every time a terrorist attack occurs, the streets of Brussels are flooded by military vehicles and armed commandos. So what? They might offer a sense of security to passers-by or tourists visiting the city, but they are clearly not capable of deterring terrorists attacks. Watching footage of soldiers walking the streets, while we know that they merely give the impression of safety, is like watching a tragicomedy. Europe became very spoilt over the last decades. The Cold War brought the continent under the safety umbrella of the US. European governments, with very few exceptions, did not have to deal with security concerns.

They felt they could go on living the good life, which they became accustomed to after WWII, without spending energy, time and money on security issues. They are now realizing that the American umbrella no longer provides the continent with a shield and that, at the same time, the world has suddenly become far more dangerous and unpredictable. Europe has been coming of age in a violent way in the last few years. There’s another thing. Europe cannot handle both the refugee crisis and terrorism as it gradually enters a period of cold war conflict with Russia. This is a recipe for disaster for both Russian and European interests. Europe and Russia are natural allies in the war against terrorism and should work together to rebuild the broken puzzle in the Middle East.

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You lock ’em up? Tsipras should have said no to this.

NGOs Withdraw As Greece Refugee Camps Turn Into Detention Centers (Kath.)

Staff from non-governmental organizations were being withdrawn from the Idomeni refugee camp in northern Greece on Tuesday as the UN Refugee Agency (UNHCR) also said it would be taking a less active role in providing assistance on the Greek islands in the wake of the European Union’s agreement with Turkey. NGOs began withdrawing their personnel from Idomeni due to rising tension at the camp, where refugees had been protesting since the morning about not being able to continue their journey north. The aid organizations deemed that they would not be able to continue their work in the current circumstances. Their withdrawal came as the UNHCR also distanced itself from the deal to return refugees to Turkey, which has led to the agency scaling down its operations in places such as Lesvos. “Under the new provisions, these so-called hot spots have now become detention centers,” said UNHCR spokewoman Melissa Fleming.

“Accordingly, and in line with UNHCR policy of opposing mandatory detention, we have suspended some of our activities at all closed centers on the island.” Until Sunday, refugees arriving on Lesvos had been free to leave the Moria hot spot and continue their journeys but under the terms of the agreement with Turkey, Greek authorities now have to hold them there or at one of four other centers set up on the Aegean islands of Samos, Chios, Leros and Kos, pending the outcome of their asylum applications. The returns are due to begin on April 4. Part of the process involves Greece and Turkey exchanging police officials who will monitor the process. Six Turkish policemen have already arrived on Lesvos, while two Greek officers traveled to Cesme yesterday. Another four will follow. Also yesterday, Greece’s public broadcaster ERT began news bulletins in Arabic aimed at keeping refugees informed about developments.

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Europe is busy creating an ever bigger mess.

UN Slams Refugee ‘Detention Facilities’ In Greece (AFP)

The UN refugee agency on Tuesday harshly criticised an EU-Turkey deal on curbing the influx of migrants to Greece, saying reception centres had become “detention facilities”, and suspended some activities in the country. “Under the new provisions, these sites have now become detention facilities”, the UNHCR said in a statement. “Accordingly, and in line with our policy on opposing mandatory detention, we have suspended some of our activities at all closed centres on the islands,” it added. The EU and Ankara struck a deal on Friday aiming to cut off the sea crossing from Turkey to the Greek islands that enabled 850,000 people to pour into Europe last year, many of them fleeing the brutal war in Syria. The agreement, under which all migrants landing on the Greek islands face being sent back to Turkey, went into effect early on Sunday.

“UNHCR is not a party to the EU-Turkey deal, nor will we be involved in returns or detention,” the agency said Tuesday, adding though that it would “continue to assist the Greek authorities to develop an adequate reception capacity.” It pointed out that Greece currently “does not have sufficient capacity on the islands for assessing asylum claims, nor the proper conditions to accommodate people decently and safely pending an examination of their cases.” The UN agency said 934 refugees and migrants had landed on Lesbos alone since the accord took effect. “They are being held at a closed registration and temporary accommodation site in Moria on the east of the island,” it said, adding that the 880 others who arrived before Sunday were being hosted separately at the Kara Tepe centre, which is run by the local municipality and “remains an open facility”.

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Dec 282015
 
 December 28, 2015  Posted by at 10:48 pm Finance Tagged with: , , , , , , , , ,  4 Responses »
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AP Police Officer Carries Aylan Kurdi’s Body, Bodrum Sep 2 2015

No year is ever easy to predict, if only because if it were, that would take all the fun out of life. But still, predictions for 2016 look quite a bit easier than other years. This is because a whole bunch of irreversible things happened in 2015 that were not recognized for what they are, either intentionally or by ‘accident’. Things that will therefore now be forced to play out in 2016, when denial will no longer be an available option.

A year ago, I wrote 2014: The Year Propaganda Came Of Age, and though that was more about geopolitics, it might as well have dealt with the financial press. And that goes for 2015 at least as much. Mainstream western media are no more likely to tell you what’s real than Chinese state media are.

2015 should have been the year of China, and it was in a way, but the extent to which was clouded by Beijing’s insistence on made-up numbers (GDP growth of 7% against the backdrop of plummeting imports and exports, 45 months of falling producer prices and bad loans reaching 20%), by the western media’s insistence on copying these numbers, and by everyone’s fear of the economic and financial consequences of the ‘Great Fall of China‘.

2015 was also the year when deflation, closely linked -but by no means limited- to China, got a firm hold on the global economy. Denial and fear have restricted our understanding of this development just as much.

And while it should be obvious that 2015 was the year of refugees as well, that topic too has been twisted and turned until full public comprehension has become impossible. Both in the US and in Europe politicians pose for their voters loudly proclaiming that borders must be closed and refugees and migrants sent back to the places they’re fleeing due to our very own military interventions.

And that said politicians have the power to make that happen, the power to close borders to hundreds of thousands of fellow human beings arriving on their countries’ doorsteps. As if thousands of years of human mass migrations never occurred, and have no lessons to teach the present or the future.

The price of oil was a big story, and China plays the lead role in that story, even if again poorly understood. All the reports and opinions about OPEC plans and ‘tactics’ to squeeze US frackers are hollow, since neither OPEC as a whole nor its separate members have the luxury anymore to engage in tactical games; they’re all too squeezed by the demise of Chinese demand growth, if not demand, period.

Ever since 2008, the entire world economy has been kept afloat by the $25 trillion or so that China printed to build overleveraged overcapacity. And now that is gone, never to return. There is nowhere else left for our economies to turn for growth. Everyone counted on China to take them down the yellow brick road to la-la-land, forever. And then it didn’t happen.

What 2015 should have made clear, and did in a way but not nearly clear enough, is that the world economy is falling apart due to a Ponzi bubble of over-production, over-capacity, over-investment, over-borrowing, all of which was grossly overleveraged. And that this now is, for lack of a better word, over.

Most people who read this will have noticed the troubled waters investment funds -hedge funds, mutual funds, money market funds et al- have recently landed in. But perhaps not many understand what this means, and where it may lead. These things tend to be seen as incidents, as is anything that diverts attention away from the ‘recovery just around the corner’ narrative.

Not only do the losses and redemptions at investment funds drive these funds to the brink, everything they’ve invested in also tumbles. Add to this the fact that most of the investments are highly leveraged, which means that typically a loss of just a few percent can wipe out all of the principal, and a notion of the risks becomes clear.

Of course, since many of the funds hold the same or similar investments, we can add yet another risk factor: contagion. Things will blow up first where the risk is highest. Then everything else becomes riskier. Low interest rates have caused many parties to chase high yields -junk bonds-, and that’s where risks are highest.

This is the 2015 story of investment funds, and it will continue, and aggravate, in 2016. Ultra low interest rates drive economies into deflation and investors into ever riskier assets. This is a process of unavoidable deterioration, unstoppable until it has played out in full. A 0.25% rate hike won’t do anything to change that.

Why do interest rate hikes pose such a problem? Because ZIRP has invited if not beckoned everyone to be up to their necks in debt. The entire economy is being kept lopsidedly upright, Wile. E style, by debt. Asset prices, even as commodities have now begun to fall in serious fashion, still look sort of OK, but only until you start to look at the amount of leverage that’s pinning it all up.

Once you see that, you understand how fragile it all is. Go one step further, and it becomes clear that this exponentially growing ‘machinery‘ can only be ‘sustained’ by ever more debt and leverage. Until it no longer can.

Commodities prices have nowhere to go but down for a long time to come. These prices have been propped up by the illusionary expectations for Chinese growth and demand, and now that growth is gone. So, too, then, must the over-leveraged over-investments both in China and abroad.

Growth that was expected to be in double digits for years to come has shrunk to levels well below that ‘official’ 7%. China’s switch to a consumer driven economy is as much a fantasy as the western switch to a knowledge economy has proved to be. If you don’t actually produce things, you’re done. And producing for export markets is futile when there’s no-one left to spend in those markets.

Ergo, commodities, raw materials, the very building blocks of our economies, from oil all the way to steel, are caught in a fire sale. Everything must go! Eventually, commodities prices will more or less stabilize, but at much lower levels than they -still- are at present. That we will need to figure this out in 2016 instead of 2015 is our own fault. We could have been healing, but we’ve yet to face the pain.

Trying to guesstimate how low oil will go is a way of looking at things that seems very outdated. It’s interesting just about exclusively for people who ‘invest’ in the markets, but the reality is that the Fed, BoJ, PBoC and ECB have first made sure through QE and ZIRP/NIRP that there no longer are functioning markets, and they are now losing their relevance because of these very ‘policies’.

Price discovery has already started (oil, commodities), and central banks have benched themselves. They could only re-enter the game if they quit interfering in the markets, but they’re too afraid, all of them, of the consequences that might have, not even so much for their economies but for their TBTF banks.

Yellen’s rate hike will mean some extra profits for those same banks at the cost of the rest of the financial world, but with growth gone to not return for a very long time, and with deflation hitting everything in sight and then some, there is no pretty picture left.

And none of this is really hard to process or understand. It’s just that there’s these concerted efforts to keep you from understanding, that keep you believing in some miracle salvation effort. Which would, so goes the narrative, have to come from the same central banks and the same Wall Street banks that put everyone and their pet guinea pig as deep in debt as they are.

If you have been reading the Automatic Earth over the past 8 years and change, you know what this is about. There are a few, but unfortunately only a few, other sources that may have put you on the same trail.

I was impressed with the following earlier this month from David Stockman, Reagan’s Director of the Office of Management and Budget, who now seems to have firmly caught up with the deflation theme Nicole Foss and I have been warning about ever since we started writing – pre-TAE – at the Oil Drum 10 years ago. Stockman today says that we are entering an epic deflation and the world economy is actually going to shrink for the first time since the 1930s. (!)

The End Of The Bubble Finance Era

There has been so much over-investment in energy, mining, materials processing, manufacturing and warehousing that nothing new will be built for years to come. [..] .. there will be a severe curtailment in the production of mining and construction equipment, oilfield drilling rigs, heavy trucks and rail cars, bulk carriers and containerships, materials handling machinery and warehouse rigging, machine tools and chemical processing equipment and much, much more.

It’s good to see people finally acknowledging this. It’s still rare. But there’s another, again interlinked, development that is very poorly understood. Which is that in a debt deflation, the ‘money’ that appears to be real and present in leveraged investments more often than not doesn’t get pulled out of one ‘investment’ only to be put into another, it just goes POOF, it vanishes.

And though it may seem strange, conventional economics has a very hard time with that. In the eyes of that field, if you don’t spend your money, you must be saving it. The possibility of losing it altogether is not a viable option. Or, if you lose it, someone else must be gaining it, zero-sum style.

But that view ignores the entire ‘pyramid’ of leveraged loans and investments and commodity prices, which precisely because that pyramid contained no more than a few percentage points of ‘real collateral’ to underpin everything it kept afloat, should have been a red flag. Because this is the very essence of debt deflation.

Just one little example of how and why this happens comes from this Bloomberg item. The key word is ‘evaporates’:

$100 Billion Evaporates as World’s Worst Oil Major Plunges 90%

Colombia is nursing paper losses of more than $100 billion after its oil boom fell short of expectations, wiping out 90% of the value of what was once Latin America’s biggest company. From being the world’s fifth-most valuable oil producer at its zenith in 2012, worth more than BP, state-controlled Ecopetrol now ranks 38th. Its market capitalization has fallen to $14.5 billion, down from its peak of $136.7 billion. “They just haven’t found oil, it’s as simple as that,” Rupert Stebbings at Bancolombia said from Medellin. “The whole oil sector got massively over-bought, and people assumed that one day they’d hit an absolute gusher.”

2016 will be the year when a lot of ‘underlying wealth’ evaporates. Trillions of dollars already have in the commodities markets, but, again, our media don’t tell us about it, or at least they frame it in different terms. They use deflation to mean falling consumer prices, but then insist on calling falling prices at the pump a positive thing. Without recognizing to what extent those falling prices eat away at the entire economy, and at society at large.

To summarize for now: we have elected to deny and ignore what has happened to our economies, our societies and our lives in 2015, only to be forced to face all of it in 2016. That makes the year an easy one to predict. But there are of course a lot of other possible spokes and wheels and other things.

Any government that sees its nation slide down into a deep enough pit will always consider going to war. One or more central banks may opt for a Hail Mary helicopter ride. A volcano may erupt. But none of these things will prevent the bubbles we have blown from deflating. They may divert attention, they may delay the inevitable a bit more, sure. But bubbles never last.

I have a whole list of key words I wanted to use in this, but I think I’ll turn them into a separate article. The main point is you understand the gist of it all. There are no markets, and what has posed as markets is crumbling before our very eyes, inexorably. The best we can do is say ‘see you on the other side’, if we’re lucky.

Nov 222015
 
 November 22, 2015  Posted by at 10:38 am Finance Tagged with: , , , , , , , ,  2 Responses »
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Marjory Collins “Italian girls watching US Army parade on Mott Street, New York” 1942


Will $4.6 Trillion Leveraged Loan Market Cause Next Financial Crisis? (Cohan)
Asia-Europe Container Freight Rates Drop 70% in 3 Weeks (Reuters)
Nightmare of Mario Draghi’s Crowded Trade (FT)
The Long, Cold Winter Ahead (Tenebrarum)
Oil Companies Brace For Big Wave Of Debt Defaults (CNBC)
Eurozone Agrees Greece Can Get Next Loan Tranche, Cash For Bank Recap (Reuters)
Half Of UK Care Homes To Close If £2.9 Billion Gap Is Not Plugged (Guardian)
Report Urges UK Government To Act Now To Avoid Energy Crisis (EAEM)
How Did a UK Power Plant Get 25 Times the Market Price? (Bloomberg)
State Of Emergency In Crimea After Electricity Pylons ‘Blown Up’ (Reuters)
Brazil Dam Toxic Mud Reaches Atlantic Ocean (BBC)
Deforestation Threatens Majority of Amazon Tree Species (PSMag)
Saudi Arabia, an ISIS That Has Made It (NY Times)
The Saudi Connection to Terror (Daniel Lazare)
Terrorism Links Trigger Greater Scrutiny For Greece (Kath.)
Chaos In Greek Islands Over Three-Tier Refugee Registration System (Guardian)

One of many factors that could be the trigger.

Will $4.6 Trillion Leveraged Loan Market Cause Next Financial Crisis? (Cohan)

Financial crises take about a decade to be born. Having lived through four of them, I see the raw materials for a fifth one — flowing from the collapse of so-called leveraged loans — debt piled on top of companies with weak credit ratings. Before examining the latest news on leveraged loans, let’s take a quick tour down the memory lane of financial crises I’ve lived through. My first one was in 1982 — that’s when banks lent too much money to oil and gas developers in Oklahoma and Texas as well as local real estate developers. At the suggestion of McKinsey, money-center banks like Chemical Bank thought it would be a great idea to buy a piece of those loans. It’s all described nicely in a wonderful book — Belly Up. Too bad the price of oil and gas tumbled, leaving lenders in the lurch and causing a spike in bank failures that gave me the chance to spend a balmy summer in Washington helping the FDIC develop a system to manage the liquidation of those failed banks.

By 1989, it was time for another banking crisis — this one was pinned to too much lending to commercial real estate developers in New England and junk-bond-backed loans for what used to be known as leveraged buyouts. The government shut down Bank of New England and was threatening my employer, Bank of Boston, with the same. I worked on a government-mandated strategic plan intended to save the bank from a similar fate. Next up — the dot-com bust — which introduced me to the idea that not all bubbles are bad if you can get in when they’re forming and exit before they burst. I invested in six dot-coms and had a mixed record — the three winners offset the three wipe outs.

