Sep 262017
 
 September 26, 2017  Posted by at 8:33 am Finance Tagged with: , , , , , , , , ,  2 Responses »
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Paul Cézanne Curtains 1885

 

Lenders Loosen Mortgage Standards as Demand Falls (WS)
Levered Loan Volumes Soar Past 2007 Levels As “Cov-Lite” Deals Surge (ZH)
China’s Crackdown Brings Developers Crashing Back to Earth (BBG)
The Next Crisis Will Start in Silicon Valley (BBG)
King Cash May Reign For Weeks In Storm-Ravaged Puerto Rico (BBG)
The White House as Donald Trump’s New Casino (Nomi Prins)
Large Parts Of America Are Being Left Behind (ZH)
‘A Lot Of People Feel Left Behind’ – Why Far Right Won In Germany (G.)
Macron Presses Ahead With His Vision for Europe As Merkel Calls For Calm (BBG)
EU Presidency Calls For Massive Internet Filtering (EDRi)
EU Officially Ends Excessive Deficit Procedure Against Greece (R.)
ECB May Frontload 2018 Bank Stress Tests With View To Greece – Draghi (R.)
French Government Declares War On Pesticides (AFP)
Our Food Crops Face Mass Extinction Too (G.)
Sixth Mass Extinction Of Wildlife Also Threatens Global Food Supplies (G.)

 

 

The last step before the fall.

Lenders Loosen Mortgage Standards as Demand Falls (WS)

The toxic combination of “competition from other lenders” and slowing mortgage demand is cited by senior executives of mortgage lenders as the source of all kinds of headaches for the mortgage lending industry. Primarily due to this competition amid declining of demand for mortgages, the profit margin outlook has deteriorated for the fourth quarter in a row, according to Fannie Mae’s Q3 Mortgage Lender Sentiment Survey. And the share of lenders that blamed this competition as the key reason for deteriorating profits “rose to a new survey high.” Demand is down for all three types or mortgages: • Mortgages eligible for guarantees by Government Sponsored Enterprises, such as Fannie Mae and Freddie Mac (“GSE Eligible”), indirectly backed by taxpayers. • Mortgages not eligible for GSE guarantees (“Non-GSE Eligible”), not backed by taxpayers. • Mortgages guaranteed by Government agencies, such as Ginnie Mae, directly backed by taxpayers.

And how are lenders combating this lack of demand and the deteriorating profit margins that are being pressured by competition? They’re loosening lending standards. Fannie Mae’s report: Lenders further eased home mortgage credit standards during the third quarter, continuing a trend that started in late 2016. In particular, both the net share of lenders reporting easing on GSE-eligible loans for the prior three months and the share expecting to ease standards on those loans over the next three months increased to survey highs. Lenders’ comments suggest that competitive pressure and more favorable guidelines for GSE loans have helped to bring about more easing of underwriting standards for those loans. This chart shows the net share of lenders reporting loosening their lending standards for each type of loan (= the share of lenders reporting loosening credit standards minus those reporting tightening standards):

In many urban markets home prices have soared far beyond their peaks during the prior crazy housing bubble. That bubble ended with such spectacular results, in part because lending standards had been loosened so that more people could be stuffed into more homes, and more expensive homes that they couldn’t afford, and whose prices then plunged when the scheme fell apart. This time around, home prices, according to the national Case-Shiller Home Price Index, are now about 5% above the prior crazy bubble peak that imploded with such fanfare:

Read more …

Everything’s a casino now.

Levered Loan Volumes Soar Past 2007 Levels As “Cov-Lite” Deals Surge (ZH)

If a surge in covenant-lite levered loans is any indication that debt and equity markets are nearing the final stages of their bubbly ascent, then perhaps now is a good time for investors to take their profits and run. As the Wall Street Journal points out this morning, levered loans volumes in the U.S. are once again surging, eclipsing even 2007 levels, despite the complete implosion of bricks-and-mortar retailers and continued warnings that “the market is getting frothy.” Volume for these leveraged loans is up 53% this year in the U.S., putting it on pace to surpass the 2007 record of $534 billion, according to S&P Global Market Intelligence’s LCD unit. n Europe, recent loans offer fewer investor safeguards than in the past. This year, 70% of the region’s new leveraged loans are known as covenant-lite, according to LCD, more than triple the number four years ago.

Covenants are the terms in a loan’s contract that offer investor protections, such as provisions on borrowers’ ability to take on more debt or invest in projects. “If feels like the market is getting frothy,” said Henrik Johnsson at Deutsche Bank. “We’re overdue a correction.” Meanwhile, volumes are surging even as traditional lender protections have become basically nonexistent. As S&P LCD points out, over 70% of levered loans issued so far in 2017 are considered “covenant-lite” versus only 30% of those issued in 2007. Before the financial crisis, the boom in leveraged loans was one of the signs of markets overheating. As the crisis intensified in 2008, investors in U.S. leveraged loans lost nearly 30%, according to the S&P/LSTA Leveraged Loan Index.

Regulators are taking note. In its last quarterly report, the Bank for International Settlements noted the growth of covenant-lite loans and pointed out that U.S. companies are more leveraged than at any time since the beginning of the millennium. That could harm the economy in the event of a downturn or a rise in interest rates, said the BIS consortium of central banks.

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Not quite yet. But they will.

China’s Crackdown Brings Developers Crashing Back to Earth (BBG)

The world’s most extreme stock rally is getting a reality check. After share price gains at Chinese property developers accelerated at a breathtaking pace in the past month, led by an 87% surge in Sunac, the momentum has started to turn as authorities have taken a harder line on reining in financial risks. Six of the 10 best performers on the MSCI All-Country World Index in the one month through Sept. 21 were Chinese real estate firms. Chinese developers had their biggest slump in six years on Monday, before some rebounded on Tuesday. Record home sales and buoyant earnings helped spur an unprecedented rally this year for Chinese developers, especially large firms positioned to wrest market share through debt-fueled acquisitions.

Top of that list are the nation’s two most indebted developers – China Evergrande Group and Sunac – whose shares swelled 459% and 391% respectively. Some investors were starting to question how long the astonishing share gains could last, even before a raft of housing curbs over the weekend. “The drop of property stocks today brings a reality check,” Andy Wong at Pictet Asset Management said in a briefing Monday. “In the past few months investors have been focusing purely on growth. But it’s never wise to totally ignore the risk of leverage.” Sunac shares have plunged almost 16% from a Sept. 19 high, amid the general pall over the sector and news that a financial firm is scrutinizing its loans to Sunac, China’s most leveraged developer.

Evergrande shares have tumbled more than 12% in the past three trading sessions, matching the decline in a Bloomberg index of 22 mainland developers. Even with the recent selloff, Chinese developers remain among the world’s best-performing stocks this year. Evergrande and Sunac two top stocks in the MSCI All-Country World Index this year. Part of that rally was stoked by a housing market boom that buoyed developers’ earnings in the first half, sending sales soaring and boosting profit margins to the highest levels in three years, according to calculations based on earnings reports.

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It’s where the excess cash has gone.

The Next Crisis Will Start in Silicon Valley (BBG)

Since 2007, a tremendous wave of innovation has swept across the financial sector, affecting almost every aspect of finance. New robo-adviser startups like Betterment and Wealthfront have begun dispensing financial advice based on algorithmic calculations, with little to no human input. Crowdfunding firms like Kickstarter and Lending Club have created new ways for companies and individuals to raise money from dispersed networks of individuals. New virtual currencies such as Bitcoin and Ethereum have radically changed our understanding of how money can and should work. These financial technology (or “fintech”) markets are populated by small startup companies, the exact opposite of the large, concentrated Wall Street banks that have for so long dominated finance.

And they have brought great benefits for investors and consumers. By automating decision-making and reducing the costs of transactions, fintech has greased the wheels of finance, making it faster and more efficient. It has also broadened access to capital to new and underserved groups, making finance more democratic than it has ever been. But revolutions often end in destruction. And the fintech revolution has created an environment ripe for instability and disruption. It does so in three ways. First, fintech companies are more vulnerable to rapid, adverse shocks than typical Wall Street banks. Because they’re small and undiversified, they can easily go under when they hit a blip in the market. Consider the case of Tokyo-based Mt. Gox, which was the world’s biggest bitcoin exchange until an apparent security breach took it down in 2014, precipitating losses that would be worth more than $3.5 billion in today’s prices.

Second, fintech companies are more difficult to monitor than conventional financial firms. Because they rely on complex computer algorithms for many of their essential functions, it’s hard for outsiders to get a clear picture of the risks and rewards. And because many of their technologies are so new and innovative, they may fall outside the reach of old and outdated regulatory structures. The recent proliferation of “initial coin offerings,” for example, has left regulators around the world scrambling to figure out how to respond. Third, fintech has not developed the set of unwritten norms and expectations that guide more traditional financial institutions.

In 2008, when Lehman Brothers was teetering on the brink of bankruptcy, the heads of the largest Wall Street investment banks gathered in New York to coordinate their actions and prevent further panic. It’s hard to imagine something like that happening in the fintech world. The industry is so new, and the players so diverse, that companies have little incentive to cooperate for the greater good. Instead, they prioritize aggressive growth and reckless behavior.

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If this is not a wake-up call for you…

King Cash May Reign For Weeks In Storm-Ravaged Puerto Rico (BBG)

In post-hurricane San Juan on Monday, commerce picked up ever so slightly. With a little effort, you could get the basics and sometimes more: diapers, medicine, or even a gourmet hamburger smothered in fried onions and Gorgonzola cheese. But almost impossible to find was a place that accepted credit cards. “Cash only,” said Abraham Lebron, the store manager standing guard at Supermax, a supermarket in San Juan’s Plaza de las Armas. He was in a well-policed area, but admitted feeling like a sitting duck with so many bills on hand. “The system is down, so we can’t process the cards. It’s tough, but one finds a way to make it work.” The cash economy has reigned in Puerto Rico since Hurricane Maria decimated much of the U.S. commonwealth last week, leveling the power grid and wireless towers and transporting the island to a time before plastic existed.

The state of affairs could carry on for weeks or longer in some remote parts of the commonwealth, and that means it could be impossible to trace revenue and enforce tax rules. The situation further frustrates one of the many challenges already facing a government that has sought a form of bankruptcy protection after its debts swelled past $70 billion: boosting revenue by collecting money that slips through the cracks. In fact, the power blackout only exacerbates a situation that has always been, to a degree, a fact of life in Puerto Rico. Outside the island’s tourist hubs, many small businesses simply never took credit cards, with some openly expressing contempt for tax collectors and others claiming it was just a question of not wanting to deal with the technology.

But those were generally vendors of bootleg DVDs, fruit stands, barbers — not major supermarkets. Now, the better part of the economy is in the same boat. Cash was in short supply. Many Puerto Ricans were still living off what money they thought to withdraw ahead of the storm. Most ATMs on the island still weren’t working because of the power outage or because no one had refilled them. In Fajardo, a hard-hit coastal area, the paper printouts taped to sheet metal storm shutters read: “Cash only, thank you.”

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Washington has been a casino for decades.

The White House as Donald Trump’s New Casino (Nomi Prins)

During the 2016 election campaign, Donald Trump repeatedly emphasized that our country was run terribly and needed a businessman at its helm. Upon winning the White House, he insisted that the problem had been solved, adding, “In theory, I could run my business perfectly and then run the country perfectly. There’s never been a case like this.” Sure enough, while Hillary Clinton spent her time excoriating her opponent for not releasing his tax returns, Americans ultimately embraced the candidate who had proudly and openly dodged their exposure. And why not? It’s in the American ethos to disdain “the man” – especially the taxman. In an election turned reality TV show, who could resist watching a larger-than-life conman who had taken money from the government?

Now, give him credit. As president, The Donald has done just what he promised the American people he would do: run the country like he ran his businesses. At one point, he even displayed confusion about distinguishing between them when he said of the United States: “We’re a very powerful company – country.” Of course, as Hillary Clinton rarely bothered to point out, he ran many of them using excess debt, deception, and distraction, while a number of the ones he guided personally (as opposed to just licensing them the use of his name) – including his five Atlantic City casinos, his airline, and a mortgage company – he ran into the ground and then ditched. He escaped relatively unscathed financially, while his investors and countless workers and small businesses to whom he owed money were left holding the bag.

We may never fully know what lurks deep within those tax returns of his, but we already know that they were “creative” in nature. As he likes to put it, not paying taxes “makes me smart.” To complete the analogy Trump made during the election campaign, he’s running the country on the very same instincts he used with those businesses and undoubtedly with just the same sense of self-protectiveness. Take the corporate tax policy he advocates that’s being promoted by his bank-raider turned Treasury secretary, Steve Mnuchin. It’s focused on lowering the tax rate for multinational corporations from 35% to 15%, further aiding the profitability of companies that already routinely squirrel away profits and hide losses in the crevices of tax havens far removed from public disclosure.

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People are being left behind everywhere.

Large Parts Of America Are Being Left Behind (ZH)

Economic prosperity is concentrated in America’s elite zip codes, but in an interesting report on Distressed Communities, from The Economic Innovation Group, it is increasingly clear that economic stability outside of those communities is rapidly deteriorating. As Axios noted, this isn’t a Republican or Democratic problem. At every level of government, both parties represent distressed areas. But the economic fortunes of the haves and have-nots have only helped to widen the political chasm between them, and it has yet to be addressed by substantial policy proposals on either side of the aisle.

Economic Prosperity Quintiles

As MishTalk.com’s Mike Shedlock writes below, the study notes: “America’s elite zip codes are home to a spectacular degree of growth and prosperity. However, millions of Americans are stuck in places where what little economic stability exists is quickly eroding beneath their feet.” Distress is based on an evaluation of seven metrics.
• No high school diploma
• Housing vacancy rate
• Adults not working
• Poverty rate
• Median income ratio
• Change in employment
• Change in business establishments

Change in Distress Quintiles

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Merkel acts like an empress.

‘A Lot Of People Feel Left Behind’ – Why Far Right Won In Germany (G.)

Despite gains made by the far-right Alternative für Deutschland (AfD), the breaking up of the ‘grand coalition’ could mark a positive step for Germany, according to voters who responded to our online callout. Here voters in Germany tell us why they think the AfD made gains, and what hopes they have for the future of the country’s politics.

‘A lot of people feel left behind’ – Sarah, 37, teacher, Bonn My second vote was a tactical one. I gave it to the Linke. I knew that we’ll need a very strong voice against the AfD. I am pleased though, that the SPD decided to go into opposition to redefine themselves. A lot of people feel left behind. They are looking for scapegoats. It is the easy way to deal with problems. The AFD makes use of this feeling. With the grand coalition, there was no real debating culture left. The CDU went too much into the middle, leaving the right out. Just like the SPD under Schröder left the left-wing out.

The impact of the newly arrived is big. Some people are scared. Some that have been living in Germany for a long time feel disadvantaged. We can live together and be united in our diversity. I see this in school every day. If we treat each other with respect, then we do not need to fear. It is a long and strenuous way. But it is also very rewarding and fun to walk down that lane. At dinner I really had to get hold of myself to not cry in front of my children. I physically felt sick. A Nazi party being the third biggest party in Germany! I am still devastated.

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More Europe is dead.

Macron Presses Ahead With His Vision for Europe As Merkel Calls For Calm (BBG)

German Chancellor Angela Merkel already faces complex coalition negotiations with at least three other parties. Now French President Emmanuel Macron wants in on the act. In a speech at the Sorbonne in Paris on Tuesday, Macron will make proposals for re-shaping Europe that he acknowledges will require Merkel’s support to push through. While he isn’t seeking to interfere in German domestic politics, it makes sense to air the ideas before a coalition is formed rather than after, an official in his office told reporters. Macron needs Germany’s backing for planned overhauls of areas ranging from defense and immigration to the economy. Yet with Merkel weakened in Germany’s vote and her potential Free Democratic coalition partner even more hostile to aspects of euro-area integration than her own party, the prospect of radical change in Europe looks to have diminished.

“There was this expectation that the election would strengthen the German-French alliance, all kinds of reforms would be tackled and then we’re on the road to fiscal union,” Oliver Adler, head of economic research at Credit Suisse in Zurich, said in an interview. “This now seems politically very unlikely.” Macron will press ahead with his vision of remaking European institutions anyway, seeking to set the direction of debate. While a key element of his reform package is intended to reinforce the euro against future shocks, his speech won’t be all about the single currency area. Macron will propose as many as 10 projects in his speech, including a European agency for innovation and a system to improve start-up funding, a larger Erasmus student-exchange project, increased anti-terrorism cooperation, and a “digital plan” that includes a joint effort to push the EU Commission for a plan to tax Internet giants such as Apple and Google.

The goal is to have a roadmap in place by the summer of 2018 that will equip the EU for its next decade, according to the French official. Macron intends to discuss his plans with fellow EU leaders at a summit in the Estonian capital Tallinn at the end of this week. He may struggle to engage Merkel after Martin Schulz, her Social Democratic election challenger, upset her own plans by announcing his intention not to renew their respective parties’ coalition of the past four years.

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Politicians don’t understand technology.

EU Presidency Calls For Massive Internet Filtering (EDRi)

A Council of the European Union document leaked by Statewatch on 30 August reveals that during the summer months, that Estonia (current EU Presidency) has been pushing the other Member States to strengthen indiscriminate internet surveillance, and to follow in the footsteps of China regarding online censorship. Standing firmly behind its belief that filtering the uploads is the way to go, the Presidency has worked hard in order to make the proposal for the new copyright Directive even more harmful than the Commission’s original proposal, and pushing it further into the realms of illegality. According to the leaked document, the text suggests two options for each of the two most controversial proposals: the so-called “link tax” or ancillary copyright and the upload filter. Regarding the upload filter, the text offers two alternatives:

Option A maintains the Commission’s original proposal of having in place an upload filter which will be under the control of platforms and other companies that are hosting online content. Although it removes mentions to “content recognition technologies”, in reality, there is no way to “prevent the availability” (another expression which remains in the text) of certain content without scanning all the content first. Option B is, at best, a more extreme version of Option A. In fact, it seems so extreme that it almost makes the first option look like a reasonable compromise. This may, of course, be the “diplomatic” strategy. In this extreme option, the text attacks again the liability regime of the e-commerce Directive – which, bizarrely, would not be repealed, leaving us with two contradictory pieces of EU law but adds a “clarification” of what constitutes a “communication to the public”.

This clarification establishes that platforms (and its users) would be liable for the copyright infringing content uploaded by its users. The proposals in this leak highlight a very dangerous roadmap for the EU Member States, if they were to follow the Presidency’s lead. The consequences of these flawed proposals can only be prevented if civil society and EU citizens firmly raise their voices against having a censorship machine in the EU. We will be turning on our call tool at savethememe.net before each of the key votes in the European Parliament. Make use of the tool, and call your representatives to stop the #censorshipmachine!

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Oh, get real: “a recognition of the tremendous efforts and sacrifices the Greek people have made to restore stability to their country’s public finances.”

EU Officially Ends Excessive Deficit Procedure Against Greece (R.)

European Union states decided on Monday to close disciplinary procedures against Greece over its excessive deficit after improvements in Greece’s fiscal position, confirming the country’s recovery is on the right track. The move, although largely symbolic, sends a new signal that Greece’s public finances are again under control, facilitating the country’s plans to tap markets after a successful issue of bonds in July which ended a three-year exile. EU fiscal rules oblige member states to keep their budget deficits below 3% of their economic output or face sanctions that could entail hefty fines, although so far no country has received a financial penalty.

Greece had a 0.7% budget surplus in 2016, and is projected to maintain its fiscal position within EU rules’ limits this year. “In the light of this, the Council (of EU states) found that Greece fulfils the conditions for closing the excessive deficit procedure,” the EU said in a note. “After many years of severe difficulties, Greece’s finances are in much better shape. Today’s decision is therefore welcome”, Estonia’s finance minister Toomas Toniste said. The EU states’ decision confirmed a proposal by the EU executive commission in July to end the disciplinary procedure for Greece. The economics commissioner Pierre Moscovici said the decision was “a recognition of the tremendous efforts and sacrifices the Greek people have made to restore stability to their country’s public finances.”

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Good cop bad cop. Rinse and repeat.

ECB May Frontload 2018 Bank Stress Tests With View To Greece – Draghi (R.)

The ECB may ‘frontload’ its bank stress test next year, ECB President Mario Draghi said on Monday, when asked if supervisors plan any early checks on the health of Greek lenders. The IMF has been pushing for a fresh asset quality review at Greek banks, possibly as part of an bailout review that is slated to start soon. The ECB has rejected the call, saying that the next check is the regular 2018 stress test, but Draghi’s words suggest that ECB may be somewhat flexible with its timeline. “The SSM (Single Supervisory Mechanism) will take its decision with full independence,” Draghi told members of the European Parliament. “And what the SSM plans to do next year is to have a stress test, possibly frontloading the stress test, and basically the SSM sent a letter to the IMF concerning exactly this expected line of action,” Draghi said.

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Maybe Macron can do some good too.

French Government Declares War On Pesticides (AFP)

France is planning to cut back on use of all pesticides, the government said Monday, though it rowed back on an announcement of an outright ban on controversial chemical glyphosate. Government spokesman Christophe Castaner had said earlier Monday that France – Europe’s biggest food producer a- intended to phase out glyphosate completely by 2022 over fears that it may cause cancer. But he later reversed his comments, saying that by the end of President Emmanuel Macron’s five-year term “the government is committed to seeing significant progress on all pesticides”. Glyphosate is the active ingredient in one of the world’s most widely used weedkillers, Roundup, produced by the US agro-chemicals giant Monsanto. The European Commission has proposed extending the licence for the use of the chemical for 10 years, which France has said it will vote against and try to block.

France’s biggest farming union, the FNSEA, said Monday that it was “out of the question” for the country to go it alone, worrying that a French ban could put them at a disadvantage against European competitors. “A sudden ban, no — a path for reducing it and finding solutions, if the solutions are good economically and technically, we can see it happening,” said FNSEA chief Christiane Lambert. Europe limited use of glyphosate last year pending further research. The EU’s chemical agency said glyphosate should be not be classified as cancer-causing. But this is challenged by scientists and environmentalists who point to a finding by the International Agency for Research on Cancer that glyphosate is “probably carcinogenic”. Some 1.3 million people have signed an online petition calling for a ban on the chemical.

