Oct 172015
 
 October 17, 2015  Posted by at 9:17 am Finance Tagged with: , , , , , , , , , ,  3 Responses »


Wyland Stanley Indian guides and Nash auto at Covelo stables., Mendocino County CA 1925

Last 30 Years Of Global Economic History Are About To Go Out The Window (Quartz)
Nowhere in US Can A Single Adult Live On Less Than $14/Hr In 40-Hour Week (DK)
US Manufacturing Falls for a Second Month (Bloomberg)
US Export Industries Are Losing 50,000 Jobs A Month (Bloomberg)
Wrath of Financial Engineering: It’s Now Eating into Earnings (WolfStreet)
Megamergers Will Depend on Huge Amounts of Debt (Barron’s)
China’s Exporters Downcast As Orders Slow, Costs Rise (Reuters)
PBOC Data Suggest Capital Outflows Stayed Strong in September (Bloomberg)
Good News Is Bad News for China (Bloomberg)
Eurozone Inflation Confirmed At -0.1% In September (Reuters)
Party Time Is Over For Norway’s Oil Capital – And The Country (Reuters)
Africa’s Poor Grow By 100 Million Since 1990: World Bank (Reuters)
Stress Building in Kenyan Credit Markets Spells Doom for Growth (Bloomberg)
Ancient Rome and Today’s Migrant Crisis (WSJ)
Immigrants To Account For 88% Of US Population Increase In Next 50 Years (Pew)
Hungary Seals Border With Croatia to Stem Flow of Refugees (Bloomberg)
Remote Greek Village Becomes Doorway To Europe (Omaira Gill)
Turkey Pours Cold Water On Migrant Plan, Ridicules EU (AFP)

“..the story of fast Chinese growth—a story that has soothed investors and corporate managers around the world since the 1980s—is looking increasingly tough to square with the evidence. ..”

Last 30 Years Of Global Economic History Are About To Go Out The Window (Quartz)

Over the last 30 years, a near constant flow of cash has inundated China and other emerging markets. It has lifted those economies, pulled hundreds of millions of people out of poverty, and dictated corporate expansion plans worldwide. That wave is now ebbing. This year will see the first net outflow of capital from emerging markets in 27 years, according to the Institute of International Finance, a trade group representing international bankers. The group expects more than $500 billion worth of cash previously invested in things like Chinese factories, Brazilian government bonds, and Nigerian stocks to cascade out of such markets this year. What’s going on? In a word: China. In a profound change of narrative for both the global economy and markets that are closely tied to it, the story of fast Chinese growth—a story that has soothed investors and corporate managers around the world since the 1980s—is looking increasingly tough to square with the evidence.

And it’s even tougher to imagine anything else like China—a billion new consumers joining the global economy—emerging any time soon. Of course, the slowdown in China isn’t confined to China. Over the last 30 years, countries worldwide have built their economies to service the needs of the People’s Republic. Brazil would be a case in point. The South American giant has done a brisk business digging up and selling China the iron needed to feed booming steel mills. (Brazil is the world’s second largest iron ore exporter, behind Australia.) But Chinese steel mills aren’t roaring like they used to. Crude steel production fell 2% during the first eight months of the year, a decline unprecedented in data going back roughly 20 years. As Chinese steel plants cooled, iron ore prices fell sharply. At roughly $55 a tonne, iron ore prices are down 60% from where they were at the end of 2013. And as prices for iron plummeted, so did revenues of big iron-ore exporters such as Brazil.

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“..In no state is a living wage less than $14.26 per hour..”

Nowhere in US Can A Single Adult Live On Less Than $14/Hr In 40-Hour Week (DK)

You read that right. Alliance for a Just Society just released a report. In it they looked at living expenses in every state, for singles as well as families. This is an attempt to figure out what a reasonable living wage would be. What’s a “living wage”? The study’s definition includes the ability to pay for luxuries items like housing, child care, utilities and savings. The conclusions, while known anecdotally by virtually every American (sans conservatives), are still chilling: Though $15 per hour is significantly higher than any minimum wage in the country, it is not a living wage in most states. A living wage was calculated for all 50 states and for Washington DC In 35 states and in Washington DC, a living wage for a single adult is more than $15 per hour. In no state is a living wage less than $14.26 per hour.

In fact, nationally, the living wage for a single adult is $16.87 per hour ($35,087 annually) – the weighted average of single adult living wages for all 50 states and Washington, D.C. Some of the people who have it the hardest? Childcare workers. In 2014, 582,970 people worked as child care providers at a median wage of $9.48 per hour. Let’s put it into perspective. According to the study, in order to get by on minimum wage as it is in each state right now, you would have to work an almost 111 hour week in Hawaii. You’d be better off in Virginia, where for $7.25 it would only take a touch over 103 hours a week to get by. IF YOU ARE SINGLE. If you’re a real lazybones or don’t like a little hard work, you can move to Washington or South Dakota where you only have to work for about 67 and half hours a week to get by.

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Ominous.

US Manufacturing Falls for a Second Month (Bloomberg)

Factory output fell in September for a second month as high inventories and lukewarm demand from overseas customers kept American producers bogged down. The 0.1% drop at manufacturers, which make up 75% of all production, followed a revised 0.4% decrease the prior month, a Federal Reserve report showed Friday. Total industrial production, which also includes mines and utilities, dropped 0.2%. A surge in the dollar since mid-2014 has made U.S. products more expensive in foreign markets at the same time the oil industry cuts back and companies contend with bloated stockpiles. Manufacturing’s woes are only partially being cushioned by steady purchases of automobiles that have led consumer spending in underpinning the economy.

“Manufacturing continues to be kind of soft,” said Joshua Shapiro at Maria Fiorini Ramirez in New York. “It’s a combination of weak foreign demand and inventories getting rebalanced. I’d expect another few months of flat-to-down manufacturing output.” Utility output climbed 1.3% for a second month as warmer September weather boosted demand for air conditioning. Mining production, which includes oil drilling, slumped 2%, the most in four months. Oil and gas well drilling decreased 4%. [..] manufacturing accounts for about 12% of the economy. The previous month’s reading was revised from a 0.5% drop.

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“The drag from job losses in export industries will linger on for some time at least.” Considering export-oriented jobs are among the better paying ones, that’s a pretty sobering forecast.”

US Export Industries Are Losing 50,000 Jobs A Month (Bloomberg)

Employment is taking a dive in industries that sell a lot of U.S.-made goods abroad, and things could get worse before they get better. The double whammy to exports from the stronger dollar and cooling overseas markets was bound to hit employment in the world’s largest economy. JPMorgan has put numbers to the damage. Export-oriented industries have been losing about 50,000 jobs a month for most of this year, after adding 9,000 a month on average in 2014, according to JPMorgan economist Jesse Edgerton. Recent manufacturing surveys hint the impact could worsen, and the employment erosion may extend into the first half of 2016, he predicts. In effect, that would mean private payrolls growth takes a step down to around 150,000 a month, from the booming 250,000-plus average of 2014.

“Employment is declining in industries exposed to exports, and we haven’t seen any sign the decline is slowing down,” Edgerton said. “The drag from job losses in export industries will linger on for some time at least.” Considering export-oriented jobs are among the better paying ones, that’s a pretty sobering forecast. U.S. jobs supported by goods exports, for example, pay as much as 18% more than the national average, according to government estimates. At a time of increased concern that growth is losing momentum, a strong labor market backed by jobs that pay well is key to sustaining consumer spending, the biggest part of the economy. Edgerton has pieced out the hit to employment, which isn’t easy to gauge from the Labor Department’s monthly payrolls report.

He developed a way to measure the share of each industry’s output that is exported, both directly and indirectly through sales to other industries that cater to overseas demand. Using that, he worked out how payrolls are faring in those businesses compared with counterparts that focus on the U.S. market. Trends in the top four industries with the largest export share — transportation equipment excluding motor vehicles; machinery; computer and electronic products; and primary metals — offer another reason for concern, Edgerton said. Payrolls have been slowing for decades in capital-intensive manufacturing businesses that dominate exports. So there’s little reason to expect export jobs will see a return to positive territory.

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“..companies’ ability to pay these interest expenses, as measured by the interest coverage ratio, dropped to the lowest level since 2009. Companies also have to refinance that debt when it comes due.”

Wrath of Financial Engineering: It’s Now Eating into Earnings (WolfStreet)

Companies with investment-grade credit ratings – the cream-of-the-crop “high-grade” corporate borrowers – have gorged on borrowed money at super-low interest rates over the past few years, as monetary policies put investors into trance. And interest on that mountain of debt, which grew another 4% in the second quarter, is now eating their earnings like never before. These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. With impeccable timing: for S&P 500 companies, revenues have been in a recession all year, and the last thing companies need now is higher expenses.

Risks are piling up too: according to Bloomberg, companies’ ability to pay these interest expenses, as measured by the interest coverage ratio, dropped to the lowest level since 2009. Companies also have to refinance that debt when it comes due. If they can’t, they’ll end up going through what their beaten-down brethren in the energy and mining sectors are undergoing right now: reshuffling assets and debts, some of it in bankruptcy court. But high-grade borrowers can always borrow – as long as they remain “high-grade.” And for years, they were on the gravy train riding toward ever lower interest rates: they could replace old higher-interest debt with new lower-interest debt. But now the bonanza is ending. Bloomberg:

As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased. Companies saved a mere 0.21 percentage point in the second quarter on refinancings as investors demanded average yields of 3.12% to own high-grade corporate debt – about half a percentage point more than the post-crisis low in May 2013.

That was in the second quarter. Since then, conditions have worsened. Moody’s Aaa Corporate Bond Yield index, which tracks the highest-rated borrowers, was at 3.29% in early February. In July last year, it was even lower for a few moments. So refinancing old debt at these super-low interest rates was a deal. But last week, the index was over 4%. It currently sits at 3.93%. And the benefits of refinancing at ever lower yields are disappearing fast. What’s left is a record amount of debt, generating a record amount of interest expense, even at these still very low yields. “Increasingly alarming” is what Goldman’s credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy.

But these are the cream of the credit crop. At the other end of the spectrum – which the JPMorgan analysts (probably holding their nose) did not address – are the junk-rated masses of over-indebted corporate America. For deep-junk CCC-rated borrowers, replacing old debt with new debt has suddenly gotten to be much more expensive or even impossible, as yields have shot up from the low last June of around 8% to around 14% these days. Yields have risen not because of the Fed’s policies – ZIRP is still in place – but because investors are coming out of their trance and are opening their eyes and are finally demanding higher returns to take on these risks. Even high-grade borrowers are feeling the long-dormant urge by investors to be once again compensated for risk, at least a tiny bit.