Finally, there is the latest and greatest — the so-called Great Recession of 2008. I am now getting to the end of Ben Bernanke’s The Courage To Act. It brings back all the memories — from my first story on subprime mortgages back in December 2006 in which I recommended selling short shares of subprime lender, NovaStar Financial when they traded at $106 apiece. (NovaStar changed its name to Novation in 2012 and you can pick up a share for 17 cents.) The key causes of the crisis that Bernanke describes as the worst in history were weak subprime regulation, liar loans, global securitization, too little capital, limited transparency, skewed banker and ratings agency incentives, and lame risk management. What does this little financial crisis tour have to do with leveraged loans? I have often cited the Mark Twain’s expression that history does not repeat itself, but sometimes it rhymes.

I think leveraged loans rhyme with junk bonds and subprime mortgages. Banks make leveraged loans “to companies that have junk credit ratings in the hope of quickly selling the debt to investors, including mutual funds, hedge funds and entities called collateralized loan obligations,” according to the New York Times. Why the rhyme? As in the late 1980s, leveraged loans are made to companies with bad credit ratings; like subprime mortgages they are being packaged into securities that supposedly give investors a diversified portfolio; and like the early 1980s crisis, there is excess debt on the books of energy and mining companies.

Read more …

World trade comes to a crawl.

Asia-Europe Container Freight Rates Drop 70% in 3 Weeks (Reuters)

Shipping freight rates for transporting containers from ports in Asia to Northern Europe plunged by 27.9% to $295 per 20-foot container (TEU) in the week ending on Friday, one source with access to data from the Shanghai Containerized Freight Index told Reuters. The drop came after spot freight rates on the world’s busiest route dropped 39.3% last week, and the current rates are widely seen as loss-making levels for container shipping companies. The spot freight rates for transporting containers, carrying anything from flat-screen TVs to sportswear from Asia to Northern Europe, has fallen 70% in three weeks.

In the week to Friday, container freight rates fell 22.5% from Asia to ports in the Mediterranean, dropped 8.6% to ports on the U.S. West Coast and were down 8.0% to ports on the U.S. East Coast. Maersk Line, the global market leader with more than 600 container vessels and part of Danish oil and shipping group A.P. Moller-Maersk, earlier in November reported a 61% drop in net profit in the third quarter. The Danish shipping company controls around one fifth of all transported containers from Asia to Europe.

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He leaves nothing for others to buy.

Nightmare of Mario Draghi’s Crowded Trade (FT)

Investors are putting too much faith in Mario Draghi. The ECB president is largely responsible for one of the most overcrowded trades in markets — and there is a risk it could all go horribly wrong. In the past month, every investor I have spoken to has told me they are overweight European equities, citing the quantitative easing policy of Mr Draghi and the ECB as one of the main reasons. But is Mr Draghi creating a potential nightmare scenario for investors? The European equity trade makes sense for a variety of reasons. The eurozone economy is recovering, albeit sluggishly, earnings are growing, valuations are relatively attractive and, most important of all, the ECB is buying billions of euros of bonds to underpin the market.

Indeed, European equities have rallied sharply since the start of September when Mr Draghi first hinted he was prepared to launch a second round of QE, expected in December. Investors reason that it is unwise to fight a central bank. It makes sense to be fully invested in risk assets such as equities when a central bank is actively easing, as looser monetary policy encourages corporations to borrow at cheap rates. This is certainly true. Euro-denominated investment grade corporate debt issuance has surged to a record high so far this year. This corporate borrowing often translates into higher profits as the money is invested for growth, which in turn boosts the share price. With the US Federal Reserve expected to diverge from the ECB and tighten policy next month, it makes European stocks even more appealing, particularly given that US valuations are stretched.

With the ECB easing and the Fed tightening, the euro is likely to remain weak. A cheaper euro should lift demand for exports. This is helpful to Germany, the region’s biggest economy, which relies on exports for growth. However, when a trade becomes this crowded, there are risks. Upside is limited because the good news is largely priced in. More significantly, if the market reverses, it can be difficult to exit as everyone wants to sell at the same time. Investors only have to look back to the summer for a reminder of the dangers. Worries about the Chinese economy wiped out all the equity gains from Mr Draghi’s first round of QE, which was launched in March, in a matter of days. European equities plunged about 10% in August.

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“..somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy’s narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation.”

The Long, Cold Winter Ahead (Tenebrarum)

Cold winds of deflation gust across the autumn economic landscape. Global trade languishes and commodities rust away like abandoned scrap metal with a visible dusting of frost. The economic optimism that embellished markets heading into 2015 have cooled as the year moves through its final stretch. If you recall, the popular storyline since late last year has been that the U.S. economy is moderately improving while the world’s other major economies – Japan, China, and Europe – are rolling over. The U.S. economy would power through. Moreover, stock prices had achieved a permanently high plateau. But somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy’s narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation.

Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with. Price adjustments, bankruptcies, and debt restructuring must be painfully worked through like a strawberry picker hunkered over a seemingly endless furrow row of over ripening fruits. Sore backs, burnt necks, and tender fingers are what the over-all economy has in front of it. The U.S. economy is not immune to the global disorder after all. More evidence is revealed each week that the unexpected is happening. Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, let’s turn to Dr. Copper…

Dr. Copper – the metal with a PhD in economics – is always the first to know which way the economy will go. Copper’s broad use in industry and many different sectors of the economy, ranging from infrastructure to housing and consumer electronics, makes it a good early indicator of economic activity. When copper prices rise, economic activity soon increases. When copper prices fall the economy often then stagnates. Thus, here’s the latest from Dr. Copper and his industrial metals cohorts… As Bloomberg reported earlier this week: “Copper plunged to the lowest intraday price since May 2009 on concern Chinese demand is slowing and as the dollar traded near its strongest level in more than a decade. Lead touched the lowest since 2010, while all industrial metals retreated.”

No doubt, marking price levels last seen during the depths of the Great Recession would not be happening if the economy was strengthening. If demand was robust industrial metals prices would be going up. Instead, they continue their slide into the void of worldwide non-activity. Stocks may soon follow…The last time copper prices were this low, in May 2009, stocks were also much lower. Yet, today, they’re at extremely lofty prices. The Dow Jones Industrial Average is currently over 17,500. Back then, the Dow was less than half that…it ranged in the low 8,000s. In other words, stocks are still up while the economy is slowing down. Perhaps the economy is taking a brief pause before roaring back to life. Most likely it’s hunkering down for the long, cold winter ahead.

Financialization, namely massive amounts of leverage, has made the disconnect between the stock market and the economy extend wider and longer than ever before. Maybe another speculative melt up is ahead. Who knows? Maybe DOW 20,000 or 30,000 is in the cards. With enough monetary deception anything’s possible. But, nonetheless, gravity still exists. Stocks cannot go up for ever. After a six year bull market, accompanied by a lackluster recovery, stocks could return to prior levels that were in line with present commodity prices. Remember, just a few years ago, Dow 8,000 matched up with current copper prices. Soon it likely will again.

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Remember how lower oil prices would be a boon for the economy?

Oil Companies Brace For Big Wave Of Debt Defaults (CNBC)

Low oil prices are leaving many oil and gas companies with difficult debt loads, causing them to default at an extraordinary rate. On top of that, rating firm Moody’s forecasts the default rate will increase. “The energy sector remains the most troubled, accounting for almost a quarter of the 79 defaults so far this year,” said Sharon Ou, Moody’s Credit Policy Research senior credit officer. The strain on the oil patch comes after years of borrowing heavily at the start of the domestic energy renaissance. At the time, oil was hovering around $100 a barrel. But now, with West Texas Intermediate crude oil slightly above $40 a barrel, these companies are seeing their revenue dry up — and remain saddled with debt.

Marc Lasry, the chief executive of distressed investing specialist Avenue Capital Group, said these energy companies boosted their borrowings to between $250 billion and $300 billion, compared with the $100 billion at the start of this year. The energy boom of the past decade was fueled by a wave of credit from U.S. banks that now say they expect more delinquencies and charge-offs from energy companies this year. Federal Reserve officials earlier in November noted an increase in weakness among credits related to oil and gas exploration, production, and energy services following the decline in energy prices since mid-2014. Among the major banks raising red flags about the health of the loans are Wells Fargo, Bank of America and JPMorgan Chase.

Some banks are renegotiating their credit lines to gas and oil companies, while others are cutting credit lines to oil and gas firms and are requiring more collateral to protect against the surge of defaults. Of the 31 companies that have disclosed information on loan resets so far, banks have cut credit lines of 10 firms by just over $1.1 billion, Reuters reported. Some energy companies are aggressively looking to take matters into their own hands to alleviate the debt pressure. Some are selling assets, others are cutting spending, some are issuing new shares, and others are hedging their oil production at a certain price. Some, however, can’t escape the grip of debt, falling victim to low oil prices and filing for bankruptcy.

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There is a government in Greece only to lend legitimacy to Brussels.

Eurozone Agrees Greece Can Get Next Loan Tranche, Cash For Bank Recap (Reuters)

Greece has done all the reforms in the a first package of measures agreed with euro zone creditors, which paves the way for Athens to get the next tranche of loans, the head of euro zone finance ministers Jeroen Dijsselbloem said on Saturday. Greece is getting very cheap loans form the euro zone bailout fund ESM under its third bailout agreement in exchange for putting its public finances in order and reforming the economy to make it more efficient and competitive. Euro zone deputy finance ministers (EWG) reviewed on Saturday the progress made by Athens in the reforms.

“On the basis of a final compliance notice… the EWG agreed that the Greek authorities have now completed the first set of milestones and the financial sector measures that are essential for a successful recapitalization process,” Dijsselbloem said. “The agreement paves the way for the formal approval by the ESM Board of Directors on Monday 23 November of disbursing the €2 billion sub-tranche linked to the first set of milestones,” he said. He said that it will also allow the ESM to make case by case decisions to transfer money to Greece for the recapitalization of the Greek banking sector. The ESM already has €10 billion earmarked for this purpose and the capital needs of Greek banks from the euro zone are estimated at between six and nine billion, one euro zone official said on Friday.

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This is happening all across the western world. We better make up our minds, fast, about what kind of society we want.

Half Of UK Care Homes To Close If £2.9 Billion Gap Is Not Plugged (Guardian)

Up to half of Britain’s care homes will close and the NHS will be overwhelmed by frail, elderly people unless the chancellor, George Osborne, acts to prevent the “devastating financial collapse” facing social care, an alliance of charities, local councils and carers has warned. In a joint letter, 15 social care and older people’s groups urge Osborne to use his spending review on Wednesday to plug a funding gap that they say will hit £2.9bn by 2020. They warn that social care in England, already suffering from cuts imposed under the coalition, will be close to collapse unless money is found to rebuild support for the 883,000 older and disabled people who depend on personal care services in their homes.

Osborne has already decided to use his overview of public finances to give town halls the power to raise council tax by up to 2% to fund social care, in a move that could raise up to £2bn for the hard-pressed sector. However, the signatories of the letter, such as Age UK and the Alzheimer’s Society, want him to commit more central government funding to social care. The looming £2.9bn gap “can no longer be ignored”, the letter says. “Up to 50% of the care home market will become financially unviable and care homes will start to close their doors,” it adds. “74% of domiciliary home-care providers who work with local councils have said that they will have to reduce the amount of publicly funded care they provide. If no action is taken, it is estimated that this would affect half of all of the people and their families who rely on these vital services.”

Osborne’s endorsement of a hypothecated local tax to boost social care comes after intense lobbying behind the scenes and public warnings from bodies such as the King’s Fund health thinktank. “Social care in England has been in retreat for a long time. But the fact that the industry is now losing its appeal, both as a business and as a form of employment, marks a new and dangerous phase in its decline,” said Caroline Abrahams, Age UK’s charity director. She urged Osborne to use the spending review “to bring stability to a worryingly fragile situation”. Jeremy Hughes, chief executive of the Alzheimer’s Society, another signatory, said: “Since 2010, £4.6bn of cuts have already resulted in an estimated 500,000 older and disabled people being denied access to care. If the government blazes ahead with 25%-40% cuts to local authority budgets, more people with dementia will be severely affected.”

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I count on them to fail spectacularly.

Report Urges UK Government To Act Now To Avoid Energy Crisis (EAEM)

Britain is on the verge of an energy crisis, with demand set to outstrip supply for the first time in early 2016, according to a new report by a leading energy analyst. In the report The Great Green Hangover, published by the Centre for Policy Studies, author Tony Lodge says that electricity demand is set to outstrip dispatchable supply for the first time from early 2016. Due to widespread plant closures, on-tap energy capacity has been in decline – and now for the first time will be lower than the forecasted demand. Lodge argues that decades of energy policy mismanagement have overseen the shutdown of energy plants vital to Britain’s long-term energy security.

The average dispatchable capacity remaining by the end of March 2016 is calculated to be 52,360MW, whereas National Grid’s 2015/2016 Winter Outlook demand forecast is 54,200MW. The report also raises concerns over the continued affordability of energy costs. Over the last ten years electricity bills have risen by 131% in real terms, easily outstripping any other household essential. High energy prices also burden British industry, jeopardising manufacturing in particular as businesses consider closure or overseas relocation due to unaffordable production costs. Though operating efficiently, they nevertheless consume large quantities of energy, which can account for between 20 and 70% of their production costs.

Author Tony Lodge comments: “Britain has lost over 15,400MW (20%) of its dispatchable electricity generating capacity in the last five years as baseload power plants have closed with no equivalent replacement. This month National Grid used emergency measures for the first time to call on industry to reduce its power usage in order to avoid shortages. “High UK Carbon Price Support should be abandoned before it forces the premature closure of more baseload power plants and thus threatens energy security and affordability,” he added. Lodge says the Government should prioritise energy security alongside its environmental commitments and legislate to deliver targets to maintain security of energy supply, diversity and affordability.

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I can see Britain’s future from here.

How Did a UK Power Plant Get 25 Times the Market Price? (Bloomberg)

On the afternoon of Nov. 4, a U.K. power station began to shut down one of its gas-fired units and the network manager was told it wouldn’t be available. Within an hour, the operator ramped it up again after the grid called for increased reserves and the power station got paid a handsome premium for doing so. The facility at the Severn power plant in Wales, operated by Macquarie Group Ltd., was running near full throttle at 396 megawatts. It didn’t report any operational problems, a requirement of European regulations, that would have prevented it supplying the market. Nonetheless, it began to decrease output from 3 p.m. When the network manager requested additional generation capacity for two hours from 4:30 p.m., Severn responded.

The reward for providing extra power was a payout 25 times the market price for that time in the day, according to calculations by Bloomberg based on exchange and grid data. The episode raises questions about how U.K. power plants operate as National Grid Plc, the company responsible for ensuring supply meets demand, grapples with a thinner buffer of surplus generating capacity. That margin will be about 5% this winter, down from as much as 16% four years ago, according to data from the London-based company. “This is a market, and it might be argued that price spikes are a necessary condition for its long-term viability, and therefore that it’s not unreasonable for individual generators to exploit scarcities,” said John Rhys, a senior research fellow at the Oxford Energy Institute. “If we really are in a period of very tight capacity, then I’m afraid that’s what having a market means and it’s going to happen.”

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Curious that this didn’t happen earlier.

State Of Emergency In Crimea After Electricity Pylons ‘Blown Up’ (Reuters)

A state of emergency has been declared in Crimea after pylons carrying electricity from Ukraine were blown up cutting off power to almost two million people, media and the Russian government said on Sunday. The Russian Energy Ministry didn’t say what had caused the outages, but Russian media reported that two pylons in the Kherson region of Ukraine north of Crimea had been blown up by Ukrainian nationalists. The attack, if by Ukrainian nationalists opposed to Russia’s annexation of Crimea from Ukraine last year, is likely to further increase tensions between Russia and Ukraine. Russia’s Energy Ministry said in a statement that two power lines bringing power from Ukraine to Crimea had been affected, as a result of which 1,896,000 people had been left without power.

The ministry said that a state of emergency had been declared in Crimea. It also said that emergency supplies had been turned on for critical needs and 13 mobile gas turbine generators were being prepared. Ilya Kiva, a senior officer in the Ukrainian police who was at the scene, also said on his Facebook page that the pylons had been blown up, without giving further details. On Saturday, the pylons were the scene of violent clashes between activists from the Right Sector nationalist movement and paramilitary police, Ukrainian media reported. The pylons had already been damaged by the activists on Friday before they were blown up on Saturday night, according to these reports.

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“..compromised for a minimum of a 100 years..”