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Can mankind rid the earth of its presence? Stay tuned.

Our Food Crops Face Mass Extinction Too (G.)

A “sixth mass extinction” is already under way, scientists are now warning us. Species such as the Bengal tiger and blue whale are vanishing at an alarming rate, and mournful eulogies are being written on how those born in 20 years’ time may never see an African elephant. But who is writing the eulogy for our food? Huge proportions of the plant and animal species that form the foundation of our food supply -known as agrobiodiversity- are just as endangered and are getting almost no attention. Take some consumer favourites: chips, chocolate and coffee. Up to 22% of wild potato species are predicted to become extinct by 2055 due to climate change. In Ghana and Ivory Coast, where the raw ingredient for 70% of our chocolate is grown, cacao trees will not be able to survive as temperatures rise by two degrees over the next 40 years. Coffee yields in Tanzania have dropped 50% since 1960.

These crops are the tip of the iceberg. Across the world, 940 cultivated species are threatened. Agrobiodiversity is a precious resource that we are losing, and yet it can also help solve or mitigate many challenges the world is facing. It has a critical yet overlooked role in helping us improve global nutrition, reduce our impact on the environment and adapt to climate change. According to the World Health Organisation, poor diet is the biggest cause of early death and disability. Globally, 2 billion people are undernourished, while 2 billion are obese and at risk of contracting diabetes, heart disease and cancer. Focusing on large-scale intensive production of starchy crops for calories rather than nutritious diets has led to serious levels of obesity around the world, from the US to Kenya. Our agrobiodiversity base can be a source of affordable, nutritious food – provided we don’t let it disappear.

[..] About 33% of the world’s farmland is estimated to be degraded, lacking the nutrients essential for growing crops. Agrobiodiversity once again has a solution. Planting cold-tolerant legumes and forages throughout winter has helped farmers in France naturally reduce weed infestation as well as increasing soil’s nutrient content and capacity to hold water. Natural remedies such as this can enhance the sustainability of farms worldwide, reducing the sector’s impact on the environment.

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“Three-quarters of the world’s food today comes from just 12 crops and five animal species”. In India, there used to be 100,000 varieties of rice. Today, there’s a big struggle going on to preserve a few dozen. There are many different banana species, but we all eat just one, the Cavendish. Which is under severe threat from a global fungus and could be gone in 5-10 years.

Sixth Mass Extinction Of Wildlife Also Threatens Global Food Supplies (G.)

The sixth mass extinction of global wildlife already under way is seriously threatening the world’s food supplies, according to experts. “Huge proportions of the plant and animal species that form the foundation of our food supply are just as endangered [as wildlife] and are getting almost no attention,” said Ann Tutwiler, director general of Bioversity International, a research group that published a new report on Tuesday. “If there is one thing we cannot allow to become extinct, it is the species that provide the food that sustains each and every one of the seven billion people on our planet,” she said in an article for the Guardian. “This ‘agrobiodiversity’ is a precious resource that we are losing, and yet it can also help solve or mitigate many challenges the world is facing. It has a critical yet overlooked role in helping us improve global nutrition, reduce our impact on the environment and adapt to climate change.”

Three-quarters of the world’s food today comes from just 12 crops and five animal species and this leaves supplies very vulnerable to disease and pests that can sweep through large areas of monocultures, as happened in the Irish potato famine when a million people starved to death. Reliance on only a few strains also means the world’s fast changing climate will cut yields just as the demand from a growing global population is rising. There are tens of thousands of wild or rarely cultivated species that could provide a richly varied range of nutritious foods, resistant to disease and tolerant of the changing environment. But the destruction of wild areas, pollution and overhunting has started a mass extinction of species on Earth.

The focus to date has been on wild animals – half of which have been lost in the last 40 years – but the new report reveals that the same pressures are endangering humanity’s food supply, with at least 1,000 cultivated species already endangered. Tutwiler said saving the world’s agrobiodiversity is also vital in tackling the number one cause of human death and disability in the world – poor diet, which includes both too much and too little food. “We are not winning the battle against obesity and undernutrition,” she said. “Poor diets are in large part because we have very unified diets based on a narrow set of commodities and we are not consuming enough diversity.”

Read more …

Sep 082017
 
 September 8, 2017  Posted by at 9:29 am Finance Tagged with: , , , , , , , , ,  6 Responses »
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Irma heads for Florida

 

Irma Heads For Florida (R.)
Magnitude 8.4 Earthquake Strikes Off Mexico’s Southern Coast (DW)
Worst US Consumer Data Hack Ever? Equifax Confesses (WS)
Consumer Credit & The American Conundrum (Roberts)
Low Interest Rates Major Source Of Concern – German Financial Watchdog (CNBC)
Japan’s April-June Economic Growth Much Slower Than Preliminary Reading (R.)
The North Korean Endgame is Playing Out Now – Rickards (DR)
Theresa May Apponts Cronies In ‘Sweeping Power Grab’ (Ind.)
At Democracy’s Birthplace, Macron Dreams Of Europe 2.0 (AP)

 

 

650,000 mandatory evacuations. But gas shortages make it hard to get away. Irma is twice the size of hurricane Andrew.

Irma Heads For Florida (R.)

The eye of Hurricane Irma grazed the Turks and Caicos Islands on Thursday, rattling buildings after it smashed a string of Caribbean islands as one of the most powerful Atlantic storms in a century, killing 14 people on its way to Florida. With winds of around 185 miles per hour (290 km per hour), the storm the size of France has ravaged small islands in the northeast Caribbean in recent days, including Barbuda, Saint Martin and the British and U.S. Virgin Islands, ripping down trees and flattening homes and hospitals. Winds dipped on Thursday to 165 mph as Irma soaked the northern coasts of the Dominican Republic and Haiti and brought hurricane-force winds to the Turks and Caicos Islands. It remained an extremely dangerous Category 5 storm, the highest designation by the National Hurricane Center (NHC).

Irma was about 55 miles (85 km) south of Great Inagua Island and is expected to bring 20-foot (6-m) storm surges to the Bahamas, before moving to Cuba and ploughing into southern Florida as a very powerful Category 4 on Sunday, with storm surges and flooding due to begin within the next 48 hours. Across the Caribbean authorities rushed to evacuate tens of thousands of residents and tourists. On islands in its wake, shocked locals tried to comprehend the extent of the devastation while simultaneously preparing for another major hurricane, Jose, now a Category 3 and due to hit the northeastern Caribbean on Saturday.

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“Mexico earthquake is most powerful to hit the country in a century, president says”

Magnitude 8.4 Earthquake Strikes Off Mexico’s Southern Coast (DW)

The quake struck late on Thursday, and was recorded as a magnitude 8.4 on the Richter scale according to Mexico’s National Seismological Service. Government officials said that at least five people died in the country’s south. The US Tsunami Warning Center has cautioned that widespread, devastating tidal waves were possible on Mexico’s coast, as well as in Guatemala, El Salvador, Costa Rica, Nicaragua, Panama, Honduras and Ecuador. Shortly thereafter, authorities reported a tsunami was indeed headed towards the coast, fortunately only 0.7 meters (2.3 feet) tall. While there were no immediate reports of major damage, Mexico’s civil protection agency reported that it was the strongest tremor to hit the country since a 1985 earthquake that killed thousands and destroyed entire buildings.

Its epicenter was about 123 km (76 miles) south of the town of Pijijiapan in Chiapas state, but the shock was felt as far away as Mexico City, sending residents fleeing swaying buildings and knocking out electricity in parts of the city. The quake was also felt in much of Guatemala, which borders Chiapas. Civil Defense officials wrote on Twitter that their personnel were patrolling the streets in Chiapas aiding residents and looking for damage. They also issued a warning for aftershocks, several of which themselves registered a 5.0 magnitude according to the US Geological Survey (USGS). Chiapas Governor Manuel Velasco told broadcaster Televisa some homes had been damaged and a shopping center had collapsed in the town of San Cristobal. “Homes, schools and hospitals have been affected,” Velasco said.

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The execs delayed reporting the hack so they could offload their shares. Why are these guys walking around free?

Worst US Consumer Data Hack Ever? Equifax Confesses (WS)

Equifax, as a consumer credit bureau, collects financial, credit, and other data on every US consumer. It has names, birth dates, social security numbers, driver’s license numbers, bank account numbers, credit card numbers, mortgage data, and payment history data, including to utilities, wireless service providers, and the like. It collects data on bank balances, loan balances, credit card balances, credit card purchases, and myriad personal details. It has massive digital dossiers on every consumer in the US and in some other countries. And it sells this data to other companies, such as banks, credit card companies, car dealerships, retailers, and others, as a routine part of its business model. That’s how it makes money. But when someone breaks in and steals this data without paying Equifax for it, well, that’s a huge deal. And it is.

Turns out, Equifax got hacked – um, no, not today. Today it disclosed that it had discovered on July 29 – six weeks ago – that it had been hacked sometime between “mid-May through July,” and that key data on 143 million US consumers was stolen. There was no need to notify consumers right away. They’re screwed anyway. But it gave executives enough time to sell 2 million shares between the discovery of the hack and today, when they crashed 13% in late trading. Given the quantity and sensitivity of the stolen data, it may well be the biggest and worst breach in US history. That stolen data “primarily includes”:• Names • Social Security numbers • Birth dates • Addresses • “In some instances,” driver’s license numbers.

In addition, the stolen data includes: • Credit card numbers of around 209,000 US consumers • “Certain dispute documents with personal identifying information” of around 182,000 US consumers. • “Limited personal information for certain UK and Canadian residents.” This is the kind of information with which identities can be stolen and money can be borrowed in your name. Those data points are the crown jewels for hackers.

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It has all been built on debt for decades.

Consumer Credit & The American Conundrum (Roberts)

Under more normal circumstances rising consumer credit would mean more consumption. The rise in consumption should, in theory, led to stronger rates of economic growth. I say, in theory, only because the data doesn’t support the claim. Prior to 1980, when the amount of debt used to support consumption was fairly stagnant, the economy, wages, and personal consumption expanded. However, as I noted previously, that all changed with financial deregulation in the early 80’s which fostered three generations of debt driven excesses. In the past, if they wanted to expand their consumption beyond the constraint of incomes they turned to credit in order to leverage their consumptive purchasing power. Steadily declining interest rates and lax lending standards put excess credit in the hands of every American. (Seriously, my dog Jake got a Visa in 1999 with a $5000 credit limit) .

This is why during the 80’s and 90’s, as the ease of credit permeated its way through the system, the standard of living seemingly rose in America even while economic growth rate slowed in America along with incomes. Therefore, as the gap between the “desired” living standard and disposable income expanded it led to a decrease in the personal savings rates and increase in leverage. It is a simple function of math. But the following chart shows why this has likely come to the inevitable conclusion, and why tax cuts and reforms are unlikely to spur higher rates of economic growth.

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Draghi has a fight on his hands. And he’s going to lose it.

Low Interest Rates Major Source Of Concern – German Financial Watchdog (CNBC)

The continued low interest environment in key markets such as Europe, the U.S. and the U.K. is a “major source of concern”, according to Felix Hufeld, the president of the German financial regulatory authority. Alluding to the results of a recent survey, the authority over which he presides carried out alongside staff at Germany’s central bank, the Bundesbank, Hufeld described the effect on domestic banks. “The impact is massive and is creeping into the balance sheets more and more. The longer it continues, the higher the risk for a change of interest rates is increasing as well,” he warned, speaking from the Handelsblatt annual banking summit in Frankfurt on Thursday. His wariness comes despite his acknowledgment that the banking system has become much more solid than it was 10 years ago when the financial crisis broke out.

“Both the amount as well as the quality of capital has been massively increased. Risk management procedures have been improved, governance procedures have been improved. Remuneration has been curbed – so all sorts of things – a very wide range of things have been done,” he explained before sounding a note of caution. “But one thing should be clear – no regulatory system and no financial market in the world is invulnerable. There can be and there will be new crises coming up somewhere in the future,” Hufeld declared, pointing to real estate as the most notable cause for concern. The BaFin president’s comments echoed those of fellow Handelsblatt summit participants such as Deutsche Bank CEO John Cryan and Goldman Sachs’s CEO Lloyd Blankfein. Cryan joined Hufeld in warning of the possibility of bubbles forming in certain asset classes, adding, “If you look at the higher risk end of the market, I don’t think you get the right reward for the risk you’re taking right now.”

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What a surprise.

Japan’s April-June Economic Growth Much Slower Than Preliminary Reading (R.)

Japan’s economic growth in the second quarter was much slower than seen in a stellar preliminary reading, government data showed on Friday, confounding hopes for a long awaited pick-up in domestic demand. The downgrade was widely expected after data used to revise gross domestic product figures showed capital spending in April-June rose at a slower annual pace than the previous quarter. While the disappointing data may weaken confidence in the government’s economic policies and the business outlook, analysts still expect the economy to sustain a steady recovery as robust global demand underpins exports and a tightening job market improves the prospects for higher wages.

Japan’s economy, the world’s third largest, expanded at an annualized rate of 2.5% in the April-June quarter, less than the initial estimate of annualized 4.0% growth, Cabinet Office data showed. That was also lower than a median market forecast for a revision to a 2.9%. On the quarter, the economy grew a revised 0.6% in real, price-adjusted terms, against a preliminary reading of a 1.0% increase and the median estimate of a 0.7% expansion. Capital expenditure, a key component of GDP, rose 0.5% for the quarter, marked down from the preliminary estimate of a 2.4% increase.

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“The United States is facing a six month window to act and I believe they will.”

The North Korean Endgame is Playing Out Now – Rickards (DR)

“North Korea has already beaten the world to the punch. They’ve been building up their strategic oil reserves. What that means is they have an estimated year’s worth of held in reserve and China has played a role in these things in the past.” “The area that would be effective for a reactionary measure would be for the United States to exclude the People’s Bank of China, the Industrial and Commercial Bank of China and some of the other major Chinese banks from within the U.S dollar payment systems. The U.S could completely shut down the U.S operations.” “Ultimately, the Chinese are facilitating the North Korean finance. The move would be a kind of sanction with bite behind it. My expectation would be that China wouldn’t necessarily put pressure on North Korea. In reaction we could see escalation of further sanctions from the Chinese against the United States leaving for a trade and financial war without solving the North Korean situation.”

“Currently, North Korea is in what is classified as a ‘break out.’ Under typical nuclear development phases, we’ve normally seen countries that are cheating on nuclear development programs complete their operations in baby steps. In the process they proceed gradually and when they do draw attention will stall programs until beginning again at a later date. North Korea has put that pattern aside and is in complete breakout.” “To give a U.S football comparison, they’re in the red zone and the quarterback is simply about to throw a pass into the end zone. The leader of North Korea is going for it and not hiding anything. The leadership in North Korea is hoping that the United States is bluffing and that they will be able to get a serviceable intercontinental ballistic missile (ICBM) with a hydrogen bomb that could threaten or destroy Los Angeles before the U.S could do anything. The United States is facing a six month window to act and I believe they will.”

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The mess keeps getting bigger.

Theresa May Apponts Cronies In ‘Sweeping Power Grab’ (Ind.)

Theresa May is poised to make an unprecedented attempt to fix the parliamentary system, allowing her to grab sweeping powers ahead of Brexit, The Independent can reveal. A late-night Commons vote to secure the Conservatives the muscle to use so-called “Henry VIII powers” to make new laws – behind the backs of MPs – will be staged next week. The move has been disguised on the Commons order paper under the innocuous description of “motions relating to House business”, but will be a decisive act in the Brexit process. It will allow the Tories to pack a crucial Commons committee with their own MPs, in defiance of Parliament’s rules, in order to carry out the power grab. To win the vote, the Conservatives will need the backing of the Democratic Unionist Party (DUP), under the much-criticised “cash-for-votes” deal that props up Ms May in power.

Opposition parties immediately accused the Prime Minister of a bid to “sideline Parliament and grant ministers unprecedented powers” – despite promises to restore sovereignty to MPs. “This is an unprecedented power grab by a minority government that lost its moral authority as well as its majority at the general election,” Valerie Vaz, Labour’s Shadow Commons Leader, told The Independent. And Alistair Carmichael, the Liberal Democrat chief whip, said: “The Tories seem determined to ram through their destructive hard Brexit even though they have no mandate for it.” The bid to seize control of the Committee of Selection comes despite unequivocal advice from parliamentary officials that the Tories must not do so, after losing their Commons majority at the election. Without the fix, it would be impossible to force through up to 1,000 “corrections” to EU law as intended through the EU (Withdrawal) Bill – the reason for the accusations of a power grab.

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Europe 2.0 won’t be a democracy.

At Democracy’s Birthplace, Macron Dreams Of Europe 2.0 (AP)

Standing at a Greek site where democracy was conceived, French President Emmanuel Macron called on members of the European Union to reboot the 60-year-old bloc with sweeping political reforms or risk a “slow disintegration.” Macron, on a visit on Thursday to Athens, urged EU nations to carry out six-month national reviews on EU reforms before imposing them — signaling his distance with the German-backed approach based on fiscal discipline within the eurozone. “It would be a mistake to abandon the European ideal,” Macron said. “We must rediscover the enthusiasm that the union was founded upon and change, not with technocrats and not with bureaucracy.” Elected by a landslide in May, the 39-year-old Macron has vowed to back efforts for closer integration in the EU, which has been rattled by a financial crisis, migration issues, a populist backlash and Britain’s decision to leave.

His proposal found enthusiastic support in bailout-stricken Greece, which considers France a vital ally and counterweight to fiscally hawkish Germany in its efforts to ease the stringent terms of its international rescue loans. Reinforcing his message, Macron urged the IMF to step back from its role in European bailouts — breaking with a widely accepted policy adopted when Greece sought international help seven years ago. “I don’t think it was the right method for the IMF to supervise European programs and intervene in the way it did,” he said. “Let’s work within Europe and not turn to outside agencies.” The eurozone rescue fund, the European Stability Mechanism, should play the lead role in financial rescue within the euro currency zone, he said. France, Europe’s No. 2 economy, had previously backed Germany’s insistence in involving the IMF to enforce austerity measures that came with bailout programs in Greece and other rescued economies including Ireland, Portugal and Cyprus.

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Sep 072017
 
 September 7, 2017  Posted by at 9:14 am Finance Tagged with: , , , , , , , , , , , ,  6 Responses »
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St. Maarten seen through the eye of Irma

 

Irma Devastates The Caribbean (AlJ)
Trump Sides With Democrats On Debt Limit In Rare Bipartisan Deal (R.)
Fed’s Fischer Resigns, Leaving Trump Earlier Chance To Shape Central Bank (R.)
Deutsche Bank Boss Calls On ECB To Halt Cheap Money (R.)
New Leak Of Brexit Papers Reveals Fissures Between Britain And EU (G.)
Consumption Exhaustion (Lebowitz)
China Realizes It Needs Foreign Companies (Balding)
Apple Needs iPhone 8 To Solve A Giant Financial Headache (BI)
Catalonia Launches Its Independence Challenge Against Spain (AFP)
Emmanuel Macron To Outline Vision For Europe’s Future In Athens Speech (G.)
Crisis-Ridden Greek Households Cut Even On Milk And Bread (KTG)

 

 

Too early to say much of anything. Barbuda is gone. So is much of St. Martin. Close to uninhabitable.

If Irma hits Puerto Rico anywhere near full force, that would be exceedingly dramatic. Ditto for Haiti, Miami. This has just started.

NOAA Hurricane Hunters flight director Richard Henning on CNN: “Irma “is actually getting stronger. … You can’t overhype this storm”.

Irma Devastates The Caribbean (AlJ)

Nearly every building on the island of Barbuda has been damaged and almost 900,000 people have been left without power in Puerto Rico as the Category 5 Hurricane Irma continues its journey towards mainland US. About 60 percent of Barbuda’s roughly 1,400 people were left homeless, Gaston Browne, Antigua and Barbuda prime minister, told the Associated Press news agency, when the eye of the storm passed almost directly overhead early on Wednesday. “Either they were totally demolished or they would have lost their roof,” Browne said after returning to Antigua from a plane trip to the neighbouring island. “It is just really a horrendous situation.” Browne said roads and telecommunications systems were destroyed and recovery will take months. A two-year-old was killed as a family tried to escape a damaged home during the storm, he said.

Puerto Rico was buffeted by powerful winds and heavy rain as authorities struggled to get aid to small Caribbean islands already devastated by the storm. The US National Weather Service said Puerto Rico had not seen a hurricane of Irma’s magnitude since Hurricane San Felipe in 1928, which killed a total of 2,748 people in Guadeloupe, Puerto Rico and Florida. But as the storm moved west, it devastated the small islands in its path. Significant effects were reported on St Martin, an island split between French and Dutch control. Photos and video circulating on social media showed major damage to the airport in Philipsburg and the coastal village of Marigot heavily flooded. The US National Hurricane Center said Irma’s winds would fluctuate, but the storm would probably remain at Category 4 or 5 for the next day or two as it moves past just to the north of the Dominican Republic and Haiti on Thursday, nears the Turks & Caicos and parts of the Bahamas by Thursday night and touches Cuba on Friday night.

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“Less than an hour before the meeting, Republican House of Representatives Speaker Paul Ryan had called the Democratic proposal that Trump later embraced a “ridiculous and disgraceful” idea..”

Trump Sides With Democrats On Debt Limit In Rare Bipartisan Deal (R.)

President Donald Trump forged a surprising deal with Democrats in Congress on Wednesday to extend the U.S. debt limit and provide government funding until Dec. 15, embracing his political adversaries and blindsiding fellow Republicans in a rare bipartisan accord. Trump, living up to his reputation for unpredictability, met at the White House with congressional leaders from both parties and overruled Republicans and U.S. Treasury Secretary Steven Mnuchin, who wanted a longer-term debt-limit extension rather than the three-month Democratic proposal the president embraced. “We could have done a one-year deal today,” Mnuchin told reporters aboard Air Force One later in the day en route back to Washington from an event in North Dakota where Trump spoke about taxes.