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More financial engineering to come:

Megamergers Will Depend on Huge Amounts of Debt (Barron’s)

History doesn’t repeat, but it often rhymes, as Mark Twain may (or may not) have said. And one of those repetitions is the preponderance of megamergers and acquisitions late in economic expansions and bull markets, which are the results of confidence brimming over in C-suites and the sense that opportunities are endless. And so the announcement of not one but two megadeals—privately held Dell mating with data-storage outfit EMC, and Anheuser-BuschInBev linking up with fellow brewer SABMiller —provoked a spate of commentary that they represented some fin-de-cycle phenomenon. As usual, these nuptials are expected to produce that most desired benefit of such unions: often-elusive synergies. That’s mainly a euphemism for cost-cutting, largely through reduced head counts, rather than the rare phenomenon of one plus one adding up to three, something seen mainly in the consultant community, not the real world.

But what really drives deals isn’t so much what’s happening with companies’ stocks as with the credit markets. And the Dell-EMC and AB InBev-SABMiller nuptials, if approved by regulators, will be made possible by nearly $120 billion from the corporate bond and loan markets. The brewers’ $106 billion merger reportedly would involve some $70 billion of borrowing, including about $55 billion in bonds and the rest in loans. The $67 billion Dell-EMC deal, meanwhile, would be funded by $49.5 billion in debt, along with new common equity and cash in the coffers. If either of those financing plans come to fruition, they would eclipse the record set by Verizon, which issued $49 billion in bonds to fund its acquisition of Vodafone’s minority stake in Verizon Wireless. The question is whether there is any limit to what Carl Sagan would describe as the billions and billions that the credit markets can conjure. The answer may determine how long the deal making can continue.

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The amount of overindebted overinvestment across China based on false expectations of growth will prove to be staggering and often deadly.

China’s Exporters Downcast As Orders Slow, Costs Rise (Reuters)

Around two-thirds of exporters at China’s largest trade fair expect the slowdown in their markets to persist for at least six months, a Reuters poll has found, with the country expected to announce its weakest economic growth in decades early next week. Many economists expect data released on Monday to show China’s third quarter GDP dipped below 7%, the slowest rate since the global financial crisis. A weak showing could possibly prompt Beijing to take more steps to stimulate the economy. In the vast, booth-filled halls of the biannual Canton Fair on the banks of the Pearl River in Guangzhou this week, a poll of 103 mostly small to medium sized Chinese manufacturers found they expected orders to rise an average of 1.83% this year, though production costs were expected to rise 5.6% in the coming 12 months.

“I feel great pressure right now,” said Kelvin Qiu, the manager of a factory making heaters and radiators based in northeastern China. “I have around 40% less customers than before and the fair is quieter,” he said, comparing activity with the previous Canton fair in April. The Canton fair draws tens of thousands of Chinese exporters and foreign buyers into one gargantuan venue, and has long been regarded as barometer for an economy that has been the world’s biggest exporter since 2009. The poll’s results reflect a gathering pessimism in the export sector, a major driver of the world’s second largest economy. A similar Reuters survey in April had been more bullish, as it showed expectations that orders would rise 3.1%. Exports, however, fell 5.5% in August and 3.7% in September, reflecting anaemic global demand for China-made goods.

36% of exporters polled saying they expected a fresh wave of factory closures. 36% also said they expected an export rebound within 6 months, though 32% said the export slowdown would persist for over one year given continued weakness in core markets like Europe and the United States. Since the previous Canton Fair in April, China’s stock market crash and surprise currency depreciation have clouded the economic outlook, with Beijing taking a series of desperate measures – including interest rate cuts and ramped up fiscal spending – to galvanize growth. Its efforts have had limited success so far. China’s dominance as an exporter has been undermined by its previously strengthening currency, soaring labor costs, and a strategic shift by the authorities away from an excessive reliance on exports to domestic consumption.

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Beijing in a bind.

PBOC Data Suggest Capital Outflows Stayed Strong in September (Bloomberg)

Chinese financial institutions including the central bank sold a record amount of foreign exchange in September, a sign capital outflows were more severe last month than was previously thought. The offshore yuan fell to a two-week low. A gauge of their foreign-currency assets declined by the equivalent of 761.3 billion yuan ($120 billion), exceeding an August drop of 723.8 billion yuan, People’s Bank of China data showed Friday. China devalued its currency on Aug. 11 and concerns about further depreciation and slowing economic growth, coupled with the prospect of a U.S. interest-rate increase, are spurring outflows of funds.

“This shows although outflows probably did slow in September from August, they didn’t slow as much as previously expected,” said Chen Xingdong, chief China economist at BNP Paribas in Beijing. “If you look at commercial banks and the central bank as a unit, in August the central bank took more of the outflows and in September commercial banks took more.” Previous data showed the decline in the central bank’s foreign reserves moderated last month, giving rise to speculation that pressure for the yuan to weaken had eased from August. The holdings declined by $43.3 billion to $3.51 trillion, after sliding a record $93.9 billion the previous month, as the PBOC sold dollars to support China’s exchange rate.

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This sounds like a death sentence: “..debt will increase to 254% of GDP in 2015, up from 248% last year.” 46% of GDP was investment, not production.

Good News Is Bad News for China (Bloomberg)

On Monday, the Chinese government will once again try to convince the world its troubled economy is not that bad off after all. Third-quarter GDP data will be released, and whether the growth rate beats or misses consensus estimates, it’s likely to be touted by the government as proof of the economy’s continued resilience. No doubt that’ll help further calm investors, whose worst fears about China have ebbed recently. Overly bearish perceptions of China’s economy have become “thoroughly divorced from facts on the ground” proclaims the latest China Beige Book study. In a survey conducted in October by Bank of America-Merrill Lynch, only 39% of fund managers queried considered China the biggest “tail risk,” down significantly from 54% a month earlier.

Those investors shouldn’t get too comfortable. The panic that roiled global stock and currency markets over the summer may well have been overblown. But the real risks to China’s economic well-being are long-term, and they haven’t diminished. In fact, the strong growth rates could be setting the stage for a harder landing later. Even the regime agrees that China’s economy is seriously flawed. Excess capacity is rampant in steel, cement and other industries. Debt has risen to astronomical levels. The growth model China used during its hyper-charged decades — unleashing productivity by tossing its 1.3 billion poor workers into the global supply chain – has lost steam as costs rise and the workforce ages.

How well is China tackling these problems? Not very. Debt continues to rise even as growth slows. IHS Global Insight estimates debt will increase to 254% of GDP in 2015, up from 248% last year. In all-too-many sick industries, zombie companies are being kept afloat by creditors and the government. Deeper free-market reform is needed to spur entrepreneurship and innovation and better allocate financial resources to the most efficient companies. Yet despite much talk from President Xi Jinping and his Communist Party comrades, progress has been glacial. The government’s new plan to improve the performance of bloated state enterprises is underwhelming.

Authorities have done little to make the banking sector more commercially oriented or to open the economy to greater foreign competition or capital flows. The government’s heavy-handed intervention to quell a mid-summer stock market swoon was rightly seen a step backwards. Above all, the economy needs to “rebalance” away from its unhealthy reliance on investment – which according to Goldman Sachs’ Ha Jiming, totaled 46% of GDP last year, more than during Mao’s disastrous Great Leap Forward.

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Bad data.

Eurozone Inflation Confirmed At -0.1% In September (Reuters)

Annual inflation in the euro zone turned negative in September due to sharply lower energy prices, the EU’s statistics office confirmed on Friday, maintaining pressure on the ECB to increase its asset purchases to boost prices. Eurostat said consumer prices in the 19 countries sharing the euro fell by 0.1% in the year to September, dipping below zero for the first time since March, and confirming its earlier estimate. Compared to the previous month, prices were 0.2% higher in September. Eurostat said milk, cheese and eggs were cheaper, while heating oil and motor fuel stripped almost a full percentage point from the annual rate. Restaurants and cafes, vegetables and tobacco had the biggest upward impact.

Excluding the most volatile components of unprocessed food and energy – what the ECB calls core inflation – prices were 0.8% up year-on-year, slightly down from the previous reading of 0.9%. Month-on-month, they rose 0.4%. Long term inflation expectations have dropped to their lowest since February, before the ECB’s asset purchases started, as China’s economic slowdown, the commodity rout and paltry euro zone lending growth reinforce pessimistic predictions. Under its money-printing quantitative easing scheme, the ECB is buying government bonds and other assets to pump around €1 trillion into the economy, aiming to lift inflation towards its target rate of just under 2%.

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Race to the bottom.

Party Time Is Over For Norway’s Oil Capital – And The Country (Reuters)

In Norway’s oil capital Stavanger, house prices are falling, unemployment is rising and orders of champagne and sushi sprinkled with gold are down – a taste of things to come for the rest of the country as slumping crude prices hit the economy. The oil-producing nation used to be the exception in Europe. At the height of the financial crisis in 2009, unemployment reached just 2.7%; when other nations have had to cut welfare spending, Oslo could rely on its $856-billion sovereign wealth fund to plug any budget deficit. But now it is joining the rest of Europe in its economic slump as oil prices have halved. GDP growth is expected to stagnate at 1.2% in 2015 and 2016. And the government expects to make its first ever net withdrawal from the fund next year as state oil revenues decline with crude prices.

“It is a new era for the Norwegian economy. We are no longer in a league of our own,” Governor Oeystein Olsen said when the central bank unexpectedly cut rates to 0.75% on Sept. 24 to support a slowing economy. Business conditions for companies in Stavanger and the surrounding region got even worse in the third quarter and the weaker sentiment is spreading to firms outside the energy industry, a survey said in September. Demand is lower and profitability is down, it said. Boosting competitiveness has been the mantra of the right-wing minority government of Prime Minister Erna Solberg, which is proposing to cut corporate tax to boost firms’ international competitiveness. Norway as an exception was most on show in Stavanger, the country’s fourth-largest city, with its compact center of white wooden houses and oil industry ships anchored in the harbor. It enjoyed the good times more than anywhere else.

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“Citizens of resource-rich countries tended to be less literate, live 4.5 years less and have higher rates of malnutrition among women and children than other African states..”

