Oct 162018
 
 October 16, 2018  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , , ,  


M. C. Escher Doric columns 1945

 

Yemen On Brink Of ‘World’s Worst Famine In 100 Years’ (G.)
Humanity Is ‘Cutting Down The Tree Of Life’ (G.)
‘Hyperalarming’ Study Shows Massive Insect Loss (WaPo)
America’s Budget Deficit Jumps By 17% As Spending Surges (CNBC)
More Free Money: A Carry Trade in Liquidity (Mish)
Powell Has Lost His North Star, And The Fed Is Flying Blind (MW)
Facebook Paid £15.8 Million In UK Tax On £1.2 Billion In 2017 Revenues (BBC)
Ecuador To Assange: No Talking Politics, Pay Own Bills, Look After Cat (RT)
Brexit Deal Slipping To December Amid Deadlocked Talks (Ind.)
No-Deal Brexit Is ‘More Likely Than Ever Before’ – Tusk (Ind.)
Syria’s Chessboard (Hallinan)

 

 

As Stormy Daniels and Elizabeth Warren see their ‘cases’ blow up in their faces 3 weeks before the midterms, the best PR and legal teams that money can buy are framing a Khashoggi narrative nobody will be able to credibly deny. Or at least Erdogan is not showing his hand. But now that Pompeo’s in the region anyway, let’s put this on his agenda. 12 to 13 million at risk of starvation.

Yemen On Brink Of ‘World’s Worst Famine In 100 Years’ (G.)

Yemen could be facing the worst famine in 100 years if airstrikes by the Saudi-led coalition are not halted, the UN has warned. If war continues, famine could engulf the country in the next three months, with 12 to 13 million civilians at risk of starvation, according to Lise Grande, the agency’s humanitarian coordinator for Yemen. She told the BBC: “I think many of us felt as we went into the 21st century that it was unthinkable that we could see a famine like we saw in Ethiopia, that we saw in Bengal, that we saw in parts of the Soviet Union – that was just unacceptable. “Many of us had the confidence that would never happen again and yet the reality is that in Yemen that is precisely what we are looking at.”

Yemen has been in the grip of a bloody civil war for three years after Houthi rebels, backed by Iran, seized much of the country, including the capital, Sana’a. The Saudi-led coalition has been fighting the rebels since 2015 in support of the internationally recognised government. Thousands of civilians have been caught in the middle, trapped by minefields and barrages of mortars and airstrikes. The resulting humanitarian catastrophe has seen at least 10,000 people killed and millions displaced. Speaking on Sunday evening, Grande said: “There’s no question we should be ashamed, and we should, every day that we wake up, renew our commitment to do everything possible to help the people that are suffering and end the conflict.”

Read more …

And it’s not just people that we’re killing:

Humanity Is ‘Cutting Down The Tree Of Life’ (G.)

Humanity’s ongoing annihilation of wildlife is cutting down the tree of life, including the branch we are sitting on, according to a stark new analysis. More than 300 different mammal species have been eradicated by human activities. The new research calculates the total unique evolutionary history that has been lost as a result at a startling 2.5bn years. Furthermore, even if the destruction of wild areas, poaching and pollution were ended within 50 years and extinction rates fell back to natural levels, it would still take 5-7 million years for the natural world to recover. Many scientists think a sixth mass extinction of life on Earth has begun, propelled by human destruction of wildlife, and 83% of wild mammals have already gone.

The new work puts this in the context of the evolution and extinction of species that occurred for billions of years before modern humans arrived. “We are doing something that will last millions of years beyond us,” said Matt Davis at Aarhus University in Denmark, who led the new research. “It shows the severity of what we are in right now. We’re entering what could be an extinction on the scale of what killed the dinosaurs. “That is pretty scary. We are starting to cut down the whole tree [of life], including the branch we are sitting on right now.” Ecosystems around the world have already been significantly affected by the extermination of big animals such as mammoths, he said.

[..] Davis said each lost species had its own intrinsic value, but the loss of the most distinct creatures was most damaging: “Typically, if you have something that is off by itself, it does some job that no other species is doing.” The losses are already affecting ecosystems, he said, particularly the vanishing of “megafauna”. These huge creatures roamed much of Earth until humans arrived and included giant cats, deer, beavers and armadillos. “We are now living in a world without giants,” said Davis. “So the seeds of big fruit are not dispersed any more because we don’t have mammoths or gomphotheres or giant ground sloths eating those fruits.” Another example, he said, is the widespread loss of wolves. This means smaller predators like coyotes thrive and more birds are killed, radically changing food chains.

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“Between January 1977 and January 2013, the catch rate in the sticky ground traps fell 60-fold..”

“..our study indicates that climate warming is the driving force behind the collapse of the forest’s food web. ”

‘Hyperalarming’ Study Shows Massive Insect Loss (WaPo)

Insects around the world are in a crisis, according to a small but growing number of long-term studies showing dramatic declines in invertebrate populations. A new report suggests that the problem is more widespread than scientists realized. Huge numbers of bugs have been lost in a pristine national forest in Puerto Rico, the study found, and the forest’s insect-eating animals have gone missing, too. In 2014, an international team of biologists estimated that, in the past 35 years, the abundance of invertebrates such as beetles and bees had decreased by 45 percent. In places where long-term insect data are available, mainly in Europe, insect numbers are plummeting. A study last year showed a 76 percent decrease in flying insects in the past few decades in German nature preserves.

The latest report, published Monday in the Proceedings of the National Academy of Sciences, shows that this startling loss of insect abundance extends to the Americas. The study’s authors implicate climate change in the loss of tropical invertebrates. “This study in PNAS is a real wake-up call — a clarion call — that the phenomenon could be much, much bigger, and across many more ecosystems,” said David Wagner, an expert in invertebrate conservation at the University of Connecticut who was not involved with this research. He added: “This is one of the most disturbing articles I have ever read.”

[..] “We went down in ’76, ’77 expressly to measure the resources: the insects and the insectivores in the rain forest, the birds, the frogs, the lizards,” Lister said. He came back nearly 40 years later, with his colleague Andrés García, an ecologist at the National Autonomous University of Mexico. What the scientists did not see on their return troubled them. “Boy, it was immediately obvious when we went into that forest,” Lister said. Fewer birds flitted overhead. The butterflies, once abundant, had all but vanished. García and Lister once again measured the forest’s insects and other invertebrates, a group called arthropods that includes spiders and centipedes. The researchers trapped arthropods on the ground in plates covered in a sticky glue, and raised several more plates about three feet into the canopy.

The researchers also swept nets over the brush hundreds of times, collecting the critters that crawled through the vegetation. Each technique revealed the biomass (the dry weight of all the captured invertebrates) had significantly decreased from 1976 to the present day. The sweep sample biomass decreased to a fourth or an eighth of what it had been. Between January 1977 and January 2013, the catch rate in the sticky ground traps fell 60-fold. “Everything is dropping,” Lister said. The most common invertebrates in the rain forest — the moths, the butterflies, the grasshoppers, the spiders and others — are all far less abundant. “Holy crap,” Wagner said of the 60-fold loss.


Comparison of the average dry-weight biomass of arthropods caught per 12-h day in 10 ground (A) and canopy (B) traps within the same sampling area in the Luquillo rainforest.

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If there are no insects left, who cares about deficits? What’s the use?

America’s Budget Deficit Jumps By 17% As Spending Surges (CNBC)

The U.S. federal budget deficit rose in fiscal 2018 to the highest level in six years as spending climbed, the Trump administration said Monday. The deficit jumped to $779 billion, $113 billion or 17 percent higher than the previous fiscal period, according to a statement from Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Mick Mulvaney. It was larger than any year since 2012, when it topped $1 trillion. The budget shortfall rose to 3.9 percent of U.S. GDP. The deficit increased by $70 billion less than anticipated in a report published in July, according to the two officials.

Federal revenue rose only slightly, by $14 billion after Republicans chopped tax rates for corporations and most individuals. Outlays climbed by $127 billion, or 3.2 percent. A spike in defense spending, as well as increases for Medicaid, Social Security and disaster relief, contributed to the increase.

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“If the goal was to bail out the banks at public expense (and it was) it’s clear Bernanke had a far better plan than the ECB.”

More Free Money: A Carry Trade in Liquidity (Mish)

Not only do banks earn free money on excess reserves, they can borrow money and make guaranteed free money on that.

The Federal Reserve Bank of St. Louis discusses the Carry Trade in Liquidity: “The IOER [interest on excess reserves] has been the effective ceiling of other short-term interest rates. The figure above compares the IOER with overnight rates on deposits and repos. As we can see, the IOER has mostly remained above these two rates, implying that (at least some) banks have been able to borrow funds overnight, deposit them at the Fed and earn a spread, in essence engaging in carry trade in liquidity markets.”

How Much Free Money?

While the Fed has been busy giving banks free money by paying interest on excess reserves, banks in the EU have suffered with negative interest rates, essentially taking money from banks and making them more insolvent. If the goal was to bail out the banks at public expense (and it was), it’s clear Bernanke had a far better plan than the ECB.

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The Fed’s been flying blind at least since Bernanke talked about ‘entering uncharted territory’. That’s what that means.

Powell Has Lost His North Star, And The Fed Is Flying Blind (MW)

Federal Reserve Chairman Jerome Powell is in an unenviable position. Folks expect him to fine-tune interest rates to keep the economy going and inflation tame but he can’t make things much better — only worse. Growth is nearly 3% and unemployment is at its lowest level since 1969. What inflation we have above the Fed target of 2% is driven largely by oil prices and those by forces beyond the influence of U.S. economic conditions — OPEC politics, U.S. sanctions on Iran, and dystopian political forces in Venezuela and a few other garden spots. When the current turbulence in oil markets recedes, we are likely in for a period of headline inflation below 2%, just as those forces are now driving prices higher now.

Overall, long-term inflation has settled in at the Fed target of about 2%. The Fed should not obsess about it but keep a watchful eye. Amid all this, Powell’s inflation compass has gone missing. The Phillips curve, as he puts it, may not be dead but just resting. To my thinking, it’s in a coma if it was ever alive at all. That contraption is a shorthand equation sitting atop a pyramid of more fundamental behavioral relationships. Those include the supply and demand for domestic workers and in turn, an historically large contingent labor force of healthy prime-age adults sitting on the sidelines, the shifting skill requirements of a workplace transformed by artificial intelligence and robotics, import prices influenced by weak growth in Europe and China, and immigration.

Of course, Mariner Powell has his North Star — what economists affectionately call R* (R-Star), but it is no longer at a fixed position in Powell’s sky. R* is the federal funds rate that neither encourages the economy to speed up or slow down. However, with businesses needing much less capital to get started or grow these days and for decades China and Germany—the second and fourth largest economies globally—racking up current account surpluses and savings to invest abroad, it is no wonder the forces of supply and demand have been driving R* down to historically low levels.

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They use what they don’t pay in taxes, to spy on you.

Facebook Paid £15.8 Million In UK Tax On £1.2 Billion In 2017 Revenues (BBC)

Facebook’s UK tax bill has tripled to £15.8m – but the social media giant will see an immediate cut because of a tax credit. The final bill comes to £7.4m, since Facebook will see tax relief of £8.4m after awarding shares to employees. In 2016, Facebook’s tax bill rose to £5.1m, following a major overhaul of the social media firm’s tax structure. However, the company’s profits only climbed by £4m year-on-year from £58.4m to £62.7m in 2017. The company’s UK office provides marketing services and sales and engineering support to the company. Facebook’s revenue rose by a third year-on-year to £1.2bn in 2017, because of increased revenues from inter-company and advertising reseller services in 2017.

“We have changed the way we report tax so that revenue from customers supported by our UK teams is recorded in the UK and any taxable profit is subject to UK corporation tax,” said Facebook’s Northern Europe vice-president, Steve Hatch. [..] The publication of Facebook’s 2017 tax accounts follows extensive criticism from policymakers and the media over the last 12 months of how much tax tech giants typically pay in Europe. Large technology companies have been condemned for moving sales through other countries and paying modest amounts of tax in the UK.

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Hard to gauge what exactly this means, time must tell. Seems good that they talk of medical help. but will he be able to get it?

Ecuador To Assange: No Talking Politics, Pay Own Bills, Look After Cat (RT)

WikiLeaks supporters were thrilled to hear that Ecuador would restore Julian Assange’s internet connection. But his hosts – who have in some ways become his jailers – reportedly imposed a long list of restrictions on his behavior. While stating that he is allowed to exercise his “right of communication and freedom of expression,” a nine-page document already leaked online forbids the journalist from engaging in political activity or doing anything to interfere in the affairs of other states. The document expressly states that Ecuador cannot be held liable for the content of Assange’s communications, but nevertheless prohibits him from engaging in activities that might damage the relationship between Ecuador and other states.

Assange’s communications were cut seven months ago, after he criticized Spanish authorities’ treatment of voters during the Catalan independence referendum. Assange must pay for his own WiFi. He must use only his own devices, absent written government permission, and provide the embassy with serial number, model number, and brand name for those devices. He must also pay for his own medical evaluations, with the option of transferring to a hospital in case of an emergency – an option repeatedly denied him by UK authorities, who refused to guarantee safe passage without arrest in the event of such a transfer. Assange’s health has been the subject of much concern during his six-year confinement in the Embassy.

Visitors are also slapped with new restrictions. They must submit visit requests in writing to the embassy chief, giving their name, nationality, profession and place of work, reason for visiting, email and social media accounts, and even the serial numbers for phones and other devices they wish to bring inside. The new rules even mandate the collection of IMEIs, unique identification numbers specific to a phone handset. While repeat visitors receive a less restrictive screening process, they can have their access revoked at any time without an explanation. All visitor data will be turned over to the Ecuadorian Ministry of Foreign Affairs and other unspecified parties.

The restrictions include a threat to use UK police to arrest visitors or seize communications equipment should the journalist violate the lengthy list of rules. Adding insult to injury, the embassy threatened to remove Assange’s cat to a shelter should they decide he is not cleaning up after the animal properly.

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They lost two years doing nothing but fight amongst themselves. That time was always badly needed.

Brexit Deal Slipping To December Amid Deadlocked Talks (Ind.)

A Brexit deal now looks unlikely until just before Christmas after Theresa May admitted “weeks” may be needed to break the deadlock in talks with Brussels. The delay was also signalled by Ireland’s prime minister who warned of log-jammed negotiations dragging into December, increasing concern that stalled talks could simply collapse into a “disaster” no-deal situation. In a veiled swipe at Brexiteers, European Council President Donald Tusk said solving the vexed issue of the Irish border had proved “more complicated than some may have expected” and said no deal is now “more likely than ever”.

A further sign of slippage came when the EU confirmed it would take a decision this week on whether a special summit once proposed for November to publicly seal a Brexit deal, will be needed given the state of talks. But despite the deadlock, Ms May again came under intense pressure from Conservative Eurosceptics to refuse anything resembling the EU’s proposals, amid signs she is diluting her stance to secure a deal. The October summit was once supposed to be the moment a withdrawal deal was locked in, with expectations already having slipped to a potential specially arranged meeting in November – even under those circumstances the outline would have had to have been agreed at this week’s meeting.

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More likely by the day.

No-Deal Brexit Is ‘More Likely Than Ever Before’ – Tusk (Ind.)

A no-deal Brexit is “more likely than ever before”, the president of the European Council has warned, ahead of a make-or-break summit of EU leaders in Brussels. Donald Tusk, who has described this week’s top-level meeting as “the moment of truth”, said Brexit had “proven to be more complicated than some may have expected”. But he said that “that we are preparing for a no-deal scenario must not, under any circumstances, lead us away from making every effort to reach the best agreement possible”.

Mr Tusk’s warning, made in a letter to EU leaders formally inviting them to the summit, comes a day after negotiations between the European Commission and UK Government hit a a wall over the question of how to prevent a hard border in Northern Ireland. Over dinner on Wednesday night the heads of state or government of the 27 remaining EU member states will decide whether there is any pointing holding a special Brexit summit in November – or whether the horse has already bolted. It is now confirmed that Theresa May will address the 27 leaders before the dinner in a last-ditch bid to win them over; though she will not be allowed into the main discussion itself.

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Russia and Assad delayed their final offensive to offer the jihadists a way out. But now these are refusing to leave.

Syria’s Chessboard (Hallinan)

The Syrian civil war has always been devilishly complex, with multiple actors following different scripts, but in the past few months it appeared to be winding down. The Damascus government now controls 60 percent of the country and the major population centers, the Islamic State has been routed, and the rebels opposed to Syrian President Bashar al-Assad are largely cornered in Idilb Province in the country’s northwest. But suddenly the Americans moved the goal posts—maybe—the Russians have fallen out with the Israelis, the Iranians are digging in their heels, and the Turks are trying to multi-task with a home front in disarray. So the devil is still very much at work in a war that has lasted more than seven years, claimed up to 500,000 lives, displaced millions of people, destabilized an already fragile Middle East, and is far from over.

There are at least three theaters in the Syrian war, each with its own complexities: Idilb in the north, the territory east of the Euphrates River, and the region that abuts the southern section of the Golan Heights. Just sorting out the antagonists is daunting. Turks, Iranians, Americans and Kurds are the key actors in the east. Russians, Turks, Kurds and Assad are in a temporary standoff in the north. And Iran, Assad and Israel are in a faceoff near Golan, a conflict that has suddenly drawn in Moscow. Assad’s goals are straightforward: reunite the country under the rule of Damascus and begin re-building Syria’s shattered cities. The major roadblock to this is Idilb, the last large concentration of anti-Assad groups, Jihadists linked with al-Qaeda, and a modest Turkish occupation force representing Operation Olive Branch. The province, which borders Turkey in the north, is mountainous and re-taking it promises to be difficult.

For the time being there is a stand down. The Russians cut a deal with Turkey to demilitarize the area around Idilb city, neutralize the jihadist groups, and re-open major roads. The agreement holds off a joint Assad-Russian assault on Idilb, which would have driven hundreds of thousands of refugees into Turkey and likely have resulted in large numbers of civilian casualties. But the agreement is temporary—about a month—because Russia is impatient to end the fighting and begin the reconstruction. However, it is hard to see how the Turks are going to get a handle on the bewildering number of groups packed into the province, some of which they have actively aided for years. Ankara could bring in more soldiers, but Turkey already has troops east of the Euphrates and is teetering on the edge of a major economic crisis.

Read more …

Aug 202018
 
 August 20, 2018  Posted by at 8:58 am Finance Tagged with: , , , , , , , , ,  


Henry Bacon General View of the Acropolis at Sunset 1927(?)

 

It’s Not Turkey, It’s The Debt Cycle (Steen Jakobsen)
Turkish Firms, Government Face $3.8 Billion Bond Crunch In October: SocGen (R.)
David Stockman: ‘Unhinged White House’ To Cause Stock Market Crash (CNBC)
Trump Is The Unsung Hero Of The World Economy (CNBC)
Greece’s Bailout Is Finally At An End – But Has Been A Failure (G.)
End Of Greek Bailouts Offers Little Hope To Young (BBC)
Varoufakis Says Biggest Mistake Was Trusting Tsipras (K.)
First No-Deal Brexit Advisory Notices To Be Released On Thursday (Ind.)
Britain’s Low-Earning Parents ‘Can’t Afford Basic Lifestyle’ (BBC)
In US, UK, People Die Early Due To ‘Shit-Life Syndrome’ (G.)

 

 

Deleveraging and shrinking liquidity.

It’s Not Turkey, It’s The Debt Cycle (Steen Jakobsen)

There is currently a lot of focus on Turkey, and for good reason, but Turkey is really only a second or third derivative of the global macro story. Turkey represents the catalyst for a new theme, which is “too much debt and current account deficits equals crisis”. In that sense, we have come full cycle from deficits and debt mattering in the 1980s and ‘90s but not in the ‘00s and ‘10s post- the Nasdaq crash and great financial crisis under the biggest monetary experiment of all time. In our view, the order of sequence for this crisis is as follows: 1. The debt cycle is on pause as first China and now the US have deleveraged and ‘normalised’.

2. The stock of credit or the ‘credit cake’ has collapsed. First it was the ‘change of the change of credit’, or the credit impulse, which tanked in late 2017 and into 2018. Now it is also the stock of credit. Right now, global M2 over global growth is less than one, meaning the world is trying to achieve 6% global growth with less than 2.5% growth in its monetary base… the exact opposite of the 00’s and ‘10s central bank- and politician-driven model. 3. This smaller credit cake is spilling over to a stronger USD (as US growth increases versus the rest of the world) and a higher marginal cost of funding (as the amount of dollars available in the credit system shrinks), leading to a mini-emerging market crisis.

4. Finally, the Turkish situation was really created by the aforementioned factors but it was made worse by President Erdogan’s autocratic and naive monetary and fiscal response. The reason this mini-crisis is not idiosyncratic is points one through three, but the market is still treating Turkey as the starting point of the current EM mini-crisis. Where do we go from here? More and more investors seem to believe that we are on the brink of an ‘Asian crisis 2.0’ or a liquidity crisis.

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It costs Turks 25% more to pay off debt than it did in June.

Turkish Firms, Government Face $3.8 Billion Bond Crunch In October: SocGen (R.)

Turkey and its firms face repayments of nearly $3.8 billion on foreign currency bonds in October as the country struggles with a plunging lira that has lost more than a third of its value since the start of the year. Emerging market (EM) investors have been worried about Turkey’s external debt burden and the ability of its firms and banks to repay after a boom in hard currency issuance to help finance a rapidly growing economy. For companies, the cost of servicing foreign debt has risen by a quarter in lira terms in the past two months alone. “Turkey’s external financing requirements are large,” Jason Daw at Societe General wrote in a note to clients. “It has the highest FX-denominated debt in EM and short-term external debt of $180 billion and total external debt of $460 billion.”