Mnuchin said Trump chose a short-term deal to keep his options open on possibly raising military funding later this year, suggesting a longer-term government funding deal might have blocked that. Trump is very focused on military spending, “particularly with what’s going on in North Korea and other parts of the world today,” Mnuchin said. “The president wasn’t willing to give up his need for additional military spending.” If passed by the Republican-led Congress, the three-month agreement would avert an unprecedented default on U.S. government debt, keep the government funded at the outset of the fiscal year beginning Oct. 1 and provide aid to victims of Hurricane Harvey. “It was a really good moment of some bipartisanship and getting things done,” top Senate Democrat Chuck Schumer said. Less than an hour before the meeting, Republican House of Representatives Speaker Paul Ryan had called the Democratic proposal that Trump later embraced a “ridiculous and disgraceful” idea that would “play politics with the debt ceiling.”

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Curious timing. Note that Reuters has fully entered the anti-Trump echo chamber.

Fed’s Fischer Resigns, Leaving Trump Earlier Chance To Shape Central Bank (R.)

U.S. Federal Reserve Vice Chair Stanley Fischer, a veteran central banker who helped set the course for modern monetary policy, said on Wednesday he will step down from his position in mid-October, potentially accelerating President Donald Trump’s opportunity to reshape the direction of the central bank. In a letter to Trump, Fischer, 73, said he was resigning for personal reasons effective on or around Oct. 13, eight months before his term as vice chair expires in June. In the letter, Fischer said jobs growth had returned to the United States and that “steps to make the financial system stronger and more resilient” had been taken – actions that may now be weakened by the Trump administration.

His departure leaves the seven-person board of governors with as few as three sitting members, depending on whether and when the Senate confirms Trump nominee Randal Quarles to the role of vice chair for supervision, a job distinct from Fischer’s vice chairmanship. The Senate Banking Committee is scheduled to vote on the nomination on Thursday. The White House said it had no immediate comment on Fischer’s departure or on the timing for filling his spot or other positions at the Fed. Though the Fed often operates with fewer than its full complement of seven governors, it has never dipped as low as three. Fischer’s earlier-than-expected departure intensifies the urgency for Trump to decide how deeply he wants to overhaul U.S. monetary policy. Fed Chair Janet Yellen’s term expires in February. While Trump has spoken approvingly of her performance he has also kept the door open to naming his top economic adviser Gary Cohn, or someone else, to the job.

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He thinks he’s taken all he’s going to get.

Deutsche Bank Boss Calls On ECB To Halt Cheap Money (R.)

Deutsche Bank chief executive John Cryan has called on the European Central Bank to change course on providing cheap money, warning he sees price bubbles in stocks, bonds and property. “The era of cheap money in Europe should come to an end – despite the strong euro,” Cryan told a room full of bankers in Frankfurt on Wednesday, a day before the ECB’s governors meet to discuss policy. Low interest rates, money printing and a penalty charge for hoarding cash have been at the heart of attempts by the central bank to reinvigorate the 19-country euro zone economy in the wake of the 2008-09 financial crisis. But the policy, which has seen the ECB print more than €2 trillion ($2.4 trillion) so far, has been politically divisive, prompting fierce criticism from famously thrifty Germans.

It has also imposed a heavy cost on still fragile banks, turning deposits into a hot potato that many would rather avoid so as not to pay charges to their central bank for storing them. The head of Germany’s largest commercial bank warned of the fallout from cheap money, cautioning against using the strong euro as a justification for printing more. “We are now seeing signs of bubbles in more and more parts of the capital market,” he said. Cryan also said Frankfurt was the most natural location as a financial hub as banks move from London after Britain’s decision to leave the European Union – ahead of Paris, Dublin and Amsterdam. “There is only one European city which can fulfil these requirements and that city is Frankfurt,” he said, pointing to Frankfurt’s supervisory authorities, law firms, consultancies and airport.

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Multiple papers have been leaked in recent days. They won’t be the last.

New Leak Of Brexit Papers Reveals Fissures Between Britain And EU (G.)

The EU will risk heightening tensions with the UK on Brexit by publishing five combative position papers in the coming days, including one that places the onus on Britain to solve the problem of the Irish border, according to documents leaked to the Guardian. The Irish document shows that Michel Barnier, the EU’s chief negotiator, will call on the UK to work out “solutions” that avoid the creation of a hard border and guarantee peace on the island. The leaks come a day after the Guardian obtained a draft memo showing the British government’s position on post-Brexit EU migration, which has been denounced as “completely confused”, “economically illiterate” and “a blueprint on how to strangle London’s economy”. The Ireland paper is one of five due to be published by the European commission in the coming days. Each is dated 6 September and was drawn up by Barnier’s article 50 taskforce in Brussels.

Together, the papers lay bare the complexity of disentangling Britain from the European Union. Each paper is focused on withdrawal day, 29 March 2019, delving into technical minefields not dealt with during the referendum campaign. EU proposals include:
• A demand – likely to inflame Brexiters – for the UK to legislate for the “continued protection” of special foods such as Parma ham and feta cheese, as well as French burgundy and Spanish cava. Brussels wants to ensure that more than 3,300 food and drink products are protected from British copycats after Brexit.
• Ensuring that any goods in transit on Brexit day would be subject to the jurisdiction of the European court of justice. In effect, British companies and the British government would be liable to fines from Brussels for breaking EU VAT and customs rules.
• A warning to the government that it must guarantee EU data protection standards on classified EU documents. If not, the EU wants these documents erased or destroyed.
• Asking Britain not to discriminate against EU companies which are carrying out state-funded infrastructure projects that began before Brexit day.

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How to spell deflation.

Consumption Exhaustion (Lebowitz)

Debt serves as a regulator of economic growth and is the focus of ill-advised fiscal and monetary policy. It is no coincidence that no matter what economic topic we explore, debt is usually a central theme. Illustrated in the chart below is the actual trajectory of total U.S. debt outstanding (black) through March 2017 and a calculated parabolic curve (red). The parabolic curve uses 1951 as a starting point and a quarterly 1.82% compounding factor to create the best statistical fit to the actual debt curve. If we start with the $434 billion of debt outstanding on December 1951 and grow it by 1.82% each quarter thereafter, the result is the gray line. If debt outstanding continues to follow this parabolic curve, it will exceed $60 trillion by the first quarter of 2020, or nine quarters from now.

Many economists point to the stability of debt service costs as a reason to ignore the parabolic debt chart. Despite rising debt loads, falling interest rates have served as a ballast allowing more debt accumulation at little incremental cost. While that may have worked in the past, near zero interest rates makes it nearly impossible to continue enjoying the benefits of falling interest rates going forward. Importantly, social safety net obligations, demographics, and political dynamics argue that debt growth is likely to continue accelerating as implied by the chart above. Without interest rates falling in step with rising debt burdens, debt service costs will begin to rise appreciably.

The power of compounding, extolled by Albert Einstein as the eighth wonder of the universe, is as damning in its demands as it is merciful in its generosity. Barring negative interest rates, debt service costs will be an insurmountable burden by 2020. However, if the debt trajectory slows as it did in 2008 that too will bring about painful consequences. In other words, all roads lead to trouble.

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“China maintains a quasi-pegged exchange rate, which requires balancing the inflow and outflow of capital. That means attracting foreign investment is a necessary precondition for investing abroad..”

China Realizes It Needs Foreign Companies (Balding)

China is increasingly desperate for foreign investment. Yet foreign companies are less and less interested in what it has to offer. How this problem gets resolved may be one of the most important questions facing China’s economy. After China joined the World Trade Organization, in 2001, overseas investors couldn’t wait to jump in. Foreign direct investment grew at an annualized rate of 10.8% from 2000 to 2008. Enticed by China’s market size and development capacity, companies were willing tolerate almost any kind of restriction. They turned over intellectual property; entered into joint ventures as junior partners, essentially training their eventual competitors; and accepted restricted access to wide swathes of the economy. Since the financial crisis, however, things have changed.

Wages in China have risen by an average of 11% a year, making it less attractive for outsourcing. Despite years of complaints, intellectual property theft hasn’t abated (just ask Michael Jordan, who had to wage a four-year court battle to get ownership of his own name in China). Add in an increasingly hostile business environment, and it’s not surprising that overseas companies are losing enthusiasm. Since 2008, utilized foreign direct investment has increased by an average rate of only 4% a year. According to quarterly balance-of-payment data, FDI has amounted to only $55 billion this year through June. The last time China’s mid-year inflows were that low was in 2009, the year after the financial crisis. This could have serious economic consequences.

Due to shady invoicing – which many firms use to evade capital controls – the money flowing into China through its trade surplus has shrunk. From 2010 through 2014, banks reported net settlement inflows from goods trade of nearly $1.7 trillion. Since January 2015, net settlement by banks has amounted to only $278 billion, while the official trade surplus is $1.3 trillion. For a country that relies on capital accumulation to sustain growth, this is a significant problem. Making matters worse, China maintains a quasi-pegged exchange rate, which requires balancing the inflow and outflow of capital. That means attracting foreign investment is a necessary precondition for investing abroad, which is China’s main method of advancing its foreign-policy objectives.

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All on red.

Apple Needs iPhone 8 To Solve A Giant Financial Headache (BI)

Apple will launch its next-generation iPhone (expected to be called the iPhone 8 or the iPhone Edition) on September 12, and this chart from Guggenheim Securities analyst Robert Cihra gives you a good idea of the giant headache Apple needs that new phone to solve. The graph is interesting because it shows Apple’s business in a seldom-seen way: It charts only the revenue growth of the company, broken out by product. The chart does a good job of showing how Apple’s various product lines have increasingly stalled over the years. In each of the last four years, Apple had one or more major product lines with shrinking sales. In 2016, that came to a head, and Apple’s overall revenue went into decline for the first time ever.

Note that in 2016, Apple’s worst year, the only division growing revenues was Services — apps, content, and software in iTunes. The stakes for iPhone 8 and its kindred models — iPhone 7s and iPhone 7s Plus — couldn’t be higher. If they don’t grow revenues, then the company as a whole doesn’t grow. The task facing Apple is not trivial. As this chart from Deutsche Bank shows, the iPhone tends to grow more slowly than the smartphone market as a whole — and the smartphone market has flatlined.

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Spain threatens criminal charges for people seeking self-determination.

Catalonia Launches Its Independence Challenge Against Spain (AFP)

Catalonia’s regional parliament passed a law on Wednesday (Sep 6) paving the way for an independence referendum on Oct 1 which is fiercely opposed by Madrid, setting a course for Spain’s deepest political crisis in decades. The looming showdown comes three weeks after militant attacks in Barcelona, the capital of Catalonia, and a seaside resort which killed 16 people and wounded more than 120. The law was adopted with 72 votes in favour and 11 abstentions after 12 hours of often stormy debate in the regional assembly. Lawmakers who oppose independence for the wealthy northeastern region of Spain quit the chamber before the vote. After the law was passed, separatist lawmakers, who have a majority in the assembly, sang the Catalan anthem, “Els Segadors”, which recalls a 1640 revolt in the region against the Spanish monarchy.

Lawmakers approved the bill despite a February ruling by Spain’s Constitutional court declaring it would be unconstitutional. Shortly after the law was passed the president of Catalonia, Carles Puigdemont, and the rest of his cabinet signed a decree calling the referendum, presenting a show of unity in the face of threats of legal action by Madrid, which deems the plebiscite illegal. Deputy Prime Minister Soraya Saenz de Santamaria said before the law was passed that the government had asked the Constitutional Court to declare “void and without effect the agreements adopted” by the Catalan parliament. She also denounced the regional assembly’s agreement to quickly vote on the bill with little debate as an “act of force” characteristic of “dictatorial regimes”. At the same time, public prosecutors announced they would seek criminal charges for disobedience against the president of the Catalan parliament, Carme Forcadell, and other Catalan officials for allowing the vote on the referendum law.

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Macron can only do what Merkel allows him.

Emmanuel Macron To Outline Vision For Europe’s Future In Athens Speech (G.)

Emmanuel Macron will make Greece the launchpad for a major policy speech on the future of Europe as he starts his first official trip to the country on Thursday. From the dramatic setting of the ancient Pnyx in Athens, the French president is expected to outline his vision for the continent in what is being called his most important overseas address since taking office in May. Amid the rocky hills of the Pnyx beneath the Acropolis, the speech will focus on the virtues of democracy as the European Union – and Greece – finally show signs of economic revival. “It will be a message of confidence in Greece but also a European symbolic message, given that in many ways Greece has been a symbol of Europe’s crisis,” said an Élysée Palace source. “The restart of Greece is the restart of the eurozone.”

It is a measure of the significance the Greek government is attaching to the visit that Macron is making the address from such an august setting. From the earliest days of Athenian democracy, the Pnyx was a meeting place for popular assemblies. In more modern times its use has been limited to the rare photo op. The young president will be the first French leader to speak from it, in what Greeks are also calling a subliminal message of hope. Macron has been criticised at home for his carefully choreographed media appearances evoking the grandeur of eras past, and has seen his approval ratings drop dramatically. But officials say the rich symbolism of Macron’s Athens speech will underscore the argument that, despite its battle to stay in the eurozone and keep bankruptcy at bay, Greece remains at the heart of Europe’s tradition and history.

“We see it is as a very important visit,” said the deputy minister of economy and development, Stergios Pitsiorlas. “We are very much hoping it will not only deepen economic cooperation but also herald a change in the political dynamic in the EU which for so long has been dominated by a single state, Germany.” France has stood by Greece, often defending it in fraught negotiations, since international creditors, led by Berlin, were forced to come to the debt-stricken country’s rescue issuing the first of three bailouts in return for tough reforms in May 2010. Macron, a former economy minister, has long advocated debt relief for Athens – echoing the view of its leftist-led government that without it the Greek economy can never fully recover.

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While politicians on all sides cheer the ‘recovery’.

Crisis-Ridden Greek Households Cut Even On Milk And Bread (KTG)

The economic crisis continues to plague Greek households struggling too make ends meet – month in, month out. A survey conducted by Nielsen shows a decline in consumption and therefore the plight of thousands of families. Greeks cut on essential goods like milk and bread. The drop in the category of milk in the organized retail market reached 8.6% in the first half of 2017. Sales of essential consumer goods continue to drop, according to a Nielsen survey of the Greek market. Sales of milk, bread and alcoholic beverages are among the goods that suffer most. In the first half of 2017 the drop in the sale of milk reached 8.6%, while sales of packaged bread shrank by 5.3%. Sales of alcoholic beverages also recorded significant losses, as whiskey sales dropped by 6.8% over the same period.

Overall, retail trade lost 1.1% in value in the first half of the year compared to the same period last year. More pronounced downward trends were recorded in personal care products at 4.4%, and household goods at 3.5%. Sales of deodorants and diapers dropped by 7.3% and 7.2% respectively. In household goods, chlorine dropped by 8.9% and kitchen paper towel by 7.7%. The only positive trend in all sectors was in fresh / bulk products where sales increased by 2.0%. An earlier Nielsen survey has shown that food sales in Greece have dropped by 18 percent since 2009, when the current economic crisis begun. In 2009, food sales reached a record high, totalling 13.15 billion euros. However, as Greece entered the first bailout program in 2010, the demand for food items started to drop. The decrease was also attributed partly to the closing down of small grocery and convenience stores..

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Jul 162017
 
 July 16, 2017  Posted by at 9:19 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Piet Mondriaan The Grey Tree 1912

 

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)
Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)
How Brexit Is Set To Hurt Europe’s Financial Systems (R.)
Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)
Is Russiagate Really Hillarygate? (Forbes)
The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)
France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)
France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)
Is California Bailing Out Tesla through the Backdoor? (WS)
Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

 

 

No markets. No investors.

Global Stocks Soared $1.5 Trillion This Week – Now 102% Of World GDP (ZH)

Thanks, it seems, to a few short words from Janet Yellen, the world’s stock markets added over $1.5 trillion to wealthy people’s net worth this week, sending global market cap to record highs. The value of global equity markets reached a record high $76.28 trillion yesterday, up a shocking 18.6% since President Trump was elected. This is the same surge in global stocks that was seen as the market front-ran QE2 and QE3. This was the biggest spike in global equity markets since 2016.

For the first time since Dec 2007, the market value of global equity markets is greater than the world’s GDP…

Of course – the big question is – how long can ‘they’ keep this dream alive?

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“Actually, the longer it takes to hit, the better it is for us…”

Central Bankers Are Always Wrong…Especially Before A Bust – Ron Paul (ZH)

The global dollar-based monetary system is in serious jeopardy, according to former Texas Congressman Ron Paul. And contrary to Fed Chairwoman Janet Yellen’s assurances that there won’t be another major crisis in our lifetime, the next economy-cratering fiat-currency crash could happen as soon as next month, Paul said during an interview with Josh Sigurdson of World Alternative media. Paul and Sigurdson also discussed false flag attacks, the dawn of a cashless society and the dangers of monetizing national debt. Paul started by saying Yellen’s attitude scares him because “central bankers are always wrong – especially before a bust.”

“There is a subjective element to when people lose confidence, and when is the day going to come when people realize we’re dealing with money that has no intrinsic value to it, we’re dealing with too much debt, too much bad investment and it will come to an end. Something that’s too good to believe usually is and it usually ends. One thing’s for sure, we’re getting closer every day and the crash might come this year, but it might come in a year or two.” “The real test is can it sustain unbelievable deficit financing and the accumulation of debt and it can’t. You can’t run a world like this, if that were the case Americans could just sit back and say “hey, everybody wants our money and will take our money.” Paul advised that, for those who are already girding for the crash by buying gold and silver and stocking their basements with provisions like canned food and bottled water, the rewards for their foresight will only grow with the passage of time.

“Actually, the longer it takes to hit, the better it is for us. The more we can get prepared personally, as well as warn other people, about what’s coming.” “It’s a sign that the authoritarians are clinging to power so they can collect the revenues collect the taxes and make sure you’re not getting around the system. That’s what the cashless society is all about. But it won’t work in fact it might be the precipitating factor that people will eventually lose confidence when the crisis hits. They say the crisis hasn’t come – welI in 2008 and 2009 we had a pretty major crisis and what we learned there is that the middle class got wiped out and the poor people got poorer and now there’s a lot of wealth going on but it’s still accumulating to the wealthy individual.” “People say it might not come for another ten years – well we don’t know whether that’s necessary but one thing that’s for sure when a government embarks on deficit financing and then monetizing the debt the value of commodities like gold and silver generally goes up.

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Anyone think the concentration of finance in the City is maybe not such a great idea? As, you know, for the people?

How Brexit Is Set To Hurt Europe’s Financial Systems (R.)

Interviews with scores of senior executives from big British and international banks, lawyers, academics, rating agencies and lobbyists outline some of the dangers for companies and consumers from potentially losing access to London’s markets. The EU needs London’s money, says Mark Carney, governor of the Bank of England. He calls Britain “Europe’s investment banker” and says half of all the debt and equity issued by the EU involves financial institutions in Britain. Rewiring businesses will be expensive, though estimates vary widely. Investment banks that set up new European outposts to retain access to the EU’s single market may see their EU costs rise by between 8 and 22%, according to one study by Boston Consulting Group.

A separate study by JP Morgan estimates that eight big U.S. and European banks face a combined bill of $7.5 billion over the next five years if they have to move capital markets operations out of London as a result of Brexit. Such costs would equate to an average 2% of the banks’ global annual expenses, JP Morgan said. Banks say most of those extra costs will end up being paid by customers. “If the cost of production goes up, ultimately a lot of our costs will get passed on to the client base,” said Richard Gnodde, chief executive of the European arm of Goldman Sachs. “As soon as you start to fragment pools of liquidity or fragment capital bases, it becomes less efficient, the costs can go up.”

UK-based financial firms are trying to shift some of their operations to Europe to ensure they can still work for EU clients, but warn such a rearrangement of the region’s financial architecture could threaten economic stability not only in Britain but also in Europe because so much European money flows through London. European countries, particularly France and Germany, don’t share these concerns, viewing Brexit as an opportunity to steal large swathes of business away from Britain and build up their own financial centres. Britain alone accounts for 5.4% of global stock markets by value, according to Reuters data. Valdis Dombrovskis, the EU financial services chief, said the EU will still account for 15% of global stock markets by value without Britain, and that measures were being taken to strengthen its capital markets. But he added: “Fragmentation is preventing our financial services sector from realising its full potential.”

Industry figures have similar concerns. Jean-Louis Laurens, a former senior Rothschild banker and now ambassador for the French asset management lobby, told Reuters: “If London is broken into pieces then it is not going to be as efficient. Both Europe and Britain are going to lose from this.” London is currently home to the world’s largest number of banks and hosts the largest commercial insurance market. About six trillion euros ($6.8 trillion), or 37%, of Europe’s financial assets are managed in the UK capital, almost twice the amount of its nearest rival, Paris. And London dominates Europe’s 5.2 trillion euro investment banking industry.

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Familiar patteren: first blow a bubble, then warn about it.

Britons Face Lifetime Of Debt: BOE Warns Over 35 Year Mortgages (Tel.)

British families are signing up for a lifetime of debt with almost one in seven borrowers now taking out mortgages of 35 years or more, official figures show. Rapid house price growth has encouraged borrowers to sign longer mortgage deals as a way of reducing monthly payments and easing affordability pressures. Bank of England data shows 15.75pc of all new mortgages taken out in the first quarter of 2017 were for terms of 35 years or more. While this is slightly down from the record high of 16.36pc at the end of 2016, it has climbed from just 2.7pc when records began in 2005. The steady rise has triggered alarm bells at the Bank, prompting regulators to warn that the trend risks storing up problem[s] for the future if lenders ignore the growing share of households prepared to borrow into retirement. Several lenders including Halifax, the UK’s biggest mortgage provider, and Nationwide have raised their borrowing age limits to 80 and 85 over the past year.

Bank figures show one in five mortgages are taken out for terms of between 30 and 35 years, from below 8pc in 2005, as the traditional 25-year mortgage becomes less popular. David Hollingworth, a director at mortgage broker London & Country, said the trend showed that an increasing share of borrowers were struggling with affordability pressures, and deciding that lengthening the term will offer leeway as house price growth continues to outpace pay rises. However, he said most borrowers were unlikely to stick with the same deal, with most having a desire to review that later and potentially peg [the extra interest costs] back . Mr Hollingworth added that longer mortgage terms were also better than interest-only deals that were prevalent before the credit crunch. The Bank noted in its latest financial stability report that there was little evidence that borrowers were signing up for longer mortgage deals to circumvent tougher borrowing tests for homeowners introduced in 2014.