Africa’s Poor Grow By 100 Million Since 1990: World Bank (Reuters)

The number of Africans trapped in poverty has surged by around 100 million over the past quarter century, the World Bank said on Friday, despite years of economic growth and multi-million dollar aid programs. The report’s figures, described as “staggering” by the bank’s Africa head Makhtar Diop, showed widespread malnutrition, and rising violence against civilians, particularly in central regions and the Horn of Africa. “It is projected that the world’s extreme poor will be increasingly concentrated in Africa,” Diop added in a foreword. A surge in population meant the proportion of Africans in poverty had actually fallen since 1990, but the actual numbers were up. In a major study of households taking stock of African economies and societies after two decades of relatively strong growth, the Bank said 388 million – 43% of the sub-Saharan region’s 900 million people – lived on less than $1.90 a day.

In 1990, at the start of the study period, the ratio was 56%, or 284 million. The findings present a mixed bag for countries that, on average, enjoyed economic growth of 4.5% over the last two decades, dubbed the era of ‘Africa Rising’ in contrast to the post-independence stagnation, war and decay that typified the 1970s and 1980s. A child born in Africa now is likely to live more than six years longer than one born in 1995, the study found, while adult literacy rates over the same period have risen 4 percentage points. However, the Bank defined Africa’s social achievements as “low in all domains” – for instance, tolerance of domestic violence in Africa is twice as high as other developing regions – and noted that the rates of improvement were leveling off.

“Despite the increase in school enrolment, today more than two out of five adults are unable to read or write,” the report said. “Nearly 2 in 5 children are malnourished and 1 in 8 women is underweight,” it continued. “At the other end of the spectrum, obesity is emerging as a new health concern.” Perhaps most disturbingly, the study presented more evidence of the ‘resource curse’ that afflicts states endowed with plentiful reserves of hydrocarbons or minerals, often the source of internal or external conflict, or corruption and government ineptitude. Citizens of resource-rich countries tended to be less literate, live 4.5 years less and have higher rates of malnutrition among women and children than other African states, the study found.

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Weaker emerging markets will be hit hardest.

Stress Building in Kenyan Credit Markets Spells Doom for Growth (Bloomberg)

Doubts are growing about Kenya’s ability to keep economic growth on the boil as it battles a plunging stock market, surging debt costs and a weaker currency. Kenyan shilling bonds have lost more money this month than the local securities of 31 emerging markets, while equities in East Africa’s largest economy dropped the most out of 93 global indexes. Efforts to stabilize the shilling have sucked liquidity out of foreign exchange and money markets, spurring a scurry for cash that is driving short-term borrowing costs higher just as the central bank takes over the management of two lenders. An economic expansion that outstripped peers in sub-Saharan Africa since 2011 is slowing as attacks by Islamist militants decimate Kenya’s tourism industry and a drought cuts exports of tea, the two largest sources of foreign exchange.

As President Uhuru Kenyatta’s administration ramps up spending on transport and energy projects to keep fueling growth, budget and current-account deficits are swelling and interest rates are rising. “It’s not looking like there will be an inflexion point for the better any time soon,” Bryan Carter at Acadian Asset Management, who cut all his Kenya bond holdings earlier this year, said by phone from Boston. “The currency looks overvalued.” Yields on short-term Treasury bills have surged above longer-dated bonds, an anomaly known as an inverted yield curve that signals investors are more concerned about near-term repayment risks than economic prospects further out. Rates on 91-day T-bills jumped to 21.4% at an auction on Oct. 8, a record high. That compares with yields of 14.6% on 21 billion shillings ($204 million) of bonds maturing in March 2025.

The inverted curve is “indicative of short-term funding stress in the economy, which is typically followed by a slowdown of credit growth and cyclical economic growth,” Chris Becker at Investec in Johannesburg, said in a note. The World Bank cut its estimate for 2015 growth in Kenya to 5.4% on Thursday, compared with a December forecast of 6%, saying volatility in foreign-exchange markets and the subsequent monetary policy response will curb output. Kenya’s shilling has weakened 12% against the dollar this year amid a rout in emerging-market currencies. The central bank’s Monetary Policy Committee countered by raising the benchmark rate 300 basis points to 11.5%. Investors have been unnerved by the seizure of two small banks in as many months. Regulators placed Imperial Bank under administration on Tuesday, the same day the closely held lender was due to start trading bonds on the Nairobi Securities Exchange.

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Great historical perspective.

Ancient Rome and Today’s Migrant Crisis (WSJ)

When ancient Romans looked back to their origins, they told two very different stories, but each had a similar message. One founder of the Roman race was Aeneas, a refugee from the losing side in the Trojan War, who endured storm and shipwreck around the Mediterranean before landing in Italy to establish his new home. The other was Romulus who, in order to find citizens for the little settlement he was building on the banks of the Tiber, declared it an “asylum” and welcomed any runaways and criminals who wanted to join. It was a remarkable story even in antiquity. Some of Rome’s enemies were known to have observed sharply that you could never trust men descended from a band of ruffians.

In the past 500 years, politicians in the West have often returned to ancient Rome and ancient Greece in search of models for their own decisions and policies (or, more often, for self-serving justifications). On questions of citizenship, they have found two wildly conflicting examples. The stories told by the democracy of ancient Athens were typical of the Greek cities. When they looked back to their origins, they imagined that the first Athenians sprang directly out of the soil of Athens itself. The difference was significant. The Athenians rigidly restricted the rights of citizenship, eventually insisting that people should have both a citizen father and a citizen mother to qualify. Ancient democracy came at a price: It was only possible to share political power equally if you severely limited those who were to be allowed to be equals and to join the democratic club.

That is a price that many European democracies are now wondering whether they must pay too. Rome was never a democracy in the Athenian sense. The Roman Empire, brutal as it could often be, was founded on very different principles of incorporation and of the free movement of people. Over the first thousand years of its history, from the eighth century B.C., it gradually shared the rights and protection of full Roman citizenship with the people that it had conquered, turning one-time enemies into Romans. That process culminated in 212 A.D., when the emperor Caracalla made every free inhabitant of the empire a citizen—perhaps 30 million people at once, the single biggest grant of citizenship in the history of the world.

When the Romans looked back to their beginnings, they saw themselves as a city of asylum seekers. John F. Kennedy, in his “Ich bin ein Berliner” speech in the middle of the Cold War, praised ideas of Roman citizenship as an inspiration for Western liberty. “Two thousand years ago,” he said, “the proudest boast was ‘civis Romanus sum’”: that is, “I am a Roman citizen.” He was referring to the freedoms guaranteed by citizen status, particularly rights of legal protection and, in the Roman context, immunity from particularly degrading forms of punishment, including crucifixion.

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And a great future perspective.

Immigrants To Account For 88% Of US Population Increase In Next 50 Years (Pew)

Fifty years after passage of the landmark law that rewrote U.S. immigration policy, nearly 59 million immigrants have arrived in the United States, pushing the country’s foreign-born share to a near record 14%. For the past half-century, these modern-era immigrants and their descendants have accounted for just over half the nation’s population growth and have reshaped its racial and ethnic composition. Looking ahead, new Pew Research Center U.S. population projections show that if current demographic trends continue, future immigrants and their descendants will be an even bigger source of population growth.

Between 2015 and 2065, they are projected to account for 88% of the U.S. population increase, or 103 million people, as the nation grows to 441 million. These are some key findings of a new Pew Research analysis of U.S. Census Bureau data and new Pew Research U.S. population projections through 2065, which provide a 100-year look at immigration’s impact on population growth and on racial and ethnic change. In addition, this report uses newly released Pew Research survey data to examine U.S. public attitudes toward immigration, and it employs census data to analyze changes in the characteristics of recently arrived immigrants and paint a statistical portrait of the historical and 2013 foreign-born populations.

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More footage of razor wire and news of drowning children. Europe is completely lost.

Hungary Seals Border With Croatia to Stem Flow of Refugees (Bloomberg)

Hungary will seal its border with Croatia from midnight on Friday, expanding one of the European Union’s toughest set of measures to stem the influx of refugees, Foreign Minister Peter Szijjarto said in Budapest. “This is the second-best option,” Szijjarto told reporters. “The best option, setting up an EU force to defend Greece’s external borders, was rejected in Brussels yesterday.” An EU summit on Thursday failed to reach a final agreement on recruiting Turkey to help control the flow of refugees as Russia’s bombing campaign in Syria threatens to push more people to seek safety. The bloc’s leaders also made little progress on how to redesign the system of distributing immigrants, forming an EU border-guard corps or on ensuring arrivals are properly processed.

Hungary has extended an existing barbed-wire fence on its border with Serbia to cover its frontier with Croatia. Prime Minister Viktor Orban warned this week that his government would complete the barrier if EU leaders fail to agree on closing the Greek border, the main entry point for Syrian and other Middle Eastern refugees into the 28-nation bloc. Croatia will now help transport migrants to its border with Slovenia, in agreement with its northwestern neighbor, Croatian Deputy Prime Minister Vesna Pusic told state TV late Friday. From Slovenia refugees are likely to travel to Austria and on to Germany. “Slovenia will not close its border unless Germany closes its border, in which case Croatia will be forced to do the same,” Pusic said. “We will discuss with Slovenia the number of people we can bring to them.”

More than 180,000 migrants have entered Croatia from Serbia since they started arriving in mid-September, according to police data. Most of them have since left the country to Hungary, while a minority entered Slovenia as they seek to reach western European countries. Several eastern European countries are trying to avoid hosting migrants and are against mandatory quotas for the distribution of refugees within the EU. More than 380,000 asylum seekers have crossed into Hungary from the western Balkans this year and the number may reach 700,000 by the end of 2015, government spokesman Zoltan Kovacs told reporters in Budapest on Friday. From Saturday, refugees won’t be able to enter Hungary from Croatia except at designated border crossings.

Read more …

“..on an average day around 5,000 people make the crossing..” That’s 150,000 a month. 1.8 million a year. Just one border crossing.