Brazil Dam Toxic Mud Reaches Atlantic Ocean (BBC)

A wave of toxic mud travelling down the Rio Doce river in Brazil from a collapsed dam has reached the Atlantic Ocean, amid concerns it will cause severe pollution. The waste has travelled more than 500km (310 miles) since the dam at an iron mine collapsed two weeks ago. Samarco, the mine owner, has tried to protect plants and animals by building barriers along the banks of the river. Workers have dredged the river mouth to help the mud flow out to sea fast. The contaminated mud, tested by the water management authorities, was found to contain toxic substances like mercury, arsenic, chromium and manganese at levels exceeding human consumption levels. Samarco has insisted the sludge is harmless.

In an interview with the BBC, Andres Ruchi, director of the Marine Biology school in Santa Cruz in Espirito Santo state, said that mud could have a devastating impact on marine life when it reaches the sea. He said the area of sea near the mouth of the Rio Doce is a feeding ground and a breeding location for many species of marine life including the threatened leatherback turtle, dolphins and whales. “The flow of nutrients in the whole food chain in a third of the south-eastern region of Brazil and half of the Southern Atlantic will be compromised for a minimum of a 100 years,” he said. The magazine Chemistry World quotes Aloysio da Silva Ferrao Filho, a researcher at the respected Oswaldo Cruz Foundation, as saying that the impact has been severe in the river itself. “The biodiversity of the river is completely lost, several species including endemic ones must be extinct.”

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Compromised forever.

Deforestation Threatens Majority of Amazon Tree Species (PSMag)

It’s been estimated that the Amazon rainforest and surrounding areas are—or once were—home to upwards of 11,000 different tree species. It’s also been estimated that those forests have shrunk by about 12%, and that human meddling could double or triple that number by 2050. Now, researchers report, the loss of forest cover could threaten the existence of more than half the tree species in the Amazon. The Amazon basin hosts perhaps the greatest biodiversity on Earth—so much so that researchers know relatively little about many of the region’s native species. “While we know quite a bit about Amazonian deforestation, we know little about the effects on the Amazonian [tree] species,” says lead author Hans ter Steege at Naturalis Biodiversity Center in Leiden, the Netherlands.

“We’ve never had a good idea about how many species are threatened in the Amazon, and now with this study we have an estimate,” adds study co-author Nigel Pitman, a senior conservation ecologist at the Field Museum in Chicago, Illinois. To get a picture of the health of forests in the Amazon basin and the Guiana Shield north of Brazil, a team of 160 botanists, ecologists, and taxonomists from 97 institutions went out into the field and, well, started counting. The team ultimately mapped 4,953 “relatively common” tree species at 1,485 sites throughout the region. Using a standard model of biodiversity, the researchers inferred the existence of another 10,000 species, which they assumed were largely hidden in the densest Amazonian forests, but rare enough that even a careful accounting could have missed them.

Hans ter Steege and his colleagues next compared species maps with maps of deforested and protected areas, then computed how many trees of each species could be lost under two different chain of events: a business-as-usual scenario, in which deforestation continues more or less as it has been for decades, and 40% of the Amazon’s trees would be gone by 2050; and a less severe scenario, in which governments step up protections, and deforestation tops out at 20%. Under the business-as-usual scenario, 51% of the Amazon’s common tree species’ populations and 43% of rare tree species’ populations would decline by 30% or more, qualifying them for inclusion on the International Union for Conservation of Nature’s “Red List” of threatened species.

Even under the less severe scenario in which forest governance improves, 16% of common species and 25% of rare species qualify for the Red List. Those losses would likely affect iconic tree species including Brazil nut, cacao, and açai palm, which play central roles in the regional economy. What’s more, Amazonian forests help trap a vast amount of carbon, which, if unleashed through deforestation, could exacerbate an already warming climate. “We want to make sure the Amazon keeps the carbon sink,” ter Steege says. “This is important.”

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Russia has far fewer qualms about confronting The House of Saud.

Saudi Arabia, an ISIS That Has Made It (NY Times)

Black Daesh, white Daesh. The former slits throats, kills, stones, cuts off hands, destroys humanity’s common heritage and despises archaeology, women and non-Muslims. The latter is better dressed and neater but does the same things. The Islamic State; Saudi Arabia. In its struggle against terrorism, the West wages war on one, but shakes hands with the other. This is a mechanism of denial, and denial has a price: preserving the famous strategic alliance with Saudi Arabia at the risk of forgetting that the kingdom also relies on an alliance with a religious clergy that produces, legitimizes, spreads, preaches and defends Wahhabism, the ultra-puritanical form of Islam that Daesh feeds on. Wahhabism, a messianic radicalism that arose in the 18th century, hopes to restore a fantasized caliphate centered on a desert, a sacred book, and two holy sites, Mecca and Medina.

Born in massacre and blood, it manifests itself in a surreal relationship with women, a prohibition against non-Muslims treading on sacred territory, and ferocious religious laws. That translates into an obsessive hatred of imagery and representation and therefore art, but also of the body, nakedness and freedom. Saudi Arabia is a Daesh that has made it. The West’s denial regarding Saudi Arabia is striking: It salutes the theocracy as its ally but pretends not to notice that it is the world’s chief ideological sponsor of Islamist culture. The younger generations of radicals in the so-called Arab world were not born jihadists. They were suckled in the bosom of Fatwa Valley, a kind of Islamist Vatican with a vast industry that produces theologians, religious laws, books, and aggressive editorial policies and media campaigns.

One might counter: Isn’t Saudi Arabia itself a possible target of Daesh? Yes, but to focus on that would be to overlook the strength of the ties between the reigning family and the clergy that accounts for its stability — and also, increasingly, for its precariousness. The Saudi royals are caught in a perfect trap: Weakened by succession laws that encourage turnover, they cling to ancestral ties between king and preacher. The Saudi clergy produces Islamism, which both threatens the country and gives legitimacy to the regime. One has to live in the Muslim world to understand the immense transformative influence of religious television channels on society by accessing its weak links: households, women, rural areas. Islamist culture is widespread in many countries — Algeria, Morocco, Tunisia, Libya, Egypt, Mali, Mauritania.

There are thousands of Islamist newspapers and clergies that impose a unitary vision of the world, tradition and clothing on the public space, on the wording of the government’s laws and on the rituals of a society they deem to be contaminated. It is worth reading certain Islamist newspapers to see their reactions to the attacks in Paris. The West is cast as a land of “infidels.” The attacks were the result of the onslaught against Islam. Muslims and Arabs have become the enemies of the secular and the Jews. The Palestinian question is invoked along with the rape of Iraq and the memory of colonial trauma, and packaged into a messianic discourse meant to seduce the masses. Such talk spreads in the social spaces below, while up above, political leaders send their condolences to France and denounce a crime against humanity. This totally schizophrenic situation parallels the West’s denial regarding Saudi Arabia.

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“The more one side gains political control in the name of Islam, the more vulnerable it becomes to accusations from the other side that its claim to power is less than legitimate.”

The Saudi Connection to Terror (Daniel Lazare)

[..] the proceeds from a hundred-odd oil trucks doesn’t explain how ISIS pays its bills. Nor does the speculation about ISIS’s antiquity sales. So if Islamic State does not get the bulk of its funds from such sources, where does the money come from? The politically inconvenient answer is from the outside, i.e., from other parts of the Middle East where the oil fields are not marginal as they are in northern Syria and Iraq, but, rather, rich and productive; where refineries are state of the art, and where oil travels via pipeline instead of in trucks. It is also a market in which corruption is massive, financial controls are lax, and ideological sympathies for both ISIS and Al Qaeda run strong. This means the Arab Gulf states of Kuwait, Qatar, the United Arab Emirates, and Saudi Arabia, countries with massive reserves of wealth despite a 50% plunge in oil prices.

The Gulf states are politically autocratic, militantly Sunni, and, moreover, are caught in a painful ideological bind. Worldwide, Sunnis outnumber Shi‘ites by at least four to one. But among the eight nations ringing the Persian Gulf, the situation is reversed, with Shi‘ites outnumbering Sunnis by nearly two to one. The more theocratic the world grows – and theocracy is a trend not only in the Muslim world, but in India, Israel and even the U.S. if certain Republicans get their way – the more sectarianism intensifies. At its most basic, the Sunni-Shi‘ite conflict is a war of succession among followers of Muhammad, who died in the Seventh Century. The more one side gains political control in the name of Islam, consequently, the more vulnerable it becomes to accusations from the other side that its claim to power is less than legitimate.

The Saudi royal family, which styles itself as the “custodian of the two holy mosques” of Mecca and Medina, is especially sensitive to such accusations, if only because its political position seems to be growing more and more precarious. This is why it has thrown itself into an anti-Shi‘ite crusade from Yemen to Bahrain to Syria. While the U.S., Britain and France condemn Bashar al-Assad as a dictator, that’s not why Sunni rebels are now fighting to overthrow him. They are doing so instead because, as an Alawite, a form of Shi‘ism, he belongs to a branch of Islam that the petro-sheiks in Riyadh regard as a challenge to their very existence. Civil war is rarely a moderating force, and as the struggle against Assad has intensified, power among the rebels has shifted to the most militant Sunni forces, up to and including Al Qaeda and its even more aggressive rival, ISIS.

In other words, the Islamic State is not homegrown and self-reliant, but a product and beneficiary of larger forces, essentially a proxy, paramilitary army of Gulf state sheiks. Evidence of broad regional support is abundant even if news outlets like The New York Times have done their best to ignore it.

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Are they making it up as they go along? Something fishy: “It later emerged that the passport was fake and that four other people, including a dead Syrian soldier, shared the same details.” Look, if there are four people with identical -fake- passports, how do they know the perpetrator was the one who passed through Greece, and not one of the other three?

Terrorism Links Trigger Greater Scrutiny For Greece (Kath.)

Greece is under growing pressure to monitor its borders and properly register the thousands of refugees and migrants who arrive each week after it emerged that at least two of the Paris suicide bombers passed through the country on their way to France. The European Union has already started taking measures in the wake of the deadly terrorist attacks in Paris. EU interior ministers agreed on Friday to tighten checks on points of entry to the 26-country Schengen area, which includes Greece. French Interior Minister Bernard Cazeneuve said the European Commission would present plans to introduce “obligatory checks at all external borders for all travelers,” including EU citizens, by the year’s end. Previously, only non-EU nationals had their details checked against a database for terrorism and crime when they enter the Schengen area.

Earlier, Cazeneuve revealed that a second suicide bomber at the Stade de France in Paris had entered the EU via Greece. A total of three jihadists blew themselves up at the stadium. One had already been identified as having arrived on Leros with a larger group of migrants. He was carrying a Syrian passport in the name of Ahmad Almohammad. It later emerged that the passport was fake and that four other people, including a dead Syrian soldier, shared the same details. It is thought a second bomber arrived with him on Leros, while unconfirmed sources suggest that the third Stade de France bomber also followed the same route. There has been no official reaction from the government to these revelations but Greek authorities have handed all the information from the registered arrivals to Europol.

Athens, however, has not confirmed that the alleged leader of the terrorist cell that carried out the fatal attacks in Paris, Abdelhamid Abaaoud, had been in Greece in January. In fact, the citizens’ protection minister issued a statement on Friday asking Cazeneuve to retract comments in which he suggested the Belgian national, who was killed in a police raid last week, had passed through Athens. Greek authorities mounted a search for Abaaoud in Athens after his mobile phone was allegedly traced to the Greek capital but the device was eventually found in the possession of an Algerian man who was extradited to Belgium due to alleged links with a terrorist cell there.

Nevertheless, this adds to the pressure on Greece to ensure proper checks are being carried out. Authorities made multiple arrests last week in connection to the alleged forging of documents for migrants. Also, the police picked up 50 migrants that were allowed to board ferries in Lesvos and Chios without having registered with authorities there.

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It’s hard not to think now and again that the EU deliberately screws this up. Couldn’t do a better job at it if they tried.

Chaos In Greek Islands Over Three-Tier Refugee Registration System (Guardian)

The EU’s refugee registration system on the Greek islands has created a three-tier system that favours certain nationalities over others, encourages some ethnic groups to lie about their backgrounds to secure preferential treatment, and has led to a situation Human Rights Watch calls absolute chaos. The dynamic will increase fears over the security threat posed by the hundreds of thousands of migrants arriving in Europe amid a backlash against refugees after the Paris attacks. The passport of a Syrian refugee who passed through Greece was found on or near the body of a dead suicide bomber. It will also amplify calls to scale up resettlement schemes from the Middle East, which will help Europe to improve screening of refugees and give them an incentive not to take the boat to Greece.

Syrian families arriving on the island of Lesbos, where nearly 400,000 asylum seekers have landed so far in 2015, are separated from other nationalities and given expedited treatment that allows them to leave the island for mainland Europe within 24 hours. Syrian males, Yemenis and Somalis are registered in a separate and slower camp but still receive preferential treatment and are usually able to continue their journey within a day. But a third category of asylum seekers – including many from war-torn countries such as Iraq and Afghanistan – are being processed in another camp where there are roughly half as many passport-scanners. The result is a chaotic parallel registration process that can last up to a week, and which has left many non-Syrians sleeping outside in the cold of winter for several nights, while they wait to be registered.

The Guardian found families living in dire, unsanitary conditions in an olive grove surrounding the main registration centre. They said they were receiving just one significant meal a day, and had resorted to burning trees to keep warm at night. Even once they are finally processed, Afghans only receive one month’s leave to remain in Greece, while Syrians are given six months. The island’s mayor told the Guardian that the three-track process is to prevent fighting between different ethnic groups and nationalities. But the director of one of the three camps admitted that non-Syrians are given lower priority because officials assume that they do not have as strong a claim for asylum. “In the [lowest-priority] camp, there are the Iraqis, Afghans, Pakistanis who are mostly migrants, economic migrants,” said Spyros Kourtis. By contrast, he said that the better-equipped centre was for “people who come from countries with a refugee profile”.

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Nov 192015
 
 November 19, 2015  Posted by at 11:28 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Robert Capa Anti-fascist militia women at Barcelona street barricade 1936

Looking through a bunch of numbers and graphs dealing with China recently, it occurred to us that perhaps we, and most others with us, may need to recalibrate our focus on what to emphasize amongst everything we read and hear, if we’re looking to interpret what’s happening in and with the country’s economy.

It was only fair -perhaps even inevitable- that oil would be the first major commodity to dive off a cliff, because oil drives the entire global economy, both as a source of fuel -energy- and as raw material. Oil makes the world go round.

But still, the price of oil was merely a lagging indicator of underlying trends and events. Oil prices didn‘t start their plunge until sometime in 2014. On June 19, 2014, Brent was $115. Less than seven months later, on January 9, it was $50.

Severe as that was, China’s troubles started much earlier. Which lends credence to the idea that it was those troubles that brought down the price of oil in the first place, and people were slow to catch up. And it’s only now other commodities are plummeting that they, albeit very reluctantly, start to see a shimmer of ‘the light’.

Here are Brent oil prices (WTI follows the trend closely):

They happen to coincide quite strongly with the fall in Chinese imports, which perhaps makes it tempting to correlate the two one-on-one:

But this correlation doesn’t hold up. And that we can see when we look at a number everyone seems to largely overlook, at their own peril, producer prices:

About which Bloomberg had this to say:

China Deflation Pressures Persist As Producer Prices Fall 44th Month

China’s consumer inflation waned in October while factory-gate deflation extended a record streak of negative readings [..] The producer-price index fell 5.9%, its 44th straight monthly decline. [..] Overseas shipments dropped 6.9% in October in dollar terms while weaker demand for coal, iron and other commodities from declining heavy industries helped push imports down 18.8%, leaving a record trade surplus of $61.6 billion.

44 months is a long time. And March 2012 is a long time ago. Oil was about at its highest since right before the 2008 crisis took the bottom out. And if you look closer, you can see that producer prices started ‘losing it’ even earlier, around July 2011.

Something was happening there that should have warranted more scrutiny. That it didn’t might have a lot to do with this:

China’s debt-to-GDP ratio has risen by nearly 50% in the past four years.

The producer price index seems to indicate that trouble started over 4 years ago. China dug itself way deeper into debt since then. It already did that before as well (especially since 2008), but the additional debt apparently couldn’t be made productive anymore. And that’s an understatement.

Now, if you want to talk correlation, compare the producer price graph above with Bloomberg’s global commodities index:

World commodities markets, like the entire global economy, were propped up by China overinvestment ever since 2008. Commodities have been falling since early 2011, after rising some 60% in the wake of the crisis. And after the 2011 peak, they’ve dropped all the way down to levels not seen since 1999. And they keep on falling: steel, zinc, copper, aluminum, you name it, they’re all setting new lows almost at a daily basis.

Moreover, if we look at how fast China imports are falling, and we realize how much of those imports involve (raw material) commodities, we can’t escape the conclusion that here we’re looking at not a lagging, but a predictive indicator. What China doesn’t purchase in raw materials today, it can’t churn out as finished products tomorrow.