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Fusion GPS.

Is Russiagate Really Hillarygate? (Forbes)

The most under covered story of Russia Gate is the interconnection between the Clinton campaign, an unregistered foreign agent of Russia headquartered in DC (Fusion GPS), and the Christopher Steele Orbis dossier. This connection has raised the question of whether Kremlin prepared the dossier as part of a disinformation campaign to sow chaos in the US political system. If ordered and paid for by Hillary Clinton associates, Russia Gate is turned on its head as collusion between Clinton operatives (not Trump’s) and Russian intelligence. Russia Gate becomes Hillary Gate. Neither the New York Times, Washington Post, nor CNN has covered this explosive story. Two op-eds have appeared in the Wall Street Journal. The possible Russian-intelligence origins of the Steele dossier have been raised only in conservative publications, such as in The Federalist and National Review.

The Fusion story has been known since Senator Chuck Grassley (R-Iowa) sent a heavily-footnoted letter to the Justice Department on March 31, 2017 demanding for his Judiciary Committee all relevant documents on Fusion GPS, the company that managed the Steele dossier against then-candidate Donald Trump. Grassley writes to justify his demand for documents that: “The issue is of particular concern to the Committee given that when Fusion GPS reportedly was acting as an unregistered agent of Russian interests, it appears to have been simultaneously overseeing the creation of the unsubstantiated dossier of allegations of a conspiracy between the Trump campaign and the Russians.”

Former FBI director, James Comey, refused to answer questions about Fusion and the Steele dossier in his May 3 testimony before the Senate Intelligence Committee. Comey responded to Lindsey Graham’s questions about Fusion GPS’s involvement “in preparing a dossier against Donald Trump that would be interfering in our election by the Russians?” with “I don’t want to say.” Perhaps he will be called on to answer in a forum where he cannot refuse to answer.

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And don’t think it’s over. The pension chips are yet to fall.

The Way Chicago “Works”: Graft, Corruption, Connections, Bribes (Mish)

Those who wish to understand how things work in Chicago need read a single article that ties everything together:

“Teamsters Boss Indicted On Charges Of Extorting $100,000 From A Local Business. A politically connected Teamsters union boss was indicted Wednesday on federal charges alleging he extorted $100,000 in cash from a local business. John Coli Sr., considered one the union’s most powerful figures nationally, was charged with threatening work stoppages and other labor unrest unless he was given cash payoffs of $25,000 every three months by the undisclosed business. The alleged extortion occurred when Coli was president of Teamsters Joint Council 25, a labor organization that represents more than 100,000 workers in the Chicago area and northwest Indiana. Coli, 57, an early backer of Mayor Rahm Emanuel, was charged with one count of attempted extortion and five counts of demanding and accepting prohibited payment as a union official.”

[..] Former governor Rod Blagojevich is now in prison for a 14-year sentence. He was found guilty of 18 counts of corruption, including attempting to sell or trade an appointment to a vacant seat in the U.S. Senate. He faces another eight years in prison after an appeals court upheld the sentence in April of this year. No other state can match this claim: 4 OUT OF PREVIOUS 7 ILLINOIS GOVERNORS WENT TO PRISON The way Chicago “works” is the same way Illinois “works”. Corrupt politicians get in bed with corrupt union leaders and screw the taxpayers and businesses as much as they can. Sometimes they get caught. Teamster boss Coli just got caught after all these years of extortion. His deals with Mayor Emanuel screwed Chicago taxpayers. Emanuel promised reforms and transparency but reforms and transparency stop once campaign donations are sufficient enough.

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Macron plays Napoleon.

France’s Macron Says Defense Chief Has No Choice But To Agree With Him (R.)

French President Emmanuel Macron said his defense chief has no choice but to agree with what he says, a weekly newspaper reported on Sunday, after his top general criticized spending cuts to this year’s budget. “If something opposes the military chief of staff and the president, the military chief of staff goes,” Macron, who as president is also the commander-in-chief of the armed forces, told Le Journal du Dimanche (JDD). Macron said on Thursday that he would not tolerate public dissent from the military after General Pierre de Villiers reportedly told a parliament committee he would not let the government “fuck with” him on spending cuts.

De Villiers still has Macron’s “full trust,” the president told JDD, provided the top general “knows the chain of command and how it works.” “No one deserves to be blindly followed,” De Villiers wrote in a message posted on his Facebook page on Friday. De Villiers’ last Facebook post is an open letter addressed to new military recruits that makes no mention of Macron. But it was perceived by French media as targeting the president’s earlier comments.

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Macron wants to be a global force too. While he has nothing to say in Europe.

France Calls For Swift Lifting Of Sanctions On Qatari Nationals (R.)

France called on Saturday for a swift lifting of sanctions that target Qatari nationals in an effort to ease a month-long rift between the Gulf country and several of its neighbors. Saudi Arabia, the United Arab Emirates, Bahrain and Egypt imposed sanctions on Qatar on June 5, accusing it of financing extremist groups and allying with the Gulf Arab states’ arch-foe Iran. Doha denies the accusations. “France calls for the lifting, as soon as possible, of the measures that affect the populations in particular, bi-national families that have been separated or students,” French Foreign Minister Jean-Yves Le Drian told reporters in Doha, after he met his counterpart Sheikh Mohammed bin Abdulrahman al-Thani. Le Drian was speaking alongside Sheikh Mohammed, hours after his arrival in Doha. He is the latest Western official to visit the area since the crisis began.

Later in the day he flew to Jeddah, where he repeated his concerns about the effects of the standoff in a televised press appearance with Saudi Foreign Minister Adel al-Jubeir. Jubeir said any resolution of the worst Gulf crisis in years should come from within the six-nation Gulf Cooperation Council. “We hope to resolve this crisis within the Gulf house, and we hope that wisdom prevails for our brothers in Qatar in order to respond to the demands of the international community – not just of the four countries,” he said. [..] Le Drian, who will visit the UAE and Gulf mediator Kuwait on Sunday, follows in the steps of other world powers in the region, including the United States, whose Secretary of State Rex Tillerson sought to find a solution to the impasse this week.

Officials from Britain and Germany also visited the region with the aim of easing the conflict, for which Kuwait has acted as mediator between the fending Gulf countries. In a joint statement issued after Tillerson and Sheikh Mohammed signed an agreement on Tuesday aimed at combating the financing of terrorism, the four Arab states leading the boycott on Qatar said the sanctions would remain in place.

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The Tesla tulip.

Is California Bailing Out Tesla through the Backdoor? (WS)

The California state Assembly passed a $3-billion subsidy program for electric vehicles, dwarfing the existing program. The bill is now in the state Senate. If passed, it will head to Governor Jerry Brown, who has not yet indicated if he’d sign what is ostensibly an effort to put EV sales into high gear, but below the surface appears to be a Tesla bailout. Tesla will soon hit the limit of the federal tax rebates, which are good for the first 200,000 EVs sold in the US per manufacturer beginning in December 2009 (IRS explanation). In the second quarter after the manufacturer hits the limit, the subsidy gets cut in half, from $7,500 to $3,750; two quarters later, it gets cut to $1,875. Two quarters later, it goes to zero. Given Tesla’s ambitious US sales forecast for its Model 3, it will hit the 200,000 vehicle limit in 2018, after which the phase-out begins.

A year later, the subsidies are gone. Losing a $7,500 subsidy on a $35,000 car is a huge deal. No other EV manufacturer is anywhere near their 200,000 limit. Their customers are going to benefit from the subsidy; Tesla buyers won’t. This could crush Tesla sales. Many car buyers are sensitive to these subsidies. For example, after Hong Kong rescinded a tax break for EVs effective in April, Tesla sales in April dropped to zero. The good people of Hong Kong will likely start buying Teslas again, but it shows that subsidies have a devastating impact when they’re pulled. That’s what Tesla is facing next year in the US. In California, the largest EV market in the US, 2.7% of new vehicles sold in the first quarter were EVs, up from 0.4% in 2012, according to the California New Dealers Association. California is Tesla’s largest market.

Something big needs to be done to help the Bay Area company, which has lost money every single year of its ten years of existence. And taxpayers are going to be shanghaied into doing it. To make this more palatable, you have to dress this up as something where others benefit too, though the biggest beneficiary would be Tesla because these California subsidies would replace the federal subsidies when they’re phased out. It would be a rebate handled at the dealer, not a tax credit on the tax return. And it could reach “up to $30,000 to $40,000” per EV, state Senator Andy Vidak, a Republican from Hanford, explained in an emailed statement. This is how the taxpayer-funded rebates in the “California Electric Vehicle Initiative” (AB1184) would work, according to the Mercury News:

“The [California Air Resources Board] would determine the size of a rebate based on equalizing the cost of an EV and a comparable gas-powered car. For example, a new, $40,000 electric vehicle might have the same features as a $25,000 gas-powered car. The EV buyer would receive a $7,500 federal rebate, and the state would kick in an additional $7,500 to even out the bottom line.” And for instance, a $100,000 Tesla might be deemed to have the same features as a $65,000 gas-powered car. The rebate would cover the difference, minus the federal rebate (so $27,500). Because rebates for Teslas will soon be gone, the program would cover the entire difference – $35,000. This is where Senator Vidak got his “$30,000 to $40,000.”

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Money changes everything.

Brazil To Open Up 860,000 Acres Of Protected Amazon Rainforest (Ind.)

The Brazilian environment ministry is proposing the release of 860,000 acres in the National Forest of Jamanxim for agricultural use, mining and logging. The government’s order was a compromise measure after protests from local residents and ecologists who claim that the bill could lead to further deforestation in the Pará area. If approved, the legislation will create a new protection area (APA) close to Novo Progresso. Around 27% of the national forest would be converted into an APA, the ministry said. Carlos Xavier, president of a lobbying group in Pará to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. According to the ministry, the bill includes stipulations to reduce conflicts over land, prevent deforestation and create jobs. The measures were criticised by environmental groups.

“The bill is seen as an amnesty for illegal occupation of the conservancy unit,” said Observatório do Clima on its website, claiming that the government “yielded to pressure” from the rural lobby. Carlos Xavier, president of a lobbying group in Para to decrease the size of the Jamanxim forest, said the APA would bring economic progress to the region. In 2016, deforestation of the Amazon rose by 29% over the previous year, according to the government’s satellite monitoring, the biggest jump since 2008. Mongabay, an environmental science and conservation website, reports that experts using satellite images have identified illegal logging activities to the east of the BR-163 highway, in Pará state. The BR-163 protests involved stopping trucks from unloading grains at the riverside location of Miritituba, where barges carrying crops are transported en route to the export markets. ATP, the Brazilian private ports association, calculated that the highway protests would result in losses of $47m.

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Jun 272017
 
 June 27, 2017  Posted by at 10:00 am Finance Tagged with: , , , , , , , , ,  10 Responses »
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Egon Schiele Port of Trieste 1907

 

Trump Eager For Big Meeting With Putin; Some Advisers Wary (AP)
Three Journalists Quit CNN In Fallout From Retracted Russia Story (Fox)
US Congress To Stop Arms Sales To Gulf Until Qatar Crisis Is Solved (G.)
Democrats Help Corporate Donors Block California Single-Payer (IBT)
Bernanke: Economists Missed Populism, Inequality, But Are Here To Help (CNBC)
Europe’s Inequality Highly Destabilizing – Draghi (R.)
Change the Way Money Is Created, Or More Inequality, Disorder Inevitable (CHS)
ECB Chief Draghi Rules Out Greece Joining QE Soon (K.)
Europe’s Gradualist Fallacy (Varoufakis)
Italy Bank Deal Makes Germans Wary of Macron’s Euro Agenda
Italy’s Latest Bank Bailout Has Created A Two-Speed Eurozone (Coppola)
Brazil Top Prosecutor Charges President With Bribery (AFP)
The Technicolor Swan (Jim Kunstler)
California To List Glyphosate As Cancer-Causing; Monsanto Vows Fight (R.)

 

 

What a great idea to try and prevent the US President from talking to other world leaders (i.e. doing his job).

Trump Eager For Big Meeting With Putin; Some Advisers Wary (AP)

President Donald Trump is eager to meet Russian President Vladimir Putin with full diplomatic bells and whistles when the two are in Germany for a multinational summit next month. But the idea is exposing deep divisions within the administration on the best way to approach Moscow in the midst of an ongoing investigation into Russian meddling in the U.S. elections. Many administration officials believe the U.S. needs to maintain its distance from Russia at such a sensitive time – and interact only with great caution. But Trump and some others within his administration have been pressing for a full bilateral meeting. He’s calling for media access and all the typical protocol associated with such sessions, even as officials within the State Department and National Security Council urge more restraint, according to a current and a former administration official.

Some advisers have recommended that the president instead do either a quick, informal “pull-aside” on the sidelines of the summit, or that the U.S. and Russian delegations hold “strategic stability talks,” which typically don’t involve the presidents. The officials spoke anonymously to discuss private policy discussions. The contrasting views underscore differing views within the administration on overall Russia policy, and Trump’s eagerness to develop a working relationship with Russia despite the ongoing investigations. Asked about the AP report that Trump is eager for a full bilateral meeting, Putin’s spokesman Dmitry Peskov told reporters in Moscow on Monday that “the protocol side of it is secondary.” The two leaders will be attending the same event in the same place at the same time, Peskov said, so “in any case there will be a chance to meet.”

Peskov added, however, that no progress in hammering out the details of the meeting has been made yet. There are potential benefits to a meeting with Putin. A face-to-face meeting can humanize the two sides and often removes some of the intrigue involved in impersonal, telephone communication. Trump — the ultimate dealmaker — has repeatedly suggested that he can replace the Obama-era damage in the U.S.-Russia relationship with a partnership, particularly on issues like the ongoing Syria conflict. There are big risks, though. Trump is known to veer off-script, creating the possibility for a high-stakes diplomatic blunder. In a brief Oval Office meeting with top Russian diplomats last month, Trump revealed highly classified information about an Islamic State group threat to airlines that was relayed to him by Israel, according to a senior administration official. The White House defended the disclosures as “wholly appropriate.”

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Here’s why people don’t want Trump to talk to Putin.

Three Journalists Quit CNN In Fallout From Retracted Russia Story (Fox)

Three CNN journalists who worked on a now-retracted story about Russia and a top Trump adviser are leaving the network. CNN is casting their departure as resignations in the wake of the fiasco, but the network has come under substantial criticism since apologizing for the story. The move would also help CNN’s legal position in case of a lawsuit. Anthony Scaramucci, the Trump adviser who is the target of the story, told me that he has no plans to sue. He said he has accepted CNN’s apology and wants to move on. But Scaramucci also told me in an earlier interview, “I was disappointed the story was published. It was a lie.” Lex Harris, executive editor of CNN’s investigative unit, was the highest-ranking official to resign. Thomas Frank, who wrote the story, and Eric Lichtblau, who edited it, also turned in their resignations.

Lichtblau is a highly regarded reporter who spent nearly a decade and a half at the New York Times. The story tried to draw a link between Scaramucci and the Russian Direct Investment Fund. Scaramucci was a Trump transition team member who has been nominated to an ambassadorial-level post based in Paris. The CNN.com article said that Scaramucci, back in January, held a secret meeting with an official from the Russian fund. According to an unnamed source, Scaramucci discussed the possibility of lifting U.S. sanctions at the meeting. But Scaramucci told me there was no secret meeting. He said he had given a speech on Trump’s behalf at Davos, and fund official Kirill Dmitriev approached him in a restaurant to say hello and they had a brief conversation, with no discussion of sanctions. In the retraction, the network said the story “did not meet CNN’s editorial standards.” The network is now requiring approval from two top editors before any Russia-related story can be published.

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Amazing how easy it can be. Now make it permanent.

US Congress To Stop Arms Sales To Gulf Until Qatar Crisis Is Solved (G.)

The Republican chairman of the Senate foreign relations committee has said the US Congress will hold up approval of arms sales to the Gulf as a result of the Saudi-led blockade of Qatar. Senator Bob Corker said the nations of Gulf Cooperation Council had failed to take advantage of a summit with President Trump in May to overcome their differences and had “instead chosen to devolve into conflict”. Corker continued: “For these reasons, before we provide any further clearances during the informal review period on sales of lethal military equipment to the GCC states, we need a better understanding of the path to resolve the current dispute and reunify the GCC.”

Earlier this month, the Senate narrowly fended off a bid to block a Trump administration plan to sell Saudi Arabia $500m in precision-guided munitions, part of a proposed $110bn arms sales package announced during the president’s visit to Riyadh last month. Congress has the power to block individual sales during a 30-day review period from when the state department gives notification of an impending sale. A Saudi-led coalition that includes Egypt, the United Arab Emirates and Bahrain cut ties with Qatar on 5 June, but only provided a justification 18 days later with the presentation of a list of 13 demands. They want Doha to close the al-Jazeera TV channel, restrict diplomatic ties with Iran, halt the construction of a Turkish military base in the country, and sever contacts with extremist organisations.

Qatar has been given 10 days to meet the demands, but the Saudi-led group has not said what action it would take if the deadline is not met. The US has sent mixed signals on the standoff. In the immediate aftermath of the embargo, Trump gave Riyadh and its allies fulsome support, echoing Saudi claims about Qatari funding for terrorism. However, Rex Tillerson, the secretary of state, last week called on the coalition present its complaints and negotiate a solution. Since the list of 13 demands was presented, Tillerson has been non-committal, observing that some of them would be “very difficult for Qatar to meet”, but arguing there were “significant areas which provide a basis for ongoing dialogue leading to resolution.”

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David Sirota: “Jerry Brown campaigned for president supporting single-payer, then he got big cash from insurers/drugmakers, now he refused to back the bill.”

Single payer is the only thing that can save US health care. But all sides are in debt to the very interests who will block it.

Democrats Help Corporate Donors Block California Single-Payer (IBT)

As Republican lawmakers grapple with their unpopular bill to repeal Obamacare, Democrats have tried to present a united front on health care. But for all their populist rhetoric against insurance and drug companies, Democratic powerbrokers and their allies remain deeply divided on the issue — to the point where a political civil war has spilled into the open in America’s largest state. In California last week, Democratic state Assembly Speaker Anthony Rendon helped his and his party’s corporate donors block a Democrat-sponsored bill to create a universal health care program in which the government would be the single payer. Rendon’s decision shows how progressives’ ideal of universal health care remains elusive — even in a liberal state where government already foots 70% of the total health care bill.

Until Rendon’s move, things seemed to be looking up for Democratic single-payer proponents in deep blue California, which has been hammered by insurance premium increases. There, the Democratic Party — which originally created Medicare — just added a legislative supermajority to a Democratic-controlled state government that oversees the world’s sixth largest economy. That 2016 election victory came as a poll showed nearly two-thirds of Californians support the creation of a taxpayer-funded universal health care system in a state whose population is roughly the size of Canada — which already has such a system. California’s highest-profile federal Democratic lawmaker recently endorsed state efforts to create single-payer systems, and 25 members of its congressional delegation had signed on to sponsor a federal single-payer bill.

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They missed everything so far, but now we need them.

Bernanke: Economists Missed Populism, Inequality, But Are Here To Help (CNBC)

Former chairman of the Federal Reserve Ben Bernanke said Monday that economists have a “responsibility” to help address populist frustrations. “The credibility of economists has been damaged by our insufficient attention, over the years, to the problems of economic adjustment and by our proclivity toward top-down, rather than bottom-up, policies,” Bernanke, now distinguished fellow in residence, Brookings Institution, said in prepared remarks for a dinner speech called “When growth is not enough.” “Nevertheless, as a profession we have expertise that can help make the policy response more effective, and I think we have a responsibility to contribute wherever we can,” the former Fed chair said.

In the last 18 months, growing populist sentiment contributed to the UK’s surprise vote to leave the European Union last June, and the election of U.S. President Donald Trump last November. Trump promised to bring jobs back from China and Mexico to the U.S., winning him support. The U.S. Census Bureau’s latest report on household income showed the Gini index of income inequality for the U.S. in 2015 of 0.482 was significantly higher than the prior year’s 0.480. “This increase suggests that income inequality increased across the country,” the report said. “Policymakers in recent decades have been slow to address or even to recognize those trends, an error of omission that has helped fuel the voters’ backlash,” Bernanke said. He was speaking at the European Central Bank’s Forum on Central Banking in Sintra, Portugal.

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Bernanke and Draghi greatly increased inequality with their ZIRP and NIRP policies. And today both all of a sudden come out as being worried about it?

Europe’s Inequality Highly Destabilizing – Draghi (R.)

Europe’s growing inequality is highly destabilizing and needs to be tackled with education, innovation and investment in human capital, particularly jobs for young people, ECB President Mario Draghi said on Monday. Income inequality has grown among euro zone countries since the global financial crisis and some measures also show divergence between the bloc’s richer and poorer members, a source of tension for the 19-member currency bloc. “Is this a seriously destabilizing factor that we should cope with?” Draghi said in a rare town-hall style meeting with university students in Lisbon. “Yes it is.” “We have to fight against inequality,” Draghi in response to a student question. Draghi, leading one of Europe’s most respected institutions, has for years called on governments to enact fundamental reforms, arguing that the ECB is able to prop up growth, but only temporarily, giving governments a window of opportunity.

Eurostat data has shown that only a handful of countries have managed to shrink income inequality since the crisis while it has grown sharply in places like France or Spain. Figures also show the highest level of income inequality in the bloc’s periphery, like Greece, Spain and Portugal, hit hardest by the crisis. Calling convergence among euro zone members “fundamental,” Draghi said the best way to fight inequality is by creating jobs, which comes from an increased investment in education, skills development and innovation. He also called on governments to consider better income and wealth redistribution policies. Defending the ECB’s ultra easy monetary policy, Draghi said that super low rates create jobs, foster growth and benefit borrowers, ultimately easing inequality. He also rejected calls to exit super easy monetary policy quickly, arguing that premature tightening would lead to a fresh recession and more inequality.

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Here’s how ZIRP creates more inequality.