Remote Greek Village Becomes Doorway To Europe (Omaira Gill)

Idomeni is a small village sitting within comfortable walking distance of Greece’s border with Macedonia. The 2011 census put its population at just 154 inhabitants. The locals themselves tell you there is nothing remarkable about the place, except for the stream of refugees flocking to this outpost to cross into Macedonia. Yiannis Panagiotopoulos, an Athenian taxi driver recently ferried a newly arrived group of Syrians from Athens to Idomeni. “They were so well dressed. I asked for €1,000 expecting them to protest, and they immediately paid me in cash. The were Coptic Christians and said Saudi Arabia is giving each non-Muslim $2,000 and a smartphone to leave because they want Syria for Muslims only.” Everyone wants to get to Idomeni, and if you can’t afford a taxi, there are plenty of unofficial buses that’ll take you there for €35.

The buses are more or less an illegal operation. Certain cafes near Victoria Square sell the tickets for cash, no receipts, and the trip that should take five and a half hours ends up taking nine because of various meandering detours to avoid rumored police checkpoints. Along the way, service stations have bumped up their prices to cash in on this unexpected windfall. At one, hot meals carry a starting price of eight euros, an extortionate amount for crisis-era Greece. Sitting in the front of one such coach, crammed to the last seat as children sleep on coats laid in the aisle, was 34-year-old Yahyah Abbas from Aleppo in Syria. Before the war, he used to work in a cosmetics distribution company. Now, he said, there is nothing in Syria, “only the devil.” “Syria was the best country in the world. It was ruined by terrorists. I love Bashar al Assad, he is the best. But I cannot live in my country because of terrorists.”

[..] After months of chaos and violent scenes at the border this summer the operation at the border has now fallen into an efficient routine that works “most of the time,” Greek authorities say. The border with Macedonia opens every 15 minutes to accept a group of 50-80 people. When the buses finally arrive at Idomeni, they offload passengers at a rate relevant to the pace of the crossings. Greek police issue each bus load with a number for their group which represents the order in which they will cross. They estimate that on an average day around 5,000 people make the crossing. Volunteers meet the groups straight off the bus and direct them to food, water, toiletries, clothes and medical attention. Then, they wait in huge white UNHCR tents until their turn comes.

Read more …

“They announce they’ll take in 30,000 to 40,000 refugees and then they are nominated for the Nobel for that. We are hosting two and a half million refugees but nobody cares..”

Turkey Pours Cold Water On Migrant Plan, Ridicules EU (AFP)

The EUs much-hyped deal with Turkey to stem the flow of migrants looked shaky on Friday after Ankara said Brussels had offered too little money and mocked Europe’s efforts to tackle the refugee crisis. Just hours after the EU announced the accord with great fanfare at a leaders’ summit, Ankara said the plan to cope with a crisis that has seen some 600,000 mostly Syrian migrants enter the EU this year was just a draft. Cracks in the deal emerged as Bulgaria’s president apologised after an Afghan refugee was shot dead crossing the border from Turkey. In the latest in a series of jabs at Europe over the crisis, Turkish President Recep Tayyip Erdogan ridiculed the bloc’s efforts to help Syrian refugees and challenged it to take Ankaras bid for EU membership more seriously.

“They announce they’ll take in 30,000 to 40,000 refugees and then they are nominated for the Nobel for that. We are hosting two and a half million refugees but nobody cares,” said Erdogan. Turkish Foreign Minister Feridun Sinirlioglu then slammed an offer of financial help made by top European Commission officials during a visit on Wednesday, saying his country needed at least €3 billion in the first year of the deal. “There is a financial package proposed by the EU and we told them it is unacceptable,” Sinirlioglu told reporters, adding that the action plan is “not final” and merely “a draft on which we are working.” Under the tentative agreement, Turkey had agreed to tackle people smugglers, cooperate with EU border authorities and put a brake on refugees fleeing the Syrian conflict from crossing by sea to Europe.

In exchange, European leaders agreed to speed up easing visa restrictions on Turkish citizens travelling to Europe and give Ankara more funds to tackle the problem, although it did not specify how much. As he announced the agreement on Thursday night, European Council President Donald Tusk had hailed the pact as a “major step forward” but warned that it “only makes sense if it effectively contains the flow of refugees.” European officials said they were still waiting for concrete steps from Turkey and said that the €3 billion demanded by Ankara would be a problem for the EUs 28 member states. Even as the summit was underway, the volatile situation on the EUs frontier with Turkey exploded into violence with the fatal Bulgarian border shooting, which the UN refugee agency said was the first of its kind.

The victim was among a group of 54 migrants spotted by a patrol near the southeastern town of Sredets close to the Turkish border and was wounded by a ricochet after border guards fired warning shots into the air, officials said. The migrants were not armed but they did not obey a police order to stop and put up resistance, they said. Bulgarian president Rosen Plevneliev said he “deeply regrets” the shooting but said it showed the need for “rapid common European measures to tackle the roots of the crisis.” The death adds to the toll of over 3,000 migrants who have died while trying to get to Europe this year, most of them drowning in the Mediterranean while trying to sail across in rubber dinghies or flimsy boats.

Read more …

Nov 032014
 
 November 3, 2014  Posted by at 10:51 pm Finance Tagged with: , , , , , , , ,  5 Responses »


NPC US Geological Survey fire, F Street NW, Washington DC May 18 1913

I can do this in just about random order, the idea should still shine through, and crystal clear at that. We’re on the verge not of a market correction, but of something much bigger. All it takes to know that is to connect a few dots. Ironically, the very same financial press that reports on the dots, refuses to connect them. Don’t they see it, or don’t they want to? It’s not even a very interesting question anymore: they’ll end up commenting only in hindsight.

What happens today in Japan is both a sign of what’s wrong with the entire global financial system, and at the same time the catalyst that will help bring that system to its knees. Japan goes where no man has gone before, because it’s further down the gutter than the rest. But they will all follow. Japan thinks it can escape collapse if the US does fine, and vice versa, and the same goes for China, Europe etc., but none of them can survive the big blow by themselves, let alone that one of them could lift any of the others up by the hair on their heads. It’s a desperate mirage. When you hear anyone say the US will lift up the world economy, switch your channel. Unless you’re already at Comedy Central.

Here’s the litany for the day: China prints $25 trillion and buys Portugal. Japan’s national debt is 750% of tax revenue. US first time homebuyers are at a 27 year low. 40.5% of Greek children grow up in poverty, as Greece is part of the eurozone that should take care of all citizens. In the UK 72% of 18-21-year olds make less than a living wage. US and Japanese QE leads to ‘consumers’ spending less, which is the exact opposite of what QE is supposed to be intended for. China is trapped in the newfangled currency war Japan’s QE has unleashed across Asia, and which will soon be exported across the globe.

The common denominator? Debt. Sovereign debt, personal debt, corporate debt. Japan doesn’t want to recognize it yet, but it’s caught in the same trap with everyone. The difference is that Japan fights debt with more debt, while other parties are starting to find a little more nuance in their approach. Does it matter? Not one bit. Other than Japan’s hole will be deeper than the others. Let’s just track through today’s news. Bloomberg:

Portugal Sees Chinese Do 90% of Bids at Property Auction

As bargain-hunters waited in a packed room at a property auction in Lisbon last month, one language dominated their chat: Mandarin. About 90% of the bidders for the government-owned apartments and stores on offer were Chinese, according to Jorge Oliveira, the official overseeing the asset sale. They ended up acquiring more than two-thirds of the 45 properties, he said. “A Portuguese investor bought a store to start a bakery and coffee shop, but most of the properties went to the Chinese,” Oliveira said in an interview after the sale. Portugal is the latest target for Chinese investors who have been acquiring buildings around the world as China allows freer movement of funds in and out of the country.

Why would you want to sell your assets to a country that simply prints the money it uses to purchase those assets? Why not print that kind of money yourself and buy theirs? China printed $25 trillion and we allow them to buy Lisbon and Madrid and Rome with that? How much worse can this get? Portugal is defenseless, because it’s adopted the euro, but Germany would never allow the Chinese money printers to buy Berlin. Need any more info on why the eurozone is such an abject and perverse failure? Guardian:

More Than One Fifth Of UK Workers Earn Less Than Living Wage

More than a fifth of UK workers earn less than the living wage, with bar staff and shop assistants among the most likely to live “hand to mouth” because of low pay, a report warns on Monday. Published to mark living wage week, the research also finds that younger workers, women and part-timers are more likely to be paid less than the living wage, a voluntary threshold calculated to provide a basic but decent standard of living. New living wage rates will be announced on Monday, with the current rate at £8.80 per hour in London and £7.65 elsewhere. The report by consultancy firm KPMG adds to evidence of low pay remaining prevalent in Britain, despite the economic recovery. The proportion of employees on less than the living wage is now 22%, up from 21% last year, the study found. In real terms, that was a rise of 147,000 people to 5.28 million. [..] It found 72% of 18-21 year olds were earning less than the living wage

22% of your working population on less than a living wage is an insane disgrace. Certainly when at the same time you’re telling everyone your economy is doing great. There’s no excuse for that. But it can get worse: if 72% of your young people can’t survive on what they work for, you’re murdering your nation’s future. And your housing market, just to name an example, people can’t start families, it all ties together. MarketWatch:

US Consumers Resisting Enticements To Increase Spending

The U.S. is adding jobs at the fastest rate since the end of the Great Recession and another strong month of hiring is expected in October, but Americans still aren’t spending like good times are here to stay. The lackluster pace of consumer spending — outlays fell in September for the first time in eight months – largely explains why the U.S. is only growing at a post-recession annual average of 2.2%. Yet most economists think that could change in the near future.

The US is adding jobs that don’t pay enough to get people spending who are still buried in debt, just like Europe, just like Japan. That clear enough? The US economy ‘grows’ despite the American people. But ‘most economists think that could change in the near future’. Get a job. CNBC:

Bank of Japan Bazooka To Spark Currency War

The Bank of Japan’s (BoJ) stimulus blitz raises the specter of currency wars as a rapidly weakening yen threatens the competitiveness of export-driven economies, say strategists. “Whenever you have these kinds of disruptive moves by central banks, there’s always going to be fall out effects,” said Boris Schlossberg at BK Asset Management. Markets were caught off guard by the BoJ’s announcement on Friday that it would expand purchases of exchange-traded funds (ETFs) and real estate investment trusts, extend the duration of its portfolio of Japanese government bonds (JGBs), and increase the pace of monetary base expansion.

“The hottest currency war today is Japan vs Korea. That’s probably the one to keep an eye on. The yen-won cross rate is very sensitive as Japan and Korea compete in a lot of key areas,” said Sean Callow at Westpac. The Japanese currency has fallen around 20% against the won since the BoJ launched its unprecedented stimulus program in April 2013. Currency strategists say the BoJ’s actions could encourage the Bank of Korea (BoK) to become more defensive against local currency strength through intervention in the foreign exchange market or a rate cut.