Calculations by Societe General show that Turkish firms will face $1.8 billion of hard-currency denominated bonds maturing by the year-end while $1.25 billion of government bonds will come due. Additionally, a total of $2.3 billion in interest must be paid. The heaviest month for repayments is October, when $3 billion in principal and $762 million interest are due. “Principal and interest payments should be closely watched to year end – it is 25 percent more costly for the corporate sector to repay their obligations compared to June given FX depreciation,” Daw wrote.

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When will stocks implode?

David Stockman: ‘Unhinged White House’ To Cause Stock Market Crash (CNBC)

Just days before the anniversary of what’s expected to be the longest bull market in U.S. history, David Stockman is warning investors a crash is inevitable. Stockman, who served as the Office of Management and Budget director in the Reagan administration, puts a large part of the blame on Washington’s decision to place tariffs on China and the ballooning budget deficit. “This economy isn’t strong, and it can’t take the punishment that’s coming out of an unhinged White House and a Washington policy environment where they all have their heads in the sand,” Stockman said Thursday on CNBC’s “Futures Now.” According to Stockman, the China trade war is the primary catalyst that could finally pushes stocks over the edge.

“We’re not going to have a happy solution to this. We’re in a trade war big time. It’s going to keep getting worse because Donald Trump is unhinged. He is an economic ignoramus on trade,” Stockman added. “This is not caused by bad trade deals. Our big trade deficits are the result of bad monetary policy for decades. We priced [ourselves] out of the world market, and what he’s trying to do is going to cause a train wreck.” Stockman is relentlessly bearish, and his previous dire warnings have yet to materialize. Right now, Stockman isn’t ruling out another all-time high in what he’s been calling the “biggest stock market bubble in recorded history.” However, he warned a 20 to 40% shock could “easily” wipe out gains in the days that follow.

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Who profits from the tax cuts?

Trump Is The Unsung Hero Of The World Economy (CNBC)

Washington’s huge fiscal and monetary stimuli will give the world economy an estimated $600 billion shot in the arm this year. That amount represents the difference between the expected U.S. purchases and sales of goods and services in world trade. Technically, you can call it the U.S. current account deficit. Some people may recall that this is exactly the opposite of what President Donald Trump promised in 2015 and has repeated ever since. The data published earlier this month show that Trump is nowhere close to delivering on that promise. In fact, China, Japan and Europe are getting a big piece of his tax cut in their combined trade surplus of $297.8 billion during the first six months of this year. That is an 8.2 percent increase from what they got out of a more sluggish American economy a year ago.

In spite of that, China, Japan and the European Union keep complaining about U.S. protectionism, accusing Trump of allegedly destroying the multilateral trading system. And they don’t even have the courtesy to recycle some of their surplus dollars in purchases of American IOUs that are fueling their economic growth. In the first half of this year, Japan, China and Germany reduced their Treasury holdings by $31.1 billion, $6.2 billion and $1.1 billion respectively. Washington — and the national security strategists, in particular — may wish to think about what those countries did with all the dollars they got from dumping their goods and services on U.S. markets. In fact, Trump is playing nice with those trading partners. Unfortunately, while doing that, he is also saddling generations of Americans with the soaring and debilitating public debt that will inevitably lead to slowing growth of jobs and incomes at home.

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It’s a sad day. By far the highest tax burden and by far the lowest incomes in the EU. That’s not a viable model.

Greece’s Bailout Is Finally At An End – But Has Been A Failure (G.)

After eight years, Greece will on Monday be deemed strong enough to stand on its own feet. The international bailout programme that has provided Athens with emergency financial support will come to an end. Aside from the tough budget rules in place for the next decade or more, Greeks can wave goodbye to the troika – the officials from the IMF, the ECB and the EU – that has in effect been running the country since 2010. Beware the hype that trumpets this as a great success story, a tribute to solidarity and a commonsense approach that has restored economic stability and prevented Greece from being the first country to leave the euro. Nothing could be further from the truth.

Greece has been a colossal failure. It is a tale of incompetence, of dogma, of needless delay and of the interests of banks being put before the needs of people. And there will be long-term consequences. When Greece first received help in 2010, the plan was for it to have access to the financial markets within two years. It has taken two further rescue packages and six years for that to happen. The Greek economy has recently been growing, but it has a vast amount of ground to make up, following a peak-to-trough contraction that saw GDP shrink by almost a third. The loss of so much output could have been avoided, but Greece – like the rest of Europe – was subjected to the idea that the priority in the wake of the most serious financial crisis in a century was for governments to balance the books through deflation.

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The only young Greeks who have a future have left.

End Of Greek Bailouts Offers Little Hope To Young (BBC)

The crisis hit all parts of Greek society – but it was particularly hard on the young. Between 2008 and 2016 the country lost almost 4% of its citizens to emigration – more than 400,000 people. And while Greece didn’t record the ages of those emigrating, the country is getting older. The average (median) age has jumped by more than four years since 2008; and while those aged 20 to 39 used to make up 29% of the population, that’s fallen to just 24%. Giorgios Christides is a Greek journalist covering his country for German news magazine Der Spiegel. Back in 2012 he wrote a piece for the BBC about his friends “fleeing Greece one by one”. He says the economic improvements since the peak of the crisis in 2012 are not enough to have changed that.

Greeks love their country, and many “would return the second they thought they could find a worthwhile job and good prospects back home”, he says. Low wages and high taxes for the self-employed make those good prospects rare. Even a “best-case scenario” of a permanent job presents difficulties “if you want to leave your parents’ home, have children, lead a full and meaningful life,” he said. Part of the reason for the exodus is a lack of job opportunities. Greece’s unemployment rate peaked at 27.5% in 2013 – but for those under 25, it was more than double that, at 58%. Last year, more than four in every 10 young Greeks were still jobless.

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“They are doing me a great honor by trying to pass on their sins to me.”

Varoufakis Says Biggest Mistake Was Trusting Tsipras (K.)

Almost three years after the SYRIZA-ANEL coalition government signed the third bailout program and two days before Greece is set to complete it, former finance minister Yanis Varoufakis said his biggest mistake during his tumultuous tenure was “trusting Tsipras.” “My mistake was trusting Mr. Tsipras – [trusting] that we had been elected with a clear mandate not to extend the country’s debt colony status with a new memorandum and that we would fight until the end to link the total debt and the repayment rate with the GDP and its growth rate – what we call the growth clause,” he told SKAI television on Saturday. Asked to comment on the estimation made by the head of the European Stability Mechanism (ESM) Klaus Regling that the first six months of 2015, when Varoufakis was at the helm of the finance ministry, cost the country €86-200 billion, the former minister was dismissive.

“The cost was huge since 2010 and it is entirely due to the troika’s wrong program,” he said, referring to the European Commission, the ECB and the IMF who supervised Greece’s three adjustment programs. “They are doing me a great honor by trying to pass on their sins to me. A finance minister is judged by the debt levels he leaves behind, in relation to what he found, the cash reserves and the GDP. You will see that I mostly delivered what I had received,” he added. Varoufakis described the ESM as a “a sinful mechanism of alleged stability, which in essence destabilised the Greek economy and Europe.”

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They’re nowhere.

First No-Deal Brexit Advisory Notices To Be Released On Thursday (Ind.)

The government is to begin publishing its Brexit technical notices, setting out the consequences of crashing out of the EU without a deal, on Thursday, the prime minister’s office has said. The first of the explanatory documents are expected from the Department for Exiting the European Union (DExEU) within days and are designed to inform citizens and businesses how to cope with a no-deal scenario. All 84 of the notices are due to be published before the end of September. Some are thought to be broad in scope, covering issues like financial services, company law and climate change, while others will focus on specific problems including travelling abroad with pets.

Two days before the first publication, Brexit secretary Dominic Raab will travel to Brussels in a bid to pick up the pace of talks with the EU’s chief negotiator Michel Barnier, Theresa May’s office added on Saturday. “On the agenda will be resolving the few remaining withdrawal issues related to the UK leaving the EU and pressing ahead with discussions on the future relationship,” Downing Street said of Tuesday’s planned summit.

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The perks of austerity. You see it in Greece, you see it in the UK.

Britain’s Low-Earning Parents ‘Can’t Afford Basic Lifestyle’ (BBC)

Low-earning parents working full-time are still unable to earn enough to provide their family with a basic, no-frills lifestyle, research suggests. A single parent on the National Living Wage is £74 a week short of the minimum income needed, according to the Child Poverty Action Group. A couple with two children would be £49 a week short of the income needed, the charity said. But this was better than last year, when couples were £59 a week short. The National Living Wage is currently £7.83 an hour for those aged over 25. A government spokesperson said fewer families were living in absolute poverty.

“The employment rate is at a near-record high and the National Living Wage has delivered the highest pay increase for the lowest paid in 20 years, worth £2,000 extra per year for a full-time worker,” the spokesperson added. But the Child Poverty Action Group (CPAG) said gains from modest increases in wages had been “clawed back” through the freezing of tax credits. Rising prices and changes to various benefit schemes had also “hit family budgets hard”, it said. The CPAG’s definition of a “no-frills” lifestyle is based on the Minimum Income Standard, a set of criteria drawn up by the Centre for Research in Social Policy at Loughborough University. It calculates the income required for a minimum standard of living based on essentials such as food, clothes and accommodation, as well as “other costs required to take part in society”.

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More consequences of austerity.

In US, UK, People Die Early Due To ‘Shit-Life Syndrome’ (G.)

Britain and America are in the midst of a barely reported public health crisis. They are experiencing not merely a slowdown in life expectancy, which in many other rich countries is continuing to lengthen, but the start of an alarming increase in death rates across all our populations, men and women alike. We are needlessly allowing our people to die early. In Britain, life expectancy, which increased steadily for a century, slowed dramatically between 2010 and 2016. The rate of increase dropped by 90% for women and 76% for men, to 82.8 years and 79.1 years respectively.

Now, death rates among older people have so much increased over the last two years – with expectations that this will continue – that two major insurance companies, Aviva and Legal and General, are releasing hundreds of millions of pounds they had been holding as reserves to pay annuities to pay to shareholders instead. Society, once again, affecting the citadels of high finance. Trends in the US are more serious and foretell what is likely to happen in Britain without an urgent change in course. Death rates of people in midlife (between 25 and 64) are increasing across the racial and ethnic divide. It has long been known that the mortality rates of midlife American black and Hispanic people have been worse than the non-Hispanic white population, but last week the British Medical Journal published an important study re-examining the trends for all racial groups between 1999 and 2016 .

The malaises that have plagued the black population are extending to the non-Hispanic, midlife white population. As the report states: “All cause mortality increased… among non-Hispanic whites.” Why? “Drug overdoses were the leading cause of increased mortality in midlife, but mortality also increased for alcohol-related conditions, suicides and organ diseases involving multiple body systems” (notably liver, heart diseases and cancers). US doctors coined a phrase for this condition: “shit-life syndrome”.

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Aug 192018
 
 August 19, 2018  Posted by at 8:36 am Finance Tagged with: , , , , , , , , , , , ,  


Pablo Picasso Portrait of Ambroise Vollard 1910

 

Anatomy of a Crisis: A Strong Dollar and Disappearing Liquidity (Palisade)
Speculators Will Make Hay From Great Australian Economic Crash (Steve Keen)
Judge Rules FBI Must Address Measures Taken To Verify Steele Dossier (ZH)
White House Counsel “Cooperating Extensively” With Obstruction Probe (ZH)
Erdogan Says US Has Launched ‘Attempted Economic Coup’ (Ind.)
No-Deal Brexit May Force Rethink Of Vote – Ex-Civil Service Head (PA)
Putin Urges Europe To Help Rebuild Syria So Refugees Can Return (AFP)
Ecuador Slams Door On Venezuelans (BBC)
The Un-Celebrity President (WaPo)
Britain Has One Last Chance To Save Endangered Species (G.)

 

 

When liquidity vanishes the dollar rises.

Anatomy of a Crisis: A Strong Dollar and Disappearing Liquidity (Palisade)

Since March – the dollar’s rallied over 7%. And it’s caused the Emerging Markets to implode. But the bigger problem is what lies ahead. And that’s a global dollar shortage – which the mainstream continues to ignore. . . I’ve touched on this a couple months back. Wondering when the mainstream would start to realize that the stronger the dollar gets – the more pressure global economies will feel. I wrote. . . “This is going to cause an evaporation of dollar liquidity – making the markets extremely fragile. Putting it simply – the soaring U.S. deficit requires an even greater amount dollars from foreigners to fund the U.S. Treasury. But if the Fed is shrinking their balance sheet, that means the bonds they’re selling to banks are sucking dollars out of the economy (the reverse of Quantitative Easing which was injecting dollars into the economy). This is creating a shortage of U.S. dollars – the world’s reserve currency – therefore affecting every global economy.”

Since then, things have only gotten worse. . . First: Jerome Powell – the Fed Chairman – issued a statement at the end of June that they would actually increase the amount of rate hikes over the next two years. This means they’re tightening even faster. Second: the U.S. Treasury increased their debt-borrowing needs to the highest since the financial crisis – which was over a decade ago. Therefore, they will need even more dollars to fund their spending. “The department expects to issue $329 billion in net marketable debt from July through September, the fourth-largest total for that quarter on record and higher than the $273 billion estimated in April [a 17% increase], the Treasury said in a report Monday. The department’s forecast for the October-December quarter is $440 billion, bringing the second-half borrowing estimate to $769 billion, the highest since $1.1 trillion in July-December 2008…”

And third: China’s growth is slowing down. Meanwhile the Emerging Markets are draining their U.S. dollar reserves even faster because of the strengthening dollar. So, in summary: as global dollar liquidity continues drying up, there will be a wave of ‘risky’ positions being dumped and ‘dollar disease’ (selling assets to raise dollars to pay back debts) worldwide. . . What we know is true from Economics-101 is that the lower the supply and the greater the demand equals a higher price. And as the pool of USD keeps drying up – then the price of the dollars must rise. This translates into higher offshore dollar funding (higher interest rates). Which is killing dollar indebted countries and corporations – like Turkey today.

[..] I think future financial historians will scratch their heads wondering why markets today continued discounting this serious dollar-shortage problem. The easy money years post-2008 fueled a massive debt bubble – causing asset prices all over to rise. But the market isn’t expecting the tight money years today to cause asset prices to fall. It’s like they think that drinking alcohol today will make them feel good – but don’t believe they’ll be hungover tomorrow. So, what’s next? I believe the U.S. dollar will continue rallying because of all that I mentioned above. As Hedge Funds, institutions, and investors continue unloading their Emerging Market positions – things will only get worse.

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Housing bubble vs stock market bubble. Pick your fave toxin.

Speculators Will Make Hay From Great Australian Economic Crash (Steve Keen)

For years, Australia has been seen as the goose which laid the golden egg for workers, migrants and investors. Ironically, as America’s casino closes, it will eventually end up as a speculator’s paradise.\ The performance of the Australian stock market relative to its American equivalent since the Global Financial Crisis (GFC) shows the difference between a country where Quantitative Easing (QE) – the buying of bonds by the central bank to drive bond prices up and interest rates down, and thus encourage firms to invest and financial institutions to buy shares – was practiced and one where it was not. It’s both a warning about what could happen when the Fed starts to unwind QE, and a perverse opportunity to profit when Australia’s central bank, the RBA (Reserve Bank of Australia) inevitably starts its own QE program.

Since Australia avoided the GFC, and its rate of economic growth has been twice as fast as America’s post-crisis (an average 2.7 percent per year, versus 1.3 percent for the US), you might expect Australia’s stock market to have done better than America’s. In fact, it’s performed much worse: the main Australian index, the ASX, still hasn’t returned to its mid-2000s peak, while the US S&P500 has more than doubled its pre-crash level, and it’s almost four times as high as it was in the deepest depths of 2009. The timing of the US stock market recovery is instructive: it began in February 2009, just three months after the Federal Reserve began “QE1” (the first of three episodes of Quantitative Easing), when it promised to net buy bonds from the financial sector to the tune of $1 trillion per year ($80 billion per month).

With the Fed buying a trillion bucks worth of bonds every year, thus giving the financial sector one trillion in cash per year in place of its interest-earning bonds, the only place the financial sector could stash that dough in search of a return was the stock market. This was the intention of the policy of course: to drive share prices higher in order to stimulate the economy. Aside from the fact it’s made the wealthier even wealthier as a direct effect of government policy, and cost far more than a direct boost to the poor would have done, it’s worked a treat: according to Robert Shiller’s “Cyclically Adjusted Price to Earnings Ratio,” it’s driven America’s stock market to its second-highest peak in history, higher than the 1929 bubble, second only to the DotCom maximum in 2000, and more than twice its long-term average.

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Can’t hide behind declassified docs.

Judge Rules FBI Must Address Measures Taken To Verify Steele Dossier (ZH)

The FBI has been dealt a major blow after a Washington DC judge ruled that the agency must respond to a FOIA request for documents concerning the bureau’s efforts to verify the controversial Steele Dossier, before it was used as the foundation of a FISA surveillance warrant application and subsequent renewals. US District Court Judge Amit Mehta – who in January sided with the FBI’s decision to ignore the FOIA request, said that President Trump’s release of two House Intelligence Committee documents (the “Nunes” and “Schiff” memos) changed everything.

Considering that the FBI offered Steele $50,000 to verify the Dossier’s claims yet never paid him, BuzzFeed has unsuccessfully tried to do the same to defend themselves in a dossier-related lawsuit, and a $50 million Soros-funded investigation to continue the hunt have turned up nothing that we know of – whatever documents the FBI may be forced to cough up regarding their attempts to verify the Dossier could prove highly embarrassing for the agency. “[I]f Mr. Steele could get solid corroboration of his reports, the F.B.I. would pay him $50,000 for his efforts, according to two people familiar with the offer. Ultimately, he was not paid.” -NYT

What’s more, forcing the FBI to prove they had an empty hand will likely embolden calls to disband the special counsel investigation – as the agency’s mercenary and politicized approach to “investigations” will be laid all the more bare for the world to see. Then again, who knows – maybe the FBI verified everything in the dossier and it simply hasn’t leaked. That said, while the FBI will likely be forced to acknowledge the documents thanks to the Thursday ruling, the agency will still be able to try and convince the judge that there are other grounds to withhold the records.

In January, Mehta blessed the FBI’s decision not to disclose the existence of any records containing the agency’s efforts to verify the dossier – ruling that Trump’s tweets about the dossier didn’t require the FBI and other intelligence agencies to act on records requests. “But then the ground shifted,” writes Mehta of Trump declassifying the House memos. “As a result of the Nunes and Schiff Memos, there is now in the public domain meaningful information about how the FBI acquired the Dossier and how the agency used it to investigate Russian meddling.” [..] “It remains no longer logical nor plausible for the FBI to maintain that it cannot confirm nor deny the existence of documents,” Mehta wrote.

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Doesn’t feel like McGahn has tons of dirt.

White House Counsel “Cooperating Extensively” With Obstruction Probe (ZH)

Update: Trump has commented on the story, saying he allowed McGahn “and all other requested members of the White House Staff” to fully cooperate with the Special Counsel. He also notes that the White House has given over one million pages of documents adding “No Collusion, No Obstruction. Witch Hunt!”

White House counsel Donald McGahn II, has been quietly cooperating “extensively” with special counsel Robert Mueller in his probe of possible collusion between the Trump campaign and Russia, according to an explosive New York Times report published Saturday afternoon. Sources told the Times that McGahn has had at least three voluntary interviews with Mueller’s team totaling 30 hours, in which he discussed accounts of multiple episodes at the center of Mueller’s probe into whether President Trump obstructed justice, as well as the president’s furor toward the Russia investigation and the ways in which he urged McGahn to respond to it. For a lawyer to share so much with investigators scrutinizing his client is unusual.

Lawyers are rarely so open with investigators, not only because they are advocating on behalf of their clients but also because their conversations with clients are potentially shielded by attorney-client privilege, and in the case of presidents, executive privilege. Among the episodes McGahn reprotedly discussed with investigators is Trump’s firing last year of former FBI Director James Comey and the president’s repeated urging of Attorney General Jeff Sessions to claim oversight of the special counsel despite his recusal from Russia probes. McGahn was also centrally involved in Trump’s attempts to fire the special counsel, Robert Mueller, himself which investigators might not have discovered without him.

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Downgrades add to the downfall.

Erdogan Says US Has Launched ‘Attempted Economic Coup’ (Ind.)

Turkey’s president has accused America of launching an “attempted economic coup” as the country’s currency continues to reel following US economic sanctions. Recep Tayyip Erdogan told thousands of supporters in Ankara: “Today some people are trying to threaten us through the economy, through interest rates, foreign exchange, investment and inflation. “We are telling them: we’ve seen your games, and we are challenging you.” And, in a clear swipe at US president Donald Trump he added: “We did not and will not surrender to those who act like a strategic partner but make us a strategic target.”

[..] As the two countries have clashed, the lira’s value has plummeted: it has now dropped 38 per cent against the dollar since the beginning of the year. On Friday, ratings agencies Standard & Poor and Moody’s downgraded Turkey’s credit rating closer to “junk” status, pointing to currency fluctuations and concerns over central bank independence. A spokesman for Standard & Poor said: “The downgrade reflects our expectation that the extreme volatility of the Turkish lira and the resulting projected sharp balance of payments adjustment will undermine Turkey’s economy. We forecast a recession next year.” He added the agency was predicting that the country’s inflation will hit a potential 22 per cent over the next four months.