Change the Way Money Is Created, Or More Inequality, Disorder Inevitable (CHS)

Compare the limited power of an individual with cash and the enormous power of unlimited cheap credit. Let’s say an individual has saved $100,000 in cash. He keeps the money in the bank, which pays him less than 1% interest. Rather than earn this low rate, he decides to loan the cash to an individual who wants to buy a rental home at 4% interest. There’s a tradeoff to earn this higher rate of interest: the saver has to accept the risk that the borrower might default on the loan, and that the home will not be worth the $100,000 the borrower owes. The bank, on the other hand, can perform magic with the $100,000 they obtain from the central bank. The bank can issue 19 times this amount in new loans—in effect, creating $1,900,000 in new money out of thin air.

This is the magic of fractional reserve lending. The bank is only required to hold a small%age of outstanding loans as reserves against losses. If the reserve requirement is 5%, the bank can issue $1,900,000 in new loans based on the $100,000 in cash: the bank holds assets of $2,000,000, of which 5% ($100,000) is held in cash reserves. This is a simplified version of how money is created and issued, but it helps us understand why centrally issued and distributed money concentrates wealth in the hands of those with access to the centrally issued credit and those who have the privilege of leveraging every $1 of cash into $19 newly created dollars that earn interest. Imagine if we each had a relatively modest $1 million line of credit at 0.25% interest from a central bank that we could use to issue loans of $19 million.

Let’s say we issued $19 million in home loans at an annual interest rate of 4%. The gross revenue (before expenses) of our leveraged $1 million would be $760,000 annually –let’s assume we net $600,000 per year after annual expenses of $160,000. (Recall that the interest due on the $1 million line of credit is a paltry $2,500 annually). Median income for workers in the U.S. is around $30,000 annually. Thus a modest $1 million line of credit at 0.25% interest from the central bank would enable us to net 20 years of a typical worker’s earnings every single year. This is just a modest example of pyramiding wealth.

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So Draghi whines about inequality and at the same time makes sure Greece gets hammered even more economically. Does his ass know where his mouth is located?

ECB Chief Draghi Rules Out Greece Joining QE Soon (K.)

The president of the European Central Bank, Mario Draghi, said on Monday that Greece will not join its quantitative easing program (QE) until international creditors specify what sort of debt relief measures the country can expect. “Until sufficient details are given on debt-related measures, serious concerns remain about the sustainability of Greek government debt,” he said in response to a question from Popular Unity (LAE) MEP Nikos Hountis over whether the ECB had completed its own debt sustainability analysis (DSA), and if it had come to any conclusions on the issue. Draghi said that ECB experts “are not currently in a position to complete a fully fledged DSA analysis of Greece’s public debt.” Up until very recently, Greece was banking on its inclusion in QE as a way to return to bond markets, which would put an end to its dependence on bailout programs.

If the ECB were to buy Greek debt it would boost the confidence of investors about the prospects of the Greek economy. But given Draghi’s comment on Monday and the failure of the government to secure more concrete language on debt relief at the Eurogroup on June 15, Athens now believes it can achieve the goal to enter bond markets without having to join QE. And it believes that it has three windows of opportunity to issue a bond in the period stretching from July until early next year. These three opportunities are, reportedly, in July, given the improved climate in international markets. The second chance will be at the end of September and beginning of October after German elections, while the third will be at the end of the year or early 2018, as predicted by the head of the European Stability Mechanism (ESM), Klaus Regling.

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Macron is Merkel’s messenger boy. France has nothing to say in the EU. That’s the essence of Europe’s problem.

Europe’s Gradualist Fallacy (Varoufakis)

Europe is at the mercy of a common currency that not only was unnecessary for European integration, but that is actually undermining the European Union itself. So what should be done about a currency without a state to back it – or about the 19 European states without a currency that they control? The logical answer is either to dismantle the euro or to provide it with the federal state it needs. The problem is that the first solution would be hugely costly, while the second is not feasible in a political climate favoring the re-nationalization of sovereignty. Those who agree that the cost of dismantling the euro is too high to contemplate are being forced into a species of wishful thinking that is now very much in vogue, especially after the election of Emmanuel Macron to the French presidency.

Their idea is that, somehow, by some unspecified means, Europe will find a way to move toward federation. “Just hang in there,” seems to be their motto. Macron’s idea is to move beyond idle optimism by gaining German consent to turn the eurozone into a state-like entity – a federation-lite. In exchange for making French labor markets more Germanic, as well as reining in France’s budget deficit, Germany is being asked to agree in principle to a common budget, a common finance ministry, and a eurozone parliament to provide democratic legitimacy. Macron knows that such a federation would be macroeconomically insignificant, given the depth of the debt, banking, investment, and poverty crisis unfolding across the eurozone. But, in the spirit of the EU’s traditional gradualism, he thinks that such a move would be politically momentous and a decisive step toward a meaningful federation.

“Once the Germans accept the principle, the economics will force them to accept the necessary magnitudes,” is how a French official put it to me recently. Such optimism may seem justified in light of proposals along those lines made in the past by none other than Wolfgang Schäuble, Germany’s finance minister. But there are two powerful reasons to be skeptical. First, Chancellor Angela Merkel and Schäuble were not born yesterday. If Macron’s people imagine a federation-lite as an entering wedge for full-blown political integration, so will Merkel, Schäuble, and the reinvigorated Free Democrats (who will most likely join a coalition government with Merkel’s Christian Democrats after the September federal election). And they will politely but firmly reject the French overtures.

Second, in the unlikely event that Germany gives federation-lite the go-ahead, any change to the functioning of the eurozone would, undoubtedly, devour large portions of the reformers’ political capital. If it does not produce economic and social results that improve, rather than annul, the chances of a proper federation, as I suspect it will not, a political backlash could ensue, ending any prospect of a more substantial federation in the future. In that case, the euro’s dismantling will become inevitable, will cost more, and will leave Europe in even greater shambles.

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Germany doesn’t care one bit about Macron’s agenda; they may pay lip service, but that’s it. In this particular case, do you think Germany wants an Italian bank collapse a few months before Merkel’s election?

Italy Bank Deal Makes Germans Wary of Macron’s Euro Agenda

Germany sounded the alarm over Italy’s latest bank bailout, saying the apparent bending of EU rules casts doubt on efforts to further integrate the euro zone. The government in Rome announced the country’s biggest bank rescue to date on Sunday evening as it committed as much as €17 billion ($19 billion) to clean up two failed banks. While the European Commission approved the plan, German officials pointed to the involvement of state aid to shield senior creditors from losses as working around EU law established to deal with bank failures. That exemption drew criticism from members of Chancellor Angela Merkel’s ruling coalition, who cited the need to uphold European law without setting unhealthy precedents.

“We’re in a phase where we are faced with the question of whether we can succeed at applying European law, irrespective of all the understandable domestic policy discussions,” Alexander Radwan, a lawmaker from Merkel’s CSU Bavarian sister party who sits on the Bundestag’s finance committee, said in an interview on Monday. “Cases like these make it more difficult to think about deepening the economic and monetary union.” The growing drumbeat for closer euro-area integration following Emmanuel Macron’s election in France is making some German lawmakers increasingly uneasy. Citing election results in France and the Netherlands this year that open “an opportunity for moving Europe forward,” Merkel has spoken of joint projects with France and left the door open to creating a euro-area budget and a joint finance minister.

“This decision discredits the further completion of the banking union and moves the common deposit-guarantee scheme into the distant future,” said Carsten Schneider, a deputy head of the Social Democrat caucus in Germany’s lower house. “It’s not acceptable that bank wind-downs under national rules offer better conditions for creditors than under the European regime.” Italy’s decision is “a grave mistake,” Schneider said in emailed comments to Bloomberg.

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Brussels hubris in its full splendor. (BRRD= Bank Recovery and Resolution Directive)

Italy’s Latest Bank Bailout Has Created A Two-Speed Eurozone (Coppola)

The bailout is dressed up as a rescue by a larger bank along the same lines as Santander’s recent acquisition for a nominal 1 euro of the insolvent Banco Popular. Like Santander, Intesa Sanpaolo, Italy’s second-biggest lender, will buy the two banks 1 euro. But there the similarity ends. Santander took on full responsibility for recapitalizing Banco Popular, for which it announced a 7bn euro rights issue. But Intesa isn’t taking financial responsibility for anything. The Italian government is paying Intesa about 5bn euros in cash to take over the two banks, and is additionally providing guarantees worth 12bn euros for the two banks’ bad assets. The total bailout amount is thus around 17bn euros, though according to the European Commission, the net cost will be much lower: Both guarantees and cash injections are backed up by the Italian State’s senior claims on the assets in the liquidation mass. Correspondingly, the net costs to the Italian State will be much lower than the nominal amounts of the measures provided.

The bailout imposes losses on the two banks’ shareholders and subordinated debtholders. But the all-important seniors have been spared, and small subordinated debtholders will be compensated by Intesa from the funds provided by the Italian government. The BRRD has effectively been sidestepped. Did the EU oppose this sleight of hand? Not a bit of it. In this statement, the European Commission approved the use of taxpayers’ funds to bail out these banks: “The Commission found these measures to be in line with EU State aid rules, in particular the 2013 Banking Communication. Existing shareholders and subordinated debt holders have fully contributed to the costs, reducing the cost of the intervention for the Italian State. Both aid recipients, BPVI and Banca Veneto, will be wound up in an orderly fashion and exit the market, while the transferred activities will be restructured and significantly downsized by Intesa, which in combination will limit distortions of competition arising from the aid.”

Remarkable. Winding up two banks in the Venetian area would cause massive economic disruption. So the solution is to create an effective banking monopoly in that area. And this doesn’t distort competition, apparently. I detect a distinct odor of Eurofudge. Italy’s decision, supported by the European Commission, tramples the BRRD to death. Senior creditors need never again fear losses due to a failing bank. If it is systemically important, it will be given a precautionary recapitalization at taxpayers’ expense. If it is not, an excuse will be found to bail it out at taxpayers’ expense. Either way, seniors and unsecured depositors are safe. That is, they are as safe as politicians want them to be. Italy is able to bail out these banks – and will no doubt in due course bail out others too – because it is a big country which can easily borrow the funds needed.

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“..”abundant” proof that the president received bribe money..”

Brazil Top Prosecutor Charges President With Bribery (AFP)

Brazil’s top prosecutor charged President Michel Temer with bribery on Monday, plunging Latin America’s biggest country into what could be prolonged new political turmoil. The bribery charge filed by Prosecutor General Rodrigo Janot swept Temer into the forefront of a giant graft scandal that has engulfed Latin America’s biggest country over the last three years. Although several past Brazilian presidents and scores of other politicians are currently being investigated for corruption in the “Car Wash” probe, Temer is the first leader in the country’s history to face criminal charges while still in office. Temer acted “in violation of his duties to the state and to society,” Janot wrote, citing “abundant” proof that the president received bribe money.

For Temer to go on trial, the lower house of Congress must first approve Janot’s charge by a two-thirds majority. Temer would then be suspended for six months for the trial. Janot is also probing Temer for alleged obstruction of justice and membership of a criminal group. He could file those charges at a later date, guaranteeing a sustained legal assault. However, Temer’s aides say they are confident he has sufficient support in Congress to get the charges thrown out. In his first comments since returning from a trip to Russia and Norway, the president was defiant. “There is no plan B,” he said at a ceremony to sign a new bill in the capital Brasilia. “Nothing will destroy us – not me and not our ministers.”

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Nothing black about it.

The Technicolor Swan (Jim Kunstler)

I registered as a Democrat in 1972 — largely because good ole Nixon was at the height of his power (just before his fall, of course), and because he was preceded as party leader by Barry Goldwater, who, at the time, was avatar for the John Birch Society and all its poisonous nonsense. The Democratic Party was still deeply imbued with the personality of Franklin Roosevelt, with a frosting of the recent memory of John F. Kennedy and his brother Bobby, tragic, heroic, and glamorous. I was old enough to remember the magic of JFK’s press conferences — a type of performance art that neither Bill Clinton or Barack Obama could match for wit and intelligence — and the charisma of authenticity that Bobby projected in the months before that little creep shot him in the kitchen of the Ambassador Hotel. Even the lugubrious Lyndon Johnson had the heroic quality of a Southerner stepping up to abolish the reign of Jim Crow.

Lately, people refer to this bygone era of the 1960s as “the American High” — and by that they are not talking about smoking dope (though it did go mainstream then), but rather the post World War Two economic high, when American business might truly ruled the planet. Perhaps the seeming strength of American political leaders back then was merely a reflection of the country’s economic power, which since has been squandered and purloined into a matrix of rackets loosely called financialization — a criminal magic act whereby wealth is generated without producing anything of value. Leaders in such a system are bound to be not just lesser men and women but something less than human. Hillary Clinton, for instance, lost the 2016 election because she came off as demonic, and I mean that pretty literally.

To many Americans, especially the ones swindled by the magic of financialization, she was the reincarnation of the little girl in The Exorcist. Donald Trump, unlikely as it seems — given his oafish and vulgar guise — was assigned the role of exorcist. Unlike poor father Merrin, he sort of succeeded, even to his very own astonishment. I say sort of succeeded because the Democratic Party is still there, infested with all its gibbering demons, but it has been reduced politically to impotence and appears likely to soon roll over and die. None of this is to say that the other party, the Republicans, have anything but the feeblest grip on credibility or even an assured continued existence. First of all there is Trump’s obvious plight as a rogue only nominally regarded as party leader (or even member).

Then there is the gathering fiasco of neither Trump nor his party being able to deliver remedies for any of the ills of our time that he was elected to fix. The reason for that is simple: the USA has entered Hell, or at least a condition that looks a lot like it. This is not just a matter of a few persons or a party being possessed by demons. We’ve entered a realm that is populated by nothing but demons — of our own design, by the way. Our politics have become so thoroughly demonic, that the sort of exorcism America needs now can only come from outside politics. It’s coming, too. It’s on its way. It will turn our economic situation upside down and inside out. It’s a Technicolor swan, and you can see it coming from a thousand miles out. Wait for it. Wait for it.

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It’s crazy that we’re still talking about this.

California To List Glyphosate As Cancer-Causing; Monsanto Vows Fight (R.)

Glyphosate, an herbicide and the active ingredient in Monsanto Co’s popular Roundup weed killer, will be added to California’s list of chemicals known to cause cancer effective July 7, the state’s Office of Environmental Health Hazard Assessment (OEHHA) said on Monday. Monsanto vowed to continue its legal fight against the designation, required under a state law known as Proposition 65, and called the decision “unwarranted on the basis of science and the law.” The listing is the latest legal setback for the seeds and chemicals company, which has faced increasing litigation over glyphosate since the World Health Organization’s International Agency for Research on Cancer said that it is “probably carcinogenic” in a controversial ruling in 2015.

Dicamba, a weed killer designed for use with Monsanto’s next generation of biotech crops, is under scrutiny in Arkansas after the state’s plant board voted last week to ban the chemical. OEHHA said the designation of glyphosate under Proposition 65 will proceed following an unsuccessful attempt by Monsanto to block the listing in trial court and after requests for stay were denied by a state appellate court and the California’s Supreme Court. Monsanto’s appeal of the trial court’s ruling is pending. “This is not the final step in the process, and it has no bearing on the merits of the case. We will continue to aggressively challenge this improper decision,” Scott Partridge, Monsanto’s vice president of global strategy, said.

Listing glyphosate as a known carcinogen under California’s Proposition 65 would require companies selling the chemical in the state to add warning labels to packaging. Warnings would also be required if glyphosate is being sprayed at levels deemed unsafe by regulators. Users of the chemical include landscapers, golf courses, orchards, vineyards and farms. Monsanto and other glyphosate producers would have roughly a year from the listing date to re-label products or remove them from store shelves if further legal challenges are lost.

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Jun 192017
 
 June 19, 2017  Posted by at 9:45 am Finance Tagged with: , , , , , , , , , ,  7 Responses »
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Kandinsky Capricious Line 1924

 

Britain’s Brexit jam is Brussels’ Too (Pol.eu)
EU Leaders Fear Fragile State Of Tories Will Lead To Brutal Brexit (G.)
Pain Without Gain: The Truth About British Austerity (G.)
France Gives Macron Big Majority With Little Enthusiasm (EUO)
German Politicians Hammer the ECB, But Only to Get Votes (DQ)
Central Bank Liquidity Is The ‘IV Drip’ Of The Rally (CNBC)
Mueller Has “Not Yet” Decided Whether To Investigate Trump (ZH)
Cold War Deja Vu Deepens as New Russia Sanctions Anger Europe (BBG)
Goodbye, Yellow Brick Road (Grant)
Australia Has The World’s Most Costly Energy Bills (MB)
Australia’s Haunted Housing Market (BW)
Greece Blocks EU Statement On China Human Rights At UN (R.)
Greece Cracks Down On Voucher Misuse By Employers (EurActiv)
Greek Summer Calm Before The Storm (K.)

 

 

The Brexit talks start today. They should not. Theresa May can start, but she won’t be there to finish them.

Britain’s Brexit jam is Brussels’ Too (Pol.eu)

As Brexit talks start Monday, Britain’s back is hard against a wall. And nobody, not even in Brussels, wanted it that way. Elections in the U.K. were supposed to give Prime Minister Theresa May a stronger hand against the EU and naysayers back home. Instead, her negotiating team will hobble into the talks with May in peril, still working to finalize a power-sharing agreement to allow her to form a minority government. The EU’s stance on major Brexit issues has been ironclad for months, backed by the 27 nations in a disciplined display of unity. Second-guessing about May’s approach has intensified since her election setback, so much so that there have been calls for the EU to avert potential disaster by laying out clear paths for the U.K.’s exit.

The view in Brussels, however, is there is no way to help May short of making clear that Britain is welcome to change its mind — a point reiterated by German Finance Minister Wolfgang Schäuble, French President Emmanuel Macron and European Commission First Vice-President Frans Timmermans, among others. While no one realistically expects such a total reversal, there is unease over the lack of clarity on the U.K.’s goals. “Clearly the Brits are not ready yet and it’s a pity,” a senior Commission official said. “Everybody has sympathy for [May] now because she put herself in an impossible situation,” the official said. “How we can help her? Where she is now, nobody can help her. What she said to the backbenchers, in a way made sense, ‘I put you in this mess. I will take you out of this mess.’ But who else can do anything for her? It’s just hell.”

“And all the questions,” the official added, “Withdrawal? No withdrawal? Now? Later? It’s for them to consider. What can Brussels say?” The EU has published and transmitted to the U.K. its position papers on the two issues Brussels insists take precedence: citizens’ rights and the financial settlement. May’s aides said she wanted to make a “big, generous” offer on citizens’ rights, but so far the U.K. has not published any similar documents laying out its positions.

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Brussels wants an orderly destruction of Britain, not a messy one.

EU Leaders Fear Fragile State Of Tories Will Lead To Brutal Brexit (G.)

European leaders fear that Theresa May’s government is too fragile to negotiate viable terms on which to leave the union, meaning the discussions that officially begin on Monday could end in a “brutal Brexit” – under which talks collapse without any deal. As officials began gathering in Brussels on Sunday night, the long-awaited start of negotiations was overshadowed by political chaos back in Westminster, where chancellor Philip Hammond warned that failing to strike a deal would be “a very, very bad outcome”. The EU side fears that, in reality, the British government will struggle to maintain any position without falling apart in the coming months, because, without support from the Democratic Unionist party, May’s negotiating hand is limited. There are also concerns that any DUP backing to give May a majority in the House of Commons would come with strings attached.

Hammond has been urged to publish the cost of any deals made with the DUP to prop up the government. Shadow chancellor John McDonnell has raised concerns over reports that the DUP wants to end airport tax on visitors to Northern Ireland, which generated about £90m in 2015/16, according to HMRC estimates. The abolition of air passenger duty is one of the DUP’s key demands, as it pits Northern Ireland unfavourably against the Republic of Ireland, where the duty has been abolished. As well as concern over any terms agreed with the DUP, May will have to assuage fears from Ireland’s new taoiseach, Leo Varadkar, when she meets him in Downing Street on Monday, that Brexit will not infringe on the rights of people in Ireland. The taoiseach will also raise the impact of any Tory-DUP deal on power-sharing in Northern Ireland.

The prime minister has said she is confident of getting the Queen’s speech through the Commons, regardless of whether a deal is reached with the DUP by the time of the state opening of parliament on Wednesday. British Brexit negotiators are hoping to shore up confidence in their hardline approach to the start of talks by making early progress on the vexed question of citizens’ rights. [..] Pierre Vimont, a veteran French diplomat, now at the Carnegie Europe thinktank, said lack of clarity did not matter for the opening, which was more about “a first glimpse into their overall attitude and position” and setting the tone. “It will be atmospherics and the way both sides show a genuine commitment to work ahead. I think that will be the most important. “But the British delegation will need to rather quickly put its house in order and to have a clear idea of where it wants to go.”

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We’ve seen that truth in Grenfell Tower.

Pain Without Gain: The Truth About British Austerity (G.)

There are few people in the developed world who still cling to the maxim that “home life ceases to be free and beautiful as soon as it is founded on borrowing and debt”. hese days we can’t afford to take the same view as Helmer, the husband in Ibsen’s A Doll’s House, one of literature’s most cautious budgeters. It’s a nice idea to be free of debt and just spend what you earn. But when a home costs many times the average annual income and life’s running costs often exceed the monthly income, borrowing is not something that can be avoided. The government knows this only too well. This week sees publication of the public borrowing total for May and it is not expected to make pleasant reading.

Together with April’s shocker, when government borrowing was higher than the same month last year, the first two months of this financial year are forecast to show the borrowing requirement for the year is on track to be higher, not lower than last year. When David Cameron and George Osborne were in Downing Street, bringing down the deficit was the main aim of domestic policy. Until just last year, the plan was to cut the deficit to zero by 2020 and start bringing down the debt-to-GDP ratio from this year. The EU referendum vote and Theresa May’s arrival at No 10 changed all that. Once she adopted a hard-Brexit stance, the economy began to turn. Her chancellor, Philip Hammond, was forced to loosen the purse strings. It meant that both of the main political parties went into the election with plans for the deficit to remain at about 2.5%.