Not as exports, and not as products to be used domestically. Neither spell good news for the Chinese economy; indeed, the rot seems to come from both sides, inside and out. And no matter how much Beijing points to the ‘service’ economy it claims to be switching towards, with all the debt that is now deflating, and the plummeting marginal productivity of new debt, most of it looks like wishful thinking.

And that is not the whole story either. Closely linked to the sinking marginal productivity, there is overleveraged overcapacity and oversupply. It’s like the proverbial huge ocean liner that’s hard to turn around.

There are for instance lots of new coal plants in the pipeline:

China Coal Bubble: 155 Coal-Fired Power Plants To Be Added To Overcapacity

China has given the green light to more than 150 coal power plants so far this year despite falling coal consumption, flatlining production and existing overcapacity. [..] in the first nine months of 2015 China’s central and provincial governments issued environmental approvals to 155 coal-fired power plants — that’s 4 per week. The numbers associated with this prospective new fleet of plants are suitably astronomical. Should they all go ahead they would have a capacity of 123GW, more than twice Germany’s entire coal fleet; their carbon emissions would be around 560 million tonnes a year, roughly equal to the annual energy emissions of Brazil; they would produce more particle pollution than all the cars in Beijing, Shanghai, Tianjin and Chongqing put together [..]

And new car plants too:

China’s Demand For Cars Has Slowed. Overcapacity Is The New Normal.

For much of the past decade, China’s auto industry seemed to be a perpetual growth machine. Annual vehicle sales on the mainland surged to 23 million units in 2014 from about 5 million in 2004. [..] No more. Automakers in China have gone from adding extra factory shifts six years ago to running some plants at half-pace today—even as they continue to spend billions of dollars to bring online even more plants that were started during the good times.

The construction spree has added about 17 million units of annual production capacity since 2009, compared with an increase of 10.6 million units in annual sales [..] New Chinese factories are forecast to add a further 10% in capacity in 2016—despite projections that sales will continue to be challenged. [..] “The players tend to build more capacity in hopes of maintaining, or hopefully, gain market share. Overcapacity is here to stay.”

These are mere examples. Similar developments are undoubtedly taking place in many other sectors of the Chinese economy (how about construction?!). China has for example started dumping its overproduction of steel and aluminum on world markets, which makes the rest of the world, let’s say, skittish. The US is levying a 236% import tax on -some- China steel. The UK sees its remaining steel industry vanish. All US aluminum smelters are at risk of closure in 2016.

The flipside, the inevitable hangover, that China will wake up to sooner rather than later, is the debt that its real growth, and then it’s fantasy growth, has been based on. We already dealt extensively with the difference between ‘official’ and real growth numbers, let’s leave that topic alone this time around.

Though we can throw this in. Goldman Sachs recently said that even if the official Beijing growth numbers were right -which nobody believes anymore- ”Chinese credit growth is still running at roughly double the rate of GDP growth”. And even if credit growth may appear to be slowing a little, though we’d have to know the shadow banking numbers to gauge that (and we don’t), that hangover is still looming large:

China Bad Loans Estimated At 20% Or Higher vs Official 1.5%

[..] While the analysts interviewed for this story differ in their approaches to calculating likely levels of soured credit, their conclusion is the same: The official 1.5% bad-loan estimate is way too low.

Charlene Chu [..] and her colleagues at Autonomous Research in Hong Kong take a top-down approach. They estimate how much money is being wasted after the nation began getting smaller and smaller economic returns on its credit from 2008. Their assessment is informed by data from economies such as Japan that have gone though similar debt explosions. While traditional bank loans are not Chu’s prime focus – she looks at the wider picture, including shadow banking – she says her work suggests that nonperforming loans may be at 20% to 21%, or even higher.

The Bank for International Settlements cautioned in September that China’s credit to gross domestic product ratio indicates an increasing risk of a banking crisis in coming years. “A financial crisis is by no means preordained, but if losses don’t manifest in financial sector losses, they will do so via slowing growth and deflation, as they did in Japan,” said Chu. “China is confronting a massive debt problem, the scale of which the world has never seen.”

Looking at the producer price graph, we see that the downfall started at least 44 months ago, and that 52 months is just as good an assumption. And we know that debt rose 50% or more since the downfall started. That does put things in a different perspective, doesn’t it? (Probably) the majority of pundits and experts will still insist on a soft landing at worst.

But for those who don’t, please consider the overwhelming amount of deflationary forces that is being unleashed on the world as all that debt goes sour. As the part of that debt that was leveraged vanishes into thin air.

It’s ironic to see that it’s at this very point in time that the IMF (Christine Lagarde seems eager to take responsibility) seeks to include the yuan in its SDR basket. Xi Jinping’s power over the exchange rate can only be diminished by such a move, and we’re not at all sure he realizes to what extent that is true. Chinese politics are built on hubris, and that goes only so far when you free float but don’t deliver.

To summarize, do you remember what you were doing -and thinking- in mid-2011 and/or early 2012? Because that’s when this whole process started. Not this year, and not last year.

China’s producers couldn’t get the prices they wanted anymore, as early as 4 years ago, and that’s where deflationary forces came in. No matter how much extra credit/debt was injected into the money supply, the spending side started to stutter. It never recovered.

Nov 112015
 
 November 11, 2015  Posted by at 10:24 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle November 11 2015
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Dorothea Lange Homeless mother and child walking from Phoenix to Imperial County CA Feb 1939


We’re in the Early Stages of Largest Debt Default in US History (Stansberry)
It’s Not The Record High US Corporate Debt That Is The Biggest Risk (ZH)
US Banks Said To Hold $10 Trillion Of Risky Trades (FT)
US Banks Are Not “Sound”, Fed Report Finds (Simon Black)
Chinese Defaults Spread as Cement Maker to Miss Bond Payment (Bloomberg)
China Factory Output, Investment Sluggish As Old Economy Slows (Bloomberg)
Goldman Sachs Says Corporate America Has Quietly Re-Levered (Tracy Alloway)
Credit Suisse CEO Sees ‘Traumatic’ Event If Rates Increase (Bloomberg)
Oil Prices Drop On Rising Stockpiles, Slowing Asian Economies (Reuters)
ECB Faces Three Suits Over Quantitative Easing in Germany (Bloomberg)
VW Only Carmaker Found Cheating By US Regulator (Reuters)
Minsky, Financial Instability, Great Depression & GFC (Steve Keen)
Bitcoin’s Place In The Long History Of Pyramid Schemes (FT)
Abortions Up 50% In Greece Since Start Of The Crisis (Kath.)
More Misery Ahead For Greeks As Economy Set To Shrink Again (Reuters)
EU Fears Greek Debt Deal Would Unleash Mass Write-Off Calls In Spain (Telegraph)
Germany May Need €21 Billion To House And Educate Refugees (Reuters)
No One Is Really In Charge Of The Refugee Crisis (Reuters)
Germany Sends Syrians Back To EU Borders (Local.de)
Austria Calls For Greece, Italy Border Controls (AP)
Refugee Boat Sinks Off Western Turkey, 14 Dead, 7 Children (AA)

“A massive, unprecedented intervention in the markets by the Federal Reserve stopped the default cycle in its tracks. As a result, trillions of dollars in risky debt did not enter default and were not written off…”

We’re in the Early Stages of Largest Debt Default in US History (Stansberry)

We are in the early stages of a great debt default – the largest in U.S. history. We know roughly the size and scope of the coming default wave because we know the history of the U.S. corporate debt market. As the sizes of corporate bond deals have grown over time, each wave of defaults has led to bigger and bigger defaults. Here’s the pattern. Default rates on “speculative” bonds are normally less than 5%. That means less than 5% of noninvestment-grade, U.S. corporate debt defaults in a year. But when the rate breaks above that threshold, it goes through a three- to four-year period of rising, peaking, and then normalizing defaults. This is the normal credit cycle. It’s part of a healthy capitalistic economy, where entrepreneurs have access to capital and frequently go bankrupt. If you’ll look back through recent years, you can see this cycle clearly…

In 1990, default rates jumped from around 4% to more than 8%. The next year (1991), default rates peaked at more than 11%. Then default rates began to decline, reaching 6% in 1992. By 1993, the crisis was over and default rates normalized at 2.5%. Around $50 billion in corporate debt went into default during this cycle of distress. Six years later, in 1999, the distress cycle began to crank up again. Default rates hit 5.5% that year and jumped again in 2000 and 2001 – hitting almost 8.7%. They began to fall in late 2002, reaching normal levels by 2003. Interestingly, the amount of capital involved in this cycle was much, much larger: Almost $500 billion became embroiled in default. The growth in risky lending was powered by the innovation of the credit default swap (CDS) market. It allowed far riskier loans to be financed. As a result, the size of the bad corporate debts had grown by 10 times in only one credit cycle.

The most recent cycle is the one you’re most familiar with – the mortgage crisis. Six years after default rates normalized in 2003, they suddenly spiked up to almost 10% in 2009. But thanks to a massive and unprecedented government intervention, featuring trillions of dollars in credit protection, default rates immediately returned to normal in 2010. As a result, only about $1 trillion of corporate debt went into default during this cycle. You should know, however, that the regular market-clearing process of rising, peaking, and normalizing default rates did not occur in the last cycle. A massive, unprecedented intervention in the markets by the Federal Reserve stopped the default cycle in its tracks. As a result, trillions of dollars in risky debt did not enter default and were not written off.

Read more …

EBITDA= earnings before interest, tax, depreciation and amortization

It’s Not The Record High US Corporate Debt That Is The Biggest Risk (ZH)

[..] even Goldman has admitted that rising leverage and the soaring buybacks are, “like a bad dream”, the major problem for corporate imbalances, the truth is that surging debt is not the full story, nor is it the scariest aspect of this story. The real risk is that while debt is rising on both a relative and an absolute basis, EBITDA, or cash flow, of both junk companies as well as Investment Grades, has been declining for at least one year. Or rather, while junk-rated companies have seen their EBITDA decline consistently over the past 5 years, the big inflection point came in early 2014 when IG EBITDA also plateaued, and has been declining since.

It is this ongoing decline in actual cash flows, which tracks the third consecutive quarter of declining Y/Y revenues (the decline in EPS is far slower as hundreds of billions in shares have been removed from the market, keeping the EPS ratio higher than where it would be) that is the biggest risk to both the S&P500 and the market, if such a thing still existed. Even Goldman is unable to provide a counterfactual case:

Now, the counter-argument one hears is that the cost of this debt has never been this cheap with the average interest rate paid dropping from close to 6% to 4% in 2015. Put another way, as debt has more than doubled, the amount of interest expense has only gone up by 40%. This is all good until you normalize EBITDA. Indeed, if EBITDA was at “normalized levels” (which we define as median NTM EBITDA from 1Q07-2Q15), leverage would move to 1.75X, over 30% higher than the average over the last 10 years.

But here is the real kicker: with even Goldman admitting that buybacks as a shortcut to creating “engineered” earnings will no longer work and instead may be punished by investors, companies refuse to accept this. Certainly don’t tell that to McDonalds, which earlier today defied S&P to announce a major debt increase to boost shareholder returns, even if it meant its A rating would be lost as it was downgraded to BBB+. Contrary to Goldman’s take, it was rewarded by shareholders. So even as cash flows continue to decline, companies will engage in this one and only line of defense against sellers and shorters as in a world where 2% growth is the new norm (and that with the benefit of $13 trillion in central bank liquidity). And instead of investing in the future, replenishing their asset base, this asset stripping of corporations to reward shareholders will continue.

Read more …

“..4.4% of all outstanding derivatives contracts at those institutions..”

US Banks Said To Hold $10 Trillion Of Risky Trades (FT)

The repeal of part of the Dodd-Frank financial reforms has left big US banks holding $10tn of risky derivatives trades on their books, according to an investigation by Democrats. Senator Elizabeth Warren, a liberal Wall Street foe, said the repeal -which sparked a firestorm when it was slipped into a budget bill in December 2014- had left federally insured banks exposed to dangerous swaps trades. The rollback of the relevant rule, which followed almost no congressional debate, sparked stinging criticism of Wall Street and cemented perceptions of the pernicious influence of bank lobbyists on Capitol Hill. The rule would have required banks to push out swaps trades to entities that are not insured with taxpayer funds.

But on Tuesday Ms Warren cited figures from bank regulators indicating that about $10tn of those contracts remained on banks books, the first such estimates. The furore over the repeal helped set the stage for Wall Street regulation to feature in the 2016 presidential race with Hillary Clinton and Bernie Sanders, the Democratic contenders, jousting over how to rein in banks risk taking. Sheila Bair, former chair of the Federal Deposit Insurance Corporation and now president of Washington College in Maryland, told the FT earlier this year before she joined the school that the swaps repeal was a ‘classic backroom deal’. “There’s no way this would have passed muster if people had openly debated it, so [the banks] had to sneak it on to a must-pass funding bill. For an industry that purports to want to regain public trust, it was an extraordinary thing to do”.

Swaps trades enable institutions to exchange streams of payments, typically to reduce their interest rate or currency risks. Banks want to keep the trades on their books simply because their margins are higher that way, Ms Bair said, noting that counterparties would demand more collateral from a non-insured affiliate. Ms Warren and Elijah Cummings, a senior Democrat in the House of Representatives, cited an estimate from the FDIC that 15 banks registered as swap dealers currently hold up to $9.7tn of the affected swaps. It said they represented 4.4% of all outstanding derivatives contracts at those institutions. The total comprises $6.1tn in credit derivatives, $1tn in commodity derivatives and $2.6tn in equities derivatives. In letters published on Tuesday the two lawmakers also took aim at bank regulators, saying they had compounded the risks to taxpayers by failing to introduce new capital margin requirements on swap trades.

Read more …

“..if even a small number of customers suddenly wanted their money back, and especially if they wanted physical cash, banks would completely seize up.”

US Banks Are Not “Sound”, Fed Report Finds (Simon Black)

Late last week, a consortium of financial regulators in the United States, including the Federal Reserve and the FDIC, issued an astonishing condemnation of the US banking system. Most notably, they highlighted “continuing gaps between industry practices and the expectations for safe and sound banking.” This is part of an annual report they publish called the Shared National Credit (SNC) Review. And in this year’s report, they identified a huge jump in risky loans due to overexposure to weakening oil and gas industries. Make no mistake; this is not chump change. The total exceeds $3.9 trillion worth of risky loans that US banks made with your money. Given that even the Fed is concerned about this, alarm bells should be ringing. Bear in mind that, in banking, there are three primary types of risk, at least from the consumer’s perspective.

The first is fraud risk. This ultimately comes down to whether you can trust your bank. Are they stealing from you? MF Global was once among the largest brokers in the United States. But in 2011 it was found that the firm had stolen funds from customer accounts to cover its own trading losses, before ultimately declaring bankruptcy. It’s unfortunate to even have to point this out, but risk of fraud in the Western banking system is clearly not zero.

The second key risk is solvency. In other words, does your bank have a positive net worth? Like any business or individual, banks have assets and liabilities. For banks, their liabilities are customers’ deposits, which the bank is required to repay to customers. Meanwhile, a bank’s assets are the investments they make with our savings. If these investments go bad, it reduces or even eliminates the bank’s ability to pay us back. This is precisely what happened in 2008; hundreds of banks became insolvent in the financial crisis as a result of the idiotic bets they’d made with our money.

The third major risk is liquidity risk. In other words, does your bank have sufficient funds on hand when you want to make a withdrawal or transfer? Most banks only hold a very small portion of their portfolios in cash or cash equivalents. I’m not just talking about physical cash, I’m talking about high-quality liquid assets and securities that banks can sell in a heartbeat in order to raise cash and meet their customer needs to transfer and withdraw funds. For most banks in the West, their amount of cash equivalents as a%age of customer deposits is extremely low, often in the neighborhood of 1-3%. This means that if even a small number of customers suddenly wanted their money back, and especially if they wanted physical cash, banks would completely seize up.

Each of these three risks exists in the banking system today and they are in no way trivial. Very few people ever give thought to the soundness of their bank, ignoring the blaring warning signs that are right there in front of them. Every quarter the banks themselves send us detailed financial statements reporting both their low levels of liquidity and the accounting tricks they use to disguise their losses. Now we have a report from Fed and the FDIC, showing their own concern for the industry and foreshadowing the solvency risk I discussed above.

Read more …

Overleveraged malinvestment defines the Chinese economy.

Chinese Defaults Spread as Cement Maker to Miss Bond Payment (Bloomberg)

China is headed for its latest corporate default amid slowing economic growth, as a cement maker said it will fail to pay bond investors and will file for liquidation. China Shanshui Cement “will be unable to obtain sufficient financing on or before” a Thursday maturity date on its 2 billion yuan ($314 million) of 5.3% securities, it said in a statement Wednesday. The company, which is incorporated in the Cayman Islands, has decided to file a winding up petition and application for appointment of provisional liquidators with the courts there, it said. That “will also constitute an event of default” on its $500 million 7.5% dollar bonds due 2020, according to the filing.