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When temperatures start dropping, reality will loom.

No-Deal Brexit May Force Rethink Of Vote – Ex-Civil Service Head (PA)

Britain may have to rethink the decision to leave the EU if the government is unable to strike a Brexit deal with Brussels, a former head of the civil service has said. Bob Kerslake said the consequences of a no-deal exit would be so serious that the UK parliament would have to consider whether it could allow it to go ahead. Lord Kerslake, who has been advising Labour on preparing for government, said that at the very least the article 50 process – under which the UK is set to leave the bloc on 29 March next year – would have to be paused. In those circumstances, the European commission would almost certainly insist on some “re-examination” of the original decision to leave, he said.

His comments came as the government prepares to publish a series of technical notes on preparations for a no-deal Brexit across dozens of areas of British life, from farming to financial services. Kerslake said the measures were “too little, too late” and that the government had not allowed itself enough time to prepare for such an outcome. He told the the BBC Radio 4’s Today programme: “The consequences of a no deal would be so serious as I think parliament would have to seriously consider whether it could contemplate this. “The question people need to ask themselves is, is this a risk that they think we should be taking?

“If the government can negotiate a good deal, then so be it. But if they can’t and we end up in this position, then we have to reopen the question of whether we go forward with Brexit at all. It is not too late to do that. “A pause to reflect would certainly be necessary. I think that is a pretty high probability now. “But I think that pause would need to include – and I suspect this would be insisted on by the commission – some re-examination of the decision itself.”

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The only thing that makes sense.

Putin Urges Europe To Help Rebuild Syria So Refugees Can Return (AFP)

Russian president Vladimir Putin has called on Europe to contribute to the reconstruction of Syria to allow millions of refugees to return home. “We need to strengthen the humanitarian effort in the Syrian conflict,” he said on Saturday, ahead of a meeting with his German counterpart Angela Merkel at the government retreat of Meseberg Palace, north of Berlin. “By that, I mean above all humanitarian aid to the Syrian people, and help the regions where refugees living abroad can return to.” There were 1 million refugees in Jordan, the same number in Lebanon, and 3 million in Turkey, Putin said.

Germany has accepted hundreds of thousands of migrants since 2015 – the height of the migration crisis – which has weakened Angela Merkel politically and split the European Union. “This is potentially a huge burden for Europe,” Putin said. “That’s why we have to do everything to get these people back home,” he added, emphasising the need to restore basic services such as water supplies and healthcare.

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More refugees. Great.

Ecuador Slams Door On Venezuelans (BBC)

Ecuador has brought in new rules to stop Venezuelan migrants entering the country without a passport, leaving many stranded in neighbouring Colombia. Thousands of Venezuelans fleeing their country’s economic and political crisis have been crossing into Ecuador from Colombia using only identity cards. Most are heading south to join family members in Peru and Chile. Colombia has protested against the move, saying vulnerable people will be trapped on its side of the border. In a separate incident, residents of a Brazilian town attacked a Venezuelan migrant camp on Saturday and drove the occupants back across the border. Venezuela has suffered for years from high inflation and the chronic shortage of food and medicines.

More than a million Venezuelan migrants have entered Colombia in the past 15 months, according to official estimates, and more than 4,000 have been arriving at Ecuador’s border every day. Many have been walking or hitching rides for weeks and are exhausted by the time they reach the frontier. [..] With the flow of Venezuelan migrants causing tensions across the region, Peru’s government announced immigration measures similar to Ecuador’s on Friday. Passport requirements for Venezuelans will begin on 25 August. In February, Colombian President Juan Manuel Santos announced a tightening of border controls, resulting in thousands of Venezuelans rushing to crossing points. Brazil, which neighbours Venezuela, has also expressed concerns and temporarily closed the border earlier this month. Violence has flared in the border state of Roraima where thousands of Venezuelans live in precarious accommodation.

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“Carter has been an ex-president for 37 years, longer than anyone else in history.”He used those years to redeem himself.

The Un-Celebrity President (WaPo)

Jimmy Carter finishes his Saturday night dinner, salmon and broccoli casserole on a paper plate, flashes his famous toothy grin and calls playfully to his wife of 72 years, Rosalynn: “C’mon, kid.” She laughs and takes his hand, and they walk carefully through a neighbor’s kitchen filled with 1976 campaign buttons, photos of world leaders and a couple of unopened cans of Billy Beer, then out the back door, where three Secret Service agents wait. They do this just about every weekend in this tiny town where they were born — he almost 94 years ago, she almost 91. Dinner at their friend Jill Stuckey’s house, with plastic Solo cups of ice water and one glass each of bargain-brand chardonnay, then the half-mile walk home to the ranch house they built in 1961.

On this south Georgia summer evening, still close to 90 degrees, they dab their faces with a little plastic bottle of No Natz to repel the swirling clouds of tiny bugs. Then they catch each other’s hands again and start walking, the former president in jeans and clunky black shoes, the former first lady using a walking stick for the first time. The 39th president of the United States lives modestly, a sharp contrast to his successors, who have left the White House to embrace power of another kind: wealth. Even those who didn’t start out rich, including Bill Clinton and Barack Obama, have made tens of millions of dollars on the private-sector opportunities that flow so easily to ex-presidents.

When Carter left the White House after one tumultuous term, trounced by Ronald Reagan in the 1980 election, he returned to Plains, a speck of peanut and cotton farmland that to this day has a nearly 40 percent poverty rate. The Democratic former president decided not to join corporate boards or give speeches for big money because, he says, he didn’t want to “capitalize financially on being in the White House.” Presidential historian Michael Beschloss said that Gerald Ford, Carter’s predecessor and close friend, was the first to fully take advantage of those high-paid post-presidential opportunities, but that “Carter did the opposite.” Since Ford, other former presidents, and sometimes their spouses, routinely earn hundreds of thousands of dollars per speech. “I don’t see anything wrong with it; I don’t blame other people for doing it,” Carter says over dinner. “It just never had been my ambition to be rich.”

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One field where EU regulation is very harmful.

Britain Has One Last Chance To Save Endangered Species (G.)

Ministers may have only 12 months to rescue Britain’s degraded environment and to save its endangered birds and animals. That is the stark conclusion of Michael Clarke, chief executive of the RSPB, who has warned that parliamentary bills – to be published over the next year – will have to make crucial changes to the way our farms and fisheries are run if the wildlife and landscape of the nation are to be rescued from their dangerously depleted condition. “We are on a cusp, and if we fail to act decisively we will pay the price in coming years,” Clarke told the Observer last week. The three forthcoming bills – on agriculture, on fisheries and on the environment – will replace the EU legislation that currently controls our farming, fishing industry and the quality of our air, water and wildlife.

The government has yet to announce what these bills will contain. However, conservationists such as Clarke now fear there is a real risk that one or all of these new pieces of legislation will fail to provide the necessary powers to restore our crisis-hit environment. “Since 1980, across Europe 420 million individual birds have disappeared from the countryside thanks to the practices of modern agriculture,” said Clarke. And that staggering drop is matched by an even more catastrophic decline in insect life over the same period of time, he added. “For years, we could see the lack of insects on our windscreens on summer evenings. It was a smoking gun but there was no hard data – until recent research in Germany showed there had been a 75% decline in its flying insects, figures since matched by Dutch and some UK data. The insects have gone – and so have 420 million birds.”

[..] As to the causes of these declines, the intensification and spread of agriculture and changes in land use take most of the blame – with the EU common agricultural policy (CAP) being considered a particularly destructive agent in this process. The CAP stresses the importance of agricultural output above all else and has helped destroy the homes and food sources of countless birds, animals and insects, said Clarke. Crucially, as Britain prepares to withdraw from the CAP and the EU, the nation has a once-in-a-generation opportunity to put right this damage, said Clarke. About £3bn a year is spent on British farming through CAP, he pointed out.

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Aug 132018
 
 August 13, 2018  Posted by at 8:43 am Finance Tagged with: , , , , , , , , , , , ,  


Vincent van Gogh The yellow house (The Street), Arles 1888

 

Turkey Central Bank To Take ‘All Necessary Measures’ For Stability (AFP)
Turkey Pledges Action To Calm Markets (BBC)
Euro Drops To One-Year Low On Lira Crisis Contagion Fears (G.)
Beware the Dog Days of August (Pettifor)
Trump Gives Mueller Three Weeks For Sitdown (ZH)
Trump ‘Will Deny Under Oath’ Asking Comey For Flynn Leniency (AT)
Why Trump Cancelled the Iran Deal (Zuesse)
China Slashes Support For Solar Industry (R.)
Greek Bailout Drama ‘In Last Throes’ But The Hardship Is Not Over Yet (G.)
Those Who Think That They Will Break Julian Assange Are Mistaken (P.)

 

 

“Whatever it takes” is still popular. But there are limits. They’re cutting off FX trade and injecting liquidity. But what if they’re called on this? It’s only Monday… As I write this the lira has lost another 6.6% so far for the day.

Turkey Central Bank To Take ‘All Necessary Measures’ For Stability (AFP)

Turkey’s central bank on Monday announced it was ready to take “all necessary measures” to ensure financial stability after the collapse of the lira, promising to provide banks with liquidity. “The central bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary,” the bank said in a statement, vowing to provide “all the liquidity the banks need”. The statement came after the Turkish lira hit record lows against the dollar amid a widening diplomatic spat with the United States. The detention of US pastor Andrew Brunson since October 2016 on terrorism charges has sparked the most severe crisis in ties between the two NATO allies in years.

The central bank announced the series of measures on Monday, a day after Erdogan’s son-in-law Berat Albayrak, who is treasury and finance minister, announced an action plan was in the pipeline. “In the framework of intraday and overnight standing facilities, the Central Bank will provide all the liquidity the banks need,” the bank said. The bank also revised reserve requirement ratios for banks, in a move also aimed at staving off any liquidity issues. It said with the latest revision, approximately 10 billion lira, $6 billion, and $3 billion equivalent of gold liquidity will be provided to the financial system. The nominally independent central bank has defied pressure to hike interest rates which economists said would curb the fall of the lira.

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“I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars… You should know that to keep this nation standing is… also the manufacturers’ duty..”

Turkey Pledges Action To Calm Markets (BBC)

Turkey has pledged it will take action to calm markets after the lira plunged to a new record low in Asian trading. The details would be unveiled shortly, the country’s finance minister told Turkish newspaper Hurriyet. “From Monday morning onwards our institutions will take the necessary steps and will share the announcements with the market,” Berat Albayrak said. The lira lost 20% of its value versus the dollar on Friday. It had already fallen more than 40% in the past year. The latest blow came on Friday, when US President Donald Trump said he had approved the doubling of tariffs on Turkish steel and aluminium. Concerns about contagion prompted investors to sell riskier assets on Monday including emerging market currencies and stocks in Asia.

Mr Albayrak said the country would “act in a speedy manner” and its plan included help for the banks and small and medium-sized businesses most affected by the dramatic volatility in the lira. His assurance came after Turkey’s president blamed the lira’s plunge on a plot against the country. “What is the reason for all this storm in a tea cup? There is no economic reason… This is called carrying out an operation against Turkey,” he said. Recep Tayyip Erdogan once again urged Turks to sell dollars and buy liras to help boost the currency. “I am specifically addressing our manufacturers: Do not rush to the banks to buy dollars… You should know that to keep this nation standing is… also the manufacturers’ duty,” he said.

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It’s starting to spread. And hurt.

Euro Drops To One-Year Low On Lira Crisis Contagion Fears (G.)

The Turkish lira fell almost 9% in early trading on Monday and the euro hit a one-year low as investors feared that the country’s financial crisis could spread to European markets. Despite defiant words by the Turkish president Erdogan over the weekend pledging as yet unspecified action to reverse the slide, the currency slipped alarmingly against the US dollar on Monday. In early trading it reached an all-time low of 7.24 before bouncing back after the country’s banking regulator announced late on Sunday night that it would limit the ability of Turkish banks to swap the battered lira for foreign currency. Asian stock markets were also down on Monday. The Nikkei in Japan lost 1.7%, Hong Kong was off 1.8%, Shanghai -1.7%, Sydney -0.5% and the Taiwanese bourse fell 3%.

The FTSE100 was expected to open down 0.4% later on Monday morning while Germany’s Dax 30 was set for a 0.65% fall. The euro dropped 0.3% to a one-year low against the US dollar on Monday as the falling lira fuelled demand for safe havens, including the greenback, Swiss franc and yen. The Vix volatility index measuring turbulence in financial markets – also known as the fear index – jumped 16% on Monday. There was also concern that other emerging market currencies – already under pressure from the rising US dollar – could be dragged into the lira’s downward spiral. The South African rand hit a low level not seen since mid-2016, the Russian rouble slumped again and the Indian rupee slid to an all-time trough. The lira has tumbled more than 40% this year on worries about Erdogan’s increasing control over the economy and deteriorating relations with the United States ..

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The Fed is to blame for Turkey.

Beware the Dog Days of August (Pettifor)

Today’s financial turbulence can be traced back to Fed decisions in June 2017 to begin the “normalisation” of its balance sheet, gradually shedding its bond holdings in monthly stages. This monthly “runoff” of $10bn of maturing assets on to capital markets causes bond prices to fall, and yields to rise. On some estimates the Fed’s bond portfolio is expected to shrink by $315bn in 2018 and $437bn in 2019. This process of “normalisation” is no simple and stable matter. In the words of market analyst Kristina Hooper, it’s like “defusing a bomb”. To add to the strains caused by the “runoff” of assets, in June 2018, the Fed raised rates for the seventh time in three years and Libor followed suit.

These rising rates of interest have led to the strengthening of the dollar and capital flight from emerging markets. But above all, interest rate rises pose a threat to the heavily indebted global economy. In 2000, the stock of global private and public debt amounted to $142 trillion – 260% of global GDP or income. Today, 10 years after, the credit bubble at the heart of the GFC has nearly doubled to $247 trillion, or 318% of global GDP. Much of that debt is a result of the Federal Reserve’s largesse. Thanks to capital mobility, quantitative easing enabled companies, like many based in Turkey, to borrow in dollars on the international capital markets at low rates of interest.

Now, as Turkey’s currency and those of other emerging markets fall, the cost of servicing debt denominated in dollars rises dramatically, threatening default. But while it is necessary to point to the Fed’s actions to understand tremors in world markets, and to warn of the threat of another financial crisis, the fact is that central bankers should never have alone been held responsible for the restoration of macroeconomic stability.

[..] After the 1929 financial crisis, Keynes in 1931 and Roosevelt in 1933 got a grip, and as Erich Rauchway explains in his book The Money Makers, jointly began the process of ending the gold standard, and radically restructuring the global financial system to restore not just macroeconomic stability but, after 1945, a “golden age” in economics. Today, we are once again threatened by global financial turmoil. This may be the time to ditch economic orthodoxy, and revive the radical and revolutionary monetary theory and policies of John Maynard Keynes. Or do we have to endure another global crisis before economists come to their senses?

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“..we’re not going to be the ones to interfere with the election..”

Trump Gives Mueller Three Weeks For Sitdown (ZH)

President Trump is giving special counsel Robert Mueller until September 1st for a sit-down interview under limited conditions, as an interview beyond that window “could interfere with the midterm elections,” reports the Wall Street Journal, citing Trump attorney Rudy Giuliani. Trump’s attorneys sent Mueller’s team a proposal indicating that the president would be willing to take questions on collusion with Russia in the 2016 elections, but not obstruction of justice alleged to have occurred after he took office – as Giuliani has previously said it could become a perjury trap. “We certainly won’t do [an interview] after Sept. 1, because we’re not going to be the ones to interfere with the election,” Mr. Giuliani told the Journal.

“Let him [Mr. Mueller] get all the bad publicity and the attacks for that.” “I think we made the offer we can live with,” said Giuliani. “Based on a prior meeting with Mr. Mueller, Mr. Giuliani said he had believed prosecutors wanted to wrap up the inquiry by September. “Now they’re not really rushing us,” he said. Mr. Mueller has made some moves that suggest the inquiry itself could stretch beyond the midterm elections and certainly past the September timeline Mr. Giuliani laid out.” -WSJ Last week the special counsel subpoenaed Roger Credico, comedian and radio host that former Trump adviser Roger Stone claims was a back channel to Wikileaks. Credico has denied this – instead calling himself a “confirming source” due to his contacts with WikiLeaks attorneys. He is set to testify in front of Mueller’s grand jury on September 7.

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Can we get Comey under oath too?

Trump ‘Will Deny Under Oath’ Asking Comey For Flynn Leniency (AT)

If he has to testify under oath, US President Donald Trump will deny he ever asked former FBI director James Comey to treat former national security adviser Michael Flynn leniently, his lawyer said on Sunday. “There was no conversation about Michael Flynn,” Rudy Giuliani said on CNN’s State of the Union program regarding the February 14, 2017, meeting in the Oval Office. The private chat figures prominently in Special Counsel Robert Mueller’s probe into possible obstruction of justice in the Russia election interference case.

Comey testified in Congress last year that Trump tried to persuade him to go easy on Flynn the day after the president sacked his national security adviser for lying about his contact with the Russian ambassador. “I hope you can see your way to letting Flynn go. He’s a good guy. I hope you can let this go,” Comey quoted Trump as saying. Trump sacked Comey in May 2017, later admitting on TV that the FBI’s Russia investigation was on his mind when he made the decision.

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Nice analysis by Eric Zuesse. h/t ZH

Why Trump Cancelled the Iran Deal (Zuesse)

[..] whereas Fox News, Forbes, National Review, The Weekly Standard, American Spectator, Wall Street Journal, Investors Business Daily, Breitbart News, InfoWars, Reuters, and AP, are propagandists for the Republican Party; NPR, CNN, NBC, CBS, ABC, Mother Jones, The Atlantic, The New Republic, New Yorker, New York Magazine, New York Times, Washington Post, USA Today, Huffington Post, The Daily Beast, and Salon, are propagandists for the Democratic Party; but, they all draw their chief sponsors from the same small list of donors who are America’s billionaires, since these few people control the top advertisers, investors, and charities, and thus control nearly all of the nation’s propaganda. The same people who control the Government control the public; but, America isn’t a one-Party dictatorship. America is, instead, a multi-Party dictatorship. And this is how it functions.

Trump cancelled the Iran deal because a different group of billionaires are now in control of the White House, and of the rest of the US Government. Trump’s group demonize especially Iran; Obama’s group demonize especially Russia. That’s it, short. That’s America’s aristocratic tug-of-war; but both sides of it are for invasion, and for war. Thus, we’re in the condition of ‘permanent war for permanent peace’ — to satisfy the military contractors and the billionaires who control them. Any US President who would resist that, would invite assassination; but, perhaps in Trump’s case, impeachment, or other removal-from-office, would be likelier. In any case, the sponsors need to be satisfied — or else — and Trump knows this.

Trump is doing what he thinks he has to be doing, for his own safety. He’s just a figurehead for a different faction of the US aristocracy, than Obama was. He’s doing what he thinks he needs to be doing, for his survival. Political leadership is an extremely dangerous business. Trump is playing a slightly different game of it than Obama did, because he represents a different faction than Obama did. These two factions of the US aristocracy are also now battling each other for political control over Europe.

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Too much debt.

China Slashes Support For Solar Industry (R.)

China’s solar stress could burn more dealmakers. The industry faces a glut of raw materials and panels after the Chinese government slashed support for the heavily indebted sector. The first victim of the switch is industry giant GCL-Poly Energy, which scrapped plans to flog assets to state-backed Shanghai Electric. It won’t be the last. The loss of official support has cast a shadow over the business. After Beijing in June limited the number of new projects and cut tariffs it pays to solar generators, analysts lowered their forecasts for new installations of solar capacity this year by as much as a third. That signals dark days ahead, as new projects drive growth for both power plant operators and manufacturers.

The industry’s dependence on hefty leverage – a legacy of hasty expansion and delayed subsidy payouts – makes its position more precarious. Some solar companies, such as Panda Green Energy, were already struggling with net borrowing of more than 10 times EBITDA. The squeeze is especially hard on manufacturers of solar materials and equipment, which must splash cash on research to stay competitive. Meanwhile, overcapacity has depressed prices: Chinese solar modules now trade at a 15% discount to the global average, according to Macquarie. Distress should spur consolidation. The Solactive China Solar Index has fallen nearly 20% since the policy shift. As valuations sink, less indebted players like LONGi Green Energy Technology can go bargain-hunting.

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Stop trying to make it look like a recovery. It is not possible under present conditions.

Greek Bailout Drama ‘In Last Throes’ But The Hardship Is Not Over Yet (G.)

In an economy that has contracted by 26%, a fifth of the working population – two-fifths of young people – have been left unemployed, while about 500,000 people have fled, mostly to EU member states in Europe’s wealthier north. And the hardship isn’t over. The leftist-led government has signed up to a staggering array of ambitious targets. Post–bailout Greece has committed to produce primary surpluses of 3.5 % of GDP until 2022, a feat achieved by only a handful of countries since the 1970s, and 2.2 % until 2060. For Kevin Featherstone, who heads the Hellenic Observatory at the London School of Economics, such obligations amount to perpetual purgatory.

“No other government in Europe would choose to follow this path,” he said. “Greece has been saved in the sense of avoiding the armageddon of euro exit but how it has been saved is so disadvantageous that one can’t talk of a rescue or exit from crisis.” Although Tsipras is at pains to play down outside supervision, Greece will still be subject to a regime of enhanced surveillance initially. Further pension cuts are in store. In May he had unveiled a 106-page post-bailout growth plan. But no amount of preparation can conceal the country’s acute vulnerability to turbulence beyond its borders. Only days before the programme’s end, global market jitters saw yields on Greek bonds soared.