That’s the big one for now. It’s not just Japan and Korea, Thailand, Indonesia, Vietnam and quite a few others are in the same merry go round. And of course China, as the following MarketWatch piece identifies: “The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars.”

China Faces Trap In Currency War

Last Friday, the Bank of Japan effectively tossed a grenade into the region’s currency markets with its surprise announcement of a new round of quantitative easing sending the yen to fresh lows. The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars, in which countries try to steal growth from their trading partners through competitive devaluations. It also comes at a time when Beijing is already battling foes on two fronts: hot-money outflows and an economy flirting with deflation. The consensus is that the world’s largest trading nation will resist the temptation to enter the fray with a competitive devaluation or move to a market-based exchange rate. Yet Japan’s latest actions will hurt, as they hold Beijing’s feet to the fire.

As long as China holds its (semi) peg to the USD, it may wake up to some ugly surprises, certainly when USDJPY goes to 120 or beyond. But the, when that happens, China won’t be alone. The next piece by Pater Tenebrarum, h/t Durden, may be the best I’ve read on Japan‘s despair move on Friday:

The Experiment that Will Blow Up the World

In order to explain why the pursuit of Kuroda’s policy is edging ever closer to a catastrophic outcome, we have to delve a bit into the details of Japan’s monetary data. In spite of the BoJ’s “QE” reaching record highs, it mainly creates bank reserves and furthers carry trades. The economy sees no private credit growth so far. Commercial banks in Japan continue to shrink the stock of fiduciary media – this is to say, they are reducing outstanding credit, which makes more and more unbacked deposit money disappear. Hence, Japan’s money supply growth has recently declined to a mere 4.3% year-on-year.

“… the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means. In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”.

Japan has debt levels that are unequalled not just in the world, but most likely in human history, and I’m not saying that to take anything away from the demise of Rome:

And then we get back home with the NAR and Lawrence Yun and all of its cheerleaders, who got their faces all full of mud and shit and sand, and will never admit to it. Zero Hedge:

Why Housing Is Dead: First-Time Buyers Collapse To 27-Year Lows

The Millennials (one of the biggest generations in US history) are just not getting with the status quo program. As we detailed previously, with lower credit scores, less disposable income, and a soaring number of people living with their parents; so it should be no surprise that The National Association of Realtors (NAR) today admitted that first-time homebuyers plunged to the lowest level in 27 years. The blame – of course – rather than low/no-growth fiscal policies, student debt servitude, and inequality-driving cheap-funding monetary policy, is price competition from ‘investors’ and too “stringent credit standards,” perfectly mirroring FHFA’s Mel Watt’s Einsteinian insanity desire to dramatically ease lending standards and slash minimum down-payments (as we noted previously). Perhaps NAR accidentally stumbles on the biggest reason no one is buying in their profiling: the typical first-time buyer was 31-years-old, while the typical repeat buyer was 53 – smack in the middle of the Millennial collapse.

We’ve been keeping the long lost idea of our long lost society alive by squeezing our own children wherever we can, and telling them that if they only work hard enough, they can be whoever they want to be. But they can’t, that notion is also long lost. When you keep home prices artificially high, homeowners don’t suffer as much, even if they bought at insanely high prices, but the suffering is switched to potential buyers, who remain just that, potential, while they live in their mom’s basements for years.

A surefire way to kill a society while everyone’s eagerly awaiting the growth that is just around the corner and will forever remain there. Take it from your kids. Take it from somewhere else in the world.

And that’s where we’re now passing a barrier: there’s no-one to take it from anymore. Not through sleight of hand or spin or propaganda. You can only keep a quarter of your people below living wage levels for so long. Japan can only wage a currency war on its neighbors for so long (not very long). Japan can only wage a consumer price war on its own people for so long.

Japan’s QE9 has set the world on fire. It didn’t need much of a spark to begin with, but it’s certainly got one now.

Nov 032014
 
 November 3, 2014  Posted by at 1:11 pm Finance Tagged with: , , , , , , , , , ,  2 Responses »


DPC Masonic Temple, New Orleans 1910

Bank of Japan Bazooka To Spark Currency War (CNBC)
China Faces Trap In Currency War (MarketWatch)
Germany Ready To Accept British Exit From Europe (Daily Mail)
For Japanese, Are Higher Prices Really A Good Thing? (Reuters)
Yen’s Worst Yet to Come in Options After Kuroda Shocks (Bloomberg)
The Experiment that Will Blow Up the World (Tenebrarum)
Boj’s Desperate QE Move To Hurt Japanese Spending Power (Steen Jakobsen)
US Consumers Resisting Enticements To Increase Spending (MarketWatch)
More Than One Fifth Of UK Workers Earn Less Than Living Wage (Guardian)
ECB Skips Fireworks for Day One of New Role as Banking Supervisor (Bloomberg)
Europe’s Crazy Finance Tax (Bloomberg)
Vicious Circle of Bad Loans Ensnaring Italian Companies (Bloomberg)
Portugal Sees Chinese Do 90% of Bids at Property Auction (Bloomberg)
Gold Bulls Retreat With $1.3 Billion Pulled From Funds (Bloomberg)
Globalisation Is Turning In On Itself And It Is Each Man For Himself (Pal)
Wanted: 500,000 New Pilots In China By 2035 (Reuters)
25 Years Ago, As The Berlin Wall Fell, Checks On Capitalism Crumbled (Guardian)
Insects Could Be On Your Dinner Menu, Soon (CNBC)
Greenhouse Gas Levels At Highest Point In 800,000 Years (ABC.au)
UN Sees Irreversible Damage to Planet From Fossil Fuels (Bloomberg)

All Asian countries MUST participate.

Bank of Japan Bazooka To Spark Currency War (CNBC)

The Bank of Japan’s (BoJ) stimulus blitz raises the specter of currency wars as a rapidly weakening yen threatens the competitiveness of export-driven economies, say strategists. “Whenever you have these kinds of disruptive moves by central banks, there’s always going to be fall out effects,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management. Markets were caught off guard by the BoJ’s announcement on Friday that it would expand purchases of exchange-traded funds (ETFs) and real estate investment trusts, extend the duration of its portfolio of Japanese government bonds (JGBs), and increase the pace of monetary base expansion. The yen plunged nearly 3% against the U.S. dollar on Friday and extended its selloff on Monday, falling to a fresh 7-year low in early Asian trade. It last traded at 112.71.

“The hottest currency war today is Japan vs Korea. That’s probably the one to keep an eye on. The yen-won cross rate is very sensitive as Japan and Korea compete in a lot of key areas,” said Sean Callow, senior currency strategist at Westpac. The Japanese currency has fallen around 20% against the won since the BoJ launched its unprecedented stimulus program in April 2013. Currency strategists say the BoJ’s actions could encourage the Bank of Korea (BoK) to become more defensive against local currency strength through intervention in the foreign exchange market or a rate cut. “We see increasing risks that it may cut rates by 25 basis points to 1.75% in coming months,” Young Sun Kwon, economist at Nomura wrote in a note late Friday, highlighting that Korea’s export momentum already looks weak.

Read more …

“The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars.”

China Faces Trap In Currency War (MarketWatch)

Last Friday, the Bank of Japan effectively tossed a grenade into the region’s currency markets with its surprise announcement of a new round of quantitative easing sending the yen to fresh lows. The move will be particularly problematic for China, as its slow-crawling managed rate to the U.S. dollar renders it is effectively defenseless when confronted by currency wars, in which countries try to steal growth from their trading partners through competitive devaluations. It also comes at a time when Beijing is already battling foes on two fronts: hot-money outflows and an economy flirting with deflation. The consensus is that the world’s largest trading nation will resist the temptation to enter the fray with a competitive devaluation or move to a market-based exchange rate. Yet Japan’s latest actions will hurt, as they hold Beijing’s feet to the fire.

The decision last Friday by the Bank of Japan to boost its bond purchases by more than a third to roughly $725 billion a year, among other actions, sent the yen tumbling to a seven-year low as the dollar rallied to above ¥112. This means the currency of the world’s second-biggest economy has now risen by roughly a third against that of the world’s third-biggest since late 2012. That’s a significant revaluation to swallow by any measure, all the more so as Japan and China are increasingly competing with each other, say analysts. According to new report by HSBC, Japan and China are already rivals in 19 manufactured product lines, and this total is growing. Panasonic has already said it is considering “on-shoring” certain production back to Japan. The other reason Japan’s escalation of QE turns up the heat on China is that it risks exposing the vulnerabilities in Beijing’s piecemeal approach to opening up its capital account.

Read more …

Major loss of face for Cameron.

Germany Ready To Accept British Exit From Europe (Daily Mail)

Germany would rather see Britain leave the EU than allow David Cameron to tear up its rules on free movement of labour, Angela Merkel has said. The Chancellor warned the Prime Minister that he is reaching a ‘point of no return’ by pushing for reform of the bloc’s sacred free movement system. The threat has forced Mr Cameron to tone down his ambitions for any deal to curb EU immigration. The pair clashed at a summit in Brussels last month, German magazine Der Spiegel said. Citing senior officials, it said Mrs Merkel told Mr Cameron he was nearing a ‘point of no return’ with plans to introduce quotas for the number of EU workers who can come to Britain.

She threatened to abandon her efforts to keep Britain in the EU unless he backed down. One government insider was quoted on Radio Bavaria saying: ‘The time for talking is close to over. ‘Mrs Merkel feels she has done all she can to placate the UK, but will not accept immigration curbs from EU member states under any circumstances. It has come to a Mexican stand-off and it is now a question of who blinks first.’ Mrs Merkel was confident of winning the battle of wills, the insider added. It came amid reports that Mr Cameron is ditching his quota plan to appease Berlin. Ministers will focus on making the existing rules work better for Britain. A source said Mr Cameron’s plans – to be outlined before Christmas – would stretch EU rules ‘to their limits’.

Read more …

Why Abenomics and Kuroda will fail: “If prices rise, people might not buy as much.” An entirely overlooked mechanism. Abe et all think that if prices rise, people will spend more, because they’re afraid they’ll rise more.