Investors have been scarred by defaults from Chinese firms this year in industries including property and commodities, as President Xi Jinping shifts toward greater reliance on services to drive growth amid the weakest economic expansion in a quarter century. Shanshui would be at least the sixth company to renege on obligations in the nation’s onshore bond market this year, after Shanghai Chaori Solar Energy became the first in 2014. “For offshore creditors, recovering value from Shanshui’s dollar bonds will be a long process given that onshore creditors will be all over the company first in the case of liquidation,’’ said Zhi Wei Feng at Standard Chartered in Singapore.

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Nonsense: “Fixed-asset investment increased 10.2% in the first 10 months, while retail sales climbed 11% in October..”

China Factory Output, Investment Sluggish As Old Economy Slows (Bloomberg)

China’s industrial production and investment slowed further in October, showing the government’s pro-growth measures are yet to revive the nation’s old economic engines. Retail sales defied the weakness, rising more than economists forecast. Industrial output rose 5.6% in October from a year earlier, the National Statistics Bureau said on Wednesday (Nov 11), below the 5.8% median estimate of economists surveyed by Bloomberg and compared with September’s 5.7%. Fixed-asset investment increased 10.2% in the first 10 months, while retail sales climbed 11% in October. China’s leaders are seeking to transition from an investment-driven, manufacturing-dominated economy to a more consumption and services-led one in the next five years while maintaining growth of at least 6.5% a year.

With the real estate sector stalling, manufacturing deteriorating, and inflation muted, policy makers are under pressure to step up stimulus as new growth drivers aren’t picking up the slack quickly enough. The better-than-expected economic growth figure last quarter “did not alleviate downside risks facing the economy,” Liu Li-Gang at Australia & New Zealand Banking wrote in a note ahead of the data. Mr Liu wrote that the central bank “will remain accommodative and keep market interest rates steadily low.” The retail sales result compared with a median economist projection of 10.9%. Wednesday is an annual e-commerce shopping bonanza known as Singles’ Day in China.

Transactions on this year’s event passed 57.1 billion yuan (S$12.8 billion) before midday, eclipsing the 2014 mark with another 12 hours still to go. China’s consumer inflation waned in October while factory- gate deflation extended a record streak of negative readings, data Tuesday showed. That followed a tepid trade report suggesting the world’s second-biggest economy isn’t likely to get a near-term boost from global demand as overseas shipments dropped 6.9% in October in dollar terms from a year earlier.

Read more …

Quietly?!

Goldman Sachs Says Corporate America Has Quietly Re-Levered (Tracy Alloway)

You might choose to whisper it softly, but the balance sheets of U.S. companies are yelling it loudly, while wielding a baseball bat: Corporate leverage is now at its highest level in a decade, according to a new analysis from Goldman Sachs. Years of low interest rates and eager investors have encouraged Corporate America to go on a shopping spree. On its list are share buybacks and dividend hikes to reward equity investors, as well as a series of merger and acquisition deals, all funded through a generous bond market. Since cash flow has not kept up with the boom in bond sales, the splurge has left Corporate America with its highest debt load in about 10 years, according to the bank.

“Companies in the United States have taken advantage of low interest rates to issue record levels of debt over the past few years to fund buybacks and M&A,” Goldman analysts led by Robert Boroujerdi wrote in the note. “This has driven the total amount of debt on balance sheets to more than double pre-crisis levels.” While much of that could be attributed to the energy sector, in which exploratory oil and gas firms have relied on friendly capital markets to fund growth, the trend appears widespread. Goldman points out that even after stripping out the besieged energy sector, net debt to earnings is at its highest point since the crisis.

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Traumatic events will happen regardless.

Credit Suisse CEO Sees ‘Traumatic’ Event If Rates Increase (Bloomberg)

Credit Suisse CEO Tidjane Thiam said he sees the risk of a “traumatic event” in global markets once the current period of low interest rates comes to an end. “Frankly, it’s quite likely that there will be at the end of all this period a relatively traumatic event,” Thiam, 53, said in an interview with Bloomberg Television on Tuesday in New York. “It’s quite likely that interest rates will rise and there will be impacts in the real economy, the real world, so as a financial-services company, we have to position ourselves quite defensively.” Speculation about the Federal Reserve’s rate outlook has prompted swings in securities markets as investors assess whether the global economy is strong enough to withstand a U.S. rate increase.

Futures markets show that there’s a 66% chance the Fed will raise borrowing costs for the first time in nine years on Dec. 16, while ECB President Mario Draghi has all but pledged to boost stimulus to bolster growth across the euro area. Earlier expectations for a delay until March had to be trimmed after Fed Chair Janet Yellen told U.S. lawmakers that action next month remains a “live possibility,” a case later bolstered by American job gains. “Every time you see in markets, when you go from a high-rate environment to a low-rate environment or from a low to a high-rate environment, experience shows that a number of people are caught unprepared,” Thiam said. “That is likely to happen again.”

The comments were part of an interview in which Thiam discussed the opportunity for the bank to expand in managing money for wealthy clients across Asia and the strengths of the firm’s securities unit. The CEO last month announced a plan to reorganize Credit Suisse along geographical lines, cut as many as 5,600 jobs and focus more on wealth management while shrinking and splitting up the investment bank. “Why do we want to be in wealth management? Because the world is getting wealthier,” said Thiam, who replaced Brady Dougan in July. “That’s a huge opportunity.” The second-largest Swiss bank after UBS remains “very focused” on emerging markets including China, where “we have been underweight,” Thiam said. Credit Suisse needs the investment bank to help Asian billionaires with illiquid assets who need access to financing, he said.

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No kidding: “The weakness of global manufacturing activity is … putting pressure on energy demand..”

Oil Prices Drop On Rising Stockpiles, Slowing Asian Economies (Reuters)

Crude oil prices fell on Wednesday after industry data showed an increase in U.S. stockpiles, while China’s factory output slowed and fears emerged that Japan’s economy may have fallen into recession added to demand woes. Benchmark U.S. crude futures slipped to a two-week low at $43.55 a barrel in early trading before edging back up to $43.72 a barrel by 0652 GMT, still down almost half a dollar from their last close. The price drops came on the back of rising stockpiles in North America and slowing economies in Asia. U.S. crude stocks jumped by 6.3 million barrels in the week to Nov. 6 to 486.1 million barrels, data from industry group the American Petroleum Institute showed late on Tuesday, compared with analyst expectations for an increase of 1 million barrels.

On the demand side, confidence among Japanese manufacturers fell in November for a third straight month to levels unseen in more than two years, a Reuters poll showed on Wednesday, reflecting fears that a China-led slowdown in overseas demand may have pushed Asia’s second-biggest economy into recession. “The weakness of global manufacturing activity is … putting pressure on energy demand,” JBC Energy said, adding that it expected a significant drop in oil demand growth in 2016. In China, factory output grew slower than expected at an annual 5.6% in October, data showed on Wednesday, slightly below analyst forecasts of 5.8% and down from 5.7% in September. China’s oil demand rose 0.9% in October from a year earlier to 10.14 million barrels per day (bpd), with many analysts expecting a further slowdown.

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“This program is economic policy and first and foremost serves private banks from which the ECB purchases problematic loans. It is turning itself into the bad bank of Europe.”

ECB Faces Three Suits Over Quantitative Easing in Germany (Bloomberg)

German politicians who failed in previous attempts to have courts derail EU policy filed lawsuits at the country’s top court challenging the ECB’s €1.1 trillion asset-purchase program. Three suits were filed over the last six months, according to Michael Allmendinger, a spokesman for the Federal Constitutional Court in Karlsruhe. Bernd Lucke, the head of political party ALFA, brought a case in September. Ex-lawmaker Peter Gauweiler said in an e-mailed statement that he also filed a complaint last month. “With its euphemistically so-called Quantitative Easing policy, the ECB is seeking to inflame inflation by printing huge amounts of money,” said Gauweiler, who was behind a case that resulted in a ruling from the EU’s top court earlier this year.

“This program is economic policy and first and foremost serves private banks from which the ECB purchases problematic loans. It is turning itself into the bad bank of Europe.” Nine months into the bond-buying program, the main goal of spurring inflation toward the ECB’s goal of close to but below 2% remains elusive with price increases still largely absent from the 19-nation euro region. With the economy at risk of cooling amid weaker growth in China and a slowdown in global trade, ECB President Mario Draghi has held out the prospect of more stimulus next month, when new consumer-price and growth forecasts will be published.

The cases are separate from a complaint attacking the ECB’s 2012 Outright Monetary Transactions program. That action was dealt a setback when the EU’s highest tribunal in June largely approved the OMT. The German judges still have to make a final ruling in that litigation. In his new suit, Gauweiler argues that Draghi may have been biased and shouldn’t have participated in decisions potentially affecting the refinancing efforts by Italy or Greece. Draghi used to work for the Italian finance ministry, so there are “serious indications” he may have have been in part responsible for the countries’ high level of debt and “financial manipulations” allowing Italy to enter the euro zone, said Gauweiler.

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All the others managed to do what VW couldn’t, build engines that conform to the standards? That’s hard to swallow. It makes VW look too stupid to believe.

VW Only Carmaker Found Cheating By US Regulator (Reuters)

Volkswagen is the only carmaker whose diesel engines have been found so far by a U.S. regulator to be using illicit emissions-control software, German magazine Wirtschaftswoche reported. “Up until now we have found no fraudulent defeat device in vehicles of other brands,” the magazine quoted Mary Nichols, chair of the California Air Resources Board (CARB), as saying in an interview published on Tuesday. The CARB has been testing diesel models of brands other than VW since the U.S. Environmental Protection Agency said in September that the German group used software for diesel VW and Audi cars that deceived regulators measuring toxic emissions. “Our tests of diesel vehicles will continue,” Nichols said. Separately, Nichols said the CARB would also look into VW’s Nov. 3 admission of manipulating carbon dioxide emissions, though added the carmaker’s latest malfeasance would probably not spark a new testing cycle.

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Lesson no. 6.

Minsky, Financial Instability, Great Depression & GFC (Steve Keen)

I explain Minsky’s Financial Instability Hypothesis-why he developed it, what were his inspirations, how well it fits the empirical record, and how it can be modeled easily using system dynamics methods. For some reason my webcam froze for the 1st half of the lecture; I start moving in the second half…

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Contentious. Discuss.

Bitcoin’s Place In The Long History Of Pyramid Schemes (FT)

The cryptocurrency was invented by an anonymous mathematician in 2008, and championed in the years that followed for its technology. At a time when many were unsettled by the actions of central banks after the financial crisis, bitcoin offered an alternative way to manage a currency, through mathematical rules rather than a metaphorical printing press. It also fit the vogue for technological innovation. Bitcoins are created by computers solving mathematical problems, with the total number that can be calculated into existence over time limited. An open ledger allows the community to track the distribution of coins. At a time when small start-ups were earning multibillion-dollar valuations for their power to disrupt industries, anyone with a good idea and a neat bit of software could make a fortune.

As bitcoin attracted more attention, its price rose, attracting more money and attention. Early adopters got rich quick, or bemoaned how they would have done had their bitcoin hoard not gone in the bin aboard a discarded hard drive. Bitcoins could be used to buy goods and services in the real world, although not usually without a third party intermediating. The attention and limited supply meant that by December 2013 bitcoins traded for more than $1,200 each. However, in 2014 the cryptocurrency lost three quarters of its value after running into an old world problem, the failure of an overextended broker. Mt Gox, a prominent bitcoin exchange, collapsed. Then the seizure of the Silk Road, a popular website for trading bitcoins for drugs and other frowned on goods and services, prompted a crash in the price to almost $100.

Such big swings in price undermine the case for bitcoin’s use as a currency. “It’s value is so volatile it’s not likely to serve as a medium of exchange”, says Eugene Fama, the Nobel Prize winning economist. He pointed to examples such as Zimbabwe. “When a currency has a variable value, the people just switch to a different currency, or to barter.” Bitcoin also lacks another feature of currencies: the balance sheet of a central bank standing behind it. They might be intangible, but a balance sheet has two sides to it, lists of assets and liabilities. The bitcoin ledger, by comparison, is just a glorified list of liabilities, keeping track of where the bitcoins are located. Furthermore, while the number of bitcoins is limited, the number of times the cryptocurrency can be replicated is not. There are a host of imitators, including Doge coin, started as a joke in 2013 at the height of alt-coin fever.

The inherent flaw of pyramid schemes is that they must always suck in new converts to avoid collapse, and the exponential growth in users is impossible to sustain. Bitcoin shares some of these features. It requires constant evangelism because its value derives from its use. The limited supply of bitcoins then becomes a fatal constraint. The more people use it, the greater the price must rise, dissuading its use as a currency. Bobby Lee, head of BTCC, the largest bitcoin exchange in China, argues its use for everyday transactions makes it a currency, and is frank about its price, saying: “The reason bitcoin has value today is scarcity, that is all.” He also agrees bitcoin has the character of a pyramid scheme, but compares it with bubbles in housing markets, which might also appear pyramidical. He adds: “It all comes down to what we think of a pyramid scheme. Is that a good thing, or a bad thing?”

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Thanks, Schäuble.

Abortions Up 50% In Greece Since Start Of The Crisis (Kath.)

The number of abortions carried out in Greece has risen 50% since the start of the crisis and miscarriages have doubled. Births at public hospitals, meanwhile, have dropped 30% in the same period and assisted pregnancies by 20%. These are but some of the findings that were presented on October 17-18 in Athens at the 7th Panhellenic Conference of Family Planning organized by the Greek Society for Family Planning, Birth Control and Reproductive Health. According to the experts, the crisis has affected women across all age groups and socioeconomic strata, as well as the behavior of young people and teenagers in particular.

Greece has become an abortion leader. Ten years ago, there were 200,000 abortions a year among a population of 11 million, while today this figure has risen to 300,000, according to the figures presented at the conference. It is estimated that 140 in 1,000 pregnancies end in abortion. This usually concerns women who already have one or two children. At the Alexandra Maternity Hospital, the biggest public institution of its kind in Greece and the benchmark for the study, births have dropped 30% since the start of the crisis. “A prenatal care package for an uninsured woman at a public hospital costs just under €500, while a caesarian section costs €1,000. The cost is higher for migrant women, who may pay as much as €1,500 for a C-section,” says Constantinos Papadopoulos, an obstetrician/gynecologist (OB/GYN). “And if you add the cost of raising a child, then you understand why women take such decisions.”

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Things are already very bad in Greece, but apparently not enough yet.

More Misery Ahead For Greeks As Economy Set To Shrink Again (Reuters)

Any Greeks hoping their days of economic pain are over following the latest bailout agreement with international lenders should look to the dire projections from Europe’s three main institutional forecasters for a reality check. The European Commission, the OECD and the EBRD all say Greece is heading into recession again this year and next, sinking back into the mire after last year’s positive reading ended a six-year depression. The light at the end of the tunnel, all three say, may be some growth returning during next year – but it is highly dependent on economic and banking reform. There will be arguments about why Greece remains in such a state – from accusations in Athens that lender-imposed austerity has crushed the life out of the economy to gripes from Brussels that Alexis Tsipras’s leftists wasted what improvements had been achieved.

The two sides are again at loggerheads – albeit possibly temporarily – over reforms and bailout cash, with the added complexity that Tsipras does not want to see indebted Greeks lose their homes while the country is providing food and housing for thousands of asylum-seekers. But there is no disagreement among the forecasters about the direction the Greek economic is heading. Both the Commission and the OECD see a 1.4% contraction this year, while the EBRD (the European Bank for Reconstruction and Development) sees 1.5%. This is particularly severe given the first half of the year saw growth of 1%, put down to Greeks running out to buy durable goods ahead of a threatened “Grexit” from the eurozone.

There is more divergence among the forecasters about next year. The Commission and OECD see a contraction of 1.3% and 1.2%, respectively. The Commission reckons much of this will be carry-over effects from this year’s political and economic turmoil, which included a failure to complete the previous bailout program, a referendum on austerity, a bitter fight with lenders, and the introduction of capital controls, many of which remain. The EBRD, however, expects a decline of 2.4%. Its mere involvement is significant, given that it only added Greece to its bailiwick of mainly poor, emerging economies this year.

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And then there’s this.

EU Fears Greek Debt Deal Would Unleash Mass Write-Off Calls In Spain (Telegraph)

Greece’s creditor powers have delayed talks over reducing the country’s debt mountain for fear of emboldening anti-austerity forces in the southern Mediterranean, the country’s finance minister has claimed. Euclid Tsakalotos said EU lenders would not discuss the question of Greece’s debt burden, which stands at 200pc of GDP, until after the Spanish elections are held in the new year. “The promise was that we would have a discussion on debt immediately after the first [bail-out] review and have deal before Christmas,” he told an audience at the London School of Economics on Tuesday night. “But we won’t have a deal because Spain has an election and [creditors] don’t want … to encourage the wrong people.”