It is accepted that Greece has enough resources to meet funding needs for the next two years, but the IMF is far from persuaded that Athens will be able to sustain market access “over the longer run without further debt relief”. If so, the fund is likely to clamour ever more loudly that the landmark deal, reached in June, easing Greek debt repayments (extending maturities on some loans and improving interest rates on others) just does not go far enough. The crisis has lasted so long that many Greeks can no longer recall their country being “normal” or their pockets full. The middle class has been hardest hit with taxes as high as 70% of income earned. Controversial property levies have added to the toll. “In reality this exit will be a formality because in truth it isn’t going to change a thing,” said Stratos Paradias, who leads the Hellenic Property Federation.

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Great interview with Ecuador’s former consul to the UK, who became a close friend of Assange.

Those Who Think That They Will Break Julian Assange Are Mistaken (P.)

[..] conditions in the Latin American country’s embassy in Knightsbridge are now very different to those that Assange experienced during the six years beginning 19 June 2012, when he arrived seeking political asylum. Ecuador’s government at the time, and its president Rafael Correa, openly accepted his request, believing Assange’s life to be in danger and admiring his fight to defend freedom of information and expression. At that time the Consul of Ecuador in the UK was Fidel Narváez, who was tasked with accompanying Assange from the day he first set foot in the embassy. Narváez had contacted Julian and Wikileaks in April 2011 to request that the organisation publish all the cables relating to Ecuador.

At that moment an amicable relationship was born, one which has continued to grow throughout the years. Fidel is no longer Consul. He was relieved of his duties for issuing a letter of safe-conduct for Edward Snowden without consulting his government. It was, he states, a completely personal decision, and one for which he feels absolutely no regret. “If I found myself in the same situation now, I would do the same thing again. It was the correct decision, the just decision. I knew who Snowden was, what he had done, why he was being pursued, and I knew how important it was to protect him. I do not regret it. I am proud of what I did.”

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Jul 122018
 

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Russell Lee Gas station, Edcouch, Texas 1939

Ilargi: Someone linked to this almost 8 year old article from Nicole (July 19 2010), on Twitter. And yes, it’s even more relevant now than it was when she wrote it. So here’s a re-run:

 

… the Smoot-Hawley Tariff Act of 1930 in the US, which drastically raised tariffs on imports, lead to retaliation by trading partners, and the resulting trade war dropped global trade by 66% between 1929 and 1934.

One more comment from me: Trump may be on to something with some of his tariff actions, but he risks having the US run headfirst into the brittleness of just-in-time supply lines.

 

 

Nicole Foss: As the world has become a smaller and smaller place over the last few decades, we think less about the differences between locations. Global trade has allowed us to circumvent many local constraints, evening out surpluses and shortages in a more homogenized world.

We have a just-in-time world built on comparative advantage, in the name of economic efficiency. Under this economic principle, every location should specialize in whatever activity it executes most efficiently and the resulting products from all areas would then be traded. The idea is that all will then be better off than they would have been had they attempted to cover all bases themselves for reasons of self-sufficiency.

Where countries had been inclined towards more expensive self-sufficiency, market forces have often made this approach untenable, as large cost differences can make countries or industries uncompetitive. Local production has been progressively out-sourced as a result.

By ‘better off’, economists mean that goods will be cheaper for all, thanks to global wage arbitrage and economies of scale. Globalization has indeed delivered falling prices for many consumer goods, particularly electronics. In an era of massive credit expansion (effectively inflation), such as we have lived through for decades, one would normally have expected prices to rise, as a lagging indicator of money supply expansion, but prices do not always follow money supply changes where other major complicating factors exist.

In recent years, the major complicating factors have been the ability to produce goods in places where wages are exceptionally low, the ability to transport those goods to consumer markets extremely cheaply and ready access to letters of credit.

For nominal prices (unadjusted for changes in the money supply) to fall during an inflationary period, real (inflation adjusted) prices must be going through the floor. This has been the effect of trade as we have known it, and it is all many of us have known. What we are not generally aware of is the vulnerability of the global trade system, due to the fragility of the critical factors underpinning it.

 

By producing goods, particularly essential goods, in distant locations, we create long and potentially precarious supply lines. While relative stability reigns, this vulnerability does not cause trouble and we enjoy cheap and plentiful goods. However, if these supply lines are disrupted, critical shortages could result. In a very complex just-in-time system, this may not take very long at all. Such as system is very brittle, as it has almost no redundancy, and therefore almost no resilience. When Jim Kunstler refers to efficiency as “the straightest path to hell”, it is this brittleness he is referring to.

The most ephemeral critical factor for trade is the availability of letters of credit. These became scarce during the first phase of the credit crunch in 2008, and the result was goods stuck in port even though there was robust demand for them elsewhere. Goods simply do not move without letters of credit, and these can dry up extremely quickly as a systemic loss of confidence results in a systemic loss of liquidity. In a very real way, confidence IS liquidity.

The Baltic Dry shipping index fell 96% in 2008 as a result, meaning that shipping companies were suffering. Although the index has recovered slightly during the recent long rally, it is still very depressed in comparison with its previous heights. Now that the rally appears to be over, on the balance of probabilities, letters of credit for shipping will come under renewed pressure, and goods will once again have difficulty moving. As demand also starts to fall, due to the loss of purchasing power in the depressionary era we are moving into, this will get far worse.

 

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In a depression, trade is very adversely affected. One reason for this a highly protectionist beggar-thy-neighbour economic policies. For instance, the Smoot-Hawley Tariff Act of 1930 in the US, which drastically raised tariffs on imports, lead to retaliation by trading partners, and the resulting trade war dropped global trade by 66% between 1929 and 1934.

 

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Thanks to globalization, we are much more dependent on trade than people were in the 1930s. The combination of credit drying up on the one hand and global trade wars on the other is an extreme threat to our vulnerable supply lines. Add to that the general upheaval created by severe economic disruption, which can easily lead to increased physical risks to transporting goods, and the longer term potential for much higher energy prices, and we could see an outright collapse of global trade in the approaching years.

The benefits of self-sufficiency will be seen in places where it still exists. So long as the whole supply chain is local, localized production means being able to maintain access to essential goods at a time when obtaining them from overseas may be difficult or impossible. It is currently more expensive, but the relative security it can provide can be priceless in a dangerous world. The ability to produce locally does not arise overnight however, especially where there are no stockpiles of components. In places where it has been lost, it will take time to regain. There is no time to lose.

We will be returning to a world of much greater diversity as we lose the homogenizing effect of trade. That means the existing disparities between areas will matter far more in the future than they have in the recent past. We will need to think again about the pros and cons of our local regions – what they can provide and what they cannot, and for how many people. Some areas will be in a great deal of trouble when they lose the ability to compensate for deficiencies through trade. As the global village ceases to exist, the world will once again be a very large and variable place.

 

 

Jun 142018
 
 June 14, 2018  Posted by at 8:42 am Finance Tagged with: , , , , , , , , , , , , ,  


Wassily Kandinsky Free Curve to the Point – Accompanying Sound of Geometric Curves 1925

 

This Fed Grows Relentlessly More Hawkish (WS)
ECB Gets Ready To Pull The Plug On Stimulus Scheme (R.)
The ECB, Not The Fed, Is The Match That Will Spark Bond Market Volatility (MW)
China Holds Fire On Rates, Posts ‘Shockingly Weak’ Activity Growth (R.)
Riskiest Junk Bonds Completely Blow Off the Fed, Face “Sudden” Reckoning (WS)
Cryptocurrency Bloodbath Continues, Tether Accused Of Manipulating Bitcoin (MW)
The Tories’ Chaotic Brexit Has Lost The Trust Of Business – Jobs Will Go (G.)
The North Korea Summit Through the Looking Glass (Jacobin)
Italy-France Relations Collapse Amid North-African Migrant Spat (ZH)
Apple Steps Up Encrytion To Thwart Police Cracking of iPhones (AFP)
FYROM and Greece Fail To Resolve Bitter Naming Dispute (G.)
Antarctic Ice Melting Faster Than Ever (G.)

 

 

Is there anyone alive who thinks that the US, EU, global economies are strong enough to withstand large scale liquidity withdrawal?

This Fed Grows Relentlessly More Hawkish (WS)

“The economy is in great shape,” Fed Chairman Jerome Powell said today at the press conference after the FOMC meeting. Inflation as measured by the Fed’s preferred low-ball measure “core PCE” has hit the Fed’s target of 2%, and the Fed expects it to hit 2.1% by year-end. Inflation as measured by CPI jumped to 2.8%. “Job gains have been strong,” today’s statement said. The “unemployment rate has declined,” while “growth of household spending has picked up,” and “business fixed investment has continued to grow strongly.” This is no longer the crisis economy of yore. But the interest rates are still low and stimulative, befitting for a crisis economy. So something needs to be done, and it’s getting done, if “gradually.”

There were all kinds of intriguing elements in the FOMC’s increasingly hawkish but “gradual” hoopla today. By unanimous vote, the FOMC raised its target for the federal funds rate by a quarter percentage point to a range between 1.75% and 2.0%. This was expected; what’s intriguing is the unanimous vote, unlike prior rate hikes. Four rate hikes in 2018 (two more this year) are now gradually being baked in, according to the median expectation of the 15 members of the FOMC, per the infamous “dot plot” with which the Fed tries to communicate potential rate moves: One member expects 5 rate hikes in 2018; seven members expect 4 hikes; five members expect 3 hikes, and two members expect no more hikes.

At the March meeting, four rate hikes had appeared in the dot plot as a real but more distant possibility. Two more hikes this year would bring the top end of the target range to 2.5% by year-end. This shows the 2018 section of the dot plot:

Rates are expected to continue to rise, three times in 2019 and once in 2020, nudging the federal funds rate to nearly 3.5%. A presser after every meeting – oh boy. During the press conference, Powell said that, starting next January, there will be a press conference after every FOMC meeting. This idea has been mentioned a couple of times recently to prepare markets for it. Now it’s official. As in every Fed announcement, it’s no biggie, really, trust us. The move is designed to “explain our actions and answer your questions,” Powell said. It was “only about improving communications.” It didn’t mean at all that the Fed would be speeding up its rate hikes, he said.

[..] Interest paid to the banks on excess reserves gets a makeover. Banks have about $1.89 trillion in “excess reserves” on deposit at the Fed. The Fed has been paying banks interest on these excess reserves at a rate that was equal to the top of the Fed’s target range – so 1.75% since the last rate hike, which amounts to an annual rate of $33 billion of easy profits for the banks. In theory with today’s rate hike, the FOMC would also have increased the rate it pays on excess reserves to 2.0%.

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But the European economy is not ready. What now, accelerate Target2 even more?

ECB Gets Ready To Pull The Plug On Stimulus Scheme (R.)

The ECB will debate on Thursday whether to end its huge asset purchases by year-end, in what would be its biggest step towards dismantling crisis-era stimulus credited with pulling the euro zone economy out of recession. Financial investors are coming to terms with the end of a decade of easy money from the world’s top central banks, with the Federal Reserve on Wednesday raising interest rates for a seventh time in 3-1/2 years in a further shift from policies used to battle the 2007-2009 financial crisis and recession. Meeting as growth is slowing and political populism threatens to set off market turbulence, the ECB is expected to argue that its 2.55 trillion euro bond-buying scheme has done its job in bringing the 19-member currency bloc back from the brink of collapse.

Whether policymakers take the actual decision at their meeting in Riga on Thursday or hold off until July appears secondary as they have long argued that the scheme, commonly known as quantitative easing (QE), should be concluded and the policy focus shift to the expected path of interest rates. The biggest complication could be the increasingly murky economic outlook, weighed down by a developing trade war with the United States, a populist challenge from Italy’s new government and softening export demand. But these factors could actually hasten the ECB’s decision rather than hold it back as the bank has little policy firepower left and a further weakening of the outlook could make a later exit more difficult.

“We believe the ECB may be in a hurry to close the QE chapter,” Bank of America Merrill Lynch said in a note to clients. “We think this is essentially political, as the ECB would not want its monetary policy to be affected by claims of supporting or conversely impairing the new policy course in Italy.”

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Don’t forget the BOJ and China.

The ECB, Not The Fed, Is The Match That Will Spark Bond Market Volatility (MW)

Rising real interest rates haven’t yet made for a sustained pickup in Treasury volatility, leaving some investors to ask what it would take to spark some turbulence. Danielle DiMartino Booth of Quill Intelligence said the European Central Bank, and not the Federal Reserve, holds the key as it looks to set a timetable for winding down its ultra-accommodative policies. With the Federal Reserve’s shrinking balance sheet unable to offset easy global financial conditions on its own, investors should closely watch the ECB at Thursday’s meeting where the central bank is expected to discuss the end of quantitative easing, though the actual wind-down almost certainly remains several months away at the earliest. “The culmination of ECB QE will remove a bond-volatility governor,” said Booth, in a note published on Tuesday.

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And there comes China. Xi fighting the shadows is like Don Quixote and the windmills.

China Holds Fire On Rates, Posts ‘Shockingly Weak’ Activity Growth (R.)

China’s economy is finally starting to cool under the weight of a multi-year crackdown on riskier lending that is pushing up borrowing costs for companies and consumers, with data on Thursday pointing to a broad slowdown in activity in May. China’s central bank sparked concerns over the health of the economy earlier in the day when it left short-term interest rates unchanged, surprising markets which had expected it to follow a hike by the Federal Reserve, as it has tended to do. Industrial output, investment and retail sales all grew less than expected, suggesting further weakness ahead if Beijing perseveres with its crackdowns on pollution, questionable local government spending and off-balance sheet “shadow” financing.

The data, which showed the slowest investment growth in over 22 years, “was all shockingly weak by Chinese standards,” economists at Rabobank said, adding that the readings may explain the central bank’s decision to keep rates on hold. “Get ready for headlines talking about Chinese deleveraging hitting the economy – except it isn’t even deleveraging yet! China is walking more of a tightrope than markets believe – and the data underline that issue clearly,” they said. China has been walking a fine line between rolling out measures to curb financial risks and pollution and tapping the brakes so hard that business activity slows sharply.

Much of their effort so far has focused on the banking sector rather than corporate debt reduction or deleveraging – possibly explaining why China’s headline growth has been so surprisingly solid. GDP has expanded at a steady 6.8 percent for three straight quarters. But official and unofficial gauges are now showing the regulatory crackdown is starting to filter through to the broader economy, with companies complaining it is harder to get financing and a growing number of firms defaulting on bonds.

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In a world of their own.

Riskiest Junk Bonds Completely Blow Off the Fed, Face “Sudden” Reckoning (WS)

High-grade corporate bonds are “gradually” – the key word in everything the Fed says – and reluctantly coming to grips with the new era: Yields are rising and bond prices are falling. The Fed has been laboring to accomplish that. With high-grade debt, the Fed’s plan is working “gradually.” But investors in the riskiest corporate junk debt are totally blowing off the Fed. They’re floating around in their own dream world, facing a very rude awakening. In terms of high-grade corporate bonds, the sell-off has been significant, even if it’s just the beginning. The S&P index for AA-rated bonds is down 2.7% so far this year. As prices have declined, yields have surged, with the average AA yield now at 3.51%, up from around 2.2% in mid to late-2016 (data via ICE BofAML US AA Effective Yield Index):

These are the types of bonds that Apple and other large companies hold in their “cash or cash equivalent” accounts that are registered overseas, and that are now being “repatriated” and sold, and the proceeds from the sales are now being plowed into mega-share buyback programs. These corporations, once avid buyers of this high-grade corporate debt, have turned into sellers.

[..] at the riskiest end of the corporate bond spectrum, with bonds rated CCC or below (deep junk), the party that started at the end of the oil bust in February 2016 simply continued. The S&P bond index for CCC-rated bonds has risen 4.5% so far this year (compared to a 2.7% decline for AA-rated index). Since February 2016, when Wall Street decided to plow new money into junk-rated energy companies, the CCC-rated index has skyrocketed 82%. The average yield of bonds rated CCC or lower is now at 9.56%, down from 12.5% in December 2016, when the Fed got serious, and down from 22% during the peak of the oil bust. This is the lowest yield since the bygone era of “QE Infinity” in June 2014:

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“Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in bitcoin and 64% of other top cryptocurrencies..”

Cryptocurrency Bloodbath Continues, Tether Accused Of Manipulating Bitcoin (MW)

The bloodbath in the digital currency market showed no sign of abating, with all major coins trading in the red Wednesday. In the past 24-hours, a further $25 billion has been wiped off the total value of all cryptocurrencies, led by bitcoin, the world’s biggest digital currency, which reached its lowest level since Feb. 5. A single bitcoin traded to an intraday low of $6,133.31 and has since bounced to $6,280.18, down 3.8%, since Tuesday 5 p.m. Eastern Time on the Kraken Exchange. The total value of all cryptocurrencies dipped below $270 billion in late afternoon New York trading, the lowest level since April 11, according to data from CoinMarketCap. The move lower came after a research report found data that it said suggested the price of bitcoin may have been manipulated in late 2017.

In the University of Texas paper, researchers said they uncovered data that they believe shows Tether, a stable coin that is pegged to the U.S. dollar, was used to artificially push up the price of bitcoin during its late 2017 rally towards $20,000. “Less than 1% of hours with such heavy Tether transactions are associated with 50% of the meteoric rise in bitcoin and 64% of other top cryptocurrencies,” wrote John M. Griffin, a finance professor and Amin Shams, a graduate student. Questions have surrounded Tether and crypto exchange Bitfinex, which were both subpoenaed by the Commodity Futures Trading Commission in 2017 seeking data on Tether and its backing of U.S. dollars. Today’s findings will bring the 11th most traded cryptocurrency back into the spotlight.

“Overall, we find that Tether has a significant impact on the cryptocurrency market. Tether seems to be used both to stabilize and manipulate bitcoin prices,” they said.

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Losing business support may prove fatal for May.

The Tories’ Chaotic Brexit Has Lost The Trust Of Business – Jobs Will Go (G.)

[..] away from parliament, and far from the tabloid front pages, a serious breach is opening up in British politics. Last week some of the most senior business leaders in Britain came out of a Brexit meeting at No 10, and promptly tore the prime minister to shreds. “We’re playing economics; [the politicians] are playing politics,” said Paul Drechsler, president of the bosses’ organisation, the Confederation of British Industry. “In the world of business, we’re frustrated. We’re angry.” An extraordinary statement, especially from an executive invited to tea and biscuits with May. If supposedly tame industrialists now talk like this, you have to wonder what sounds come out of the feral lot.

Yet the CBI’s impatience is shared by many. Once the long-haul arm of the Tory movement, the Freight Transport Association lashed out at May last week for “playing chicken with crucial parts of the British economy and the livelihoods of … 7 million Britons”. These are close friends of the Conservative party.As one senior representative of a leading business organisation says: “Over the past two years, most company bosses would never risk saying openly that Brexit is turning out to be a disaster, in case it scared off their best staff.” With fewer than 290 days before Britain formally leaves the EU, their caution is running out.

This is a far bigger story than the one on the front pages about who promised which amendment to which band of Tories. One of the fundamental relationships in the establishment is fracturing – and the consequences for government and economy could prove to be historic.

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“Not Trump” is not an identity.

The North Korea Summit Through the Looking Glass (Jacobin)

On Tuesday, as Donald Trump and Kim Jong-un shook hands for their much-anticipated summit in Singapore, one Korean reporter observed a curious episode. Koreans watching the scene unfold on a TV screen at a railway station in Seoul began applauding. Meanwhile, some nearby Western tourists, perturbed by this development, scratched their heads in confusion. “I am actually baffled to see them clapping here,” said one British tourist. There’s perhaps no better symbol of the gulf in worldwide reactions to the summit than this episode. While South Koreans cautiously celebrated a historic step in the thawing of hostilities that have hung over them for almost seventy years, the Western media seemed to look on with alarm — even anger.

Hostility to the summit, much of it from Democrats and liberals, had been a staple of press coverage in the months leading up to it, often from commentators who just a few months earlier had been panicking about exactly the opposite outcome. But it reached a fever pitch over the last few days. There was, for example, the collective hyperventilation over a symbolic arrangement of North Korean and US flags. There was MSNBC’s Nicole Wallace, who warned that the whole summit was actually a “Trumpian head fake,” a mere artifact of Trump’s “midterm strategy” and his “get out of sitting with Bob Mueller strategy.” Sue Mi Terry of the defense contractor–funded Center for Strategic and International Studies cautioned that “a peace treaty is not okay” and should “come at the end of the process” because it “undermines the justification of our troops staying in South Korea.”

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Let’s see what happens when the next ship comes.

Italy-France Relations Collapse Amid North-African Migrant Spat (ZH)

Italy has postponed high-level discussions with France on Wednesday after French President Emmanuel Macron criticized Rome for refusing to take in a migrant rescue ship full of 629 shipwrecked North Africans – forcing it to divert to Valencia, Spain. After the ship ran out of supplies, the Italian Navy agreed to escort them across the Mediterranean. “Italy’s new Economy Minister Giovanni Tria said he was cancelling a meeting with his French counterpart Bruno le Maire in Paris. The French economy ministry later said the ministers had “agreed that Mr Tria will come to Paris in the coming days”. -AFP

Italy’s decision to refuse the migrants came after their new Interior Minister, Matteo Salvini, said in early June that “the good times for illegals are over” – writing an urgent letter ordering Malta to accept the 629 migrants picked up by the non-governmental organization (NGO) ship MV Aquarius, run by the group SOS Mediterranee. Salvini called Malta the “safest port” for the passengers, advising that Rome would not offer refuge. After Malta refused leading to several days in limbo, Spain agreed to take the passengers. In response to the ordeal, French President Emmanuel Macron accused Italy of “cynicism and irresponsibility,” adding that their EU neighbor is “playing politics” with the refugees.