For Japanese, Are Higher Prices Really A Good Thing? (Reuters)

Bank of Japan Governor Haruhiko Kuroda does not need to convince Japanese people like Kazue Shibata that deflation brings problems, but getting them to believe that higher prices will make things better is proving to be a harder sell. Shibata, 65, who runs a small dress shop in central Tokyo, worries the BOJ’s mission to hit a 2% inflation target could end up driving business away unless people also have more money in their pockets. “If prices rise, people might not buy as much,” she said, echoing a concern of many private-sector economists. On Friday, Kuroda’s BOJ doubled down on a high-stakes bet that the central bank can shake Japan’s consumers from a defensive set of expectations hardened by a decade and a half of era of falling prices, lower incomes and stop-and-go growth. “It’s important for the BOJ to strongly commit to achieving its price target to get that price target firmly embedded in people’s mindset,” Kuroda said at a news conference on Friday, after the BOJ stunned markets with an unexpected expansion of its monetary stimulus program.

“It won’t do much good in trying to shake off the public’s deflation mindset if you just say inflation will reach 2% some day,” Kuroda said. At the core of Prime Minister Shinzo Abe’s “Abenomics” agenda is the assumption that the outlook for sustained inflation will prompt consumers to anticipate rising prices, and that consumption will rise as a result. That represents a sea change for a country used to deflation, where clinging to cash today meant greater buying power tomorrow, a set of expectations that has proven hard to shake a year-and-a-half into an unprecedented easing by the BOJ. Kaoru Sakai, 65, who runs a hair salon in Tokyo, did not raise prices even after the national sales tax was raised to 8% to 5% in April, worried the sticker shock could scare away business. “The fact is that people don’t feel confident about the future,” Sakai said. “Our society and economy has tilted people toward lower-end options. For example, it’s like people choosing to eat at fast-food places, or standing-only soba shops even when they could, realistically, eat at proper restaurants.”

Unless Japanese people see real progress in solving fundamental problems, such as lack of wage growth, a shrinking manufacturing base, and an unsustainable welfare system, many might prefer the problem they know to the one Kuroda hopes will replace it. Classical economics would argue that consumers should welcome deflation, because it increases their purchasing power, an argument some consumers echo. “Deflation reflects the underlying economy. Our population is decreasing, production is low and we’re not seeing innovation. We are losing power compared with other countries,” said Yohei Tanaka, 33, an accountant in Tokyo. “I don’t think this is the time to drive the economy to inflation. I don’t think inflation is the end solution. Deflation, in a certain way, is good.”

Read more …

The yen will be reduced to something resembling a penny stock.

Yen’s Worst Yet to Come in Options After Kuroda Shocks (Bloomberg)

The worst is yet to come for the yen after Japan’s two-pronged attack on deflation sent the currency tumbling to its weakest level in almost seven years. Option prices show traders see a 6%chance the yen, which has already slumped 6.8% this year, will drop an additional 1.8% to 115 per dollar in the next three months, according to data compiled by Bloomberg. That’s up from 18% on Oct. 30, the day before authorities surprised investors by saying the government pension fund will invest more of its money overseas and Bank of Japan Governor Haruhiko Kuroda will expand currency depreciating stimulus.

“The BOJ has dropped another stimulus bombshell,” Daisaku Ueno, the chief currency strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, said by phone on Oct. 31. “It’s quite possible the yen will drop to 112 or 113 per dollar by the end of the year, or even 115.” That level – last reached in November 2007 – is already starting to become the consensus. Companies from Nomura Holdings Inc., Japan’s biggest brokerage, to JPMorgan Chase & Co. cut their year-end forecast to 115 per dollar on Friday, while Goldman Sachs said the day’s announcements made its estimate for the yen to reach that level in 12 months suddenly seem “conservative.”

Read more …

“… the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means. In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”.

The Experiment that Will Blow Up the World (Tenebrarum)

In order to explain why the pursuit of Kuroda’s policy is edging ever closer to a catastrophic outcome, we have to delve a bit into the details of Japan’s monetary data. In spite of the BoJ’s “QE” reaching record highs, it mainly creates bank reserves and furthers carry trades. The economy sees no private credit growth so far. Commercial banks in Japan continue to shrink the stock of fiduciary media – this is to say, they are reducing outstanding credit, which makes more and more unbacked deposit money disappear. Hence, Japan’s money supply growth has recently decline to a mere 4.3% year-on-year, as the rate of contraction in outstanding fiduciary media (i.e., uncovered money substitutes) has accelerated to 9.4% annualized in spite of the BoJ’s pumping. The reason is a technical one: contrary to the Fed, the BoJ buys most of the securities it acquires in terms of its “QE” operations directly from banks – this creates new bank reserves at the BoJ, but no new deposit money.

By contrast, the Fed buys only from primary dealers, which are legally non-banks (even though most of them belong to banks). This creates both bank reserves and deposit money concurrently. The BoJ’s actions can only directly inflate the money supply to the extent it buys securities from non-banks, e.g. when it buys stocks in REITs to prop up the Nikkei. In short, the effectiveness of the BoJ’s pumping depends on the extent to which commercial banks are prepared to employ additional bank reserves to pyramid new credit atop them and thereby create additional fiduciary media. Japan’s banks are doing the exact opposite, mainly because there simply isn’t sufficient demand for credit. Why would anyone borrow more money, given Japan’s demographic situation?

However, one result of this is that an ever larger portion of Japan’s money supply actually consists of covered money substitutes – deposit money that is “backed” by standard money. Covered money substitutes have grown by more than 77% over the past year. Bank reserves can be transformed into currency when customers withdraw cash from their deposits, hence to the extent that deposit money is “backed” by bank reserves, it ceases to be a form of circulation credit. The narrow money supply in total now amounts to roughly 595 trillion yen; of this, roughly 139 trillion yen consist covered money substitutes and 83.4 trillion yen consist of currency (outstanding banknotes in circulation). Thus the stock of fiduciary media has shrunk to 372.6 trillion yen. It is well known that Japan has a very high public-debt-to GDP ratio. Even with the recent economic upswing, its budget deficit for the current year is projected to clock in at more than 7% of GDP – the latest in a string of huge annual deficits. What is less well known is the ratio of public debt to tax revenues, which is actually the more relevant datum.

We conclude from this that the markets are pouncing on the yen because they are forward-looking: the BoJ is monetizing ever more government debt and this is expected to continue, because the public debtberg has become too large to be funded by any other means. In spite of the relatively low money supply growth this debt monetization has produced so far, it also creates the perverse situation that an ever greater portion of the government’s outstanding stock of debt consists actually of debt the government literally “owes to itself”. On the surface, this monetarist wizardry suggests that one can indeed “get something for nothing” – but that just isn’t true. Deep down, market participants know that it isn’t true – so even though they are celebrating the promise of more liquidity by sending Japanese stocks soaring, they are also creating a fault line – and that fault line is the external value of the yen.

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” … central banks, even the desperate ones like BoJ, are and remain one-trick-pony institutions”

Boj’s Desperate QE Move To Hurt Japanese Spending Power (Steen Jakobsen)

The Bank of Japan has increased the targeted monetary base from JPY 60-70 trillion to JPY 80 trillion an increase of 25-35% and an almost desperate move to keep the Abenomics’ wheels going. The decision is quite controversial as the vote was a narrow 5/4. This is extremely unusual as big decisions like these are generally only done with full consensus, but it clearly shows Abenomics is running out of time and room as core-inflation, excluding tax, was at 1.1% vs. the 2.0% target. The International Monetary Fund has been critical of Abenomics recently telling Japan that is falling short of helping the economy. From a market perspective the move [Friday] was almost perfectly timed coming on the heels of a Federal Open Market Committee meeting which ended quantitative easing and expose the big difference on future monetary paths between the BoJ and the Fed.

There is, however, a dark side to this big move. Prime Minister Shinzo Abe needs and needs to decide soon on whether to increase sales tax, VAT, again or disappoint on his third arrow. Abenomics has not deserved its name as a new approach. it has been all about printing money and making the state take a bigger and bigger role. It is hardly a new policy but more a reflection on an inability to change a conservative society with poor demographics. Tactical and trading wise, the USDJPY has reached a new high and it’s hard to fade a central so desperate is very likely as US dollar strength the name of the game through Mid-November. The easier monetary policy will force USDJPY and NIKKEI higher as it’s a one-way street, but it will more importantly force Japanese banks to lend out and overseas. I see/hear desperate Japanese bankers trolling the world to find things to finance and it seems they are in desperate need of US dollar funding (I.e: they have not hedged proportionally).

This could make USDJPY test 125/135 over coming months but the “risk” remains China, which even prior to this action was upset at the ‘beggar thy neighbour’ policy of Japan. Overall, tactically, it confirms the world is again moving towards lower yields in G10. A new low remains my only and main call and furthermore as big a move as this is, it also tells a story of how central banks, even the desperate ones like BoJ, are and remain one-trick-pony institutions. Personally I see this as the final round – Japan was ALWAYS going to give it one more shot – now it happened.

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They have no money left to spend. And you want to tell me your economy is doing well?

US Consumers Resisting Enticements To Increase Spending (MarketWatch)

The U.S. is adding jobs at the fastest rate since the end of the Great Recession and another strong month of hiring is expected in October, but Americans still aren’t spending like good times are here to stay. The lackluster pace of consumer spending — outlays fell in September for the first time in eight months — largely explains why the U.S. is only growing at a post-recession annual average of 2.2%. Yet most economists think that could change in the near future. The reason: wages finally appear to be moving higher as the unemployment rate falls and companies find it harder to attracted talented workers. Employment costs jump for second straight quarter.

Even more jobs and higher pay for the average worker, however, might not be enough to get consumers to sharply boost spending, other economists say. Despite rising consumer confidence, they point out, many Americans still aren’t sharing in the spoils of a healing economy. And many bear psychological scars from the Great Recession that impel them to save more than they used to in order to protect themselves against another downturn. The U.S. savings rate, for example, rose to 5.6% in September to match a two-year peak, putting it twice as high as it was in the last year before the recession. “The economy is doing well for some people but very poorly for many others,” said Joshua Shapiro, chief economist at MFR Inc. in New York. “People understand that things are improving slowly, but until they see it in their paychecks it’s hard to truly believe that.”

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Three-quarters of young people make less than a living wage. And you want to tell me your economy is doing well?