Spain is due to hold its first post-crisis elections on December 20. The current conservative government of prime minister Mariano Rajoy has been fighting off anti-austerity forces in the opposition Socialist party and the grassroots Podemos movement, in a bid to become the first bail-out government to ever be re-elected in the eurozone. Wiping out some portion of Greece’s debt mountain has been a key demand of the Syriza government. Athens had been told talks could begin when the government had successfully passed its first round of laws in return for a release of bail-out cash. This review is due to be complete in the coming weeks but has hit stumbling blocks. And Mr Tsakalotos, an Oxford-educated economist, hinted at the continuing tensions between the newly elected government and its lenders.

He said many of Syriza’s negotiators “had wanted the Left to fail” in order to make an example of the country, and dissuade radical forces from similar demands to tear up austerity deals in Portugal and Spain. The IMF has called for a bold programme of debt write-offs and moratoriums on repayments for up to 40 years. The Fund has refused to take part in a new €86bn bail-out until a debt write-off has been agreed. EU creditors, however have resisted opening up the question of haircuts or repayment extensions until Athens has managed to “front-load” most of its austerity reforms. Mr Tsakalotos’s comments suggest creditors fear they will unleash a new wave of debt relief calls in former bail-out countries.

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Wait till the 3 million refugees expected next year in Europe are added in.

Germany May Need €21 Billion To House And Educate Refugees (Reuters)

Germany faces costs of more than €21bn this year to house, feed and educate hundreds of thousands of refugees, the Munich-based Ifo institute said on Tuesday. The new estimate, which assumes 1.1 million people will seek asylum in Germany in 2015, represents a sharp increase on a previous projection from late September which put the cost at €10bn. That estimate had assumed 800,000 arrivals and did not include costs related to education and training, which the Ifo said were necessary to ensure refugees, many of them fleeing war in the Middle East, were successfully integrated. “Training and access to the labour market are key in terms of both costs and integration,” Gabriel Felbermayr of the Ifo institute said.

The German government has not published an official estimate for how much the influx of refugees would cost it this year, but it has boosted funding to the country’s 16 regional states by €4bn. For next year, German states and towns have said they could face costs of up €16bn. The finance minister, Wolfgang Schäuble, has said the federal government would invest roughly €8bn in 2016 to shelter and integrate asylum seekers. Ifo also reiterated its call for a flexible interpretation of Germany’s minimum wage, saying a majority of businesses saw the €8.50 floor as a hindrance to employing refugees. Some members of chancellor Angela Merkel’s conservative camp have also called for flexibility on the minimum wage, but her coalition partner, the Social Democrats, have ruled out changes to one of its flagship reforms.

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The UNHCR leaves all the hard work to volunteers, has just 20 people on Lesbos where at least 125,000 refugees landed in October alone, and then blames the resulting chaos on the Greek government.

No One Is Really In Charge Of The Refugee Crisis (Reuters)

What sets this humanitarian crisis apart is the centrality of volunteers. On Lesbos alone, they number well into the hundreds. They are lifeguards from Spain, doctors from Holland, trauma counselors from the West Bank, nurses from Australia, a cook from Malaysia, and all manner of ordinary people pitching in however they can. Many come on their own dime, taking time off from work or pausing their lives indefinitely. They fill in critical gaps created by a perfect storm of political weakness and limits to aid: a Greek government in severe economic distress and without capacity to take control; a European Union strangled by politics as it struggles to define a uniform migration policy; and international aid groups that have been slow to move in because they do not normally operate in industrialized nations — and have to start their operations from scratch in a place like Lesbos.

Meanwhile, the boats keep coming, and grassroots volunteer efforts have grown increasingly sophisticated. A group called O Allos Anthropos, Greek for “The Other Person,” cooks and hands out free meals for thousands of refugees daily. A Drop in the Ocean runs its own camp for just-arrived refugees, particularly families with small children, where it provides food, tents and donated clothing. Yet another group, the Starfish Foundation, set up a central bus station for refugees in the parking lot of Oxy, a cliffside nightclub with stunning sea views. Volunteers there give out handmade bus tickets to the two official camps in the island’s south. But as winter sets in and the sea crossing grows more dangerous, the lack of an officially coordinated emergency response could lead to higher death tolls.

Though volunteers have tried organizing themselves in recent months — they now hold weekly meetings with aid workers from international organizations such as the IRC, United Nations High Commissioner for Refugees (UNHCR), and Doctors Without Borders (MSF) — most are not trained in crisis management. They vastly outnumber aid workers on the island, but for many, it’s their first experience with a humanitarian disaster. And because they’re in Greece temporarily, on hiatus from paid jobs back home, the high turnover means many must leave the island just as they are beginning to understand their roles.

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On/off.

Germany Sends Syrians Back To EU Borders (Local.de)

Germany is once again sending Syrian refugees back to the EU country where they first arrived, in line with the so-called Dublin regulations, the government confirmed on Tuesday. In August it emerged that for Syrian refugees, Germany had stopped following the Dublin rules, which stipulate that refugees must apply for asylum in the EU state where they first enter the 28-member union. The move was in part to alleviate the burden on countries like Italy and Greece where hundreds of thousands of migrants have been arriving by boat. But a spokesman for the Interior Ministry confirmed on Tuesday that Germany is now applying the Dublin procedure for all countries of origin and all member states at which migrants arrive – except Greece. This has been the case “for Syrian nationals, since October 21st”, he confirmed.

At the beginning of October, Chancellor Angela Merkel called the Dublin rules “obsolete” as they put the burden on EU states where migrants first arrive to process claims for refugee status. Still, of the refugees currently arriving in the country, few have actually been registered in another EU country before arriving in Germany. The Federal Office for Migration and Refugees (BAMF) reported that in October 1,777 people were sent back to other EU countries due to the Dublin rules – 5.6% of all decisions on refugee status made that month. Out of all asylum decisions made so far this year, just 8.5% – 17,410 – have been to send people back under the Dublin rules. In October, 181,166 refugees arrived in Germany, of which 88,640 were Syrian.

Interior Minister Thomas de Maizière and his office have been pushing for tighter controls on refugees recently, causing serious fractures within Germany’s coalition government. De Maizière unexpectedly announced on Saturday that Syrians would no longer be awarded three years’ residency in Germany and that they could no longer bring their families with them at a later point. But it quickly became clear that his comments did not have the backing of more senior figures in the government, who said the asylum process for Syrian refugees would not be changed. However the interior minister received backing from powerful figures in the conservative Christian Democratic Union (CDU), putting pressure on Merkel to revise her policy towards Syrian refugees.

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This is getting so out of hand fighting becomes inevitable.

Austria Calls For Greece, Italy Border Controls (AP)

Austria’s chancellor said establishing controls on the borders of Italy and Greece must be a priority to stem the influx of migrants into the EU. Werner Faymann said border controls inside the EU are less effective because refugee flows can “only be shifted” once the refugees have traveled thousands of kilometers (miles) in hopes of a safe haven. Faymann on Tuesday also urged quick completion of an agreement with Turkey offering Ankara billions of euros in aid for incentives to migrants to remain in Turkey instead of leaving for the EU. He said making sure that people fleeing war and hardship from regions in Asia and the Mideast can survive in Turkey is the “only sensible way.”

Meanwhile, Greek authorities said more than 10,000 refugees and economic migrants have crossed from Greece into Former Yugoslav Republic of Macedonia (FYROM) since Monday morning, on their long trek toward wealthier western and northern European countries. FYROM border police were letting groups of 50 across at regular intervals Tuesday. But large bottlenecks formed due to increased flows toward the border crossing at Idomeni after migrants were stranded on the Greek islands for days by a ferry strike.

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While this continues.

Refugee Boat Sinks Off Western Turkey, 14 Dead, 7 Children (AA)

Fourteen people drowned off Turkey’s western coast when a boat packed with refugees sank in the early hours of Wednesday, the Turkish Coast Guard said. The incident is the latest tragedy to affect refugees trying to reach Greek islands from Turkey in often unseaworthy vessels. A Coast Guard patrol found the sinking boat off the coast of Ayvacik district in Canakkale province – around 10 kilometers (4 miles) from Lesbos – at around 2 a.m. local time (0000GMT). Among the dead were seven children. The Coast Guard was able to rescue 27 people from the stricken vessel. It is not known why the boat sank. The casualties’ nationalities are yet to be released. Coast Guard divers are searching the area around the site of the disaster.

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Oct 132015
 
 October 13, 2015  Posted by at 8:45 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »
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Russell Lee Columbia Gardens outdoor amusement resort, Butte, Montana 1942


US Debt Markets Shaken Amid More Corporate Downgrades And Defaults (WSJ)
Why US Banks Soon Will Be Singing The Blues (CNBC)
China Imports Slump 20% Amid Falling Commodity Prices, Weak Demand (Guardian)
China Trade Data Unsettle Asian Bourses (FT)
China’s Stock Rally-to-Rout Is About to Repeat (Bloomberg)
KKR Warns About Renewed Commodity, Emerging-Market Rout on China (Bloomberg)
Pimco’s Bear Case Only Gets Stronger as Emerging Currencies Jump (Bloomberg)
Switzerland to Impose 5% Leverage Ratio on Biggest Banks (Bloomberg)
Europeans Move To Undercut Global Bank Capital Rules (FT)
The Failure to Learn From Boom-Bust Cycles (WSJ)
Higher Interest Rates Would Throw Bank Profits a Lifeline (Bloomberg)
China’s Great Game: A New Silk Road To A New Empire (FT)
Angus Deaton Showed We’re Helping the Wrong People (Bloomberg)
US Annual Oil Output to Drop for First Time Since 2008 (WSJ)
Oil Sands Boom Dries Up in Alberta, Taking Thousands of Jobs With it (NY Times)
German Brand Dealt ‘Hammer Blow’ By VW Scandal And Weakening Economy (Telegraph)
Emissions Test Changes Could Make Diesels ‘Unaffordable’ (BBC)
Home Flipping Frenzy in Sydney Sparks Warnings on Housing Risks (Bloomberg)
TTIP Deal Would Remove People’s Rights To Access Basic Human Needs (Ind.)
Merkel Seeks Turkey’s Aid on Borders to Stem Refugee Flow to EU
Athens Rules Out Joint Sea Patrols With Turkey (Kath.)
Marine Food Chains At Risk Of Collapse (Guardian)
Antarctic Ice Melts So Fast Whole Continent May Be At Risk By 2100 (Guardian)

“Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis..”

US Debt Markets Shaken Amid More Corporate Downgrades And Defaults (WSJ)

Falling profits and increased borrowing at U.S. companies are rattling debt markets, a sign the six-year-long economic recovery could be under threat. Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis, and measures of debt relative to cash flow are rising. Analysts expect profits at large companies to decline for a second straight quarter for the first time since 2009. The market for riskier debt has become snarled, raising fears that companies could have trouble repaying their obligations following several years of record debt issuance, low corporate defaults and persistently low interest rates. Reflecting those concerns, investors are now demanding more yield to own corporate bonds relative to benchmark U.S. Treasury securities.

The softening U.S. corporate fundamentals have been largely overlooked as investors focused on sharp declines in the shares, bonds and currencies of many emerging-markets nations. Many analysts say the health of China remains the largest source of uncertainty in the global economy. But rising downgrades and an increase in U.S. corporate defaults indicate “some cracks on the surface” of the domestic-growth outlook, said Jody Lurie, corporate credit analyst at financial-services firm Janney Montgomery Scott LLC. Many investors closely monitor debt-market trends as an indicator of U.S. economic health. In August and September, Moody’s Investors Service issued 108 credit-rating downgrades for U.S. nonfinancial companies, compared with just 40 upgrades.

That’s the most downgrades in a two-month period since May and June 2009, the tail end of the last U.S. recession. Standard & Poor’s Ratings Services downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009, compared with just 172 upgrades. Meanwhile, the trailing 12-month default rate on lower-rated U.S. corporate bonds was 2.5% in September, up from 1.4% in July of last year, according to S&P. About a third of the downgrades targeted oil and gas companies or firms in other commodity-linked industries, following a plunge in oil prices in the second half of 2014, said Diane Vazza, head of global fixed-income research at S&P.

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“S&P 500 financials are expected to show a 3.8% annualized growth in profits [..] As recently as July analysts had been forecasting 9.9% growth..”

Why US Banks Soon Will Be Singing The Blues (CNBC)

With Wall Street banks about to report on how much money they’ve been making, estimates are moving in the wrong direction. Coming off a quarter in which the industry collectively reported $43 billion in profits, analysts had been hoping a rising rate environment and increasing demand would keep things moving for the $15.1 trillion sector. However, fading hopes for a rate hike in 2015 and other factors are making analysts nervous about just how the quarterly profit reports will shape up. JPMorgan Chase gets things started for the Big Four on Tuesday, with Bank of America and Wells Fargo on tap Wednesday and Citigroup due Thursday. Goldman Sachs reports Thursday as well and PNC will report Wednesday.

As a sector, S&P 500 financials are expected to show a 3.8% annualized growth in profits, according to S&P Capital IQ. While that’s better than the 5.1% decline projected for the entire index, it’s a big comedown from initial projections. Revenue is expected to grow 4.4%. As recently as July analysts had been forecasting 9.9% growth, and a year ago that expectation was a gaudy 27%. So even if results come in better than expected, they likely will remain well below the initially lofty hopes for financials, which were supposed to be 2015’s best-performing sector. Individual companies have seen substantial revisions in recent days.

Analysts have cut MetLife estimates from 88 cents a share to 77 cents, Goldman Sachs from $3.46 to $3.20 and Morgan Stanley from 68 cents to 63 cents, according to FactSet. Earnings expectations have been reduced for 53 of the 88 companies in the S&P 500’s financial sector. The weakness comes as loan growth has held fairly steady thanks to a robust climate in commercial real estate. The sector jumped 9.7% in the third quarter, its best of the year after rising 6.7% in 2014, according to Federal Reserve data. Investment banking also has been fairly solid throughout the year. While global revenue is down 10% year over year, it’s been flat at $28 billion in the U.S., thanks to a record $9.7 billion haul in mergers and acquisition revenue, according to Dealogic.

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Imports down 17.7% in yuan, over 20% in USD. Different numbers reflect the difference between calculations in yuan and in dollars.

China Imports Slump 20% Amid Falling Commodity Prices, Weak Demand (Guardian)

China’s imports fell heavily in September, official figures said, keeping pressure on policymakers to do more to stave off a sharper economic slowdown. Although exports fell less than expected by 3.7% from the same period last year, the value of imports tumbled more than 20% to register the 11th straight month of falls. Imports plunged 20.4% in September from a year earlier to $145.2bn, customs officials said, due to weak commodity prices and soft domestic demand. These factors will complicate Beijing’s efforts to stave off deflation, one of the headwinds threatening the world’s second biggest economy. Highlighting persistent weakness in demand at home and abroad, China’s combined exports and imports fell 8.1% in the first nine months of the year from the same period in 2014, well below the full-year official target of 6% growth.

“In general, there are no green shoots in this set of data,” said Zhou Hao, senior economist at Commerzbank in Singapore. “The growth of [trade] volume still remains low.” However, monthly figures were much more rosy. Exports to every major market except Taiwan rose from August, as did imports. Julian Evans-Pritchard of Capital Economics said monthly trends showed a steady rise to most major export markets in the US and Europe over the summer. “Basically, exports have been doing better since the second quarter, but that recovery trend has been masked on a year-on-year basis because the second half of 2014 was so strong.” Evans-Pritchard also said that import data had become unreliable given massive swings in prices due to the commodity downturn and a divergence between prices and trading volumes.

“For the major commodities like oil, copper, etc. we’re actually seeing a pretty healthy trend in import volumes.” Import volumes are a leading indicator for exports in China, given a large share of materials and parts re-exported as finished goods. “September’s import figure does not bode well for industrial production and fixed asset investment,” wrote ANZ economists in a research note reacting to the figures. “Overall growth momentum last month remained weak and third quarter GDP growth to be released [on 19 October] will likely have edged down to 6.4%, compared with 7% in the first half.” China posted trade surplus of $60.34bn for the month, the general administration of Customs said on Tuesday, higher than forecasts for $46.8 billion.

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China has a record surplus. Sounds good. Exports down ‘only’ 1.1% (still curious if you want to grow GDP by 7%). Imports down 17.7%. That will be largely raw materials. So what will they be able to produce for export next year?