Meanwhile Gabriel Attal, the spokesman for Macron’s party, called Italy’s actions “nauseating”. Italian Interior Minister Matteo Salvini responded – saying on Tuesday that he would not “accept hypocritical lessons from countries that have preferred to look the other way on immigration,” and adding on Wednesay that unless France issues an “official apology” for Macron’s inflammatory comments, a Friday meeting between Italian Prime Minister Guiseppe Conte and Macron should be canceled.

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What will the police do when quantum computing gets involved?

Apple Steps Up Encrytion To Thwart Police Cracking of iPhones (AFP)

Apple said Wednesday it was strengthening encryption on its iPhones to thwart police efforts to unlock handsets without legitimate authorization. The move by Apple, the latest in an ongoing clash with law enforcement, comes amid reports of growing use of a tool known as GrayKey which can enable police to bypass iPhone security features. Apple said the new features are not designed to frustrate law enforcement but prevent any bypassing of encryption by good or bad actors. “At Apple, we put the customer at the center of everything we design,” the company said in a statement.

“We’re constantly strengthening the security protections in every Apple product to help customers defend against hackers, identity thieves and intrusions into their personal data. We have the greatest respect for law enforcement, and we don’t design our security improvements to frustrate their efforts to do their jobs. Apple said it was working a fix to mitigate the possibility of accessing data from GrayKey or similar tools. Apple said that it has a team that responds to law enforcement and national security requests 24 hours a day. But the company has been a target of some in law enforcement for rejecting efforts to allow easy access to iPhones.

Two years ago, Apple went to court to block an FBI effort to force it to weaken iPhone encryption on the device of a mass shooter in San Bernardino, California, but officials dropped the case after finding a tool to unlock the phone.

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As square pegs and round holes go, this one will linger… Greeks don’t want the name Macedonia used in any way, Skopje wants nothing else.

FYROM and Greece Fail To Resolve Bitter Naming Dispute (G.)

Governments in Skopje and Athens have faced a furious backlash as the challenge of solving one of the world’s most bitter diplomatic feuds hit home just a day after Macedonia announced it was willing to change its name. Hours after the two neighbours declaring they had reached a landmark accord that would see the tiny Balkan state rename itself the Republic of North Macedonia, the nation’s president refused point-blank to sign the deal. “My position is final and I will not yield to any pressure, blackmail or threats,” president Gjorge Ivanov, who is backed by the nationalist opposition, told a news conference in Skopje. The agreement had conceded far too much to Greece – even if its ultimate aim was the country’s future membership of Nato and the EU, he said.

The backlash came despite officials in Brussels, London and Washington reacting with unbridled enthusiasm to the breakthrough. Nato secretary general, Jens Stoltenberg welcomed the accord, saying: “This is really an historical agreement by [politicians] who have shown courage and great political leadership.” Greece has long argued that the state’s name – adopted when it broke away from Yugoslavia in 1991 – conveys thinly disguised irredentist claims on its own northern province of Macedonia. The appropriation of figures associated with ancient Greek history – not least Alexander the Great – had reinforced fears in a region prone to shifting borders.

But opposition to the deal was also pronounced in Greece. As in Skopje – where prime minister Zoran Zaev’s leftist coalition was accused of leading the country to national humiliation – prime minister Alexis Tsipras and his leftist Syriza party was also charged with surrendering cherished national rights. One newspaper ran a front-page graphic showing Tsipras, the Greek foreign minister and president being shot by firing squad for treason.

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84 scientists from 44 international organisations..

Antarctic Ice Melting Faster Than Ever (G.)

Ice in the Antarctic is melting at a record-breaking rate and the subsequent sea rises could have catastrophic consequences for cities around the world, according to two new studies. A report led by scientists in the UK and US found the rate of melting from the Antarctic ice sheet has accelerated threefold in the last five years and is now vanishing faster than at any previously recorded time. A separate study warns that unless urgent action is taken in the next decade the melting ice could contribute more than 25cm to a total global sea level rise of more than a metre by 2070. This could lead eventually to the collapse of the entire west Antarctic ice sheet, and around 3.5m of sea-level rise.

Prof Andrew Shepherd, from Leeds University and a lead author of the study on accelerating ice loss, said: “We have long suspected that changes in Earth’s climate will affect the polar ice sheets. Thanks to our satellites our space agencies have launched, we can now track their ice losses and global sea level contribution with confidence.” He said the rate of melting was “surprising.” “This has to be a cause for concern for the governments we trust to protect our coastal cities and communities,” Shepherd added. The study, published in Nature, involved 84 scientists from 44 international organisations and claims to be the most comprehensive account of the Antarctic ice sheet to date.

It shows that before 2012, the Antarctic lost ice at a steady rate of 76bn tonnes per year – a 0.2mm per year contribution to sea-level rise. However since then there has been a sharp increase, resulting in the loss of 219bn tonnes of ice per year – a 0.6mm per year sea-level contribution. The second study, also published in Nature, warns that time is running out to save the Antarctic and its unique ecosystem – with potentially dire consequences for the world. The scientists assessed the probable state of Antarctica in 2070 under two scenarios. The first in which urgent action on greenhouse gas emissions and environmental protection is taken in the next few years, the second if emissions continue to rise unabated and the Antarctic is exploited for its natural resources.

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Jun 012018
 
 June 1, 2018  Posted by at 8:33 am Finance Tagged with: , , , , , , , , , , ,  


Edward Hopper Rooms by the sea 1951

 

Deutsche Bank Downgraded By S&P Over Restructuring Plans (MW)
ANZ, Deutsche Bank and Citigroup Face ‘Criminal Cartel’ Charges (BBC)
Deutsche Bank’s US Ops Deemed “Troubled” By Fed A Year Ago (R.)
Why Turkey And Argentina Are Doomed (ZH)
US On Brink Of Trade War With EU, Canada and Mexico (G.)
China To Slash Import Tariffs On Many Consumer Products By 60% From July 1 (R.)
Populist Government To Be Sworn In As Italy’s Political Deadlock Ends (G.)
Italians Back Euro But Rail Against EU’s Rules (G.)
Juncker: Italians Need To Work Harder And Be Less Corrupt (G.)
Spain’s Government Poised To Fall As Socialists Prepare For Power (Ind.)
UK’s “Bank of Mum & Dad” is Running Out of Liquidity (DQ)
Ecuador’s President Says Assange Can Stay In Embassy ‘With Conditions’ (G.)

 

 

Deutsche is enormous. Its derivatives portfolio is gigantic. This is a big story.

Deutsche Bank Downgraded By S&P Over Restructuring Plans (MW)

Deutsche Bank was downgraded Friday by S&P Global Ratings, which cited concerns over the German lender’s restructuring plans. The ratings agency cut the long-term issuer credit rating to ‘BBB+’ from ‘A-‘on the bank and its core operating subsidiaries. The troubled bank last week announced plans to cut thousands of jobs in a bid to overhaul its operations and cut costs, but S&P said they see “significant execution risks in the delivery of the updated strategy amid a continued unhelpful market backdrop, and we think that, relative to peers, Deutsche Bank will remain a negative outlier for some time,” in a statement. Investors also demanded the resignation of the bank’s chairman, Paul Achleitner, at the Annual General Meeting last week.

Shares have tumbled 42% so far this year. The agency kept a stable rating on the bank’s outlook, saying that management will execute the plan over time and achieve longer-term objectives. Meanwhile, Australia’s consumer watchdog on Friday announced that it would be bringing criminal cartel charges against Deutsche Bank, Citigroup and Australia & New Zealand Banking. Shares of Deutsche Bank opened up 1.5%, bouncing off a 7% drop Thursday, which came after the Federal Reserve designated the German lender’s U.S. business in “troubled condition,” people familiar with the matter told The Wall Street Journal.

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Deutsche again. Insult and injury.

ANZ, Deutsche Bank and Citigroup Face ‘Criminal Cartel’ Charges (BBC)

Financial institutions ANZ, Deutsche Bank and Citigroup will be prosecuted on criminal cartel charges, Australia’s consumer watchdog says. The allegations concern arrangements for the sale of A$2.5bn (£1.4bn; $1.9bn) worth of ANZ shares in 2015. The three banks said they would fight the charges. ANZ said it would also defend allegations against an employee. Australia’s scandal-plagued financial sector is at the centre of a national inquiry into misconduct. Several “other individuals” are also expected to be charged by prosecutors, the Australian Competition and Consumer Commission (ACCC) said.

“The charges will involve alleged cartel arrangements relating to trading in ANZ shares following an ANZ institutional share placement in August 2015,” chairman Rod Sims said in a statement. “It will be alleged that ANZ and the individuals were knowingly concerned in some or all of the conduct.” ANZ, one of Australia’s so-called “big four” banks, said the charges related to a placement of 80.8 million shares. The deal was underwritten by global giants Deutsche Bank, Citigroup and JP Morgan, as part of a bid by ANZ to raise capital to meet regulatory requirements. ANZ said regulators were now investigating whether it should have stated that 25.5 million shares of the placement had been taken up by “joint lead managers”.

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And it’s OK to keep that from -potential- shareholders, bondholders for over a year?!

Deutsche Bank’s US Ops Deemed “Troubled” By Fed A Year Ago (R.)

The United States Federal Reserve last year designated Deutsche Bank U.S. operations to be in “troubled condition”, The Wall Street Journal reported on Thursday, citing people familiar with the matter. The Fed’s assessment has not previously been made public, it said, sending shares in the German lender down 7.2% to 9.16 euros, their lowest level in more than a year and a half. The “troubled condition” status is one of the lowest designations employed by the Fed, The WSJ said. The report comes a month after Deutsche Bank’s new Chief Executive Christian Sewing announced plans to cut back bond and equities trading, where it has been unable to compete with U.S. powerhouses such as Goldman Sachs and JP Morgan.

Deutsche Bank’s attempts to break into the U.S. markets, which are seen as an essential plank for delivering a global investment banking platform, proved to be costly as it ended up paying out billions of dollars to settle regulatory breaches, prompting speculation at one point of a bailout by Berlin. The WSJ said that the Fed downgrade of Deutsche Bank’s U.S. operations caused the U.S. Federal Deposit Insurance Corporation (FDIC) to put Deutsche Bank Trust Company Americas on its list of “Problem Banks”.

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Clear enough.

Why Turkey And Argentina Are Doomed (ZH)

It was all the rage in 2017. Not long after contrarians like Jeff Gundlach and Russell Clark said to go long Emerging Markets, suddenly everyone was doing it, either as a standalone trade or as part of a pair trade shorting one or more DMs. Of course, maybe all they were doing was indirectly shorting the USD, which was arguably the biggest driver behind EM outperformance. But, in no small part due to the recent surge in the dollar, after outperforming developed equity markets by 20% in 2016-2017, EM is underperforming by 2.5% so far this year. Of course, it’s not just the dollar, but also interest rates, which until the recent Italian fiasco, were at 4 year, or greater, highs.

And, as JPM’s Michael Cembalest writes in his latest “Eye on the market” note, investor fears are predictably focused on the impact of rising US interest rates and the rising US dollar on EM external debt, and on rising oil prices. And yet, despite the occasional scream of terror from EM longs who refuse to throw in the towel, a closer look shows that the market reaction has been orderly so far, with two exceptions: Argentina and Turkey, which are leading the way down. However, as the JPM Asset Management CIO shows below, the collapse in these two countries has been largely a function of state-specific/idiosyncratic reasons.

The chart below, courtesy of Cembalest, shows each country’s current account (x-axis), the recent change in its external borrowing (y-axis) and the return on a blended portfolio of its equity and fixed income markets (the larger the red bubble, the worse the returns have been). This outcome looks sensible given weaker Argentine and Turkish fundamentals. And while Cembalest admits that the rising dollar and rising US rates will be a challenge for the broader EM space, most will probably not face balance of payments crises similar to what is taking place in Turkey and Argentina, of which the latter is already getting an IMF bailout and the former, well… it’s only a matter of time.

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1: look if present conditions are fair. 2: adapt them.

US On Brink Of Trade War With EU, Canada and Mexico (G.)

The United States and its traditional allies are on the brink of a full-scale trade war after European and Canadian leaders reacted swiftly and angrily to Donald Trump’s decision to impose tariffs on steel and aluminium producers. The president of the European commission, Jean-Claude Juncker, promised immediate retaliation after the US commerce secretary, Wilbur Ross, said EU companies would face a 25% duty on steel and a 10% duty on aluminium from midnight on Thursday. Europe, along with Canada and Mexico, had been granted a temporary reprieve from the tariffs after they were unveiled by Donald Trump two months ago.

However, Ross sent shudders through global financial markets when he said insufficient progress had been made in talks with three of the US’s traditional allies to reduce America’s trade deficit and that the waiver was being lifted. Wall Street slumped as the Dow Jones Industrial Average closed down more than 250 points as investors sold off shares in manufacturers and corporations with global reach. Shares across Europe also declined. The move from Washington – which comes at a time when Trump is also threatening protectionist action against China – triggered an immediate and angry response from Canada, Brussels and from individual European capitals.

Juncker called the US move “unjustified” and said the EU had no choice but to hit back with tariffs on US goods and a case at the World Trade Organisation in Geneva. “We will defend the Union’s interests, in full compliance with international trade law,” he added. Brussels has already announced that it would target Levi’s jeans, Harley-Davidson motorbikes and bourbon whiskey.

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Something’s working.

China To Slash Import Tariffs On Many Consumer Products By 60% From July 1 (R.)

China will cut import tariffs on nearly 1,500 consumer products ranging from cosmetics to home appliances from July 1, in a bid to boost imports as part of efforts to open up the economy. The move would be in step with Beijing’s pledge to its trade partners – including the United States – that China will take steps to increase imports, and offers a boon to global brands looking to deepen their presence in China. The finance ministry published a detailed list of products affected and their new reduced tax rates on Thursday, following early announcements of the broader plan. Starting next month, the average tariff rate on 1,449 products imported from most favored nations will be reduced to 6.9% from 15.7%, which is equivalent to a cut of about 60%, the finance ministry said in a statement on its website.

That followed an announcement from the State Council, or the country’s Cabinet, on Wednesday that China will cut import tariffs on consumer items including apparel, cosmetics, home appliances, and drugs. The tariff cuts this time are more broad-ranging than previous reductions. Import tariffs for apparel, footwear and headgear, kitchen supplies and fitness products will be more than halved to an average of 7.1% from 15.9%, with those on washing machines and refrigerators slashed to just 8%, from 20.5%. Tariffs will also be cut on processed foods such as aquaculture and fishing products and mineral water, from 15.2% to 6.9%.

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Savona comes out strong. His replacement as finance minister is no fan of the euro, and he himself is EU minister.

Populist Government To Be Sworn In As Italy’s Political Deadlock Ends (G.)

A populist government will be sworn into power in Italy on Friday after president Sergio Mattarella agreed to a revised slate of ministers – just days after a bitter row over the incoming leaders’ stance on the euro ended their initial bid to assume power. A joint statement by the anti-establishment Five Star Movement (M5S) and the far-right League announced that political newcomer Giuseppe Conte, who had been seen as a controversial choice, would serve as prime minister. The relatively unknown law professor met Mattarella late on Thursday night to put forward a list of ministers, which the president has accepted.

“All the conditions have been fulfilled for a political, Five Star and League government,” said Luigi Di Maio, the Five Star chief, and Matteo Salvini, the League leader, in a joint statement after a day of talks in Rome. The deal will bring at least temporary calm to a political crisis that has embroiled Italy for weeks. The tumult raised questions – in Brussels and among investors around the world – about whether the rise in Italian populism and the collapse of traditional parties posed a fundamental threat to the country’s future in the eurozone.

The formation of the new government will at least temporarily allay those concerns, because it will remove for now the threat that snap elections will be called later this summer, a prospect which worried investors because it could have bolstered support for anti-EU parties. The populist leaders stepped back from their insistence that Paolo Savona, an 81-year-old Eurosceptic, should serve as finance minister. The choice had been vetoed by Mattarella, prompting the M5S and the League to call off their deal. Savona will now serve as EU minister instead. But there are still many unknowns about how the new administration – an uneasy alliance between two former political opponents, both jockeying for power – will govern Italy.

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If the EU doesn’t adapt to its new reality, it’s doomed.

Italians Back Euro But Rail Against EU’s Rules (G.)

Ever since the inception of the EU, Italians have been among the staunchest defenders of the European project. But the political crisis that engulfed the bloc’s third largest economy this week, centring on a debate over Italy’s commitment to the eurozone, has spooked investors and worried Brussels. It has raised a question that just a few years ago would have seemed unfathomable: are Italians ready to ditch the euro? The answer, like most aspects of Italian politics, is complicated. Opinion polls show that a majority of Italians – 59%, according to Eurobarometer – support the country’s continued inclusion in the eurozone. But that does not mean they want to continue to abide by the rules set by Brussels, which Italy agreed to when it adopted the currency.

Instead, more Italians are seeking a tougher and more antagonistic approach towards Brussels, after years of frustration over fiscal constraints set by the EU coupled with a feeling that Europe has abandoned Italy to cope on its own with the migration crisis. The latest Eurobarometer survey found that only 3 in 10 Italians believed their voices counted within the EU. While a full break from the EU – an “Italexit” – is not a matter of public debate (such a move is considered implausible even among the most hardline Eurosceptics), surveys show Italians generally have a dim view of the bloc. Eurobarometer found that 39% believed Italy’s inclusion in the EU was a “good thing” and 44% believed Italy benefited from being in the EU.

In March, stagnant economic growth and concerns about immigration drove voters across Italy to vote in large numbers for two populist parties – the Five Star Movement and the League, formerly the Northern League – while the most pro-EU party, the Democratic party (PD), suffered a humiliating defeat. Josef Janning, a senior policy fellow at the European Council on Foreign Relations, said: “There is no desire to exit. But there is a willingness to follow the League and the Five Star Movement and to say ‘we don’t want to follow the rules’. That seems to be the new consensus.”

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It’s like he’s talking about himself.

Juncker: Italians Need To Work Harder And Be Less Corrupt (G.)

Jean-Claude Juncker has said Italians need to work harder, be less corrupt and stop looking to the EU to rescue the country’s poor regions, in comments unlikely to ease the fraught political battle over Italy’s future relationship with Brussels. Days after the Italian president, Sergio Mattarella, defended Italy’s place in the eurozone against the country’s populist leaders, the president of the European commission said he was in “deep love” with “bella Italia”, but could not accept that all the country’s problems should be blamed on the EU or the commission. “Italians have to take care of the poor regions of Italy. That means more work; less corruption; seriousness,” Juncker said.

“We will help them as we always did. But don’t play this game of loading with responsibility the EU. A country is a country, a nation is a nation. Countries first, Europe second.” Officials in Brussels and markets around the world are awaiting the outcome of ongoing talks between Italy’s two populist leaders, Luigi Di Maio of the Five Star Movement (M5S) and Matteo Salvini of the far-right League, on forming a new government. After making the remarks during a question and answer session in Brussels, Juncker added it would be best to be “silent and prudent and cautious” this week, whenever he was asked about Italy. “I have full confidence in the genius of the Italian people,” he said.

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“..the PP’s former treasurer, as well as 28 others previously linked to the party, sentenced to jail for 33 years for fraud and money-laundering..”

Spain’s Government Poised To Fall As Socialists Prepare For Power (Ind.)

Mariano Rajoy’s chances of remaining Spanish Premier evaporated almost completely after the moderate Basque Nationalist Party (PNV) confirmed that its MPs would vote in favour of a parliamentary no-confidence motion against him if he did not resign. Despite its tiny number of MPs – five deputies in a 350 seater parliament – it is widely believed that the PNV’s decision will tip the balance against Mr Rajoy in a no-confidence motion, by a mere four votes. If successful, the Socialist party leader Pedro Sánchez, who tabled the no-confidence motion last week, would be automatically elected as Spanish PM, ending seven years of centre-right rule by the Partido Popular (PP) in Spain.

However, given that those voting in favour of the motion – ranging from Catalan Republican Nationalists, currently at daggers drawn with almost all Spain’s mainstream political parties, through to the left-wing Podemos coalition – have little in common beyond a desire to depose Mr Rajoy so a new government could prove highly unstable. Should Mr Rajoy lose the vote, he will be Spain’s first PM to leave office as a result of a no-confidence motion since democracy was restored to the country more than four decades ago.

[..] the impact of a court verdict last week in the so called Gurtel case, a cash-for-kickback scandal that saw the PP’s former treasurer, as well as 28 others previously linked to the party, sentenced to jail for 33 years for fraud and money-laundering, coupled with a €240,000 (£210,000) fine for the PP itself, left Mr Rajoy looking unexpectedly vulnerable.

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“Mum & dad are lending money to their kids so their kids can afford to pay the prices demanded by mum & dad & their friends..” “It’s like a giant Ponzi scheme but where the victims are your children.”

UK’s “Bank of Mum & Dad” is Running Out of Liquidity (DQ)

Mortgages for 100% (or above) of the purchase price not only help fuel high-octane housing bubbles, they also make them a lot riskier when home prices decline, and when more and more borrowers end up with negative equity – where someone’s home is worth less than their debt. That, in turn, significantly raises the likelihood of borrowers defaulting on their loans. And that’s why these 100% mortgages are risky for banks. Today’s new breed of 100% mortgages has a twist in its tail: to provide the banks extra security, they are insisting on family members acting as guarantors for parts of the loans. In other words, if a borrower falls behind on repayments, a parent’s home can also be put at risk.