More Than One Fifth Of UK Workers Earn Less Than Living Wage (Guardian)

More than a fifth of UK workers earn less than the living wage, with bar staff and shop assistants among the most likely to live “hand to mouth” because of low pay, a report warns on Monday. Published to mark living wage week, the research also finds that younger workers, women and part-timers are more likely to be paid less than the living wage, a voluntary threshold calculated to provide a basic but decent standard of living. New living wage rates will be announced on Monday, with the current rate at £8.80 per hour in London and £7.65 elsewhere. The report by consultancy firm KPMG adds to evidence of low pay remaining prevalent in Britain, despite the economic recovery. The proportion of employees on less than the living wage is now 22%, up from 21% last year, the study found. In real terms, that was a rise of 147,000 people to 5.28 million.

The Trades Union Congress (TUC) urged more employers to adopt the pay benchmark, following news that more than 1,000 companies representing around 60,000 employees are now committed to the wage and will adopt the new rate on Monday. Frances O’Grady, the TUC general secretary, said: “Low pay is blighting the lives of millions of families. And it’s adding to the deficit because it means more spent on tax credits and less collected in tax. We have the wrong kind of recovery with the wrong kind of jobs – we need to create far more living wage jobs, with decent hours and permanent contracts.” Alan Milburn, the government’s social mobility tsar, said both employers and government must do more to make Britain a living wage country. “This research is further proof that more workers are getting stuck in low paid work with little opportunity for progression,” said the former Labour cabinet minister, now chair of the government’s Commission on Social Mobility.

“It is welcome that the number of accredited living wage firms has increased. But far more needs to be done to help millions of people move from low pay to living pay.” The research, conducted by Markit for KPMG, shows 43% of part-time workers earn less than the living wage, compared with 13% of full-time employees. It found 72% of 18-21 year olds were earning less than the living wage, compared with just 15% of those aged 30-39. One in four women earn less than the benchmark, compared to 16% of men. “Far too many UK employees are stuck in the spiral of low pay,” said Mike Kelly, head of living wage at KPMG. “With the cost of living still high, the squeeze on household finances remains acute, meaning that the reality for many is that they are forced to live hand to mouth,” added Kelly, also chair of the Living Wage Foundation.

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All the wrong people do a job the ECB should never have been assigned. They can only make things worse.

ECB Skips Fireworks for Day One of New Role as Banking Supervisor (Bloomberg)

The European Central Bank is about to achieve its biggest expansion of powers since the start of the euro. No celebrations are planned. As the Single Supervisory Mechanism takes charge of the euro area’s 120 biggest institutions tomorrow, officials aren’t in the mood for fanfare. Instead, staff at the ECB’s new overseer are preparing to monitor capital issuance by banks, and processing the results of a year-long asset review that revealed a stash of soured loans in the bloc now amounts to almost €900 billion ($1.1 trillion). Led by France’s Daniele Nouy, the SSM in Frankfurt will immediately set about trying to blend 18 sets of national supervisory habits into pan-European consistency, and prod banks to take more precautions against crises. While the ECB will have the status of a new heavyweight among global regulators, that role carries with it the burden of restoring confidence in a battered banking system vulnerable to renewed economic shocks. “They have an awful lot on their plate from day one,” said Guntram Wolff, Director of the Bruegel institute in Brussels.

“There’s a very big pile of bad loans, profitability in this environment is going to be difficult, and the banking system itself probably needs to be restructured. The question is how the new supervisor can address that.” [..] While the ECB found an overall shortfall of €9.47 billion euros, that becomes €6.35 billion when discounting five failing lenders that have agreed restructuring plans or are in resolution. The outstanding sum “doesn’t seem insurmountable,” Mathias Dewatripont, a Belgian member of the new SSM board, said last week in Berlin. “I would still be happier if we had more capital in the system.” Soon to be in charge of that system is a new corps of almost 1,000 bank supervisors drawn from all over Europe, including existing authorities and the private sector. Notables among senior management include Stefan Walter, a former official of the Federal Reserve Bank of New York who will lead oversight of the biggest lenders including Deutsche Bank, and Finland’s Jukka Vesala, who oversaw the Comprehensive Assessment.

They inherit a banking industry loaded with unpaid debt. While the ECB says credit standards eased for a second quarter in the three months through September, an extra €136 billion in bad loans identified by the Comprehensive Assessment could hamper a return to growth. The path towards managing that legacy will be trodden by both the ECB’s new cadres and 5,000 national supervisors who remain in charge of the thousands of smaller banks in the euro region. The Frankfurt hub will make its presence felt by having its say on everything from bank licensing to merger approval, imposing fines and influencing international regulation.

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is it really that crazy to tax what cost us all those trillions? Bloomberg’s ed. staff is not its brightest segment.

Europe’s Crazy Finance Tax (Bloomberg)

Wrangling among the 11 euro-region nations planning to tax financial transactions is further evidence, if any were needed, that the levy is a bad idea that should be abandoned. The European Commission acknowledges that the latest version of its planned financial transactions tax (or Tobin tax, or Robin Hood tax, if you prefer) isn’t the best option. That, it says, would be a globally coordinated toll on trading – which is laughably unlikely. The narrower the tax’s coverage, the less sense it makes. That’s why Europe’s proposed transactions tax isn’t even second-best: An earlier effort to apply it across all 27 European Union members failed. In its current diluted form, the tax would charge 0.1% for nonderivative securities such as government bonds or company shares, and 0.01% on the notional value of derivatives trades. Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia, Spain are the willing 11 countries; but they can’t agree on how to divvy up the proceeds.

They’re struggling to meet a self-imposed deadline for an agreement by the end of the year, with the duty scheduled to be imposed by the end of 2015. The most fundamental question about the tax still hasn’t been answered – what’s it for? If the aim is to reduce volatility and speculation in the securities markets, it’s far from clear that the tax would work, according to a study by the consulting firm PricewaterhouseCoopers. If the idea is to strengthen the economy, the tax is a failure at the planning stage. Depending on how the proceeds were spent, the commission itself estimates the transactions tax would raise the cost of capital and could cut as much as 0.28% from gross domestic product — a little more than it would raise in extra revenue. With the bloc threatening to slide back into recession, you’d think any policy that risked hurting growth would be rejected out of hand. The chief motivation for the tax is populist politics: It’s mostly about vengeance for the financial crisis. Bashing bankers, regardless of the collateral damage, remains popular with European politicians.

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Get out of the EU!

Vicious Circle of Bad Loans Ensnaring Italian Companies (Bloomberg)

Italian borrowers are becoming trapped in a vicious circle. As bank loans turn sour at the rate of about €2 billion ($2.5 billion) a month, corporate lending is dwindling to the least in more than a decade. Lenders are sitting on a total €174 billion of non-performing loans, an increase of 62% from three years ago, according to the latest data from Bank of Italy. New corporate lending dropped in August to €21 billion, the lowest since at least 2003, the data show. With public debt of more than €2 trillion, Italy is battling the longest economic slump since World War II that has thrown millions of people out of work. The scarcity of lending is spurring the European Central Bank’s asset purchase program with President Mario Draghi seeking to boost economic growth by freeing up bank balance sheets.

“Banks’ failure to deal with the soured loans is partly to blame for Italy’s worsening recession,” said Riccardo Serrini, chief executive officer at Prelios Credit Servicing, a Milan-based adviser for debt sales. “Without the debt burden, they could be helping to boost the economy.” Unlike lenders from Spain to the U.K., Italian banks are proving unable, or unwilling, to offload bad debts and free up their balance sheets. About €11 billion of loans where borrowers have fallen behind on payments were sold by Italian institutions since 2011, compared with €189 billion for all European lenders, according to PricewaterhouseCoopers.

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Our world today: China prints $25 trillion and buys up Europe’s oldest civilizations with it.

Portugal Sees Chinese Do 90% of Bids at Property Auction (Bloomberg)

As bargain-hunters waited in a packed room at a property auction in Lisbon last month, one language dominated their chat: Mandarin. About 90% of the bidders for the government-owned apartments and stores on offer were Chinese, according to Jorge Oliveira, the official overseeing the asset sale. They ended up acquiring more than two-thirds of the 45 properties, he said. “A Portuguese investor bought a store to start a bakery and coffee shop, but most of the properties went to the Chinese,” Oliveira said in an interview after the sale.

Portugal is the latest target for Chinese investors who have been acquiring buildings around the world as China allows freer movement of funds in and out of the country. The Chinese accounted for almost one in five foreign property purchases in Portugal during the first nine months, according to the Lisbon-based Portuguese Real Estate Professionals and Brokers Association. Bing Wong, a 52-year-old store-owner from Shanghai who attended the Oct. 24 auction, has been buying properties in Lisbon to create a network of outlets to serve the biggest concentration of Chinese residents in Portugal. “Lisbon is cheap if you compare it with other cities,” he said. “The economy is improving and there are some good deals to be done here.”

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Expect major swings. Like everywhere else.

Gold Bulls Retreat With $1.3 Billion Pulled From Funds (Bloomberg)

Speculators cut their bullish gold bets before prices tumbled to the lowest since 2010 as demand for a hedge against inflation diminished. The net-long position in New York futures and options declined for the first time in three weeks, U.S. government data show. Gains for the American economy have eroded the appeal of bullion as a haven and helped boost the dollar to a four-year high. The Federal Reserve said last week it saw enough improvement to end its bond-buying stimulus program. More than $1.3 billion was pulled from U.S. exchange-traded products tracking precious metals in October, the biggest monthly decline this year, data compiled by Bloomberg show.

Societe Generale’s Michael Haigh, the analyst who correctly predicted gold’s slump into a bear market last year, said the crash in oil prices underscores why inflation is unlikely to accelerate and adds “ammunition” to the pressure on bullion. “We are betting on lower gold prices and telling our clients that they should have zero allocation in gold,” Atul Lele, who helps oversee $5.1 billion as the chief investment officer at Deltec International Group, said Oct. 31. “The dollar will continue to strengthen as other nations are printing money at a time when the U.S. has taken stimulus off the table. U.S. growth is another reason why people will stay away from gold.” [..] Gold climbed 70% from December 2008 to June 2011 as the U.S. central bank bought debt and held borrowing costs near 0% in a bid to shore up growth. Prices slumped 28% last year, the most in three decades. The Fed’s $4 trillion of bond purchases since 2008 have yet to generate the runaway inflation that some gold buyers expected.

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That’s the very essence of globalization.