Independent forecasts for GDP growth over the next five years are below this figure, meaning that far from cutting the overall debt-to-GDP ratio, both parties were content to push it towards 90% – higher than any government has experienced in 50 years. That’s why so many headlines after the election have declared austerity dead and why the deficit was the dog that didn’t bark when the electorate went to the polls. The pressure on the deficit has only worsened since then. It has become clear to many of May’s advisers and close colleagues that the Tory party might not survive a second election this year without stealing some of Labour’s clothes. There is the possibility she will sanction scrapping, or dramatically reducing tuition fees, to nullify one of Labour’s most popular pledges.

The health secretary, Jeremy Hunt, hinted that the cap on nurses’ pay might be relaxed, while local authority spending may need to increase after the Grenfell Tower fire. Meanwhile, household debts are on the increase. Credit card, car loan and student debt, and borrowing using that most pernicious of loans, the second mortgage, have all risen sharply in the last couple of years. Making matters worse, the proportion of savings in the economy is at rock-bottom levels. It all adds up to an economy running on empty, with everyone, including ministers, borrowing extra each year just to keep the wheels turning.

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Macron won, but his majority is nowhere near as big as predicted. He was expected to get well over 400 seats, and ended up with 308. See the graphs. Next, he’ll be up against the unions. He’s promised to fire 120,000 public workers. Good luck.

France Gives Macron Big Majority With Little Enthusiasm (EUO)

French president Emmanuel Macron won a three-fifth majority in the lower house in the second round of the legislative elections on Sunday (18 June), but less than half of voters cast a ballot. Macron’s political movement, La Republique en Marche (LRM, The Republic on the Move) won 308 seats in the National Assembly, out of 577, after obtaining 43.06% of the vote. Its centrist ally, the Modem party, got 40 seats (6%). While not as big as expected after the first round, LRM’s majority left other parties behind and completed Macron’s destruction of the old political landscape. The conservative Republicans party will be the main opposition faction, with 113 seats (22.2%), down from 192 in the outgoing assembly.

The party leader, Francois Baroin, said he was happy that the Republicans will be “big enough” to “make its differences with LRM heard”. The Socialist Party (PS), which had been the main party with 270 MPs, was left with 29 seats (5.68%). Several ministers who served under former socialist president Francois Hollande lost out to newcomers. The PS leader, Jean-Christophe Cambadelis, who was himself eliminated in the first round, resigned from his position. Some 431 new MPs will enter the assembly and a record 224 of the MPs will be women.

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The ECB has $4.73 trillion in assets. It buys anythng but Greece.

German Politicians Hammer the ECB, But Only to Get Votes (DQ)

These days it’s easy to tell when general elections are approaching in Germany: members of the ruling government begin bewailing, in perfect unison, the ECB’s ultra-loose monetary policy. Leading the charge this time was Finance Minister Wolfgang Schaeuble, who on Tuesday urged the ECB to change its policy “in a timely manner”, warning that very low interest rates had caused problems in “some parts of the world.” Werner Bahlsen, the head of the economic council of Merkel’s CDU conservatives, was next to take the baton. “The ongoing purchase of government bonds has already cost the European project a great deal of credibility and has damaged it,” he said. “The ECB can only regain trust with the return to a sound monetary policy.” As Schaeuble and Balhsen well know, that is not likely to occur any time soon.

Indeed, like all other Eurozone finance ministers, Schaeuble is benefiting handsomely from the record-low borrowing costs made possible by the ECB’s negative interest rate policy. But by attacking ECB policy he and his peers can make it seem that they take voters’ concerns about low interest rates seriously, while knowing perfectly well that the things they say have very little effect on what the ECB actually does. In short, they are telling their voters what they want to hear. A survey by the CDU’s economic council showed that less than a quarter of its roughly 12,000 members had confidence in the ECB’s current course. 76% said they backed Bundesbank head Jens Weidmann’s monetary policy stance. Herr Weidmann said on Thursday that the ECB is at risk of coming under political pressure because any hint of policy tightening could push yields higher and blow a hole in national budgets.

It’s a probably a bit late in proceedings for such worries, what with the ECB now boasting the largest balance sheet of any central bank on Planet Earth. At last count, it had €4.22 trillion ($4.73 trillion) in assets, which equates to 39% of Eurozone GDP. Many of those assets are sovereign bonds of Eurozone economies like Italy, Spain and Portugal. The ECB’s binge-buying of sovereign and corporate bonds has spawned a mass culture of financial dependence across Europe. In the case of Italy, the sheer scale of the government’s dependence on the ECB for cheap funding is staggering: since 2008, 88% of government debt net issuance has been acquired by the ECB and Italian Banks. At current government debt net issuance rates and announced QE levels, the ECB will have been responsible for financing 100% of Italy’s deficits from 2014 to 2019.

It’s not just governments that are dependent on the ECB’s largesse: so, too, are the banks. In total, European banks have approximately €760 billion of funding from long-term lending schemes, the bulk of which comes from the four rounds of the most recent program launched in March 2016. As of the end of April 2017, Italian banks were holding just over €250 billion of the total long-term loans — almost a third of the total. Spain had €173 billion, while French banks had €115 billion and German lenders €95 billion. As the FT reports, the funding appears to play much less of a role in stimulating economic activity through lending, and a much larger role in mitigating the pain that low interest rates — and poor asset quality — can inflict on banks.

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Propping up zombies.

Central Bank Liquidity Is The ‘IV Drip’ Of The Rally (CNBC)

If it weren’t for liquidity right now, the stock market rally could be ripping apart, according to BMO Private Bank’s chief investment officer. “Any sense that this IV drip of liquidity coming into the market is slowing down at all is going to cause some issues,” Jack Ablin said on CNBC’s “Futures Now.” He emphasized that investors have been encouraged to take on risk due to the trillions of dollars being pumped into the financial system by central banks. Ablin’s comments came a day after the Federal Reserve decided to lift short-term interest rate by a quarter%age point. Even though the rate hike was expected, Ablin admits there was some concern tied to the Fed’s statement.

The Fed put in some new wording, saying that it “expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated.” That part left Ablin “a little bit taken aback with the timing,” he said. However, “I think the good news here is, ‘Look, this is a potentially contrived crisis.’ This could be the taper tantrum all over again where [The Fed says] ‘OK, look, we don’t want to cause major upset here. We will continue to pump if equity risk taking takes a hit.'” Ablin said he’s “somewhat optimistic” that the rally will continue. He prefers developed and emerging markets over U.S. stocks, arguing that places like Europe could see bigger gains than in the United States because the economy has been surprising experts to the upside.

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This story gets insaner by the day.

Mueller Has “Not Yet” Decided Whether To Investigate Trump (ZH)

In the biggest political story of the past week, one which was timed to coincide with Donald Trump’s Birthday, the WaPo reported citing anonymous sources, that Special Counsel Robert Mueller was investigating President Trump for possible obstruction of justice. Just a few hours later on Thursday night, the DOJ’s Deputy Attorney General Rod Rosenstein, who is overseeing the Russia probe due to Jeff Sessions recusal, released a stunning announcement which urged Americans to be “skeptical about anonymous allegations” in the media, which many interpreted as being issued in response to the WaPo report. “Americans should exercise caution before accepting as true any stories attributed to anonymous ‘officials,’ particularly when they do not identify the country — let alone the branch or agency of government — with which the alleged sources supposedly are affiliated. Americans should be skeptical about anonymous allegations. The Department of Justice has a long-established policy to neither confirm nor deny such allegations.”

Then on Sunday, the plot thickened further when according to ABC, special counsel Robert Mueller has not yet decided whether to investigate President Trump as part of the Russia probe, suggesting the WaPo report that a probe had already started was inaccurate. “Now, my sources are telling me he’s begun some preliminary planning,” Pierre Thomas, the ABC News senior justice correspondent, said of Mueller on ABC’s “This Week” although he too, like the WaPo, was referring to anonymous sources, so who knows who is telling the truth. “Plans to talk to some people in the administration. But he’s not yet made that momentous decision to go for a full-scale investigation.”On Friday, Trump responded to the Washington Post story by tweeting: “I am being investigated for firing the FBI Director by the man who told me to fire the FBI Director! Witch Hunt.” But also on Sunday Trump’s lawyer Jay Sekulow insisted the president was not literally confirming the investigation but was just referring to the story.

“Let me be clear: the president is not under investigation as James Comey stated in his testimony, that the president was not the target of investigation on three different occasions,” Sekulow said Sunday. “The president is not a subject or target of an investigation.” “Now Mueller faces a huge decision,” Thomas told “This Week” host Martha Raddatz. “Does he believe the president, who says there’s no wrongdoing here, or does he go after the president in the way James Comey wants him to do?” And so, yet another blockbuster media report has been cast into doubt as a result of more “he said, he said” innuendo, which will be resolved only if Mueller steps up and discloses on the record whether he is indeed investiating Trump for obstruction, or any other reason. That however is unlikely to happen, and so the daily ping-ponging media innuendos will continue indefinitely.

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“These two countries are in a very deep hole,” he said. Congress needs to “stop digging.”

Cold War Deja Vu Deepens as New Russia Sanctions Anger Europe (BBG)

Russia on Sunday accused the U.S. of returning to “almost forgotten Cold War rhetoric,” after President Donald Trump’s decision to reinstate some sanctions on Cuba. It could have dropped “forgotten.” There’s been a lively debate among historians and diplomats for years over whether the souring of relations between the U.S. and Russia amounts to a new Cold War, and lately the case has been getting stronger by the day. Trump’s restoration on Friday of some of the Cold War restrictions on Cuba his predecessor, Barack Obama, eased just months ago was only one example. Earlier in the week, the U.S. Senate approved a bill to entrench and toughen sanctions on Russia that includes several vivid flashbacks to before the fall of the Berlin wall.

German Chancellor Angela Merkel added her voice on Friday to rising European condemnation of a proposal in the Senate draft that would penalize companies investing in new Russian energy pipelines. Nord Stream 2, a project to double the supply of Russian natural gas to Germany via the Baltic Sea, would be especially vulnerable. President Ronald Reagan used similar sanctions in an attempt to thwart the joint German-Soviet construction of a natural gas pipeline in the early 1980s, only to drop them amid intense opposition from Europe. Again, Germany led the pushback. The Senate bill would also codify a raft of existing sanctions against Russia, so that Trump would need Congressional approval to lift them. That happened in 1974, too, and the measures proved hard to kill.

The legislation wasn’t repealed until a decade after their target, the U.S.S.R., had ceased to exist. The sense of Cold-War deja vu has been building for some time, according to Robert Legvold, a professor at Columbia University and author of “Return of the Cold War.” There’s a renewed arms race, nuclear saber rattling, the buzzing of ships and planes, proxy wars and disputes over whether missile defense systems count as offense or defense. If the trend continues, said Legvold, it will prevent the strategic cooperation between the U.S. and Russia that’s needed to prevent approaching security challenges from spinning out of control: The rise of China, the race to exploit resources in the Arctic, international terrorism and, above all, a world with nine nuclear powers that’s more complex and unstable than in the 20th century. “These two countries are in a very deep hole,” he said. Congress needs to “stop digging.”

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It’s hard to agree on gold. Always has been.

Goodbye, Yellow Brick Road (Grant)

It’s no work at all to make modern money. Since the start of the 2008 financial crisis, the world’s central bankers have materialized the equivalent of $12.25 trillion. Just tap, tap, tap on a computer keypad. “One Nation Under Gold” is a brief against the kind of money you have to dig out of the ground. And you do have to dig. The value of all the gold that’s ever been mined (and which mostly still exists in the form of baubles, coins and ingots), according to the World Gold Council, is a mere $7.4 trillion. Gold anchored the various metallic monetary systems that existed from the 18th century to 1971. They were imperfect, all right, just as James Ledbetter bends over backward to demonstrate. The question is whether the gold standard was any more imperfect than the system in place today.

[..] As if to clinch the case against gold—and, necessarily, the case for the modern-day status quo—Mr. Ledbetter writes: “Of forty economists teaching at America’s most prestigious universities—including many who’ve advised or worked in Republican administrations—exactly zero responded favorably to a gold-standard question asked in 2012.” Perhaps so, but “zero” or thereabouts likewise describes the number of established economists who in 2005, ’06 and ’07 anticipated the coming of the biggest financial event of their professional lives. The economists mean no harm. But if, in unison, they arrive at the conclusion that tomorrow is Monday, a prudent person would check the calendar.

Mr. Ledbetter makes a great deal of today’s gold-standard advocates, more, I think, than those lonely idealists would claim for themselves (or ourselves, as I am one of them). The price of gold peaked as long ago as 2011 (at $1,900, versus $1,250 today), while so-called crypto-currencies like bitcoin have emerged as the favorite alternative to government-issued money. It’s not so obvious that, as Mr. Ledbetter puts it, “we cannot get enough of the metal.” On the contrary, to judge by ultra-low interest rates and sky-high stock prices, we cannot—for now—get enough of our celebrity central bankers.

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Pretty far out.

Australia Has The World’s Most Costly Energy Bills (MB)

In reality, there are three main components of household bills. Whether households actual ultimately pocket these savings will depend on what happens with all three. The first, is the wholesale cost. That’s the cost of actually generating the electricity, be it burning lumps of coal, a gas-fired electricity plant, solar panels, wind turbines or whatever clever ways we may come up with in the future to produce electricity. Today, 77 per cent of Australian electricity comes from mostly brown and black coal, 10 per cent from gas, and 13 per cent from renewable sources. For a long time, this part of the system, of producing the electricity and getting it into the grid, has been going pretty well. Australians have enjoyed a reliable and low-cost supply of wholesale energy.

Basically, we burned ship loads of cheap coal, and to hell with the environment. This is the part of the system that is now utterly falling apart and is in most need of repair – which we’ll get to. The second major component of household electricity bills is the cost of transmission and distribution. The costs involved in building poles and wires and actually getting electricity to your wall sockets makes up about 40 per cent of your total bill. This part of the electricity price equation has been broken for decades, and is the main reason power bills have nearly doubled over the last decade. Power lines are natural monopolies. Traditionally they were all government owned. Jeff Kennett privatised Victorian networks, but until very recently, distribution networks in other states, such as NSW and Queensland, have remained government owned, with regulated pricing.

And basically, they stuffed that up for consumers by deciding to let the networks earn a guaranteed rate of return, based on their costs. That is, the more they spent, the more they earned. …The third and final component of a household’s bill is the margin added by electricity retailers. In theory, anyone can set up a business retailing electricity and there are many suppliers. In reality, pricing structures are so complex consumers do not exercise their power to switch providers, and retail margins remain higher than otherwise.

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Moving towards a very deep black hole.

Australia’s Haunted Housing Market (BW)

Forget all the headlines about the undimmed pace of house price inflation – up 19% in Sydney during March, pushing the median house price in the city to A$1.15 million ($875,000) according to Domain, a property-listings website. House prices, after all, aren’t so much a guide to the state of the housing market as to the 1% or so of homes that bought or sold in a typical year. Even there, they’re less an indicator of supply and demand for housing than of how supply and demand for mortgage credit interact with real estate fundamentals. Splurge on mortgage credit, and even an overbuilt housing market can enjoy price appreciation; cut back on home loans, and the opposite may be the case. That’s why it’s worth looking at the state of rents. Right now, they’re growing at the slowest pace in more than two decades, according to calculations based on Australian Bureau of Statistics data.

This hasn’t completely escaped notice. Philip Lowe, who took over as Governor of the Reserve Bank of Australia in September, has included the same boilerplate reference (with minor cosmetic modifications) in each of the eight monetary policy decision statements he’s put out so far: In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. As Lowe indicates, the reason for the slowdown in rents isn’t hard to discern. For most of Australia’s recent history, building has struggled to keep pace with household formation. Supply of new homes has kept close to demand, and as a result rents have tended to grow more or less in line with incomes.

Compare the Housing Institute of Australia’s forecasts of housing starts and the Australian Bureau of Statistics’ forecasts of household formation, and the glut really comes into focus: The surplus of homes that Australian cities have built over the past five years, based on those numbers, is equivalent to a whole year’s worth of excess supply. That’s a worrying development for those hoping that Australia’s house price boom is sustainable, especially given the way that the country’s regulators look to be finally attempting to raise credit standards after years of laxity. Still, if Australia manages to deflate the housing bubble without seriously damaging its economy, the heroes and villains will be quite different from the popular perception. While governments and regulators spent years adding to the problem with tax breaks and hostility to macroprudential regulation, it may well be property investors and foreigners who helped ease the crisis.

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The EU should look at its own human rights record.

Greece Blocks EU Statement On China Human Rights At UN (R.)

Greece has blocked a EU statement at the UNs criticizing China’s human rights record, a decision EU diplomats said undermined efforts to confront Beijing’s crackdown on activists and dissidents. The EU, which seeks to promote free speech and end capital punishment around the world, was due to make its statement last week at the U.N. Human Rights Council in Geneva, but failed to win the necessary agreement from all 28 EU states. It marked the first time the EU had failed to make its statement at the U.N.’s top rights body, rights groups Amnesty International and Human Rights Watch said. A Greek foreign ministry official said Athens blocked the statement, calling it “unconstructive criticism of China” and said separate EU talks with China outside the U.N. were a better avenue for discussions. An EU official confirmed the statement had been blocked.

“Greece’s position is that unproductive and in many cases, selective criticism against specific countries does not facilitate the promotion of human rights in these states, nor the development of their relation with the EU,” a Greek foreign ministry spokesperson said on Sunday. Presented three times a year, the statement gives the EU a way to highlight abuses by states around the world on issues that other countries are unwilling to raise. The impasse is the latest blow to the EU’s credentials as a defender of human rights, three diplomats said, and raises questions about the economically powerful EU’s “soft power” that relies on inspiring countries to follow its example by outlawing the death penalty and upholding press freedoms. It also underscores the EU’s awkward ties with China, its second-largest trade partner, diplomats said.

[..] Hungary, another large recipient of Chinese investment, has repeatedly blocked EU statements criticizing China’s rights record under communist President Xi Jinping, diplomats said. One EU diplomat expressed frustration that Greece’s decision to block the statement came at the same time the IMF and EU governments agreed to release funds under Greece’s emergency financial bailout last week in Luxembourg. “It was dishonorable, to say the least,” the diplomat said. The Greek foreign ministry spokesperson said that “during the formulation of the common statement there were also other countries that expressed similar reservations” and that Greece participates on an equal footing in setting up the EU’s common foreign policy.

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Many will claim this is employers seeking illicit profits. But for many it’s the only way not to be forced to fire people, to keep them fed.

Greece Cracks Down On Voucher Misuse By Employers (EurActiv)

The growing trend of distributing vouchers to employees to avoid taxes has raised eyebrows in the Greek government, which has moved to crack down on unprecedented levels of tax evasion in the cash-strapped country. The government says vouchers are allowed only as an extra benefit and not as part of a taxable salary. But according to Greek media reports, more than 200,000 workers, mostly newcomers, receive up to 25% in their salary via vouchers, which they use in supermarkets to buy food. The total amount, according to the reports, reaches €300 million annually. Up to a specific amount, the vouchers are tax-free for businesses, which are also exempt from employer security contributions. A source at the Greek labour ministry told EURACTIV.com that replacing any part of the legal wage of employees with vouchers is illegal.

“Vouchers are only allowed as an extra benefit and in no case can they be a substitution for legally defined earnings,” the source noted, adding that all complaints filed with the Labour Inspectorate are being investigated. As of June, companies are required to pay salaries only to bank accounts in order to put a stop to the practice of avoiding paying salaries altogether or paying only a fragment. “The Labor Inspectorate (SEPE) is in constant collaboration with Greece’s Financial and Crime Unit (SDOE), the financial police and the Independent Public Revenue Authority to address all forms of labour market violations and the coordination of their audit work,” the source said. Vouchers are coupons companies distribute to their employees to improve work, health and safety by supporting proper nutrition.

The rationale behind vouchers is that they process will enhance satisfaction and boost productivity levels while improving the employee living standards. For the government, the proper use of vouchers should also result in more tax revenues. The labour market in Greece has been in turmoil after 7 years of austerity-driven bailout programmes. There are cases of employers who have taken advantage of the “flexible” labour relations to impose unusual working conditions. For many, the use of vouchers is seen as a means to improve the atmosphere at work. Sotiris Zarianopoulos, a non-attached MEP from the Greek Communist Party (KKE), has recently asked the European Commission about these practices. The Greek lawmaker noted that this is only a part of a “jungle labour market” created by EU policies and implemented by the leftist Syriza government.

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On the verge of heading back to Greece, I’m wary of what comes after the calm.

Greek Summer Calm Before The Storm (K.)

Even though Prime Minister Alexis Tsipras hailed last week’s Eurogroup deal as step in the right direction, Greece still has many rivers to cross as the agreement secured in Luxembourg fell far short of the goals set by the government. First and foremost, Tsipras will have to deal with dissent emanating from SYRIZA MPs that had agreed to vote through a batch of tough legislation last month with the understanding that, in exchange, Greece will be granted debt relief and access to the ECB’s quantitative easing program. However, contrary to the government’s aims at the Eurogroup, debt relief talks were deferred to 2018, while Greece’s inclusion in the QE seems highly unlikely before that.

Although analysts believe that dissenters may not raise the ante during the summer – due to the tourist season and relief provided by the release of a bailout tranche – the government is expected to come under new pressure in the fall when Tsipras drafts the 2018 budget, which must stipulate a primary surplus of 3.5%. Given the huge difficulties to achieve this target, Athens will find it hard to convince representatives of the country’s creditors that it will able to achieve this target without the need for yet more measures. The Greek PM will also struggle in the fall to clear the hurdles leading to the completion of the country’s third bailout review, which will also involve the IMF. The review’s focus will be on streamlining the Greek public sector, from which SYRIZA has drawn a large chunk of votes in the past and would not like to rock the boat.

Another sticking point could be Tsipras’s promise to bring back growth, when forecasts for 2017 see an anemic rate of 1.5 to 1.8%. According to reports, the left-led coalition is banking on elections taking place in June 2018 at the earliest so that it avoids having to implement pension cuts in 2019, as it had agreed with creditors and passed into law. On the other had, some reports suggest that Tsipras may seek to spring an election surprise this fall or by the end of the year. This, however, will hinge on whether Greece will be given specifics by creditors about what sort of debt relief it can expect after the German elections in September, and on the degree of difficulty it will have to draft the 2018 budget.