This kind of deal is becoming increasingly common in the UK, where property prices still remain close to their all-time high despite fears prompted by Brexit and the recent cooling of London’s property market. Underpaid and over-indebted, many young people cannot afford to put down even a 5% deposit on houses whose prices, after they’re adjusted for inflation, have almost doubled in the last 20 years. And a 10% or 15% down-payment is totally out of reach. Their only hope of getting onto the “property ladder” is to get a financial leg up from their parents.

So widespread is this phenomenon that in 2017 the so-called “Bank of Mum and Dad” became the ninth biggest mortgage lender in the UK shelling out some £6.5 billion in loans. Parents helped provide deposits for more than 298,000 mortgages last year — the equivalent of 26% of all transactions. “The Bank of Mum and Dad continues to grow in importance in helping young people take their early steps onto the housing ladder,” said Nigel Wilson, chief executive of the financial service company Legal & General.

It is not driven purely by altruism. The UK’s multi-decade property boom, propelled by artificially low interest rates and supportive government policies, has provided a huge source of wealth for baby boomers. If the Bank of Mum and Dad didn’t lend this money to the new generation, demand for new mortgages would dry up and the UK’s multi-decade housing bubble would have begun to deflate some time ago. As a result, the houses that mum and dad own would lose much of their “value” and their respective net worth would plummet. “Mum & dad are lending money to their kids so their kids can afford to pay the prices demanded by mum & dad & their friends,” explained buyers agent Henry Pryor. “It’s like a giant Ponzi scheme but where the victims are your children.”

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A glimmer of hope.

Ecuador’s President Says Assange Can Stay In Embassy ‘With Conditions’ (G.)

Lenín Moreno, the president of Ecuador, has said Julian Assange’s asylum status in the country’s London embassy is not under threat – provided he complies with the conditions of his stay and avoids voicing his political opinions on Twitter. However, in an interview with Deutsche Welle on Wednesday, Moreno said his government would “take a decision” if Assange didn’t comply with the restrictions. “Let’s not forget the conditions of his asylum prevent him from speaking about politics or intervening in the politics of other countries. That’s why we cut his communication,” he said. Ecuador suspended Assange’s communication’s system in March.

Moreno’s statements come two weeks after an investigation by the Guardian and Focus Ecuador revealed the country had bankrolled a multimillion-dollar spy operation to protect and support Assange, employing an international security company and undercover agents to monitor his visitors, embassy staff and even the British police. Over more than five years, Ecuador put at least $5m (£3.7m) into a secret intelligence budget that protected him while he had visits from Nigel Farage, members of European nationalist groups and individuals linked to the Kremlin. Earlier this month, Moreno withdrew additional security assigned to the Ecuadorian embassy in London, where the WikiLeaks founder has remained for almost six years.

Moreno has previously described Assange’s situation as “a stone in his shoe” and repeatedly hinted that he wants to remove the Australian from the country’s London embassy. In an interview in Quito, the president said granting Assange Ecuadorian citizenship in December last year had not been his idea but that of the foreign minister, María Fernanda Espinosa. He had delegated all decisions related to the case to her, Moreno told Deutsche Welle.

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May 312018
 
 May 31, 2018  Posted by at 9:07 am Finance Tagged with: , , , , , , , , , , , ,  


Vincent van Gogh The sower 1888

 

Liquidity Crisis Coming: Here, There, Everywhere (Mish)
The Trump Effect Is Keeping Bull Market Alive – Robert Shiller (CNBC)
Global Growth Too Dependent On Cheap Borrowing – OECD (G.)
The Euro Has To Be Abandoned If Europe Is To Be Saved (Syll)
Italy Crisis: Workers Are Paying For Decisions Made Nearly 30 Years Ago (Clark)
Italy Crisis Dents Greek Hopes Of Returning To Bond Markets (G.)
Eurozone, IMF Seek Last-Minute Deal On Greek Debt Relief At G7 This Week (R.)
Fed Proposes Changes To Rule Limiting Risky Trading On Wall Street (AP)
US To Hit EU With Steel And Aluminum Tariffs (G.)
Abe Slams US Vehicle Tariff Hikes As ‘Unacceptable’ (JT)
George Osborne’s London Evening Standard Sells Its Editorial Independence (OD)
Bayer Wins US Nod For Monsanto Deal To Create Agrochemical Giant (R.)
The British Countryside Is Being Killed By Herbicides And Insecticides (G.)

 

 

Nuts all around.

Liquidity Crisis Coming: Here, There, Everywhere (Mish)

The problem is global. Central bank actions explain most of what you need to know. Italian bonds provide a good example. Despite the recent, massive selloff in Italian bonds, 10-year Italian bonds still trade at roughly the same yield as US 10-year bonds. Is there no default risk? No eurozone exit risk? Of course there is. But those bonds trade where they do because the ECB is engaged in QE to a far greater extent than the the Fed ever did. How nuts is that? 88% of the S&P is with Vanguard, BlackRock, and State Street. How nuts is that? Close to $7 trillion in bonds trade with a negative yield. The figure was close to $10 trillion at one point. How nuts is that?

According to LCD, covenant-lite loan now account for a record 75% of the roughly $970 billion in outstanding U.S leveraged loans. Covenant-lite agreements vary, but they allow things like paying interest with more debt rather than cash or skipping repayments entirely for periods of time. How nuts is that? This is totally nuts, across the board. Puplava calls it “mindless”. I suspect he would be the first to admit that he seriously understated the concern. My “totally nuts” position is also too mild, but I also struggle for the precise words. A global liquidity crisis looms. It is entirely central-bank sponsored. Just don’t expect me, Puplava, or anyone else to tell you precisely when the crisis will hit. But it will. And when it does, don’t fool yourself into believing that you can necessarily escape in time.

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How to keep everything overpriced.

The Trump Effect Is Keeping Bull Market Alive – Robert Shiller (CNBC)

Nobel Prize-winning economist Robert Shiller hasn’t been the most optimistic voice on Wall Street, but he isn’t writing off the bull market. His chief reason: President Donald Trump’s pro-business influence. “There is a sort of optimism about the markets under Trump, and that’s continuing. I don’t see a reason for it about to change,” the Yale professor said Tuesday on CNBC’s “Trading Nation.” “There’s something about how the world is reacting to the president. Something about his self-confidence which is gradually lifting our spirits.” Shiller believes the momentum is so powerful, it’s essentially propping up a bull market that is getting long in the tooth.

“We’ve seen an overpriced stock market. We’ve seen concerns about that for years now,” he said. Shiller acknowledged it’s definitely possible the U.S. stock market could generate gains this year, but he warned the Trump effect “is not a very reliable thing.” So, he said the best strategy is to diversify abroad in this environment. “If you have been overexposed to the United States in your portfolio, this is a time to reconsider that,” Shiller said. “Not to pull out, but to balance things … Europe is cheaper than the U.S..”

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These clowns really believe this: “self-sustaining growth”.

Global Growth Too Dependent On Cheap Borrowing – OECD (G.)

Unemployment will drop to its lowest level since 1980 across the world’s richest nations, but global growth remains dependent on cheap borrowing and government spending, the Organisation for Economic Cooperation & Development (OECD) has warned in its latest global economy health check. The rise of tit-for-tat protectionist trade barriers, the return of volatile financial markets, and soaring oil prices also spell trouble for the global economy as it heads towards the 10-year anniversary of the 2008 banking collapse, the OECD said.

“The economic expansion is set to continue for the coming two years, and the short-term growth outlook is more favourable than it has been for many years,” said Angel Gurría, secretary general of the OECD, the Paris based thinktank for the world’s 35 richest nations, including the US, Britain, Brazil, Mexico and Russia. “However, the current recovery is still being supported by very accommodative monetary policy, and increasingly by fiscal easing. This suggests that strong, self-sustaining growth has not yet been attained.” Central banks in Britain, the eurozone, Japan and the US have kept interest rates low and pumped funds into their economies via quantitative easing to maintain investment and promote growth. Governments have eased back on austerity measures, allowing more state funds for infrastructure projects and welfare payments, especially pensions.

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In the end, people want to keep sovereignty. Which has largely been sold off by their leaders.

The Euro Has To Be Abandoned If Europe Is To Be Saved (Syll)

The euro has taken away the possibility for national governments to manage their economies in a meaningful way – and in Italy, just as in Greece a couple of years ago, the people have had to pay the true costs of its concomitant misguided austerity policies. The unfolding of the repeated economic crises in euroland during the last decade has shown beyond any doubts that the euro is not only an economic project but just as much a political one. What the neoliberal revolution during the 1980s and 1990s didn’t manage to accomplish, the euro shall now force on us.

But do the peoples of Europe really want to deprive themselves of economic autonomy, enforce lower wages and slash social welfare at the slightest sign of economic distress? Is increasing income inequality and a federal Uberstate really the stuff that our dreams are made of? I doubt it. History ought to act as a deterrent. During the 1930s our economies didn’t come out of the depression until the folly of that time, the gold standard, was thrown on the dustbin of history. The euro will hopefully soon join it.

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Countries will be forced to leave.

Italy Crisis: Workers Are Paying For Decisions Made Nearly 30 Years Ago (Clark)

You could say that Italy’s current problems – indeed all of Europe’s economic woes – go back to the early 1990s, when wrong-headed decisions were made by the European elite and enshrined in the Maastricht Treaty – which workers have been paying for ever since. Cuts in public spending have increased unemployment, which in turn has increased the deficit, which has led to more cuts, and so on and so on. Italy‘s National Debt is now 132% of its GDP. Although growth rates are now positive, its average annual rate of growth from 1999-2016 was zero. With 31.7% youth unemployment, La Dolce Vita and Ryan Paris’s catchy song, is a long distance memory.

The tragedy is that it was all so predictable. One man who warned what Europe was letting itself in for in the rush to squeeze as many countries as possible into the Eurozone, was the late Labour politician Peter Shore, the UK’s secretary of state for economic affairs from 1967-69 and trade minister from 1974-6. In the early-to-mid 1990s I was teaching economics in Switzerland and was in correspondence with Shore. He very kindly sent me copies of parliamentary debates where he had railed against the Maastricht Treaty and its imposition of a financial strait-jacket on EEC/EU members – regardless of the state of their economies.

Shore told the House of Commons on March 24, 1993: “The most astonishing omission from the treaty is the fact that it never faces the issue of the counter-recession policy, about which it contains not a word. One lesson that we should have learned from the disasters of the inter-war years was that tendency to go too high in a boom, and too low in recession and slump. “Why is that aspect not written into the protocol? Why does it not say that we must recognise those counter-cyclical problems, and will certainly do so if unemployment grows by X per cent? Instead of having merely 3% and 60% for borrowing and debt, why not have 3, 4 or 5% of the level of unemployment or the fall in GDP?”

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“Events in Italy are changing everything.”

Italy Crisis Dents Greek Hopes Of Returning To Bond Markets (G.)

Greece is watching the unfolding crisis in Italy with growing nervousness. Events in Rome are eliciting a sense of deja vu in Athens, the capital long on the frontline of the eurozone crisis. And nerves are being rattled. “We want a stable, democratic and pro-European Italy,” the country’s foreign minister, Nikos Kotzias, told reporters. “We are worried that if there is instability and it has an impact on the financial situation, this could create problems for us.” The turmoil in Italy could not come at a worse time for Greece. After almost a decade of exclusion from international markets, the debt-stricken nation had set its sights on returning to much-needed normality this summer.

Hopes had been high that when it emerged from its third multi-billion EU-funded bailout programme, Athens would regain market access. But on Wednesday government officials, bankers and analysts were decidedly downbeat. All agreed that with political uncertainty raging across the Ionian Sea, and global investors jittery, the prospect of Greece tapping markets any time soon was beginning to resemble a pipe dream. With soaring bond yields – interest rates on government borrowing – it was out of the question the country could afford the interest rates that would allow it to assume the mantle of post-bailout normality.

“What is happening in Italy worries us immensely,” a senior Bank of Greece official said. “The bond markets have gone mad in southern Europe. With such yields it is totally prohibitive that Greece could return to them when the programme ends.” [..] Italy’s financial turmoil has put hopes of “a clean exit,” on the back burner. “The government’s narrative of clean breaks, and going it alone, is over for now,” a well-placed official conceded. “Events in Italy are changing everything.”

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With Italy on the horizon? It amkes little difference, nobody wants to reduce the principal of the debt. And that is what is needed.

Eurozone, IMF Seek Last-Minute Deal On Greek Debt Relief At G7 This Week (R.)

Euro zone policy-makers will seek last-minute backing this week from the IMF for their debt-relief offer to Greece, to ensure it is credible with markets and draws investors back to Greece after it exits its bailout. The talks are to take place on the sidelines of a meeting of in Canada of finance ministers and central bankers from the world’s top seven economies, the G7, in June, officials involved in the negotiations said. The bailout ends on Aug. 20. “This thing has to be done now,” one senior official involved in the talks said. If no deal is agreed by next Monday, the official said, the IMF would most likely not take part in the bailout at all.

After three successive bailouts since Athens lost market access in 2010, euro zone governments are now Greece’s main creditors, with total loans of €230 billion so far. The IMF took part in the first two bailouts, but has refused to join in the third, which began in 2015. It says the euro zone must agree on how to make Greek debt, now at 179% of GDP, sustainable. Euro zone finance ministers have argued they can only give such details towards the end of the three-year bailout. So the IMF has remained only an observer over the past three years. [..] The IMF and the euro zone agree there should be no “haircut” – a reduction in the principal of the debt – but only an extension of maturities and grace periods.

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I smell bailouts.

Fed Proposes Changes To Rule Limiting Risky Trading On Wall Street (AP)

The Federal Reserve is proposing to ease a rule aimed at defusing the kind of risk-taking on Wall Street that helped trigger the 2008 financial meltdown. The Fed under new leadership on Wednesday unveiled proposed changes to the Volcker Rule, which bars banks’ risky trading bets for their own profit with depositors’ money. The high-risk activity is known as proprietary trading. The proposed changes would match the strictest applications of the rule to banks that do the most trading – 18 banks with at least $10bn in trading assets and liabilities. They account for 95% of all US bank trading and include some foreign banks with US operations, Fed officials said.

Less stringent requirements would apply to banks that do less trading. The idea is to make it easier for banks to comply with the Volcker Rule without sacrificing the banks’ safety and soundness, the officials said. “The proposal will address some of the uncertainty and complexity that now make it difficult for firms to know how best to comply, and for supervisors to know that they are in compliance,” Fed chair Jerome Powell said at a meeting of the Fed governors. “Our goal is to replace overly complex and inefficient requirements with a more streamlined set of requirements.”

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The EU is not about to give in.

US To Hit EU With Steel And Aluminum Tariffs (G.)

The Trump administration is reportedly planning to impose import tariffs on European steel and aluminum after finding no satisfaction in its effort to win trading concessions on the issue. An announcement dropping the EU from an exemption to global tariffs of 25% on imported steel, and 10% on aluminum, could come on Thursday, according to the Wall Street Journal. The move is likely to bring retaliatory action from European Union trade regulators who have warned they will target American products as motorcycles, jeans and bourbon if additional US tariffs are imposed.

Signs of increasing friction between the US and Europe over trade came early Wednesday when Wilbur Ross, the US commerce secretary, drew a sharp line with the EU over Chinese trade negotiations, telling counterparts at a trade development panel in Paris that Europe is using tariffs as an “excuse” to refuse trade negotiations. “China are paying their tariffs,” Ross told the panel. “China hasn’t used that as an excuse not to negotiate … It’s only the EU that is insisting we can’t negotiate if there are tariffs,” he added. Ross’s comments were made in response to EU criticism of import tariffs the Trump administration imposed on dozens of trade partners in March. On Tuesday, the White House added $50bn in new tariffs despite telling China the trade dispute was “on hold” while negotiations continued.

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Make Detroit great again.

Abe Slams US Vehicle Tariff Hikes As ‘Unacceptable’ (JT)

Prime Minister Shinzo Abe on Wednesday condemned U.S. President Donald Trump’s reported move to impose tariffs of up to 25% on imported vehicles as unwarranted and offensive. “If the U.S. slaps Japan, its ally, with tariffs like this, that would be incomprehensible and unacceptable,” Abe told the head of the Democratic Party for the People, Yuichiro Tamaki, during a debate between party leaders in the Diet. The Trump administration recently launched a Section 232 national security probe into whether vehicle and parts imports are harming the U.S.’s domestic auto industry — a step that could provide Trump with the legal basis to institute tariffs.

The move followed yet another surprise announcement by the Trump administration in March that Japan, unlike Washington’s other key allies and partners, wouldn’t be excluded from steel and aluminium tariffs. Tamaki said the hike, if realized, would “deal a severe blow to Japan’s economy.” “Did you get an advance notice on this measure?” Tamaki asked Abe. “You yourself often claim that Japan and the U.S. are 100% together. If there had been no heads-up from the U.S. side on this matter, I’d have to suspect that we may not be seen as their ally.” Abe dodged Tamaki’s question, but stressed he had explained to Trump in their past conversations that Japanese automobile makers are “vastly contributing” to the U.S. economy by creating jobs.

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Why am I not surprised?

George Osborne’s London Evening Standard Sells Its Editorial Independence (OD)

London’s Evening Standard newspaper, edited by the former chancellor George Osborne, has agreed a £3 million deal with six leading commercial companies, including Google and Uber, promising them “money-can’t-buy” positive news and “favourable” comment coverage, openDemocracy can reveal. The project, called London 2020, is being directed by Osborne. It effectively sweeps away the conventional ethical divide between news and advertising inside the Standard – and is set to include “favourable” news coverage of the firms involved, with readers unable to differentiate between “news” that is paid-for and other commercially-branded content.

Leading companies, most operating global businesses, were given detailed sales presentations by Evening Standard executives at the newspaper’s west London offices in an effort to sign them up to the lucrative deal. Among those that have paid half a million pounds each to be involved are international taxi-app firm Uber, which is facing an imminent court appeal against the decision to cancel its licence to operate in London. The Evening Standard has previously come under fire for not declaring Osborne’s £650,000-a-year part time job with the fund managers BlackRock, who hold a £500m stake in Uber.

The global tech giant, Google, still recovering from reputational damage over its low UK tax bills and criticism over its close relationship to the Cameron-Osborne government, has also signed up. Some companies, including Starbucks, walked away from the Evening Standard’s pitch, rejecting the offer of paying to boost their reputations through tailored news and comment. London 2020 is scheduled to start on June 5. Unbranded news stories, expected to be written by staff reporters – but paid for by the new commercial “partners” as part of the 2020 deal – have already been planned for inclusion in the paper’s news pages within a week of the project’s launch.

The London Evening Standard has a circulation of close to 900,000 and distributes more copies within a two-mile radius of Westminster than the Times does across the UK nationally. Many London commuters, who pick up their free copy of the Standard at underground and rail stations, will be unaware that they will be reading paid-for news coverage that is part of a wider commercial deal. An increasing number of British newspapers often carry “native advertising”, essentially paid-for commercials designed to look like independent editorial articles.

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It is a sad day.

Bayer Wins US Nod For Monsanto Deal To Create Agrochemical Giant (R.)

Bayer won U.S. approval for its planned takeover of Monsanto after agreeing to sell about $9 billion in assets, clearing a major hurdle for the $62.5 billion deal that will create by far the largest seeds and pesticides maker. Makan Delrahim, who heads the U.S. Justice Department’s (DoJ) Antitrust Division, said the asset sales agreed to by Bayer were the “largest ever divestiture ever required by the United States.” A Bayer spokesman said the planned sale of businesses with 2.2 billion euros ($2.54 billion) in sales to BASF already agreed to address antitrust concerns, mainly in Europe, were not materially different from the DoJ’s demands. “Receipt of the DOJ’s approval brings us close to our goal of creating a leading company in agriculture,” Bayer CEO Werner Baumann said in a statement.

Bayer’s move to combine its crop chemicals business, the world’s second-largest after Syngenta, with Monsanto’s industry-leading seeds business, is the latest in a series of major agrochemicals tie-ups. U.S. chemicals giants Dow Chemical and DuPont merged in September 2017 and are now in the process of splitting into three units. In other consolidation in the sector, China’s state-owned ChemChina purchased Syngenta and two huge Canadian fertilizer producers merged to form a new company, now called Nutrien. Bayer committed to selling its entire cotton, canola, soybean and vegetable seeds businesses and digital farming business, as well its Liberty herbicide, which competes with Monsanto’s Roundup.

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As the industry that produces them gets bigger.

The British Countryside Is Being Killed By Herbicides And Insecticides (G.)

In June 2011 I took a long drive up the A1, the Great North Road. At Scotch Corner I turned for Barnard Castle. The villages were well kept, the countryside was green, the fields dotted with sheep. Everything was normal. Or so I thought. Beyond Barnard Castle I took a narrow lane into part of Upper Teesdale and suddenly colours exploded along the roadside. I stopped the car and jumped out. There was a bed of orchids, hundreds of them, and behind that, billowing banks of violet, scarlet, white, yellow and cornflower blue. I had seen alpine meadows, but this took my breath away. Further into the dale I found a footpath that led me down beside a shady brook. There were more orchids of a different species and a grass snake hunting frogs in a pool.

Out in the open again, there was the haunting cry of curlews overhead, then redshanks, plovers and snipe. I spent two days up there, talking to environmentalists and farmers involved in the upland hay meadow project for the North Pennines area of outstanding natural beauty (AONB). The landowners were being paid to restrict the use of fertiliser, not employ herbicides, and stop grazing after mid-May. Together with some seeding programmes and careful monitoring, the meadows had become magnificent. When I drove back home, I came down to a countryside where the only flowers were dandelions, watched over by crows. The monotonous green of the rye grass was unbroken. Compared to what I had just experienced, it felt like a desert. I felt cheated. My entire adult life had been spent admiring a shoddy and simplified reproduction, a poor impersonation of a much-loved friend.