China Trade Data Unsettle Asian Bourses (FT)

Chinese trade data rattled Asian markets as a bigger-than-expected fall in imports offset the cheer afforded by a record mainland trade surplus and slower pace of decline in exports. The Shanghai Composite was down 0.4% and the tech-focused Shenzhen Composite was up 0.3% after data showed China posted its biggest-ever trade surplus, in renminbi terms, of Rmb376.2 in September, up from Rmb368bn in August and comfortably ahead of economists’ expectations of Rmb292.4bn. That was underpinned by exports declining by 1.1% last month from a year earlier, an improvement from August’s 6.1% pace of decline. Economists expected exports to drop by 7.4%.

Imports fell 17.7% in September from a year ago, a bigger-than-forecast drop and larger than August’s 14.3% decline – less than encouraging in the context of China’s goal to shift its growth model from export-driven to consumption-based. Ahead of the trade data release, economists at ANZ said: “China’s exports have likely contracted in September, but its strong trade surplus should ease the pressure of capital outflows.” They reckon economic activity on the mainland remained sluggish in September, leading to their forecast of 6.4% economic growth in the third quarter. China’s official gross domestic product data are due on October 19, and analysts are increasingly bearish, tipping real growth at 6.7%, according to a Bloomberg survey of 25 economists, lower than the official full-year target of “around 7%”. Among other equities benchmarks, Hong Kong’s Hang Seng was down 0.3% and Australia’s S&P/ASX 200 was down 0.9%. Japan’s Nikkei, reopening after a long weekend, was down 0.9%.

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“As oil starts to move and materials follow, investors will by default feel more positive about China,” he said. “This is a bear market rally.”

China’s Stock Rally-to-Rout Is About to Repeat (Bloomberg)

In August, Thomas Schroeder correctly predicted a rebound in Chinese stocks wouldn’t last. Now, he says, the benchmark equity gauge will plumb new lows as a bear-market rally fails. The Shanghai Composite Index will climb to 4,100 in the next three months before slumping as much as 41% to 2,400 in early 2016, Schroeder, founder and managing director of Chart Partners, said. The benchmark index added 3.3% to close at 3,287.66 on Monday. Schroeder, a former Asian technical analysis chief at UBS, cited triangle and wedge patterns in making his call. The Shanghai Composite tumbled 29% in the third quarter, the biggest slump among benchmark global gauges, as a stock boom turned to bust amid concern about the slowdown in China’s economy and a crackdown on using borrowed money to buy equities.

The bottoming of oil prices and a rebound in emerging market currencies will help bolster a rally in the nation’s equities in the next two months, which will reverse as the Federal Reserve starts raising interest rates, Schroeder said. “As oil starts to move and materials follow, investors will by default feel more positive about China,” he said. “This is a bear market rally.” Schroeder predicted in August that the Chinese equity rout will worsen, with the Shanghai Composite likely sliding below 3,100 within two months. The measure fell to as low as 2,927.29 on Aug. 26. Technical analysts use past patterns to try to predict future movements. [..] “We haven’t seen a major low for the emerging markets,” said Schroeder, whose Chart Partners Group is a provider of trading strategies linked to technical analysis. “There’s likely to be more pain next year as the U.S. starts lifting rates.”

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Squeeze.

KKR Warns About Renewed Commodity, Emerging-Market Rout on China (Bloomberg)

There are few reasons to get excited about the recent rebound in commodities and emerging-market assets, according to KKR which correctly forecast the stock selloff in developing countries five months ago. China will continue to rein in credit growth, reducing the investments in factories and machinery that have been among the key drivers for the commodity boom in recent years, Henry McVey, global head of macro and asset allocation at KKR, one of the world’s largest private equity firms, wrote in a note posted on its website. “Many hard commodity prices are likely to suffer another leg down,” McVey and Frances Lim, who visited Asia recently, said in the note. “We would view any recovery as a bounce, not a sustained re-acceleration in the Chinese economy, as the structural headwinds remain significant.”

The MSCI Emerging Markets Index rose Monday to a two-month high, while commodities are trading around 6% above a 16-year low set in August, on speculation that China will take steps to shore up its faltering economy. The emerging-market stock gauge has still lost about 10% this year, heading for its third annual decline, as lower raw-material prices and the Chinese economic slowdown undermines exports in countries from Brazil to Malaysia. While some “targeted stimulus” in housing and infrastructure in recent months may help stabilize China’s economy, it won’t alter a slowing trajectory because the government needs to reduce debt and production overcapacity, McVey said. KKR,which manages $102 billion in assets, expects growth in China to slow to 6% in 2018, from 6.8% this year, which would be the least since 1990.

McVey, who previously worked as chief investment strategist at Morgan Stanley and a managing director at Fortress Investment, told investors in May to stay away from most of the publicly traded emerging-market companies. He said a buildup in debt and weakening currencies in emerging countries will lead to underperformance in stocks, a call foreshadowing an over 20% decline in the MSCI benchmark gauge over the next four months. McVey said growth in China’s fixed-asset investments, the biggest driver in the country’s rise over the past decade, will decline to as little as 5% a year, from 11% in August, and down from a peak of 34% in 2009.

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Dead cats bouncing all over the place.

Pimco’s Bear Case Only Gets Stronger as Emerging Currencies Jump (Bloomberg)

Pacific Investment Management Co. is sticking with its pessimistic outlook on emerging-market currencies, saying the biggest rally in 17 years has only bolstered the case for making bearish wagers. “These currencies look more interesting to be underweight from here than they were a week ago,” Luke Spajic, an emerging markets money manager at Pimco, whose developing-nation currency fund has outperformed 97% of peers during the past five years, said in a phone interview on Monday. Pimco, which oversees $1.52 trillion, said in an Oct. 1 report that it had short positions in currencies such as Malaysia’s ringgit, the Thai baht and the South Korean won. Emerging-market currencies surged last week, recording the biggest rally since 1998 as traders pushed back expectations for when the U.S. Federal Reserve will start raising interest rates.

While Spajic said he doesn’t know how long the rebound will last, he sees a “wave of deflationary pressure” across Asia that will eventually weigh on currencies as exports and economic growth projections decline. Pimco’s concerns echo those of the IMF, which cut its 2015 outlook for the global economic expansion to 3.1% on Oct. 6 from a July forecast of 3.3%. The fund cited a slowdown in emerging markets, saying the following day that high debt levels at banks and other companies have left developing economies susceptible to financial stress and capital outflows.

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Switzerland does as US does.

Switzerland to Impose 5% Leverage Ratio on Biggest Banks (Bloomberg)

Switzerland’s finance ministry will require the country’s biggest banks to have capital equal to about 5% of total assets after UBS Group AG and Credit Suisse Group AG sought to win easier terms, according to people briefed on the deliberations. The decision would mimic the U.S. leverage ratio for its biggest banks, which exceeds the 3% minimum set in a global agreement by the Basel Committee on Banking Supervision, according to the people, who asked not to be identified because the talks aren’t public. The Swiss government will also align its calculation of the ratio with the method employed in the U.S., resulting in fewer types of debt counting toward capital, one of the people said. The measure of financial strength has gained importance since the 2008 financial crisis as a means of making big banks less prone to collapse.

A government-appointed expert panel recommended in December that Switzerland follow the lead of the U.S., which in recent years has introduced some of the world’s toughest capital requirements. Zurich-based UBS and Credit Suisse reported Basel III leverage ratios of 3.6% and 3.7% at the end of the second quarter, indicating they would be more than 1%age point short of the new target. “Higher requirements mean that the banks will have fewer funds to return to shareholders,” said Andreas Brun at Zuercher Kantonalbank. “For UBS, whose investment case is based on rising dividend expectations, this is a big issue. For Credit Suisse, whose capital situation is worse, this means a higher dilution because of a bigger requirement of a capital increase.”

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Meanwhile in the EU, banks are still holier than thou.

Europeans Move To Undercut Global Bank Capital Rules (FT)

Several European countries are taking action to water down new global capital rules for their top financial institutions, causing concern among investors and EU officials. France is set to become the latest country to introduce legislation that would save its leading banks from having to issue tens of billions of euros of new bonds to meet the rules agreed by global regulators a fortnight ago, people familiar with the situation said. Brussels officials are so worried with the divergence in policies that they have started talks with EU countries on a more co-ordinated stance, two EU officials said. Market insiders said that investors were frustrated and that all banks could end up paying more when they issue debt.

The rules on “total loss absorbing capital” (TLAC) agreed on September 25 by the Financial Stability Board are one of the final pieces of a wave of post-crisis regulation designed to ensure there is never a repeat of the bank bailouts of recent times. The rules apply only to the world’s largest banks but have wider reach, according to Laurent Frings, analyst at Aberdeen Asset Management. “The view from investors to a large degree is that local regulators will force domestically important banks to work to the sale rules,” said Mr Frings. In the UK and Switzerland, banks such as UBS, Credit Suisse and Barclays are building up their “loss absorbing capital” by issuing new debt from bank holding companies that can be “bailed in” in a crisis. The banks will have to issue tens of billions of the new bonds to meet their TLAC requirements.

In Germany and Italy, however, legislators are passing laws to make traditional senior debt easier to bail in. This frees their banks of the obligation to issue new debt for TLAC. Several people close to the situation said that France would also propose a solution to help its banks. “Being a European authority we would always argue that it’s a good idea to put in place a European solution, and not try to come up with 19 or 28 solutions on that,” said Elke Koenig, president of the Single Resolution Board, the new EU-wide resolution authority for failing banks. “We’ve clearly given our support to the basic idea [of the German bank law] at the same time saying it would be preferential longer term to have a European solution.”

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Or the failure to see that this is not a boom-bust cycle?

The Failure to Learn From Boom-Bust Cycles (WSJ)

The plunge in commodity prices is thumping oil exporters around the globe. The scale of the beating rests largely on whether governments heeded the lessons from prior boom-bust cycles. Norway and Saudi Arabia built up sizable rainy-day funds and managed their windfalls from high prices conservatively. Now they’ve got considerable buffers against a downturn. Nigeria and Venezuela splurged and made few economic overhauls as prices surged. They’re now suffering as growth skids. The commodity bust is weighing heavily on resource-rich countries that represent 20% of the world’s economic output. The oil-price decline is supporting some of the largest consumers, such as the U.S. and Europe, that are key to keeping the global economy out of recession.

But it is providing less of an overall global boost than predicted just a year ago, while forcing more vulnerable economies to scramble in an uncertain environment. “The oil price drop came as a surprise,” said Angolan finance minister Armando Manuel. “It captured my country in a state in which we were not sufficiently diversified.” The commodity collapse and its effect on emerging economies drew wide attention in Lima, where the world’s finance ministers and central bankers gathered for the IMF’s annual meeting, which ended Sunday, against a backdrop of dimming global growth. The problem isn’t isolated to oil, fueling a much broader slump in major emerging markets from Brazil to South Africa.

Metal prices are in a long-term funk, hitting exporters of iron, copper and similar industrial commodities. Oil exporters are showing what may be in store for other major commodity exporters. Nigeria, which got nearly 65% of its government revenue from crude exports before the price plunge, has seen its projected 2015 growth slashed to less than 4% from more than 6% a year ago, according to the IMF. Kazakhstan’s growth rate has tumbled to 1.5% this year from 6% before the petroleum collapse. In Venezuela, where the state gets half its revenue from oil sales, the economy is shriveling by 10%.

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That’s the number 1 reason the Fed would love to hike rates.

Higher Interest Rates Would Throw Bank Profits a Lifeline (Bloomberg)

Having bailed them out and then helped to repair their balance sheets with record-low interest rates and bond-buying, policy makers may assist the financial industry once more when the U.S. Federal Reserve begins tightening monetary policy. That’s according to two recently published reports by the Bank for International Settlements and McKinsey & Co., both of which have highlighted the downsides of ultra-easy borrowing costs in the past. Based on seven years of data from 109 large international banks in 14 countries, the BIS confirmed a relationship between short-term rates and the slope of the curve for bond yields with bank profitability.

The conclusion drawn by Claudio Borio, the head of the monetary and economic department at the BIS, and colleagues is that the positive impact of being able to earn income by lending money out for higher rates over time is bigger than the hit of defaults and income that doesn’t carry interest. Even better news for the banks is that the effect is strongest when rates are lower and the yield curve isn’t that steep, as is now the case. That provides another reason for the BIS’s economists to again decry the unintended side-effects of accommodative monetary policy. They reckon that between 2011 and 2014, the average bank of those studied lost one year of profits as a result of low rates. “All this suggests that over time, unusually low interest rates and an unusually flat term structure erode bank profitability,” said Borio et al in the report, which was published on Oct. 1.

Return on equity at 500 global lenders was unchanged in 2014 at 9.5%, about the average of the last 35 years, according to the Sept. 30 study by McKinsey. Profit margins also continued a steady decline, dropping by 185 basis points in 2014, in part because of lower rates. It reckons tighter policy would boost return on equity by about 2 %age points. “Many in the industry are waiting for an interest rate rise or some other structural lift to profits,” McKinsey said. There is a sting in the tail. It warned that even if rates do rise, profit margins may still not return to their pre-crisis highs. “Much of the benefit will get competed away, and risk-costs will likely increase, especially in economies where the recovery is still fragile,” McKinsey said.

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China doesn’t, and won’t, have sufficient growth to execute these plans.

China’s Great Game: A New Silk Road To A New Empire (FT)

The granaries in all the towns are brimming with reserves, and the coffers are full with treasures and gold, worth trillions, wrote Sima Qian, a Chinese historian living in the 1st century BC. “There is so much money that the ropes used to string coins together rot and break, an innumerable amount. The granaries in the capital overflow and the grain goes bad and cannot be eaten”. He was describing the legendary surpluses of the Han dynasty, an age characterised by the first Chinese expansion to the west and south, and the establishment of trade routes later known as the Silk Road, which stretched from the old capital Xi an as far as ancient Rome.

Fast forward a millennia or two, and the same talk of expansion comes as China’s surpluses grow again. There are no ropes to hold its $4tn in foreign currency reserves -the world’s largest- and in addition to overflowing granaries China has massive surpluses of real estate, cement and steel. After two decades of rapid growth, Beijing is again looking beyond its borders for investment opportunities and trade, and to do that it is reaching back to its former imperial greatness for the familiar Silk Road metaphor. Creating a modern version of the ancient trade route has emerged as China’s signature foreign policy initiative under President Xi Jinping.

“It is one of the few terms that people remember from history classes that does not involve hard power …and it s precisely those positive associations that the Chinese want to emphasise”, says Valerie Hansen, professor of Chinese history at Yale University. If the sum total of China s commitments are taken at face value, the new Silk Road is set to become the largest programme of economic diplomacy since the US-led Marshall Plan for postwar reconstruction in Europe, covering dozens of countries with a total population of over 3bn people. The scale demonstrates huge ambition. But against the backdrop of a faltering economy and the rising strength of its military, the project has taken on huge significance as a way of defining China’s place in the world and its relations -sometimes tense- with its neighbours.

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Winner of the Fauxbel. Yawn.

Angus Deaton Showed We’re Helping the Wrong People (Bloomberg)

Presidential candidates from both parties are focusing, as usual, on the middle class. But what’s that? And why, exactly, does it deserve such attention? Princeton’s Angus Deaton, who on Monday was announced as the latest winner of the Nobel Memorial Prize for economics, has offered some intriguing answers. The most important is this: If you care about how people actually experience their lives, you should be concerned about people who earn less than $75,000 per year. Above that amount, Deaton’s evidence suggests that more money may not particularly matter. To understand why, we need to distinguish between two very different measures of human well-being. Researchers have traditionally proceeded by asking people to evaluate their overall life-satisfaction (say, on a scale of 1 to 10).

More recently, researchers have tried to capture people’s actual experiences in a more refined way, for example by asking them about their levels of stress, sadness, happiness and enjoyment during the day (again on a scale of 1 to 10). A key question: Does money buy happiness? Deaton, along with his coauthor Daniel Kahneman (a Nobel Prize winner in 2002), found that in the United States, the answer depends on which question you use. If people are asked about their overall life-satisfaction, money definitely matters. As people’s annual earnings go up, their self-reported life-satisfaction increases as well. But the same is not true for actual experiences. More income is definitely associated with less sadness and more happiness up to $75,000, but above that level people’s experienced happiness is the same regardless of income.

In terms of stress, another important indicator of people’s well-being, it’s a lot worse to earn $20,000 than $60,000 – but above $60,000, stress levels are not reduced by more money. What’s going on here? Deaton and Kahneman don’t exactly know, but they speculate that above a certain threshold, increases in income do not much affect people’s ability to engage in activities that matter most – which include spending time with friends, enjoying good health and taking time off from work. They also suggest that beyond that threshold, more money might have some negative effects, such as a reduced ability to enjoy small pleasures. But below the $75,000 threshold, many of life’s misfortunes have a much bigger negative impact. For the poor, getting divorced, having asthma, and being alone have far more severe effects. Even the benefits of the weekend turn out to be lower.