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Jun 182017
 
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Fred Lyon Land’s End San Francisco 1953

 

Global Inequality Much Worse Than Previously Thought (Ind.)
The US Is Where the Rich Are the Richest (BBG)
UK Wealth Gap Rises As Home Ownership Falls (G.)
UK Debt Bubble Returns Millions To Days Of 2008 Crash (G.)
Macron Set To Dynamite Parties That Have Dominated For Half A Century (AFP)
Secret Plot To Oust Theresa May If She Fails To Deliver ‘Hard’ Brexit (Tel.)
Arrogance: The Greeks Had A Word For It (G.)
Illinois Finances In ‘Massive Crisis Mode’ (AP)
Metastability (Kocic)
Young Greeks Can’t Name EU Achievements (K.)
Abandoned and Abused: Syrian Refugee Children On Greek Detention Island (G.)

 

 

It’s like the mob rules the world.

Global Inequality Much Worse Than Previously Thought (Ind.)

The gap between rich and poor across the globe is even wider than we currently think, according to a new analysis. Official estimates of inequality only take into account the money that the tax man sees, according to a recent paper by economists, Annette Alstadsæter, Niels Johannesen and Gabriel Zucman. But recent leaks of vast caches of documents from secretive jurisdictions such as Panama and Switzerland have given a more accurate picture of the sheer scale of global tax evasion – most of it carried out by very wealthy people. The three economists have used this trove of data to make a new assessment of the true wealth of the planet’s richest people, and thus a potentially more accurate measure of just how much richer they are than those at the bottom.

Until now, most assessments of wealth have relied on random tax audits, which do not pick up hidden offshore assets. This would not impact measurements global inequality if the poor dodged paying their dues as much as the rich did. In fact the rich evade many multiples more than the poor, according to Alstadsæter, Johannesen and Zucman. They studied three sets of documents: the Panama Papers, leaked from a Central American law firm which helped people set up tax haven companies; the Swiss Leaks, which revealed the dealings of HSBC’s Swiss subsidiary; and Scandinavian tax records, which give an unusually detailed picture of the income of citizens of that region. By combining the data sets they were able to make an estimate of the true size and scope of tax evasion, and thus inequality.

They found the wealthiest 0.01% in Norway, Sweden and Denmark evaded 30% of their personal taxes on average, compared to just 3% in the total population. In Norway, which has particularly detailed data, the super-rich, ie the top 0.1% of the wealth pyramid, are 30% wealthier than previously thought, when their hidden offshore assets are taken into account. This means they actually own 10% of all wealth, not the 8% previously thought. The authors posit that the scale of tax evasion is likely to be even worse in many other countries which have far less stringent tax disclosure rules. Only when we can truly assess how much personal wealth is stashed offshore will the scale of global equality be known, the economists say.

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It’s also where this won’t last. You CAN go to far.

The US Is Where the Rich Are the Richest (BBG)

It’s an excellent time to be rich, especially in the U.S. Around the world, the number of millionaires and billionaires is surging right along with the value of their holdings. Even as economic growth has slowed, the rich have managed to gain a larger slice of the world’s wealth. Globally, almost 18 million households control more than $1 million in wealth, according to a new report from the Boston Consulting Group. These rich folk represent just 1% of the world’s population, but they hold 45% of the world’s $166.5 trillion in wealth. They will control more than half the world’s wealth by 2021, BCG said. Rising inequality is of course no surprise. Reams of data have shown that in recent decades the rich have been taking ever-larger shares of wealth and income—especially in the U.S., where corporate profits are nearing records while wages for the workforce remain stagnant.

In fact, while global inequality is simply accelerating, in America it’s gone into overdrive. The share of income going to the top 1% in the U.S. has more than doubled in the last 35 years, after dropping in the decades after World War II (when the rich were taxed at high double-digit rates). The tide shifted in the 1980s under Republican President Ronald Reagan, a decade when “trickle-down economics” saw tax rates for the rich fall, union membership shrink, and stock markets spike. Now, those policies and their progeny have helped put 63% of America’s private wealth in the hands of U.S. millionaires and billionaires, BCG said. By 2021, their share of the nation’s wealth will rise to an estimated 70%. The world’s wealth “gained momentum” last year, BCG concluded, rising 5.3% globally from 2015 to 2016.

The firm expects growth to accelerate to about 6% annually for the next five years, in both the U.S. and globally. But a lot of that can again be attributed to the rich. The wealth held by everyone else is just barely growing. Where is all this wealth coming from? The sources are slightly different in the U.S. compared with the rest of the world. Globally, about half of new wealth comes from existing financial assets—rising stock prices or yields on bonds and bank deposits—held predominately by the already well-off. The rest of the world’s new wealth comes from what BCG classifies as “new wealth creation,” from people saving money they’ve earned through labor or entrepreneurship. In the U.S., the creation of “new” wealth is a minor factor, making up just 28% of the nation’s wealth increase last year. It’s even lower in Japan, at 21%. In the rest of the Asia Pacific region, meanwhile, two-thirds of the rise is driven by new wealth creation.

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Whenever you see “rising pension wealth” anywhere these days, feel free to laugh out loud.

UK Wealth Gap Rises As Home Ownership Falls (G.)

A fall in home ownership is fuelling the return of rising wealth inequality across Britain, it has emerged. Booming house prices in the run-up to the financial crisis had led to a decade-long fall in the uneven distribution of the country’s wealth. However, comprehensive new analysis of the UK’s wealth divisions has now found that the trend has gone into reverse. The study by the Resolution Foundation thinktank found that just a tenth of adults own around half of the nation’s wealth. The top 1% own 14% of the total. It warned that even this figure may be an underestimate because of the difficulties in calculating the assets of the super-rich. By contrast, 15% of adults in Britain have either no share of the nation’s record £11.1 trillion of wealth, or have negative wealth. The study found that wealth is distributed far less evenly than earnings or household income.

The thinktank measured wealth inequality using the “Gini coefficient”, with 0 being perfect wealth equality and 1 representing a society where a single person has it all. Wealth inequality was almost twice as high as earnings inequality. Despite the perception that wealth inequality has been rising for decades, the research found that the inequality of net financial and property wealth fell steadily between 1995 and 2005, with the Gini coefficient falling from 0.71 to 0.64. The fall was driven by high and rising home ownership, with more households benefiting from the pre-crisis property price boom. As a result, the proportion of property wealth owned by the bottom four-fifths of adults grew from 35% in 1995 to 40% in 2005.

However, home ownership has been falling steadily since the mid-2000s, with the wealth held by the bottom four-fifths of the population dipping as a result. Since the financial crisis, home ownership among the least wealthy 50% of the population has fallen by about 12%. Meanwhile, it has risen by 1% for the wealthiest tenth. The shift in property ownership further towards the richest has contributed to the widening of wealth inequality. Including private pensions, the Gini coefficient rose from 0.67 to 0.69 from 2006-08 to 2012-14. Total wealth across Britain, which includes private pensions, property, financial and physical wealth, rose in the wake of the financial crisis from £9.9tn in 2006-08 to £11.1tn in 2012-14. This has been fuelled by rising pension wealth. [..] Private pensions account for 40% of the wealth total – the largest share at £4.5tn.

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Add this to all the other issues. A gutted society.

UK Debt Bubble Returns Millions To Days Of 2008 Crash (G.)

Charities and financial advisers are calling on the government to use the Queen’s speech to address the “bubble” of unmanageable debt that households are rapidly accumulating. Unsecured consumer credit – including credit cards, car loans and payday loans – is this year expected to hit levels not seen since the 2008 financial crash. There has been concern in the Bank of England that consumer spending is being underpinned by debt, amid comparisons to the run-up to the financial crash. In addition, figures published last week show inflation reached a four-year high in May, meaning shopping is getting increasingly expensive, further intensifying the squeeze on household budgets.

Debt advisers are urging the government to make good on fulfil a promise in the Conservative manifesto to introduce a scheme where those in serious debt are protected by law from further interest, charges and enforcement action for up to six weeks. Many campaigners would like to see this extended further, to up to a year. “It would be excellent if the government in the Queen’s speech committed to helping households who are struggling with debt. It really is one of the great problems of the time that politicians have to grapple with,” said Peter Tutton, head of policy at debt charity StepChange. “We are seeing more and more households struggling just to make basic ends meet – to pay their rent, to pay their council tax, to pay their gas bill. We would like to see the government say, ‘we need to do something about this’.”

The charity estimates that 2.9 million people in the UK are experiencing severe financial debt in the aftermath of the recession. One reason is that many who lost their jobs found new jobs that were less well paid. Sara Williams, the author of Debt Camel, a blog advising on money problems, said: “The recent large increases in consumer credit … look alarming to debt advisers – very much like a bubble building up.”

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I still want to see who paid for all this. It’s too fast and furious to be spontaneous.

Macron Set To Dynamite Parties That Have Dominated For Half A Century (AFP)

French voters went to the polls on Sunday for parliamentary elections set to hand a landslide victory to the centrist party of President Emmanuel Macron which would complete his stunning reset of national politics. The new assembly is due to be transformed with a new generation of lawmakers – younger, more female and more ethnically diverse – winning seats in the afterglow of Macron’s success in presidential elections last month. The scale of the change is forecast to be so large that some observers have compared the overhaul to 1958, the start of the present presidential system, or even the post-war rebirth of French democracy in 1945. It is also entirely unexpected: Macron was unknown three years ago and initially given little chance of emerging as president, but he and his 15-month-old Republic on the Move (REM) party have tapped into widespread desire for change.

“It’s like a science fiction movie for me,” REM candidate Beatrice Failles, a weapons inspector, writer and community activist, told AFP this week during campaigning in Paris. REM and its allies are forecast to win 400-470 seats in the 577-strong parliament, one of the biggest majorities post-war that would give the pro-EU Macron a free hand to implement his business-friendly programme. Sunday’s voting is the decisive second round of the election after a first round last weekend which was topped by REM. If confirmed, the victory will come at the expense of France’s traditional parties, the rightwing Republicans and Socialists, but also the far-right National Front which faces major disappointment. The Socialists are set to be the biggest victim of voters’ desire to reject establishment figures associated with years of high unemployment, terror attacks and lost national confidence.

Pollsters predict the party faces financial ruin with its strength in parliament falling from nearly 300 seats to around 20 after their five years in power under president Francois Hollande. The main concern for observers and critics is the likely absence of any political counterweight to Macron, leading some to forecast that opposition could be led through street protests or in the media. “Desperately seeking an opposition,” said the front page of Le Parisien newspaper on Saturday. [..] In the first round, REM won 32% of the total number of votes cast, but this represented only about 15% of the total number of registered voters. Around half of REM’s candidates are virtual unknowns drawn from diverse fields of academia, business or local activism. They include a mathematician, a bullfighter and a former Rwandan orphan. “You could take a goat and give it Macron’s endorsement and it would have good chance of being elected,” political analyst Christophe Barbier joked recently.

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Brexit negotiations will be insane. Multiple governments will fall over this.

Secret Plot To Oust Theresa May If She Fails To Deliver ‘Hard’ Brexit (Tel.)

Theresa May will face a “stalking horse” challenge to topple her as Prime Minister if she waters down Brexit, senior Tories have warned. Leading Eurosceptic MPs have told The Telegraph they are prepared to mount an immediate leadership challenge if Mrs May deviates from her original plan. The revelation comes after a torrid week for the Prime Minister in which she faced fierce criticism for her handling of the Grenfell Tower catastrophe. Conservative MPs – including Cabinet ministers – have concluded that Mrs May cannot lead them into the next election and they are now discussing when she could go. Eurosceptic MPs have warned that any attempt to keep Britain in the customs union and single market or any leeway for the European Court of Justice to retain an oversight function will trigger an “overnight” coup.

The plot has been likened to Sir Anthony Meyer’s 1989 challenge against Margaret Thatcher. One influential former minister said: “If we had a strong signal that she were backsliding I think she would be in major difficulty. The point is she is not a unifying figure any more. She has really hacked off the parliamentary party for obvious reasons. So I’m afraid to say there is no goodwill towards her.” They added: “What we would do is to put up a candidate to run against her, a stalking horse. You can imagine who would do it. It would be a rerun of the Margaret Thatcher scenario, with Anthony Meyer. Of course Meyer had no chance at all, but she lost support and she was gone. Bear in mind that she was a hell of a lot more popular than the current Prime Minister.” Another former minister said: “If she weakened on Brexit, the world would fall in… all hell would break loose.”

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Hubris. England.

Arrogance: The Greeks Had A Word For It (G.)

“I’m not absolutely certain of my facts, but I rather fancy it’s Shakespeare – or, if not, it’s some equally brainy lad – who says that it’s always just when a chappie is feeling particularly top-hole, and more than usually braced with things in general that Fate sneaks up behind him with a bit of lead piping.” So says the immortal Bertie Wooster at the start of the PG Wodehouse story Jeeves and the Unbidden Guest, and it is fairly certain that the hapless hero, in introducing his “fairly rummy” anecdote, is raking back through his sketchily absorbed education to reach for the word “hubris”, a word inherited from those brainy lads, the Greeks.

In the past week of political turmoil, “hubris” is a word that has been exercised rather more than usual. So have other Greek words, most notably “chaos” (the inchoate matter out of which the universe was formed, according to the poet Hesiod). And “crisis”, which began life meaning “a picking apart” or “a separation”; also a bringing to trial, or a moment of judgment. Though whether a universe will be formed from the current chaos, whether a judgment or a moment of clear-eyed seeing will drop neatly out of our present crisis, remains very much to be seen.

Bertie Wooster’s definition of hubris is a perfectly good one as far as our rather limited modern usage of the word goes. The lead piping came for the Tories, first in the shape of an exit poll on election night and, since then, perhaps in their slow, shocked and wholly inadequate reaction to the catastrophe at Grenfell Tower. But hubris, like chaos and crisis, began with a rather different meaning. For the Greeks, it did not simply signal that pride goes before a fall but, rather, something stronger and more morally freighted. Hubris described an act intentionally designed to dishonour its victim. Hubris was something expressly calculated to cause shame to the weak. Hubris was tinged with violence. Hubris was excessive and brutal.

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The first of many. I know I’ve said that before, but these things can be hidden, until they cannot.

Illinois Finances In ‘Massive Crisis Mode’ (AP)

It’s a new low, even for a state that’s seen its financial situation grow increasingly desperate amid a standoff between the Democrat-led Legislature and Republican Gov. Bruce Rauner. Illinois already has $15 billion in overdue bills and the lowest credit rating of any state, and some ratings agencies have warned they will downgrade the rating to “junk” if there’s no budget before the next fiscal year begins July 1. Rauner on Thursday said he was calling lawmakers back to Springfield for a special session, after the Legislature adjourned May 31 without approving a state spending plan — the third straight year lawmakers have been unable to agree on a budget. Legislators are due at the Capitol on Wednesday, and Rauner said the session will continue through June 30 or until the two sides have a deal.

Lawmakers from both parties have acknowledged Illinois needs to raise taxes to make up for revenue lost when a previous tax hike expired, leaving the state on pace to take in $6 billion less than it is spending this year — even without a budget. Rauner, a former businessman who is seeking a second term in 2018, wants Democrats to approve changes he says are needed to improve Illinois’ long-term financial health before he’ll support a tax increase. Among them are term limits for lawmakers, a four-year property tax freeze and new workers’ compensation laws that would reduce costs for employers. Democrats say they’re willing to approve some items on Rauner’s list, but that what he’s demanding keeps changing or goes too far and would hurt working families. Senate Democrats also note that they approved a $37 billion budget with $3 billion in cuts and an income tax increase in May. The House has not taken up that plan.

In the absence of a budget, funding has been reduced or eliminated in areas such as social services and higher education. Many vendors have gone months without being paid. And increasingly, they’re filing lawsuits to try to get paid. The courts already have ruled in favor of state workers who want paychecks, as well as lottery winners whose payouts were put on hold. Transit agencies have sued, as has a coalition of social service agencies, including one that’s run by Rauner’s wife. Health care plans that administer the state’s Medicaid program also asked a federal judge to order Mendoza’s office to immediately pay $2 billion in unpaid bills. They argued that access to health care for the poor and other vulnerable groups was impaired or “at grave risk” because the state wasn’t paying providers, causing them to leave the program.

Judge Joan Lefkow ruled June 7 that Illinois isn’t complying with a previous agreement to pay the bills and gave attorneys for the providers and the state until Tuesday to work out a level of payment. Mendoza says whatever that amount will be, it will likely put Illinois at the point where 100% of revenues must be paid to one of the office’s “core priorities,” such as those required by court order. And if this lawsuit doesn’t do it, the next court ruling against the state will. Then, she’s not sure what will happen, other than more damage. “Once the money’s gone, the money’s gone, and I can’t print it,” Mendoza said.

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A very useful concept. Reference to Minsky would be in order, though.

Metastability (Kocic)

Big changes threaten to explode not when uncertainty begins to rise, but when it is withdrawn. Excessive determinism is almost always the biggest enemy of stability. This seeming contradiction is behind the concept of metastability which captures the mode of market functioning in the last years. Imagine you have to balance a long stick on your finger. By placing it vertically on your fingertip, the stick could fall either left or right from its initial position because standing upright is unstable. However, in trying to keep the stick vertical, you instinctively (and randomly) wiggle your finger. The added randomness (noise) acts as a stabilizer of an otherwise unstable equilibrium. So long as the noise is administered carefully, the stick remains vertical, or metastable. The withdrawal of noise becomes destabilizing.

In general, there are three types of equilibria to distinguish: stable, unstable and metastable. The bottom of the valley is stable; top of the hill is unstable; a dimple at the top of the hill is metastable. Metastability is what seems stable, but is not – a stable waiting for something to happen. Avalanche is a good example of metastability to keep in mind – a totally innocuous event can trigger a cataclysmic event (e.g. a skier’s scream, or simply continued snowfall until the snow cover is so massive that its own weight triggers an avalanche). Complacency is a source of metastability. It has a moral hazard inscribed into it. Complacency encourages bad behavior and penalizing dissent – there is a negative carry for not joining the crowd, which further reinforces bad behavior.

This is the source of the positive feedback that triggers occasional anxiety attacks, which, although episodic, have the potential to create liquidity problems. Complacency arises either when everyone agrees with everyone else or when no one agrees with anyone. In these situations, which capture the two modes of recent market trading, current and the QE period, the markets become calm and volatility selling and carry strategies define the trading landscape. But, calm makes us worry, and persistent worrying causes fear, and fear tends to be reinforcing. Persistence of low volatility causes misallocation of capital. This is how complacency leads to buildup of risk – it is the avalanche waiting to happen. For a given level of uncertainty, on the risk/reward curve investors settle at a point that corresponds to their risk limits. This position is determined by the volatility cone on the risk frontier, its width commensurate with volatility.

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Insanely positive still.

Young Greeks Can’t Name EU Achievements (K.)

An 84% majority of Greeks aged between 16-25 say that peace is the most important result of the country’s membership in the EU, according to an upcoming survey, which also found that 24% are unable to name three or more achievements of the 28-member club. The online survey, which will be published in full on Wednesday, was conducted by pro-European think tank To Diktio (The Network) with the help of MAD TV on a sample of 1,173 high-school and university students using a multiple-choice questionnaire. Asked if they think that Greece’s membership of the 28-member bloc improves their daily life, just over 37% gave a negative answer.

Whereas most of those who took part in the poll said they are in favor of closer European integration, only a minority said they consider the establishment of welfare states a significant contribution of the EU process. Meanwhile, 86% agreed it is “very significant” that they can travel, live, study or work freely across the EU, while 72% said it is positive that “we have a common strong currency which makes our transactions easier.” Finally, 83% said that the union can play a key role in “protecting fundamental rights regardless of gender, race, religion, disability or age.” Greece joined the EEC, the predecessor of today’s EU, in 1981.

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Just to add the proper insult, the picture below comes from Yuan Yang on Twitter: “Five min into this international property fair & I’ve already been offered to emigrate to the UK, Australia & get my kids into school in US”.

While Syrians kids face abuse, Greece offers passports and ‘Easy Living’ to wealthy Chinese. Mankind has fully lost its compass.

Abandoned and Abused: Syrian Refugee Children On Greek Detention Island (G.)

Rasha went missing late afternoon last Saturday. Her peers describe hanging out as normal with the 20-year-old Syrian in the Greek refugee detention camp. Then she vanished. Last Tuesday her friend Amira, 15, received a flurry of images on her phone. Rasha was lying naked in bed with a man. Superimposed upon his head were grotesque cartoon faces and an accompanying message from the anonymous caller: “I promise I will kidnap you also.” This was far from being the first threat that the teenage refugee from the Syrian city of Qamishli has received since arriving on the Aegean island of Chios six months ago. Existence in the razor-wire-fenced detention centre, a former factory known as Vial, deep within the island’s mountainous interior, is fraught for a child hoping for a fresh start in Europe, preferably the UK.

Fellow refugees intimidate her routinely. “Men say they will attack me, they try and trap us by saying don’t go to Souda [another refugee camp on the island] or go into the town. They say: ‘If I see you there, I will attack you. I will kidnap you and kill you.’” Amira is among scores of unaccompanied minors on Chios who are eligible to claim asylum in the UK under the so-called Dubs amendment. A year ago the UK government announced it would urgently offer sanctuary to a sizeable proportion of Europe’s vulnerable child refugees, a figure widely understood to be about 3,000 minors until, in February, the Home Office unexpectedly stopped the scheme after helping just 480, one child for every 130,000 UK residents. Not a single unaccompanied minor has been transferred from Greece to the UK under the Dubs scheme.

On Tuesday the last chance to reopen Dubs will be heard in the high court in London, a legal challenge that describes the Home Office’s premature closure of Dubs as unlawful and “seriously defective”. The three-day hearing holds potentially profound ramifications for Chios, which is separated by a slim strip of water from Turkey, so close that Amira can see its summer homes and factories from the island’s coast. Beyond lie the borders with Syria and Iraq from where each day people board a motley flotilla of rubber boats and dinghies to attempt the short but perilous crossing to Europe’s gateway. What those that successfully make the crossing quickly encounter could hardly be further from their aspirations of a civilised and safe world. The child refugees of Chios describe being stabbed by local people, police beatings, attacks by the far right, knife fights among drunken adult asylum seekers, and sleepless nights in flimsy tents on pebble beaches.