[..] Seven years on, the statistics for the British countryside are heartbreaking. Over a quarter of all British birds are under threat, eight species are almost extinct. Three-quarters of all flying insects have disappeared since 1945, including a staggering 60 different moths. Orchid ranges have shrunk by half; two species are gone. The State of Nature 2016 report described Britain as being “among the most nature-depleted countries in the world”. [..] 40% of all species are in moderate or steep decline. Over a quarter of the hedgehog population has disappeared in a decade. Toads are down 68% in 30 years, water voles are no longer found in 94% of the places where they once lived. Likewise mountain hares are in steep decline, as are rabbits. Even that great survivor, the fox, has lost over 40% of its population.

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May 182018
 
 May 18, 2018  Posted by at 8:38 am Finance Tagged with: , , , , , , , , , , ,  


Daniel Garber Lambertville holiday 1941

 

Almost Half Of US Families Can’t Afford Basics Like Rent And Food (CNN)
A Liquidity Crisis of Biblical Proportions Is Upon Us (Mauldin)
Fake News No Problem: Internet Totally Dominates Advertising in the US (WS)
Blundering Into Recession (Rickards)
Peso Crisis Highlights Fragility Of Argentina’s Economy (AFP)
China Offers Trump $200 Billion Package To Slash US Trade Deficit (R.)
Ecuador Orders Withdrawal Of Extra Assange Security From London Embassy (R.)
How Public Ownership Was Raised From The Grave (NS)
EU Dashes Membership Hopes Of Balkan States (G.)
US House Committee Approves Provision To Freeze Arms Sales To Turkey (K.)
Alabama Congressman Blames Sea Level Rise On Rocks Falling Into The Ocean (Al)
Climate Change On Track To Cause Major Insect Wipeout (G.)
EU Court Upholds Curbs On Bee-Killing Pesticides (AFP)

 

 

“California, New Mexico and Hawaii have the largest share of struggling families, at 49% each. North Dakota has the lowest at 32%.”

Almost Half of US Families Can’t Afford Basics Like Rent And Food (CNN)

Nearly 51 million households don’t earn enough to afford a monthly budget that includes housing, food, child care, health care, transportation and a cell phone, according to a study released Thursday by the United Way ALICE Project. That’s 43% of households in the United States. The figure includes the 16.1 million households living in poverty, as well as the 34.7 million families that the United Way has dubbed ALICE — Asset Limited, Income Constrained, Employed. This group makes less than what’s needed “to survive in the modern economy.” “Despite seemingly positive economic signs, the ALICE data shows that financial hardship is still a pervasive problem,” said Stephanie Hoopes, the project’s director.

California, New Mexico and Hawaii have the largest share of struggling families, at 49% each. North Dakota has the lowest at 32%. Many of these folks are the nation’s child care workers, home health aides, office assistants and store clerks, who work low-paying jobs and have little savings, the study noted. Some 66% of jobs in the US pay less than $20 an hour. [..] in Seattle’s King County, the annual household survival budget for a family of four (including one infant and one preschooler) in 2016 was nearly $85,000. This would require an hourly wage of $42.46. But in Washington State, only 14% of jobs pay more than $40 an hour.

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“For now, bond market liquidity is fine because hedge funds and other non-bank lenders have filled the gap. The problem is they are not true market makers. Nothing requires them to hold inventory or buy when you want to sell.”

A Liquidity Crisis of Biblical Proportions Is Upon Us (Mauldin)

In an old-style economic cycle, recessions triggered bear markets. Economic contraction slowed consumer spending, corporate earnings fell, and stock prices dropped. That’s not how it works when the credit cycle is in control. Lower asset prices aren’t the result of a recession. They cause the recession. That’s because access to credit drives consumer spending and business investment. Take it away and they decline. Recession follows. Corporate debt is now at a level that has not ended well in past cycles. Here’s a chart from Dave Rosenberg:

The Debt/GDP ratio could go higher still, but I think not much more. Whenever it falls, lenders (including bond fund and ETF investors) will want to sell. Then comes the hard part: to whom? You see, it’s not just borrowers who’ve become accustomed to easy credit. Many lenders assume they can exit at a moment’s notice. One reason for the Great Recession was so many borrowers had sold short-term commercial paper to buy long-term assets. Things got worse when they couldn’t roll over the debt and some are now doing exactly the same thing again, except in much riskier high-yield debt. We have two related problems here. • Corporate debt and especially high-yield debt issuance has exploded since 2009. • Tighter regulations discouraged banks from making markets in corporate and HY debt.

Both are problems but the second is worse. Experts tell me that Dodd-Frank requirements have reduced major bank market-making abilities by around 90%. For now, bond market liquidity is fine because hedge funds and other non-bank lenders have filled the gap. The problem is they are not true market makers. Nothing requires them to hold inventory or buy when you want to sell. That means all the bids can “magically” disappear just when you need them most. These “shadow banks” are not in the business of protecting your assets. They are worried about their own profits and those of their clients.

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“Internet advertising revenues in the US soared 21.4% in 2017 from a year earlier to a record of $88 billion..”

Fake News No Problem: Internet Totally Dominates Advertising in the US (WS)

You might think you never look at these ads or click on them, and you might think they’re the biggest waste of money there ever was, but reality is that internet advertising revenues in the US are surging, and are blowing all other media categories out of the water. But only two companies divvy up among themselves nearly 60% of the spoils. Internet advertising revenues in the US soared 21.4% in 2017 from a year earlier to a record of $88 billion, thus handily demolishing TV ad revenues, which declined 2.6% to $70.1 billion, according to annual ad revenue report by the Interactive Advertising Bureau (IAB). It was the second year in a row that internet ad revenues beat TV. In 2016, internet ad revenues (or “ad spend”) had surpassed TV ad revenues for the first time in US history.

And 2017 was the first year in the data series going back to 2010 that TV advertising actually declined. That formerly unstoppable growth industry is now a declining industry. [..] Social Media sizzles, fake news no problem. Advertising spend on social media surged 36% from the prior year to $22.2 billion, now accounting for a quarter of all internet advertising, up from just an 8% share in 2012. But who’s getting all this internet ad manna? The report is presented at an “anonymized aggregate level,” and no company names are given. But it’s not hard to figure out. The top ten companies got 74% of the share in Q4 2017, according to the report.

For further detail, we mosey over to eMarketer, which estimates that in 2017, Google captured 38.6% of the total internet ad spend in the US and Facebook captured 19.9% in the US, for a combined total of 58.5% of total internet ad spend. Just by these two companies! For perspective, Google’s parent Alphabet reported global revenues of $111 billion in 2017, and Facebook $40 billion. Practically all of it was generated by internet advertising.

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Well, you can’t do QE forever.

Blundering Into Recession (Rickards)

Contradictions coming from the Fed’s happy talk wants us to believe that QT is not a contractionary policy, but it is. They’ve spent eight years saying that quantitative easing was stimulative. Now they want the public to believe that a change to quantitative tightening is not going to slow the economy. They continue to push that conditions are sustainable when printing money, but when they make money disappear, it will not have any impact. This approach falls down on its face — and it will have a major impact. My estimate is that every $500 billion of quantitative tightening could be equivalent to one .25 basis point rate hike. Some estimates are even higher, as much 2.0% per year. That’s not “background” noise. It’s rock music blaring in your ears.

For an economy addicted to cheap money, this is like going cold turkey. The decision by the Fed to not purchase new bonds will therefore be just as detrimental to the growth of the economy as raising interest rates. Meanwhile, retail sales, real incomes, auto sales and even labor force participation are all declining or showing weakness. Every important economic indicator shows that the U.S. economy can’t generate the growth the Fed would like. When you add in QT, we may very well be in a recession very soon. Then the Fed will have to cut rates yet again. Then it’s back to QE. You could call that QE4 or QE1 part 2. Regardless, years of massive intervention has essentially trapped the Fed in a state of perpetual manipulation. More will follow.

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You can’t resolve a crisis with 40% interest rates. That spells panic.

Peso Crisis Highlights Fragility Of Argentina’s Economy (AFP)

Argentina appears to have resolved, at least in the short term, the crisis over the peso and its depreciation by taking drastic action — but analysts warn the policy is untenable over time. To sustain the Argentinian peso, the Central Bank raised its benchmark interest rate up to 40% and injected more than $10 billion into the economy. A crisis of confidence in the peso saw it plunge nearly 20% over six weeks as investors concerned by Argentina’s high inflation yielded to the lure of a strong dollar. On Monday, the unit dipped to a historic low of 25.51 against the dollar, as talks continued with the International Monetary Fund for a stabilizing loan. Argentina’s center-right president, Mauricio Macri, has sought to be reassuring, saying Thursday that “we consider the turbulence overcome.”

But he pointed the finger at an endemic problem: the budget deficit of Latin America’s third largest economy – even though it has dropped from six to four% of gross domestic product since he took power in late 2015. “It’s a real structural problem, well identified for a long time by the IMF, difficult to resolve politically,” said Stephane Straub, an economist at the Toulouse School of Economics. “If rates remain at this level, it will pose problems in the medium-to-long term. But confidence must return in order to reduce the rates. That’s where the intervention of the IMF can be useful, to bring back confidence and halt the flight of capital and the pressure on the currency.” Annual inflation at more than 20% and a balance of trade deficit still stifle economic reform efforts in an economy whose annual growth was 2.8% in 2017.

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But how?

China Offers Trump $200 Billion Package To Slash US Trade Deficit (R.)

China is offering U.S. President Donald Trump a package of trade concessions and increased purchases of American goods aimed at cutting the U.S. trade deficit with China by up to $200 billion a year, U.S. officials familiar with the proposal said. News of the offer came during the first of two days of U.S.-China trade talks in Washington focused on resolving tariff threats between the world’s two largest economies. But it was not immediately clear how the total value was determined. One of the sources said U.S. aircraft maker Boeing would be a major beneficiary of the Chinese offer if Trump were to accept it. Boeing is the largest U.S. exporter and already sells about a quarter of its commercial aircraft to Chinese customers.

Another person familiar with the talks said the package may include some elimination of Chinese tariffs already in place on about $4 billion worth of U.S. farm products including fruit, nuts, pork, wine and sorghum. [..]The top-line number in the Chinese offer would largely match a request presented to Chinese officials two weeks ago by Trump administration officials in Beijing. But getting to a $200 billion reduction of the U.S. China trade deficit on a sustainable basis would require a massive change in the composition of trade between the two countries, as the U.S. goods deficit was $375 billion last year. The United States’ two biggest exports to China were aircraft at $16 billion last year, and soybeans, at $12 billion.

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An invitation to London and Washington?!

Ecuador Orders Withdrawal Of Extra Assange Security From London Embassy (R.)

The president of Ecuador, Lenin Moreno, ordered the withdrawal on Thursday of additional security assigned to the Ecuadorian embassy in London, where WikiLeaks founder Julian Assange has remained for almost six years. The Australian took refuge in the small diplomatic headquarters in 2012 to avoid sexual abuse charges in Sweden. He rejects the charges and prosecutors have abandoned their investigation. However, British authorities are still seeking his arrest.

“The President of the Republic, Lenin Moreno, has ordered that any additional security at the Ecuadorian embassy in London be withdrawn immediately,” the government said in a statement. “ From now on, it will maintain normal security similar to that of other Ecuadorian embassies,” the statement said. Ecuador suspended Assange’s communication systems in March after his pointed political comments on Twitter. Moreno has described Assange’s situation as “a stone in his shoe.”

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Own your own basics.

How Public Ownership Was Raised From The Grave (NS)

For decades, nationalisation was a taboo subject in British politics. New Labour accepted all of Margaret Thatcher’s privatisations and even extended the market into new realms (such as air traffic control and Royal Mail). Few expected public ownership to return in any significant capacity. But the state has since risen from its slumber. Chris Grayling, the Transport Secretary, yesterday announced that the East Coast Mainline rail franchise would be renationalised (for the third time in 12 years) after its private operators defaulted on payments. Labour, which has called for the whole network to be restored to public ownership, can boast of changing policy from opposition. Further franchises, rail experts say (Northern Rail, South Western, Transpennine Express and Greater Anglia), may also be renationalised out of necessity.

Grayling emphasised that the East Coast move was a “temporary” and purely pragmatic one; the Conservatives usually deride nationalisation as retrogressive, redolent of the grim 1970s. But the voters back Labour’s interventionism. A poll published last year by the Legatum Institute and Populus found that they favour public ownership of the UK’s water (83%), electricity (77%), gas (77%) and railway (76%). Voters are weary of the substandard service and excessive prices that characterise many private companies. (And saw the commanding heights of the British banking system renationalised following the financial crisis.) .

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People are tired of more EU.

EU Dashes Membership Hopes Of Balkan States (G.)

Keep waiting in line, but don’t expect the door to open any time soon. That was the message delivered on Thursday to six Balkan states hoping to join the EU. The six had been invited to the EU heads of state summit in Sofia, Bulgaria, as a gesture to reaffirm their path towards EU membership. Instead, the summit was notable for divisions on whether or not the bloc could cope with further enlargement in the foreseeable future. The EU is keen to offer enticements to the six states, given worries about potential instability and the growing role of Russia in the region. Johannes Hahn, the commissioner for enlargement, has said on a number of occasions that the EU should “export stability” to the region to avoid “importing instability”.

But many member states are uneasy about giving concrete commitments. Emmanuel Macron has emerged as the leading opponent of further EU expansion. “I think we need to look at any new enlargement with a lot of prudence and rigour,” the French president told journalists in Sofia. “The last 15 years have shown a path that has weakened Europe by thinking all the time that it should be enlarged.” A declaration was adopted at the summit that offered support for the “European perspective” of the six Balkan countries but was noticeably lacking words about “accession” or “enlargement”.

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“The draft was approved with votes 60-1..”

US House Committee Approves Provision To Freeze Arms Sales To Turkey (K.)

The United States House Committee on Armed Services of the US Congress approved in principle on Thursday a draft bill on the US budget for 2019 national defense which includes a provision that would halt any sale of military equipment to Turkey until the Secretary of Defense submits a report on the US-Turkish relationship to the congressional defense committees. The draft was approved with votes 60-1 and will be followed by a debate on various amendments, while a similar procedure will take place in the Senate.

If this provision comes into force after the end of the debate, the restrictions imposed on Turkey’s military supplies will be wide-ranging, including, but not limited to, the sales of F-35 Lightning II JSF and F-16 Fighting Falcon, CH- 47 Chinook helicopters, H-60 Blackhawk, and Patriot missiles. The effort to freeze the delivery of the F-35 fighter aircraft to Ankara has formed part of an important campaign conducted by the Hellenic American Leadership Council (HALC) in Washington. As explained by HALC’s executive director, Endy Zemenides, the fact that this provision was included in the draft law is another important step towards fulfilling the goal of the HALC campaign.

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No comment.

Alabama Congressman Blames Sea Level Rise On Rocks Falling Into The Ocean (Al)

North Alabama Congressman Mo Brooks is making headlines again for blaming sea level rise on rocks falling into the ocean and silt washing from major rivers. Brooks was one of several Republican lawmakers sparring with a climate scientist at a Wednesday hearing of the House Science, Space, and Technology Committee. Included in the arguing were Republicans Lamar Smith of Texas, the committee’s chairman, and California’s Dana Rohrabacher, but the websites for Science and Esquire used Brooks’ picture to illustrate their coverage. “Republican lawmaker: Rocks tumbling into ocean causing sea level rise,” read the Science site’s headline.

“Is the Human Race Too Dumb to Survive on This Planet?” asked Esquire also featuring Brooks. “Here’s how big a rock you’d have to drop into the ocean to see the rise in sea level happening now,” chimed in the Washington Post. Brooks was quoted saying, “Every time you have that soil or rock or whatever it is that is deposited into the seas, that forces the sea levels to rise, because now you have less space in those oceans, because the bottom is moving up.” He referred to erosion on the California coastline and England’s White Cliffs of Dover and silt from the Mississippi and Nile rivers.

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I think chemicals are a much bigger issue.

Climate Change On Track To Cause Major Insect Wipeout (G.)

Global warming is on track to cause a major wipeout of insects, compounding already severe losses, according to a new analysis. Insects are vital to most ecosystems and a widespread collapse would cause extremely far-reaching disruption to life on Earth, the scientists warn. Their research shows that, even with all the carbon cuts already pledged by nations so far, climate change would make almost half of insect habitat unsuitable by the end of the century, with pollinators like bees particularly affected. However, if climate change could be limited to a temperature rise of 1.5C – the very ambitious goal included in the global Paris agreement – the losses of insects are far lower.

The new research is the most comprehensive to date, analysing the impact of different levels of climate change on the ranges of 115,000 species. It found plants are also heavily affected but that mammals and birds, which can more easily migrate as climate changes, suffered less. “We showed insects are the most sensitive group,” said Prof Rachel Warren, at the University of East Anglia, who led the new work. “They are important because ecosystems cannot function without insects. They play an absolutely critical role in the food chain.” “The disruption to our ecosystems if we were to lose that high proportion of our insects would be extremely far-reaching and widespread,” she said. “People should be concerned – humans depend on ecosystems functioning.” Pollination, fertile soils, clean water and more all depend on healthy ecosystems, Warren said.

In October, scientists warned of “ecological Armageddon” after discovering that the number of flying insects had plunged by three-quarters in the past 25 years in Germany and very likely elsewhere. “We know that many insects are in rapid decline due to factors such as habitat loss and intensive farming methods,” said Prof Dave Goulson, at the University of Sussex, UK, and not part of the new analysis. “This new study shows that, in the future, these declines would be hugely accelerated by the impacts of climate change, under realistic climate projections. When we add in all the other adverse factors affecting wildlife, all likely to increase as the human population grows, the future for biodiversity on planet Earth looks bleak.”

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It’s a start. But why the focus still only on bees?

EU Court Upholds Curbs On Bee-Killing Pesticides (AFP)

A top European Union court on Thursday upheld the ban on three insecticides blamed for killing off bee populations, dismissing cases brought by chemicals giants Bayer and Syngenta. The decision involves a partial ban by the European Union from 2013, but the bloc has since taken more drastic action after a major report by European food safety agency targeted the chemicals. “The General Court confirms the validity of the restrictions introduced at EU level in 2013 against the insecticides clothianidin, thiamethoxam and imidacloprid because of the risks those substances pose to bees,” a statement said.

“Given the existence of new studies … the Commission was fully entitled to find that it was appropriate to review the approval of the substances in question,” it said. Bees help pollinate 90% of the world’s major crops, but in recent years have been dying off from “colony collapse disorder,” a mysterious scourge blamed partly on pesticides. The pesticides – clothianidin, imidacloprid and thiamethoxam – are based on the chemical structure of nicotine and attack the nervous systems of insect pests. Past studies have found neonicotinoids can cause bees to become disorientated such that they cannot find their way back to the hive, and lower their resistance to disease.

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Feb 022018
 
 February 2, 2018  Posted by at 11:01 am Finance Tagged with: , , , , , , , , , ,  


Vincent van Gogh Pink peach trees (Souvenir de mauve) 1888

 

Trump to Release Memo Friday Morning Without Redactions (DisM)
Bank of Japan Offers ‘Unlimited’ Bond Buying To Curb Rising Yields (CNBC)
Bitcoin’s Brutal Week Is Even Worse in South Korea (BBG)
Chinese Stocks Tumble As Hong Kong ATM Withdrawals Surge (ZH)
Surprise Rise In UK House Prices As Lack Of Homes For Sale Fuels Lift (G.)
Buying Home In UK Cities At Least Affordable Level Since 2007 (Ind.)
UK Labour Party Plans To Make Landowners Sell To State For Fraction Of Value (G.)
Big Banks Accused of Stifling Competition in Stock Lending (Morgenson)
Here Comes the Next Financial Crisis (Nomi Prins)
Texas Shale Challenges North Sea Crude As World Oil Benchmark (R.)
Greek Taxpayers’ Debts To The State Soar To Record Highs (K.)
Erdogan’s Top Adviser Threatens To “Break The Legs” Of Greek PM (KTG)
Polar Bears Could Become Extinct Faster Than Was Feared (G.)
Warming Could Breach 1.5ºC Within Five Years (CCN)

 

 

Finally we get to see how ugly it can get.

Trump to Release Memo Friday Morning Without Redactions (DisM)

According to a recent report by the Washington Examiner, President Trump will declassify the controversial four-page memo that reportedly details surveillance abuses by the Department of Justice and FBI, and send it back to House Intelligence for a Friday morning release. The news comes just days after President Trump’s State of the Union address, where he was overheard stating that he would “100%” release the memo. The Examiner further reports that FBI Director Wray continues to oppose the release of the memo to the American public, citing: “grave concerns about the memo’s accuracy.” However, as the Wall Street Journal reports, it is important to remember that the FBI knows and has known what is in the memo for a long time, as the Bureau had, “refused to provide access to those documents until director Christopher Wray and the Justice Department faced a contempt of Congress vote.”

The Journal further relates that: “The FBI’s public statement appears to be an act of insubordination after Mr. Wray and Deputy Attorney General Rod Rosenstein tried and failed to get the White House to block the memo’s release. Their public protest appears intended to tarnish in advance whatever information the memo contains. The public is getting to see amid this brawl how the FBI plays politics, and it isn’t a good look.” Members of the Democratic Party have also expressed their opposition to the release of the memo. For example, ranking member of the House Intelligence Committee, Rep. Adam Schiff (D-CA), has also come out against the release of the memo to the public.