Globalisation Is Turning In On Itself And It Is Each Man For Himself (Pal)

A few things are also appearing on my radar screen – future visions if you like – that I want to share with you. These are not conclusive, but rather a stream of unfiltered thoughts, which will develop over time. I virtually never use geopolitics to assess asset markets. I have learned the hard way over time that it is the way to the poor house. Economies run financial markets, not wars. But I do note that at the margin, the world’s geopolitics is changing. Gone are the fluffy days of Putin shaking hands with George Bush agreeing to keep the world supplied with oil, gone are the days of China helping US firms make profits using their cheap labour, gone are open-for-business days of Europe, gone is the Japanese military neutrality, gone are the Saudis as an unshakeable ally, gone is Israel also a steadfast ally, etc. What is happening is something deeply concerning. Globalisation is turning in on itself and it is each man for himself. This was always going to be the outcome of an imbalanced, debt-drowning world.

Everyone wants a cheap currency and since that doesn’t work then everyone wants to find some way to get the upper hand on their own terms. I have had recent conversations with a long-term strategy group within the Pentagon about economic threats to the US and the risk of global collapse, and the potential for it to turn into a military outcome. It seems that the Department of Defence’s deep thinkers are mulling over the kinds of issues we all are – is the inevitable outcome a military one? They don’t know either but they give it a probability and thus need to understand it and plan for it. My issue has been for a long time that the true threat to the world is not the Muslim nations we so like to beat as a scapegoat (gotta have an enemy, right?) but China. The Pentagon’s think-tank also agrees. If China has an economic collapse, which again is a high probability event, then what are the odds of massive civil unrest?

And would a military conflict put the people back on the side of the government (i.e. how the Nazis came to power)? I agree. I think this is the risk somewhere down the road. I also, along with this defence strategy group, think that there is a risk that the Western powers meddling in the time of bad economic crisis will form strong alliances between let’s say Russia and China. In direct opposition to the government, many people inside the Pentagon are saying, “Please don’t fuck with Russia, they are not threatening us militarily but securing their own borders, we cannot control the outcomes, and most of them are bad, probably not militarily but economically, and economic instability causes outcomes we can’t forecast – even seizing the assets of powerful Russians has unintended consequences”. Here, here. The law of unintended circumstances is a bitch.

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That’s great news!

Wanted: 500,000 New Pilots In China By 2035 (Reuters)

China’s national civil aviation authority says the country will need to train about half a million civilian pilots by 2035, up from just a few thousand now, as wannabe flyers chase dreams of landing lucrative jobs at new air service operators. The aviation boom comes as China allows private planes to fly below 1,000 meters from next year without military approval, seeking to boost its transport infrastructure. Commercial airlines aren’t affected, but more than 200 new firms have applied for general aviation operating licences, while China’s high-rollers are also eager for permits to fly their own planes.

The civil aviation authority’s own training unit can only handle up to 100 students a year. With the rest of China’s 12 or so existing pilot schools bursting at the seams, foreign players are joining local firms in laying the groundwork for new courses that can run to hundreds of thousands of dollars per trainee. “The first batch of students we enrolled in 2010 were mostly business owners interested in getting a private license,” said Sun Fengwei, deputy chief of the Civil Aviation Administration of China’s (CAAC) pilot school. “But now more and more young people also want to learn flying so that they can get a job at general aviation companies.”

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Reasonable historic view.

25 Years Ago, As The Berlin Wall Fell, Checks On Capitalism Crumbled (Guardian)

It was 25 years ago this month that communism ceased to be a threat to the west and to the free market. When sledgehammers started to dismantle the Berlin Wall in November 1989, an experiment with the command economy begun in St Petersburg more than 70 years before was in effect over, even before the Soviet Union fell apart. The immediate cause for the collapse of communism was that Moscow could not keep pace with Washington in the arms race of the 1980s. Higher defence spending put pressure on an ossifying Soviet economy. Consumer goods were scarce. Living standards suffered. But the problems went deeper. The Soviet Union came to grief because of a lack of trust. The economy delivered only for a small, privileged elite who had access to imported western goods. What started with the best of intentions in 1917 ended tarnished by corruption. The Soviet Union was eaten away from within. As it turned out, the end of the cold war was not unbridled good news for the citizens of the west.

For a large part of the postwar era, the Soviet Union was seen as a real threat and even in the 1980s there was little inkling that it would disappear so quickly. A powerful country with a rival ideology and a strong military acted as a restraint on the west. The fear that workers could “go red” meant they had to be kept happy. The proceeds of growth were shared. Welfare benefits were generous. Investment in public infrastructure was high. There was no need to be so generous once the Soviet Union was no more. What was known as neoliberal economics was born in the 1970s, but it was not until the 1990s that market forces reigned supreme. The free market spread to poorer parts of the world where it had previously been off limits, expanding the global workforce. That meant cheaper goods but it also put downward pressure on wages. What’s more, there was no longer any need to be inhibited. Those running companies could take a bigger slice of profits because there was nowhere else for workers to go. If citizens did not like “reform” of welfare states, they just had to lump it.

And, despite some grumbles, that’s pretty much what they did until the global financial crisis of 2008. This was a blow to the prevailing free-market orthodoxy for three reasons. First, it was the crash that should never have happened. Economists had constructed models that showed markets were always rational and self-correcting. It was quite a shock to find that they weren’t. Second, the financial crash made countries poorer. Deep recessions have been followed by historically weak recoveries characterised by falling real wages and cuts in benefits. Finally, the crisis and its aftermath have revealed the dark side of the post-cold war model. Instead of trickle down, there has been trickle up. Instead of the triumph of democracy, there has been the triumph of the elites.

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A local supermarket had them on the menu just last week.

Insects Could Be On Your Dinner Menu, Soon (CNBC)

Feeding the world’s growing population is a major issue for global policy makers, and Euromonitor thinks it has the answer: insects. The thought of eating insects may turn the stomachs in the western world, but an estimated 2 billion people worldwide eat insects, Euromonitor said in a report. Eating insects for their taste and nutritional value is popular in many developing regions of central and South America, Africa and Asia. Insects contain high levels of protein, minerals and vitamins, and are considered a healthier alternative to meat. Insects could therefore provide a viable solution to food shortages and the increasing demand for meat, the Euromonitor report said. Consumer expenditure on meat will rise by 87.9% in emerging and developing countries in 2014-2030, more than three times higher than the equivalent 25.3% growth in developed economies, according to Euromonitor’s forecasts.

At the same time, global food supply issues have become a more prominent concern. Extreme weather cycles have played havoc with harvests and crops leading to extreme spikes in food prices, protectionist policies and crop hoarding. In the past three years, Australia, Canada, China, Russia and the U.S. have all suffered huge harvest losses from floods and droughts, Reuters reported. Earlier this year, the United Nations Food and Agriculture Organization warned that global food production needed to increase by 60% by mid-century or risk food shortages that could bring social unrest and civil wars. “The most obvious challenge to insects becoming a viable food source for the future is that negative attitudes in Western cultures towards insects as food need to change,” said Media Eghbal, head of countries’ analysis at Euromonitor. Eghbal pointed out that as a result of the western world’s more squeamish palate, a more realistic solution could be using more insects in animal feed, demand for which is bound to increase as global demand for meat rises.

The report also highlighted other benefits of using insects as a source of food. Farming insects is better for the environment than traditional livestock farming as the process requires less land and water, it said, and produces less greenhouse gas emissions. It’s also cheaper. Consumers would pay less for these food products, which could help reduce poverty and boost economic growth. Insects are a popular source of food in countries including Thailand, Vietnam, Cambodia, China, Africa, Mexico, Columbia and New Guinea. The most popular delicacies include crickets, grasshoppers, ants, scorpions, tarantulas and various species of caterpillar, according to www.insectsarefood.com.

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In human history, that’s a very long time.

Greenhouse Gas Levels At Highest Point In 800,000 Years (ABC.au)

The world’s top scientists have given their clearest warning yet of the severe and irreversible impacts of climate change. The United Nations Intergovernmental Panel on Climate Change (IPCC) has released its synthesis report, a summary of its last three reports. It warns greenhouse gas levels are at their highest they have been in 800,000 years, with recent increases mostly due to the burning of fossil fuels. “Continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems,” the report said. “Limiting climate change would require substantial and sustained reductions in greenhouse gas emissions which, together with adaptation, can limit climate change risks.”

IPCC chairman Rajendra Pachauri said the comprehensive report brings together “all the pieces of the puzzle” in climate research and predictions. “It’s not discrete, and [highlights] distinct elements of climate change that people have to deal with, but [also] how you might be able to deal with this problem on a comprehensive basis by understanding how these pieces of the puzzle actually come together,” Dr Pachauri said. The report reiterates that the planet is unequivocally warming, that burning fossil fuels is significantly increasing greenhouse gas emissions and the effects of climate change – like sea level rises – are already being felt.It also said most of the world’s electricity should be produced from low carbon sources by 2050 and that fossil fuel burning for power should be virtually stopped by the end of the century.

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” … it doesn’t mean we have to sacrifice economic growth”. What if it did? Why does an Institute for Climate Impact Research have a chief economist in the first place?

UN Sees Irreversible Damage to Planet From Fossil Fuels (Bloomberg)

Humans are causing irreversible damage to the planet from burning fossil fuels, the biggest ever study of the available science concluded in a report designed to spur the fight against climate change. There’s a high risk of widespread harm from rising global temperatures, including floods, drought, extinction of species and ocean acidification, if the trend for increasing carbon emissions continues, a panel convened by a United Nations body said today in Copenhagen. Humans can avoid the worst if they significantly cut emissions and do so swiftly, it said. “We must act quickly and decisively if we want to avoid increasingly disruptive outcomes,” UN Secretary-General Ban Ki-moon told reporters in Copenhagen. “If we continue business-as-usual, our opportunity to keep temperature rises below” the internationally agreed target of 2 degrees Celsius, “will slip away within the next decades,” he said.

The report is designed to guide policy makers around the world in writing laws and regulations that will curb greenhouse gases and protect nations most at risk from climate change. It will also feed into talks among 195 nations working on an international agreement to rein in emissions that envoys aim to reach in Paris in December 2015. “We need to get to zero emissions by the end of this century” to keep global warming below dangerous levels, Ottmar Edenhofer, chief economist at the Potsdam Institute for Climate Impact Research, outside Berlin, and a co-author of the report, said in a telephone interview. “This requires a huge transformation, but it doesn’t mean we have to sacrifice economic growth.”

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