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Let’s see how much banks have buried away in shale loans.

US Annual Oil Output to Drop for First Time Since 2008 (WSJ)

U.S. oil output will decline in 2016 for the first time in eight years as producers slash spending, OPEC said Monday, while the producer group continues pumping at high levels. In its closely watched monthly oil market report, OPEC slashed its U.S. oil production forecast by 280,000 barrels a day next year, to 13.538 million barrels a day, a number that includes natural gas liquids. That would be about 60,000 barrels a day less than in 2015, the first decline since 2008. The finding is consistent with what the U.S. Energy Information Administration said last week, predicting that U.S. crude production would average about 8.9 million barrels a day in 2016, down from 9.2 million barrels a day in 2015.

OPEC said lower oil prices were forcing U.S. oil producers to cut spending and causing their wells to deplete faster than expected. OPEC producers continued to pump at high rates, the report said, with Saudi Arabia at 10.226 million barrels a day—slightly down from last month—and Iraq producing a near-record 4.143 million barrels a day. Overall the producer group was pumping 31.571 million barrels a day, the highest reported level since April 2012. The increasing levels of OPEC production—and the forecast declines in the U.S.–are part of a new order for the world’s petroleum industry since crude prices collapsed from over $100 a barrel last year to less than $50 this year.

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“We see kind of a lot of volatility over the next four or five years..”

Oil Sands Boom Dries Up in Alberta, Taking Thousands of Jobs With it (NY Times)

FORT McMURRAY, Alberta — At a camp for oil workers here, a collection of 16 three-story buildings that once housed 2,000 workers sits empty. A parking lot at a neighboring camp is now dotted with abandoned cars. With oil prices falling precipitously, capital-intensive projects rooted in the heavy crude mined from Alberta’s oil sands are losing money, contributing to the loss of about 35,000 energy industry jobs across the province. Yet Alberta Highway 63, the major artery connecting Northern Alberta’s oil sands with the rest of the country, still buzzes with traffic. Tractor-trailers hauling loads that resemble rolling petrochemical plants parade past fleets of buses used to shuttle workers.

Most vehicles carry “buggy whips” — bright orange pennants attached to tall spring-loaded wands — to help prevent them from being run over by the 1.6-million-pound dump trucks used in the oil sands mines. Despite a severe economic downturn in a region whose growth once seemed limitless, many energy companies have too much invested in the oil sands to slow down or turn off the taps. In addition to the continued operation of existing plants, construction persists on projects that began before the price fell, largely because billions of dollars have already been spent on them. Oil sands projects are based on 40-year investment time frames, so their owners are being forced to wait out slumps.

“It really is tough right now,” said Greg Stringham, the vice president for markets and oil sands at the Canadian Association of Petroleum Producers, a trade group that generally speaks for the industry in Alberta. “We see kind of a lot of volatility over the next four or five years.” After an extraordinary boom that attracted many of the world’s largest energy companies and about $200 billion worth of investments to oil sands development over the last 15 years, the industry is in a state of financial stasis, and navigating the decline has proved challenging. Pipeline plans that would create new export markets, including Keystone XL, have been hampered by environmental concerns and political opposition.

The hazy outlook is creating turmoil in a province and a country that has become dependent on the energy business. Canada is now dealing with the economic fallout, having slipped into a mild recession earlier this year. And Alberta, which relies most heavily on oil royalties, now expects to post a deficit of 6 billion Canadian dollars, or about $4.5 billion. The political landscape has also shifted. Last spring, a left-of-center government ended four decades of Conservative rule in Alberta. Federally, polls suggest that the Conservative party — which championed Keystone XL and repeatedly resisted calls for stricter greenhouse gas emission controls in the oil sands — is struggling to get re-elected in October.

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Merkel will find it harder to impose her will.

German Brand Dealt ‘Hammer Blow’ By VW Scandal And Weakening Economy (Telegraph)

The VW emissions scandal has dealt a “hammer blow” not just to Volkswagen’s reputation but potentially to the entire German national brand, according to a consultancy that calculates brand worth. The revelations that as many as 11 million diesel vehicles have been fitted with software designed to deceive emissions testers has damaged the German repuation of efficiency and reliability, said the report from Brand Finance. As a result, the value of the ‘Made in Germany’ brand has fallen 4pc – or $191bn – to $4.2 trn this year. The report added the scandal threatens to undo decades of accumulated goodwill and cast doubt over the efficiency and reliability of German industry.

However, the authors said Germany has attracted worldwide admiration for its sympathetic stance to migrants escaping Syria and other war-torn countries, which is boosting the country’s positive image. Not only has the county benefited from goodwill perceptions, but the migrants will also boost the economy, said the report. The country’s birth rate has been flagging and the influx of generally young people and families will boost Germany’s labour force, encouraging investment in Europe’s largest economy. Germany’s birth rate has collapsed to the lowest level in the world. A study by the World Economy Institute in Hamburg earlier this year said the country’s workforce will start plunging at a faster rate than Japan’s by the early 2020s due to the declining birth rate, seriously threatening the long-term viability of Europe’s leading economy.

Data last week showed German exports suffered their worst month since the global recession, as global demand slowed. Exports in Europe’s largest economy collapsed by 5.2pc in August – their largest drop since January 2009, according to figures from the country’s Federal Statistics Office. Overall the US remains the world’s most valuable national brand, having benefited from a large, wealthy market wanting to “buy American”. The country is worth $19.7 trn, when combining its strength as a brand with GDP data. Fast-growing superpower China, which has previously threatened to knock the US off the top spot, has instead been rocked by the recent stock market turbulence and slowing economic growth. Its brand worth slipped 1pc to $6.3 trn, when compared to the previous year. The UK comes in at fourth place, worth $3bn, a rise of 6pc from last year.

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Diesel is dead for luxury cars. French carmakers will be hit very hard, if only because Paris MUST scrap its huge diesel subsidies.

Emissions Test Changes Could Make Diesels ‘Unaffordable’ (BBC)

Making European emissions tests more stringent could make some diesel vehicles “effectively unaffordable”, a trade body has warned. The European Commission is trying to get vehicle makers to agree to bigger cuts in emissions from diesel engines. The pressure comes in the wake of the Volkswagen emissions scandal. The European Automobile Manufacturers’ Association (ACEA) said car companies needed enough time to implement changes to emissions testing. Diesel vehicles have been encouraged in many European markets because they can produce less carbon dioxide – a major greenhouse gas – than those with petrol engines.

The trade body said diesel was an important part of meeting future CO2 targets and it was important for the Commission to let manufacturers plan and implement necessary changes. The VW scandal, in which saw the German car maker admit rigging emissions tests, has put significant pressure on diesel vehicle manufacturers. Diesel engines emit higher levels of nitrogen oxide and dioxide (NOx) that are harmful to human health. European government officials have set out plans to introduce real-world measurements of NOx emissions rather than rely on laboratory tests. The new testing regime is due to start early next year, with the results coming into effect in 2017.

However, talks between officials in Brussels last week to discuss the plans are reported to have stalled. The ACEA said it would continue “to stress the need for a timeline and testing conditions that take into account the technical and economic realities of today’s markets”. The trade body added: “Without realistic timeframes and conditions, some diesel models could effectively become unaffordable, forcing manufacturers to withdraw them from sale.” Such a move would hit both consumers and jobs in the automotive sector, it said.

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They’ve denied the bubble for so long now, why not do it a while longer?

Home Flipping Frenzy in Sydney Sparks Warnings on Housing Risks (Bloomberg)

Sydney home prices soared 44% in the three years ended September, enticing speculators who’ve been partly inspired by home renovation shows on how to spruce up and sell homes for quick profits. The frenzy surrounding Sydney’s property boom, reminiscent of the exuberance in U.S. real estate before the 2008 financial crisis, has prompted regulators and Goldman Sachs to warn the market is overheated, while Bank of America Merrill Lynch on Monday said it expects prices to fall. Since September 2013, more than 1,500 houses and 800 apartments have been resold in less than a year in Sydney, for about 20% more on average, according to online property listing firm Domain Group. That compares with about about 530 houses and almost 400 apartments in the previous two years.

People need to be careful because “house prices aren’t going to continue to rise much more quickly than income; debt levels can’t keep rising faster than income,” Reserve Bank of Australia Deputy Governor Philip Lowe said at a conference in Sydney Tuesday. “Ideally, we’ll now go through a period of quite modest house price growth. I think that would de-risk household balance sheets a little and would probably be good for the economy.” Rushing to buy and sell homes is underscoring a build-up of mortgage risks as households take on record debt, lured by home-loan costs at the lowest in five decades. The housing debt to income ratio touched a record high of 132.8% in the three months ended June 30 up from 119.4% three years earlier, according to government data.

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That is the ultimate danger.

TTIP Deal Would Remove People’s Rights To Access Basic Human Needs (Ind.)

People’s access to basic rights such as water and energy could be at the mercy of multinational corporations, according to a new report into two controversial EU free trade deals. The report claims that the agreements could allow all public services to be locked into commercial deals that would place profit above the rights of individuals to access basic services – regardless of any possible consequences for welfare. According to the report, Public Services Under Attack, such deals would be “effectively irreversible.” They would allow multinational corporations to sue governments that try to regulate the cost of public services if it could be proved companies’ profits would be harmed.

The two trade agreements, the CETA (Comprehensive Economic and Trade Agreement) with Canada and the TTIP (Transatlantic Trade and Investment Partnership) with the US, are currently being negotiated. In their current state, it is claimed, all public services including health, education and energy could be at risk of privatisation. Under current WTO agreements, access to water is regarded as a basic human right. The new trade agreements would effectively undermine this, according to John Hilary, the executive director of War on Want, one of the campaign groups behind the report . He claims that in a worst-case scenario, if individuals were unable to pay their water bill, they would be denied access to it.

“Suddenly, instead of water being considered a human right, it would be treated as a commodity and people could be cut off if they can’t afford it,” Mr Hilary told The Independent. Previously, the UK Government has insisted that public services such as education and the NHS would be protected from such action. In November last year, the UK Government published a document on the deal, Separating Myth from Fact, in which it states: “TTIP will not change the way that the NHS, or other public services, is run. “The European Commission is following our approach that it must always be for the UK to decide for itself whether or not to open up our public services to competition.”

But Mr Hilary believes the public should be sceptical of such assurances. He said: “There is no truth in the government’s claim that public services are safe in TTIP. “Corporate lobbyists have made sure that key services such as health, education, post, rail and water are to be opened up to the private sector, and treaties such as TTIP will lock in that privatisation for ever. “As a result of the lobbying by these special interest groups in the services sector, it’s quite clear that public services are in the frame and any claim to the contrary is bogus.”

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Children are stil drowning, Angela. That should be your priority, not borders or camps.

Merkel Seeks Turkey’s Aid on Borders to Stem Refugee Flow to EU

German Chancellor Angela Merkel said Turkey needs to help stem the flow of Syrian refugees to Europe, setting the tone for her talks with Turkish leaders this week. “It’s necessary to look not just at the European dimension, but also to talk with Turkey about sensible border controls,” Merkel said Monday in a speech to party members in Stade near Hamburg. “We have to start getting more involved internationally. That’s why I will go to Turkey on Sunday.” With a record 800,000 or more refugees and migrants expected to arrive in Germany this year, Merkel is under pressure to offer solutions to an increasingly skeptical public as her approval ratings decline and she says Germany can’t stop the stream on its own. “We don’t know how many there will be,” she said.

In her speech to members of her Christian Democratic Union, Merkel said for the first time that her government is considering screening at Germany’s borders. This way, “we could possibly decide immediately” which people are economic migrants who wouldn’t qualify to stay in Germany as asylum seekers, Merkel said. While saying that all 28 European Union countries need to help stem the continent’s biggest refugee crisis since World War II, Merkel singled out Turkey as part of the solution. After EU leaders discuss the crisis at a summit in Brussels on Thursday, Merkel plans to travel to Ankara on Oct. 18 for talks with Turkish President Recep Tayyip Erdogan and Prime Minister Ahmet Davutoglu, her first official trip to Turkey since February 2013.

In Turkey, control over the border with EU member Greece “was given up at some point” because Turkey felt overwhelmed and its economy “isn’t doing so well anymore,” leaving Greece and the EU’s border patrol mission to deal with the refugee flow, Merkel said. “Naturally, we need to talk to Turkey about that.”

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And the ideas won’t fly anyway. Next. Bring in the German navy?!

Athens Rules Out Joint Sea Patrols With Turkey (Kath.)

Diplomatic sources in Athens Monday ruled out the prospect of Greek and Turkish naval forces conducting joint patrols in the eastern Aegean in a bid to curb a dramatic influx of migrants and refugees. Speaking to Kathimerini, the same sources from the Greek Foreign Ministry stated that no official European documents raise the issue of joint sea patrols – which was first reported in the German press ahead of the draft action plan signed last week between the European Union and Turkey on the support of refugees and migration management.

According to the plan, Turkey will “strengthen the interception capacity of the Turkish Coast Guard, notably by upgrading its surveillance equipment, increasing its patrolling activity and search and rescue capacity, and stepping up its cooperation with the Hellenic Coast Guard.” In an interview with Germany’s Bild newspaper published Monday, Chancellor Angela Merkel heralded closer cooperation between Greece, Turkey and EU border agency Frontex. “In the Aegean Sea, between Greece and Turkey, both NATO members, traffickers do whatever they want,” she told the paper. Diplomatic circles in Athens suggest that Ankara is tempted to use the refugee crisis as a tool for prompting additional EU aid, concessions on the issue of EU visas, or the creation of a buffer zone behind the Syrian border.

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Acidification.

Marine Food Chains At Risk Of Collapse (Guardian)

The food chains of the world’s oceans are at risk of collapse due to the release of greenhouse gases, overfishing and localised pollution, a stark new analysis shows. A study of 632 published experiments of the world’s oceans, from tropical to arctic waters, spanning coral reefs and the open seas, found that climate change is whittling away the diversity and abundance of marine species. The paper, published in the Proceedings of the National Academy of Sciences, found there was “limited scope” for animals to deal with warming waters and acidification, with very few species escaping the negative impact of increasing carbon dioxide dissolution in the oceans. The world’s oceans absorb about a third of all the carbon dioxide emitted by the burning of fossil fuels.

The ocean has warmed by about 1C since pre-industrial times, and the water increased to be 30% more acidic. The acidification of the ocean, where the pH of water drops as it absorbs carbon dioxide, will make it hard for creatures such as coral, oysters and mussels to form the shells and structures that sustain them. Meanwhile, warming waters are changing the behaviour and habitat range of fish. The overarching analysis of these changes, led by the University of Adelaide, found that the amount of plankton will increase with warming water but this abundance of food will not translate to improved results higher up the food chain.

“There is more food for small herbivores, such as fish, sea snails and shrimps, but because the warming has driven up metabolism rates the growth rate of these animals is decreasing,” said associate professor Ivan Nagelkerken of Adelaide University. “As there is less prey available, that means fewer opportunities for carnivores. There’s a cascading effect up the food chain. “Overall, we found there’s a decrease in species diversity and abundance irrespective of what ecosystem we are looking at. These are broad scale impacts, made worse when you combine the effect of warming with acidification. “We are seeing an increase in hypoxia, which decreases the oxygen content in water, and also added stressors such as overfishing and direct pollution. These added pressures are taking away the opportunity for species to adapt to climate change.”

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Run away.

Antarctic Ice Melts So Fast Whole Continent May Be At Risk By 2100 (Guardian)

Antarctic ice is melting so fast that the stability of the whole continent could be at risk by 2100, scientists have warned. Widespread collapse of Antarctic ice shelves – floating extensions of land ice projecting into the sea – could pave the way for dramatic rises in sea level. The new research predicts a doubling of surface melting of the ice shelves by 2050. By the end of the century, the melting rate could surpass the point associated with ice shelf collapse, it is claimed. If that happened a natural barrier to the flow of ice from glaciers and land-covering ice sheets into the oceans would be removed. Lead scientist, Dr Luke Trusel, Woods Hole Oceanographic Institution in Massachusetts, US, said: “Our results illustrate just how rapidly melting in Antarctica can intensify in a warming climate.”

“This has already occurred in places like the Antarctic Peninsula where we’ve observed warming and abrupt ice shelf collapses in the last few decades. “Our model projections show that similar levels of melt may occur across coastal Antarctica near the end of this century, raising concerns about future ice shelf stability.” The study, published in the journal Nature Geoscience, was based on satellite observations of ice surface melting and climate simulations up to the year 2100. It showed that if greenhouse gas emissions continued at their present rate, the Antarctic ice shelves would be in danger of collapse by the century’s end..

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