Last week, Schiff and Sen. Diane Feinstein (D-CA), wrote a letter to Facebook and Twitter, in which they expressed their fears that the top trending hashtag “#ReleaseTheMemo” was being pushed by Russian bots as part of a propaganda effort seeking to “attack our democracy”. However, much to their dismay, it was revealed that the top trending hashtag was not the work of Russian bots, but originated organically by fellow Americans. This news did not deter a California duo from penning a second letter to Facebook and Twitter on Wednesday, in order to raise awareness about potential abuse of their platforms by “agents of foreign influence”.

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Artificial ‘market’. How can anyone see it as a good thing?

Bank of Japan Offers ‘Unlimited’ Bond Buying To Curb Rising Yields (CNBC)

Japanese government bond prices recovered from earlier losses after the Bank of Japan acted decisively on Friday to curb a rise in bond yields, offering “unlimited” buying in long-term Japanese government bonds. Heavy buying of JGBs raises the price of bonds to force down their yield, an essential element of the BOJ’s ultra-loose yield curve control (YCC) policy. It was the first time in more than six months that the BOJ has conducted special operations to buy bonds to achieve the yields it wants to see, rather than the auctions used in regular operations – a powerful show of force to direct the market. On top of that, the BOJ increased the amount of its planned buying in five- to 10-year JGBs to 450 billion yen from the 410 billion amount it has favored since late August.

Following the BOJ’s operations, the price of the 10-year JGB futures rose to as high as 150.31 from the day’s low of 150.09. It was up 0.11 on the day. The benchmark 10-year cash JGB yield edged down to 0.090%, the same level as its previous close, from 0.095% touched earlier. JGB yields have risen in recent weeks, in line with global peers, on rising expectations that the world’s central banks are increasingly leaning towards winding back stimulus as the global economy gains momentum. Investors have started to speculate that the BOJ could also be moving towards an exit from ultra-easy policy, although BOJ Governor Haruhiko Kuroda has denied that he was considering such a major policy adjustment in the near future.

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Significant shift: “The country’s waning frenzy has been reflected in declining activity on domestic exchanges. Data compiled by CryptoCompare.com show that volumes have dropped by about 85% from December highs.”

Bitcoin’s Brutal Week Is Even Worse in South Korea (BBG)

Bitcoin’s brutal start to the year is proving especially painful in South Korea. While prices for the cryptocurrency are falling on major exchanges around the world, nowhere have the declines been faster than in Asia’s fourth-largest economy. The losses have erased a 51% premium for Bitcoin on Korean venues, sending prices back in line with those on international markets for the first time in seven weeks on Friday. The so-called kimchi premium had been so persistent – and so unusual for a large country – that traders named it after Korea’s staple side dish. While its disappearance is partly explained by selling pressure from arbitragers, it also reflects a dramatic reversal of investor sentiment in one of the world’s most frenzied markets for cryptocurrencies.

Bitcoin has tumbled more than 60% from its high in Korea after the nation’s regulators took several steps over the past two months to restrict trading and said they may ban cryptocurrency exchanges outright. Policy makers around the world have been moving to rein in the mania surrounding digital assets amid concerns over excessive speculation, money laundering, tax evasion and fraud. “The bubble in crytpocurrencies has burst” in Korea, said Yeol-mae Kim at Eugene Investment & Securities in Seoul. The kimchi premium began shrinking in mid-January as fears of a regulatory clampdown escalated. Selling by arbitragers – who have been buying Bitcoin on international venues to offload at a higher price in Korea – also played a role, although the country’s capital controls and anti-money-laundering rules made it difficult to execute such transactions in bulk.

Bitcoin traded at about 9.1 million won ($8,449) in Korea on Friday morning, according to a CryptoCompare index tracking the country’s major exchanges. That compared with the $8,601 composite price on Bloomberg, which is derived from venues including Bitstamp and Coinbase’s GDAX exchange. When the kimchi premium reached its peak in January, Bitcoin’s price was about $7,500 higher in Korea. The country’s waning frenzy has been reflected in declining activity on domestic exchanges. Data compiled by CryptoCompare.com show that volumes have dropped by about 85% from December highs.

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Liquidity.

Chinese Stocks Tumble As Hong Kong ATM Withdrawals Surge (ZH)

Chinese stocks are down for the fifth day in a row (something that hasn’t happened since May 2017) with the tech-heavy Shenzhen Composite is now down 5% YTD and the Shanghai Composite is tumbling back towards unchanged. The decline is happening at the same time as Bitcoin is in freefall… And chatter about bankers using WeChat to ask for Deposits. In other words – a liquidity crisis. And that anxiety is only increased by the latest report from Reuters that cash withdrawals at Hong Kong ATMs have surged, prompting scrutiny from monetary authorities, the banking industry, and police amid media reports that mainland Chinese are withdrawing hundreds of thousands of dollars using up to 50 cards at a time. China has battled to curb capital outflows for years. A move that took effect on Jan. 1 caps overseas withdrawals using domestic Chinese bank cards.

The gambling hub of Macau last year introduced facial recognition technology at ATMs to target illicit outflows from mainland China, a move that Hong Kong’s central bank told Reuters could increase cash withdrawals in the financial center. “The HKMA is aware of media reports about people using multiple mainland cards to withdraw cash at ATMs in Hong Kong,” the central bank said in a statement, adding that it was “monitoring the situation and is in discussion with the banking industry and the police about this issue”. A local banker said some commercial banks have stepped up monitoring of cash withdrawals. Hong Kong police said they were working closely with the HKMA and banking industry to respond to any changes in financial crime trends. While this is as much to do with money-laundering and capital flight, the liquidation of stocks, cryptocurrencies, and now mass ATM withdrawals suggests more is going on that the usual pre-new-year liquidity hording.

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There is no lck of homes. There’s a huge surplus in ultra low interest rate loans.

Surprise Rise In UK House Prices As Lack Of Homes For Sale Fuels Lift (G.)

UK house prices rose at the fastest annual pace in 10 months in January, bolstered by a lack of new homes coming on to the market, according to Nationwide. The average price of a home reached £211,756 last month, according to the building society’s monthly survey. Property values were up 0.6% from the month before, the same monthly gain as in December, but the annual growth rate picked up to 3.2% from 2.6%, the highest since March 2017, when it was 3.5%. Robert Gardner, Nationwide’s chief economist, said: “The acceleration in annual house price growth is a little surprising, given signs of softening in the household sector in recent months. Retail sales were relatively soft over the Christmas period, as were key measures of consumer confidence, as the squeeze on household incomes continued to take its toll.”

But he added: “The flow of properties coming on to estate agents’ books has been more of a trickle than a torrent for some time now and the lack of supply is likely to be the key factor providing support to house prices.” Many forecasters predicted the housing market would continue to slow to about 1% this year. This would mean property values falling in real terms. Nationwide is still forecasting price growth of 1-1.5% this year.

Chris Scicluna, an economist at Daiwa, said: “With real wage growth remaining below zero and consumer confidence still subdued, house price growth appears unlikely to extend this upward trend over coming months and quarters. However, a similar pace could well be maintained on the back of very attractive mortgage rates, limited supply, record high employment, and the strong likelihood that consumer price inflation is likely to moderate.” Home ownership in England remained at a 30-year low last year. The government’s latest English housing survey showed that of an estimated 22.8m households, 14.4m – or 62.6% – were owner-occupiers in 2016-17, compared with 62.9% in 2016. This was similar to the rate seen in the mid-1980s and down from a peak of 71% in 2003. Of young adults aged 25 to 34, only 37% owned their home.

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Greater Fool hour.

Buying Home In UK Cities At Least Affordable Level Since 2007 (Ind.)

The typical cost of buying a home in a UK city has reached its least affordable levels in a decade, a report has found. The average house price across cities equated to seven times typical annual earnings in 2017, the Lloyds Bank Affordable Cities Review found. This is the highest house price-to-income multiple since the average city home cost seven and-a-half times earnings in 2007. In 2012, the average city home cost around 5.6 times wages. But over the past five years, the average house price across UK cities has surged by over a third (36%), reaching £232,945 in 2017.

Over the same period, average city earnings have risen by 9% to £33,420. Oxford was found to be the least affordable city in the study, with average property prices there equating to 11-and-a-half times average annual earnings. Stirling in Scotland was identified as the UK’s most affordable city for the fifth consecutive year, with average property prices at around four times annual earnings. Six cities in the study have house prices commanding at least 10 times the average earnings of residents.

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Only, so-called value is highly inflated, profiting from government actions.

UK Labour Party Plans To Make Landowners Sell To State For Fraction Of Value (G.)

Labour is considering forcing landowners to give up sites for a fraction of their current price in an effort to slash the cost of council house building. The proposal has been drawn up by John Healey, the shadow housing secretary, and would see a Jeremy Corbyn-led government change the law so landowners would have to sell sites to the state at knockdown prices. Landowners currently sell at a price that factors in the dramatic increase in value when planning consent is granted. It means a hectare of agricultural land worth around £20,000 can sell for closer to £2m if it is zoned for housing. Labour believes this is slowing down housebuilding by dramatically increasing costs. It is planning a new English Sovereign Land Trust with powers to buy sites at closer to the lower price.

This would be enabled by a change in the 1961 Land Compensation Act so the state could compulsorily purchase land at a price that excluded the potential for future planning consent. Healey’s analysis suggests that it would cut the cost of building 100,000 council houses a year by almost £10bn to around £16bn. With the “hope value” removed from the price of land, the cost of building a two-bed flat in Wandsworth, south-west London, would be cut from £380,000 to £250,000, in Chelmsford it would fall from £210,000 to £130,000 and in Tamworth in the West Midlands, where land values are lower, it would drop from £150,000 to £130,000. “Rather than letting private landowners benefit from this windfall gain – and making everyone else pay for it – enabling public acquisition of land at nearer pre-planning-permission value would mean cheaper land which could help fund cheaper housing,” said Healey.

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Stock lending links to shorting.

Big Banks Accused of Stifling Competition in Stock Lending (Morgenson)

A newly filed lawsuit against six major investment banks contends they worked together to prevent a startup company from competing in the vast and lucrative stock-lending market. The complaint, filed Tuesday in a New York federal court, follows a suit brought last summer against the same institutions by three pension funds who accused the banks of conspiring to keep their stranglehold on the roughly $1 trillion market. The litigation brings increased scrutiny on the stock-loan business, an opaque, over-the-counter market that is a crucial but behind-the-scenes cog in Wall Street’s trading machinery. At issue are stock-lending transactions, in which pension funds, insurance companies and other investors lend their shares to brokerage firms whose customers, such as hedge funds, borrow stock to offset other positions or make bets against companies in trades known as short sales.

Asset managers receive a fee for the stock they lend depending on borrower interest in it. The suit was filed by QS Holdings, the parent of Quadriserv, which was formed in 2001 and built an electronic trading platform. Called AQS, the platform gave stock-loan participants access to real-time prices on trades that reflected actual bids and offers. Transactions on AQS were executed anonymously and centrally settled; the system was registered with the Financial Industry Regulatory Authority and the Securities and Exchange Commission. But it never gained traction and was sold in a distressed sale in 2016. On Jan. 26, the six firms — Bank of America, Credit Suisse, Goldman Sachs, JPMorgan Chase, Morgan Stanley and UBS— filed a motion to dismiss the lawsuit filed last summer by the pension funds.

In that filing, the firms said the allegations were meritless, noting that “none of the plaintiffs’ allegations identified ‘direct evidence’ of conspiracy.” In the stock-loan business, investors borrowing shares from brokerage firms also pay, sometimes steeply, for the service. When many traders want to borrow a company’s shares, its stock is known as “hard-to-borrow” and fees associated with the transaction are far higher. The middlemen in these trades often are Goldman, J.P. Morgan and Morgan Stanley. They make trades in an over-the-counter market where prices are typically given privately to customers. It thus is difficult for them to determine whether they are getting appropriate prices.

The middlemen typically keep most of the fees collected on the most lucrative trades, and critics say that amount would be far lower if borrowers and lenders met in a centralized market where pricing was transparent, like the AQS.

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Squid squared.

Here Comes the Next Financial Crisis (Nomi Prins)

Thanks to the Senate confirmation of his selection for chairman of the board, Donald Trump now owns the Fed, too. The former number two man under Janet Yellen, Jerome Powell will be running the Fed, come Monday morning, February 5th. Established in 1913 during President Woodrow Wilson’s administration, the Fed’s official mission is to “promote a safe, sound, competitive, and accessible banking system.” In reality, it’s acted more like that system’s main drug dealer in recent years. In the wake of the 2007-2008 financial crisis, in addition to buying trillions of dollars in bonds (a strategy called “quantitative easing,” or QE), the Fed supplied four of the biggest Wall Street banks with an injection of $7.8 trillion in secret loans. The move was meant to stimulate the economy, but really, it coddled the banks.

Powell’s monetary policy undoubtedly won’t represent a startling change from that of previous head Janet Yellen, or her predecessor, Ben Bernanke. History shows that Powell has repeatedly voted for pumping financial markets with Federal Reserve funds and, despite displaying reservations about the practice of quantitative easing, he always voted in favor of it, too. What makes his nomination out of the ordinary, though, is that he’s a trained lawyer, not an economist. Powell is assuming the helm at a time when deregulation is central to the White House’s economic and financial strategy. Keep in mind that he will also have a role in choosing and guiding future Fed appointments. (At present, the Fed has the smallest number of sitting governors in its history.)

The first such appointee, private equity investor Randal Quarles, already approved as the Fed’s vice chairman for supervision, is another major deregulator. Powell will be able to steer banking system decisions in other ways. In recent Senate testimony, he confirmed his deregulatory predisposition. In that vein, the Fed has already announced that it seeks to loosen the capital requirements big banks need to put behind their riskier assets and activities. This will, it claims, allow them to more freely make loans to Main Street, in case a decade of cheap money wasn’t enough of an incentive.

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Crude still rules.

Texas Shale Challenges North Sea Crude As World Oil Benchmark (R.)

As the United States approaches a record 10.04 million barrels of daily production, trading volumes of so-called “WTI” futures exceeded volumes of Brent crude in 2017 by the largest margin in at least seven years. A decade ago, falling domestic production and a U.S. ban on exports meant that WTI served mostly as a proxy for U.S. inventory levels. “There was a time when the U.S. was disconnected from the global market,” said Greg Sharenow, portfolio manager at PIMCO, who co-manages more than $15 billion in commodity assets. Two changes drove the resurgence of the U.S. benchmark. One was the boom in shale production, which spawned a multitude of small producers that sought to hedge profits by trading futures contracts.

Then two years ago, the United States ended its 40-year ban on crude exports, making WTI more useful to global traders and shippers. U.S. exports averaged 1.1 million barrels a day through November 2017, rising to an average 1.6 million bpd in the final three months. That compares to just 590,000 bpd in 2016. As U.S. production and exports grow, global firms that increasingly buy U.S. oil are offsetting their exposure by trading in U.S. financial markets. That also gives U.S. shale producers more opportunity to lock in profits on their own production.

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Why Greece needs debt relief across the board “It is estimated that just 20% of expired debts are collectible.”

Greek Taxpayers’ Debts To The State Soar To Record Highs (K.)

Taxpayers’ total overdue debts to the state soared to a record 101.8 billion euros at the end of December, in a clear indication that society’s taxpaying capacity is at breaking point due to overtaxation. In December alone, when 2018 road tax and an installment of the Single Property Tax (ENFIA) came due, new expired debts amounted to 1.3 billion euros. According to data released on Thursday by the Independent Authority for Public Revenue, the new expired debts added last year came to 12.9 billion euros, concerning all tax obligations that went unpaid, from income tax and ENFIA to tax penalties and value-added tax. The phenomenon has major consequences for taxpayers. The figures also showed that confiscations and debt settlements brought 5.07 billion euros into the state coffers in 2017, of which 2.69 billion concerned old debts (dating before 2017). More than 1 million taxpayers have already had assets confiscated over debts to the tax authorities. Their number grew by 14,871 in December to reach 1,050,077 at the end of 2017.

The authority’s data reveal that 4,068,857 taxpayers – or more than half – have expired debts to the state, and that this figure would have been 138,260 higher had those people not settled their dues in December due to fears of repossessions. At the moment taxpayers can enter a tax payment program involving 12 to 24 monthly installments, even for dues that are not classified as expired. The online platform also allows them to add new debts to the fixed plan each month. Taxpayers who want to enter such a payment plan can visit the authority’s website and choose which of their debts that are not overdue they want to add to the 12-installment scheme. The picture regarding expired debts is set to change drastically once the bailout obligation for arrears clearance is completed, separating collectible dues from those that cannot be collected. It is estimated that just 20% of expired debts are collectible.

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Fulminating against the 1923 Lausanne Treaty is easy populist fodder for Erdogan. His gamble is that Turkey’s bust-up with the US in Syria, and the threat to NATO because of it, will allow him to take Greek territory.

Erdogan’s Top Adviser Threatens To “Break The Legs” Of Greek PM (KTG)

Chief advisor of Turkish President Erdogan, Yigit Bulut, has threatened Greece over the disputed islet of Imia in the Eastern Aegean Sea. “Athens will face the wrath of Turkey worse than that in Afrin,” Bulut said in a Television show of a private network. “We will break the arms and legs of officials, of the Prime Minister and any Minister, who dares to step on the Kardak/Imia islet in the Aegean,” he claimed. Bultu’s threats come just a couple of days after Defense Minister Panos Kammenos sailed to Imia and threw a wreath into the sea to honor the three fallen soldiers during the Imia conflict in 1996. Ankara does not miss a chance to challenge Greece’s sovereignty in the islets and islands of the Aegean Sea, escalate tension around Imia and risk an ugly incident that could bring the two neighboring countries at the verge of an armed conflict like two decades ago.

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Much higher metabolism than anyone had ever noticed.

Polar Bears Could Become Extinct Faster Than Was Feared (G.)

Polar bears could be sliding towards extinction faster than previously feared, with the animals facing an increasing struggle to find enough food to survive as climate change steadily transforms their environment. New research has unearthed fresh insights into polar bear habits, revealing that the Arctic predators have far higher metabolisms than previously thought. This means they need more prey, primarily seals, to meet their energy demands at a time when receding sea ice is making hunting increasingly difficult for the animals. A study of nine polar bears over a three-year period by the US Geological Survey and UC Santa Cruz found that the animals require at least one adult, or three juvenile, ringed seals every 10 days to sustain them.

Five of the nine bears were unable to achieve this during the research, resulting in plummeting body weight – as much as 20kg during a 10-day study period. “We found a feast and famine lifestyle – if they missed out on seals it had a pretty dramatic effect on them,” said Anthony Pagano, a USGS biologist who led the research, published in Science. “We were surprised to see such big changes in body masses, at a time when they should be putting on bulk to sustain them during the year. This and other studies suggest that polar bears aren’t able to meet their bodily demands like they once were.” Pagano’s team studied the bears in a period during April over the course of three years, from 2014 to 2016, in the Beaufort Sea off Alaska.

They fitted the bears with GPS collars with video cameras to measure activity levels. Blood chemistry was also taken from the bears. Previously, polar bears were thought to expend relatively little energy during days where they often wait for hours beside holes in the ice, which seals emerge from in order to breathe. But the researchers found that they actually have an average metabolism 50% higher than prior estimates. With previous studies showing recent drops in polar bear numbers, survival rates and body condition, scientists said the new research suggests the species is facing an even worse predicament than was feared.

A recent widely-shared video of an emaciated polar bear is a “horrible scene that we will see more of in the future and more quickly than we thought,” according to Dr Steven Amstrup, who led polar bear research for 30 years in Alaska. “This is an excellent paper that fills in a lot of missing information about polar bears,” said Amstrup, who was not involved in the USGS research. “Every piece of evidence shows that polar bears are dependent on sea ice and if we don’t change the trajectory of sea ice decline, polar bears will ultimately disappear. “They face the choice of coming on to land or floating off with the ice as it recedes, out to the deep ocean where there is little food. We will see more bears starving and more of them on land, where they will get into trouble by interacting with humans.”

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The takeaway from this is not in the numbers. It’s in the certainty that we will not stop the process. All we have is a Paris agreement spearheaded by politicians who see their polls and businessmen who see a profit.

Warming Could Breach 1.5ºC Within Five Years (CCN)

The UK’s meteorological agency has forecast the global temperature might flicker above 1.5C within the next five years. That would be within a decade of the Paris climate deal setting 1.5C as an aspirational limit on global warming. The Met Office’s decadal forecast said the global average temperature was “likely” to exceed 1C between 2018-2022 and could reach 1.5C. “There is also a small (around 10%) chance that at least one year in the period could exceed 1.5C above pre-industrial levels,” the office said in a statement on Wednesday. “It is the first time that such high values have been highlighted within these forecasts.” Met Office scientists were quick to point out that this would not actually breach the Paris Agreement, as that limit refers to a long term average, rather than a yearly reading.

The office’s chief scientist, professor Stephen Belcher, said: “Given we’ve seen global average temperatures around 1C above pre-industrial levels over the last three years, it is now possible that continued warming from greenhouse gases along with natural variability could combine so we temporarily exceed 1.5C in the next five years.” The Paris climate deal, agreed by 197 UN member states in 2015, set a global goal for keeping temperatures “well below 2C”, aiming for 1.5C. The lower goal is considered by many of the most vulnerable countries, especially low-lying island nations, to be the upper limit for their homelands to survive. Coral scientists also predict that more than 1.5C of warming would wipe out most coral reefs.

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