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Jun 122017
 
 June 12, 2017  Posted by at 9:42 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Adam West died last week. This was his phone book listing in Ketchum, ID where he lived.

 

New Economic Woes Put Theresa May Under Fresh Pressure (Tel.)
EU Threatens Year-Long Delay In Brexit Talks Over UK Negotiating Stance (G.)
Donald Trump’s State Visit To Britain Put On Hold (G.)
It’s The Calm Before A Gigantic, Horrendous Storm: David Stockman (CNBC)
The Risk To The “Bull” Thesis (Roberts)
Big Tech Stocks Under Pressure After Apple Shares Downgraded (CNBC)
China’s $5 Trillion Asset Pile Could Still Expand (BBG)
When Currencies Fall, Export Growth Is Supposed to Follow (WSJ)
Aldi Fires $3.4 Billion Shot In US Supermarket Wars (R.)
France’s Macron Set For Landslide Majority In Parliament (R.)
Naomi Klein: ‘Trump Is An Idiot, But He’s Good At That’ (G.)
Chelsea Manning Explains Why She Went to Prison for You (TAM)
Over 2,500 Migrants Rescued In Mediterranean In 2 Days, Over 50 Missing (RT)

 

 

Even the -Tory- Telegraph has turned on the ‘winner’: Another one of their headlines: “Theresa May arrogantly abandoned Thatcherism – this is her reward”.

New Economic Woes Put Theresa May Under Fresh Pressure (Tel.)

Theresa May has been hit by a series of economic blows, with consumers tightening their belts and businesses increasingly showing fears of a sharp slowdown as she attempts to cling on to power. The crucial services sector stands on the brink of a contraction, new data shows, and credit card spending has fallen for the first time in four years. High Street footfall has also gone sharply into reverse and manufacturing and construction companies in the English regions report a widespread slowdown in activity. Most of the gloomy figures published today were gathered prior to Mrs May’s disastrous snap election. It has further undermined confidence, according to the Institute of Directors (IoD). The hung parliament has triggered a massive swing towards negativity among the business leaders.

Before the election, IoD members’ net confidence, which offsets economic pessimism and optimism, was almost balanced at minus three. In the aftermath of the election it has plunged to minus 37. Businesses were increasingly ready to openly criticise Mrs May over the weekend after her interventionist manifesto failed to inspire strong public support. Stephen Martin, IoD director general, said last night: “It was disheartening that the only reference the Prime Minister made to prosperity in her Downing Street statement was to emphasise the need to share it, rather than create it in the first place.” Official figures later this week are expected to show a tightening squeeze on consumers. Economists estimate that wages grew by 2pc the year to April, down from 2.1pc a month earlier. Meanwhile inflation is expected to remain at 2.7pc, with rises to come.

Shoppers are curbing their spending in response, according to data from Visa. The credit card company said household expenditure in May was gown 0.8pc on last year, the first decline since 2013. Consumers cut back on clothing and household goods especially. Visa UK managing director Kevin Jenkins said the data “clearly shows that with rising prices and stalling wage growth, more of us are starting to feel the squeeze”.

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All Jeremy Corbyn has to do is tell Europe that he won’t feel bound by anything they negotiate with May.

EU Threatens Year-Long Delay In Brexit Talks Over UK Negotiating Stance (G.)

Theresa May is to be told the EU will take a year to draft a new mandate for its chief negotiator, Michel Barnier, effectively killing the Brexit negotiations, if she insists on discussing a future trade relationship at the same time as the UK’s divorce bill. In a sign of growing impatience with the shambolic state of the British side of the talks, senior EU sources said that if London insisted on talking about a free trade deal before the issues of its divorce bill, citizens rights and the border in Ireland were sufficiently resolved, it would be met with a blunt response. “If they don’t accept the phased negotiations then we will take a year to draw up a new set of negotiating guidelines for Barnier,” one senior EU diplomat said, adding that the EU could not understand Britain’s continued claim that it would be able to discuss trade and the divorce terms in parallel.

The EU’s 27 leaders formally agreed to give Barnier a narrow set of tasks at a summit in April and they have no intention of rethinking the so-called phased approach when they meet May at a European summit on 22-23 June. Formal Brexit talks are due to begin on 19 June, the same day as the Queen’s speech, at which point it will be known whether May has secured the support of a majority of MPs for her policy agenda. The Department for Exiting the European Union (DExEU) sent a note to the European commission on Friday evening to signal that the government was operational and pre-negotiation talks about logistics should begin this week as planned. Olly Robbins, May’s EU adviser, told his European counterparts: “The prime minister has directed that the procedures for preparing the negotiations for the formal withdrawal from the European Union should start as soon as possible.” There is some scepticism in Brussels, however, about the ability of May’s minority administration to make effective decisions.

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But they keep all their own clowns in Parliament? Government, even?

Donald Trump’s State Visit To Britain Put On Hold (G.)

Donald Trump has told Theresa May in a phone call he does not want to go ahead with a state visit to Britain until the British public supports him coming. The US president said he did not want to come if there were large-scale protests and his remarks in effect put the visit on hold for some time. The call was made in recent weeks, according to a Downing Street adviser who was in the room. The statement surprised May, according to those present. The conversation in part explains why there has been little public discussion about a visit.

May invited Trump to Britain seven days after his inauguration when she became the first foreign leader to visit him in the White House. She told a joint press conference she had extended an invitation from the Queen to Trump and his wife Melania to make a state visit later in the year and was “delighted that the president has accepted that invitation”. Many senior diplomats, including Lord Ricketts, the former national security adviser, said the invitation was premature, but impossible to rescind once made.

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“Stockman believes the S&P 500 could easily fall to 1,600, about a 34% drop from current levels.”

It’s The Calm Before A Gigantic, Horrendous Storm: David Stockman (CNBC)

If David Stockman is right, Wall Street should hunker down. “This is one of the most dangerous market environments we’ve ever been in. It’s the calm before a gigantic, horrendous storm that I don’t think is too far down the road,” he recently said on “Futures Now.” Stockman, who was director of the Office of Management and Budget under President Ronald Reagan, made his latest prediction after lawmakers grilled former FBI Director James Comey over whether President Donald Trump tried to influence the Russia investigation. “This is a huge nothing-burger, but you don’t take comfort from that. You get worried about that because the system is determined to unseat Donald Trump,” said Stockman. Stockman argues the latest drama on Capitol Hill is a distraction from the real problems facing the economy.

“If the Senate can involve itself in something this groundless, it’s just more hysteria about Russia-gate for which there is no evidence. If they can bog themselves down in this, then we have a dysfunctional, ungovernable situation in Washington,” he said, noting there are just seven weeks until lawmakers go home for the August recess. Stockman contends it’s unlikely tax reform and an infrastructure package will become reality in this environment — two business-friendly policies seen as a huge benefit to Wall Street. In fact, he warns, the country could see a government shutdown in a matter of months. A scenario like that could wipe out all of the stock market gains since the election and more, according to Stockman.

“I don’t know what Wall Street is smoking. They ought to be getting out of the casino while it’s still safe. Yet there’s this idea that since he [Trump] wasn’t incriminated, that proves that we can move on,” he said. “I think it’s crazy.” Stockman believes the S&P 500 could easily fall to 1,600, about a 34% drop from current levels. He’s made similar calls like this in the past, but they haven’t materialized. “There is nothing rational about this market. It’s just a machine-trading-driven bubble that’s nearing some kind of all-time craziness, mania,” he said.

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Buybacks again. And again.

The Risk To The “Bull” Thesis (Roberts)

Following the election, the markets began pricing in a strongly recovering economic environment driven by a wave of legislative policies. While the market has indeed advanced, the economic and fundamental realities HAVE NOT changed since the election. As noted on Friday: “Economic data is not buying it either. Headline after headline, as of late, has continued to disappoint from new and existing home sales to autos, inventories, and employment. This also puts the Fed at risk of further rate hikes this year. ‘It appears traders are losing faith in the rest of the year as the odds of a hike occurring in December is now above that of September (as both drop to around 25%). As economic data has crashed since The Fed hiked rates in March, so the markets expectations has dropped to just 1.44 rate-hikes this year (one in June guaranteed), well below The Fed’s guidance of 2 more rate-hikes minimum.’”

Another huge risk going forward, as well, is the risk to further stock buybacks to support higher EPS as the lack of legislative reforms to boost the bottom line fade. As noted by Goldman just after the election: “We expect tax reform legislation under the Trump administration will encourage firms to repatriate $200 billion of overseas cash next year. “A significant portion of returning funds will be directed to buybacks based on the pattern of the tax holiday in 2004.” – Goldman Sachs. But it is not just the repatriation but lower tax rates that will miraculously boost bottom line earnings, but as noted from Deutsche Bank tax cuts are the key. “Every 5pt cut in the US corporate tax rate from 35% boosts S&P EPS by $5. Assuming that the US adopts a new corporate tax rate between 20-30%, we expect S&P EPS of $130-140 in 2017 and $140-150 in 2018. We raise our 2017E S&P EPS to $130.”

Maybe not so fast. Here is the problem. While you may boost bottom line earnings from tax cuts, the top line revenue cuts caused by higher interest rates, inflationary pressures, and a stronger dollar (as expected would be the result of tax reform) will exceed the benefits companies receive at the bottom line. I am not discounting the rush by companies to buy back shares at the greatest clip in the last 20-years to offset the impact to earnings by the reduction in revenues. However, none of the actions above go to solving the two things currently plaguing the economy – real jobs and real wages. Economic realities and wishful fantasies eventually reconnect and generally in the worst possible way.

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Bubble? Hell, no.

Big Tech Stocks Under Pressure After Apple Shares Downgraded (CNBC)

After a drop in big technology stocks Friday caused the Nasdaq composite to post its worst week of the year, the shares were likely to come under pressure again on Monday after Apple shares were downgraded. Mizuho Securities’ Abhey Lamba downgraded the iPhone maker to neutral from buy on Sunday, saying the best case scenario is priced into the shares. The analyst echoed a common concern of investors taking profits in big technology stocks last week. “The stock has meaningfully outperformed on a YTD basis and we believe enthusiasm around the upcoming product cycle is fully captured at current levels, with limited upside to estimates from here on out,” wrote Lamba, who cut his 12-month price target to $150, which is about one dollar above where Apple closed Friday.

A Friday selloff pushed the Nasdaq down more than 1.5% last week, but the selling was worse among the biggest stocks. Apple, Alphabet, Microsoft, Facebook and Amazon lost nearly $100 billion in market value on Friday on no specific headlines, but rather investors questioning whether valuations for the names were getting ahead of themselves. Nasdaq-100 futures were lower Sunday evening following the Apple downgrade. [..] Apple, Facebook and Amazon are still up more than 27% so far in 2017. Alphabet is up 20% and Microsoft shares are 11% higher for the year. By comparison, the S&P 500 is up more than 7% year-to-date.

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The graph indicates balance sheet change, not total numbers. Bit misleading when a $5 trillion asset pile, with the Fed at $4.5 trillion, is the topic.

China’s $5 Trillion Asset Pile Could Still Expand (BBG)

Investors who fret about when and how global central banks will run down their crisis-era balance sheets can be relaxed about the biggest of them all – China’s. Whereas the Fed’s $4.5 trillion asset pile is set to be shrunk and the ECB’s should stop growing by the end of this year as the outlook brightens, China’s $5 trillion hoard is here to stay for the time being – and could even still expand, according to the majority of respondents in a Bloomberg survey. The PBOC balance sheet is a fundamentally different beast from its global peers – run up through years of capital inflows and trade surpluses rather than hoovering up government bonds – but it still matters for the global economy. Changes in the amount of base money in the world’s largest trading nation are having a bigger impact than ever, making the variable key for stability in a year when political transition in Beijing is in the cards.

“China is more than a couple of years away from balance-sheet contraction,” said Ding Shuang, chief China economist at Standard Chartered, pointing out that the growth in the broad money supply is still behind the government’s target. The balance sheet has broadly leveled off, and contracted in the first quarter of this year, though that was mostly through seasonal factors related to liquidity operations around the Lunar New Year, when the demand for cash surges. Now, with the Fed set to raise rates this year, the PBOC is still wary of accelerating cash outflows from China and may need to use reserves to support the currency even as trade surpluses keep piling up. Most economists said they predict that the balance sheet will be around the same size or bigger by the end of the year, in the survey of 21 institutions including Bank of China, Nomura and SocGen.

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No, you don’t get inflation from a falling currency. But you just might get higher prices.

When Currencies Fall, Export Growth Is Supposed to Follow (WSJ)

For decades, economics textbooks argued that suddenly weaker currencies are a boon to growth, because they make a country’s exports more competitive or profitable on the global stage, which in turn boosts domestic production and employment. What if that theory no longer holds? Economists and government officials are increasingly wondering if that effect is diminishing, especially among advanced Western economies with shrinking manufacturing capacity and supply chains increasingly interwoven with the rest of the world. The new idea is that much of the benefit from a falling currency is offset by the higher prices paid for components imported from overseas. The U.K. is emerging as a test case for whether globalization has diminished the effect.

Although its currency has been battered by the financial crisis, the Brexit vote to leave the European Union—which took place a year ago June 23—and the country’s fresh bout of political uncertainty, its exporting power hasn’t responded as textbooks might suggest. Chemicals made at Chemoxy’s factory in Middlesbrough are worth about 20% more in the export market after last June’s fall in sterling, given the beefed-up value of the currencies used to buy those goods overseas. Higher costs for imported materials, however, all but erased that advantage. “We have a huge interdependency on international markets,” says Chemoxy Chief Executive Ian Stark. The company exports more than 60% of its products and imports about 85% of its chemical raw materials. A weaker pound, he says, “isn’t revolutionary.”

British businesses ranging from car makers to food processors to lumber mills are discovering the same thing. Adam Posen, president of the Peterson Institute for International Economics, and a member of the Bank of England’s rate-setting monetary policy committee between 2009 and 2012, says the effects of currency moves on exports have faded over time. After the financial crisis in 2008, a big sterling depreciation didn’t result in the pickup in exports “we would have expected,” he says. “You just don’t get as much bang for your pound as you used to,” said Mr. Posen. Whether or how the relationship between a currency’s strength and economic growth still holds has ramifications for international politics.

In the U.S., manufacturers have long complained about the impact of a strong dollar. President Donald Trump has accused Japan and China of keeping their currencies artificially low, hampering U.S. exports. In 1992, the pound fell by around 11% between September and the end of that year after the U.K. crashed out of the European exchange rate mechanism—a precursor to the euro that required a stronger pound than the government could sustain. The U.K. economy then went on an export tear, which turned a trade deficit into a five-year surplus and jump-started a recovery.

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“Aldi’s prices were also up to 50% lower than traditional grocery chains, a move that appeared to follow rival Lidl’s announcement on prices.”

Aldi Fires $3.4 Billion Shot In US Supermarket Wars (R.)

German grocery chain Aldi said on Sunday it would invest $3.4 billion to expand its U.S. store base to 2,500 by 2022, raising the stakes for rivals caught in a price war. Aldi operates 1,600 U.S. stores and earlier this year said it would add another 400 by the end of 2018 and spend $1.6 billion to remodel 1,300 of them. The investment, which raises Aldi’s capital expenditure to at least $5 billion so far this year, comes at a time of intense competition and disruption in the industry. German rival Lidl will open the first of its 100 U.S. stores on June 15. In May, Lidl said it would price products up to 50% lower than rivals. Wal-Mart, the largest U.S. grocer, is testing lower prices in 11 U.S. states and pushing vendors to undercut rivals by 15%. Wal-Mart, the world’s biggest retailer, is expected to spend about $6 billion to regain its title as the low-price leader, analysts said.

The furious pace of expansion by Aldi and Lidl is likely to further disrupt the U.S. grocery market, which has seen 18 bankruptcies since 2014. The two chains are also upending established UK grocers like Tesco and Wal-Mart’s UK arm, ASDA. In May, Aldi CEO Jason Hart told Reuters the chain intended to have prices at least 21% lower than rivals and would focus on adding in-house brands to win over price-sensitive customers. “We’re growing at a time when other retailers are struggling,” Hart said in a statement. Hart added that Aldi’s prices were also up to 50% lower than traditional grocery chains, a move that appeared to follow rival Lidl’s announcement on prices. The latest store expansion will create 25,000 U.S. jobs and make Aldi the third-largest grocery chain operator in the country behind Wal-Mart and Kroger, the German chain said in a statement. Aldi’s 2,500 stores would equal about 53% of Wal-Mart’s U.S. outlets.

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As I said yesterday, highly curious. When he won on May 7, just 5 weeks ago, there were no candidates, no apparatus, and no money: word was the candidates even had to pay for their own campaigns. And look now.

Note: France is still under a state of emergency.

France’s Macron Set For Landslide Majority In Parliament (R.)

French President Emmanuel Macron’s party is set for a giant majority in parliament, opinion pollsters said on Sunday after a first round of voting. According to two pollsters, his Republic On the Move (LREM) party and its ally Modem were set to win well over 400 seats in the 577-seat National Assembly. The two organisations along with others forecast he had won well over 30% of first round votes as voting closed. A poll by Elabe put the number of seats at between 415 and 445, while a poll by Kantar Sofres put it at between 400 and 445. A second round of voting will determine the actual number of seats Macron wins. The first round for the most part eliminates eliminates candidates who have gathered less than 12.5% of registered voters.

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Long interview for Naomi’s new book “No Is Not Enough”.

Naomi Klein: ‘Trump Is An Idiot, But He’s Good At That’ (G.)

The fact that Naomi Klein predicted the forces that explain the rise to power of Donald Trump gives her no pleasure at all. It is 17 years since Klein, then aged 30, published her first book, No Logo – a seductive rage against the branding of public life by globalising corporations – and made herself, in the words of the New Yorker, “the most visible and influential figure on the American left” almost overnight. She ended the book with what sounded then like “this crazy idea that you could become your own personal global brand”. Speaking about that idea now, she can only laugh at her former innocence. No Logo was written before social media made personal branding second nature. Trump, she suggests in her new book, No Is Not Enough, exploited that phenomenon to become the first incarnation of president as a brand, doing to the US nation and to the planet what he had first practised on his big gold towers: plastering his name and everything it stands for all over them.

Klein has also charted the other force at work behind the victory of the 45th president. Her 2007 book, The Shock Doctrine, argued that neoliberal capitalism, the ideological love affair with free markets espoused by disciples of the late economist Milton Friedman, was so destructive of social bonds, and so beneficial to the 1% at the expense of the 99%, that a population would only countenance it when in a state of shock, following a crisis – a natural disaster, a terrorist attack, a war. Klein developed this theory first in 2004 when reporting from Baghdad and watching a brutally deregulated market state being imagined by agents of the Bush administration in the rubble of war and the fall of Saddam Hussein. She documented it too in the aftermath of the Boxing Day tsunami in Sri Lanka, when the inundated coastline of former fishing villages was parcelled up and sold off to global hotel chains in the name of regeneration.

And she saw it most of all in the fallout of Hurricane Katrina in New Orleans, when, she argued, disaster was first ignored and exacerbated by government and then exploited for the gain of consultants and developers. Friedmanites understood that in extreme circumstances bewildered populations longed above all for a sense of control. They would willingly grant exceptional powers to anyone who promised certainty. They understood too that the combination of social media and 24-hour cable news allowed them to manufacture such scenarios almost at will. The libertarian right of the Republican party, in Klein’s words, became “a movement that prays for crisis the way drought-struck farmers pray for rain”.

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Here’s hoping Chelsea has some peace and perhaps even fun.

Chelsea Manning Explains Why She Went to Prison for You (TAM)

Chelsea Manning has given her first interview since being released from prison last month in which she explains her motivations for making public thousands of military documents. Excerpts of her interview with ABC‘s “Nightline” co-anchor Juju Chang aired Friday on the network’s “Good Morning America.” Asked about why she leaked the trove of documents, she says, “I have a responsibility to the public … we all have a responsibility.” “We’re getting all this information from all these different sources and it’s just death, destruction, mayhem.” “We’re filtering it all through facts, statistics, reports, dates, times, locations, and eventually, you just stop,” she adds. “I stopped seeing just statistics and information, and I started seeing people.” Asked by Hing what she would tell President Obama, Manning, choking up, says, “I’ve been given a chance,” she says. “That’s all I asked for was a chance.”

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Stop bombing. Start rebuilding. There is no other solution.

Over 2,500 Migrants Rescued In Mediterranean In 2 Days, Over 50 Missing (RT)

More than 2,500 migrants were rescued off the Libyan coast in the past 48 hours while attempting to cross the Mediterranean in “flimsy dinghies,” the UN refugee agency has said. At least eight people have died and dozens are feared missing. “Eight corpses have been recovered so far and at least 52 people are feared missing from two incidents involving large numbers of people on flimsy dinghies off the coast of Libya on Saturday,” Director of Europe Bureau of the UN Refugee agency (UNHCR) Vincent Cochetel said in a statement, citing the Italian Coast Guard. In all, over a dozen search-and-rescue operations, coordinated by the Italian Coast Guard, were launched over the weekend. The rescued migrants are expected to be disembarked in Italy over the next few days, the agency added.

“UNHCR applauds the rescue efforts by European government authorities, the Italian Coast Guard and NGOs, but is deeply saddened that the death toll continues to rise,” the statement reads. Over 1,770 people are estimated to have perished or gone missing while trying to cross the Mediterranean so far this year, according to agency’s estimates, while more than 50,000 migrants reached Italian shores, most of them through Libya. The death toll among migrants trying to reach Europe is believed to be much higher, according to the UNHCR, though, as many of them presumably die in the Sahara desert without even making it to the Libyan coast. The migrant death toll is expected to spike in the next few months with the beginning of summer sailing season, the agency warns. While urging to strengthen international efforts to save people attempting to cross the Mediterranean, UNHCR stated that the “solutions cannot just be in Italy.” Italy has on numerous occasions said that it does not enough resources to deal with the migrant influx from Libya.

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Jun 112017
 
 June 11, 2017  Posted by at 9:30 am Finance Tagged with: , , , , , , , , ,  4 Responses »
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Mondriaan Amaryllis 1910

 

US Weeks Away From A Recession According To Latest Loan Data (ZH)
This Super Bubble Is About to Pop (IM)
Another Spanish Bank about to Bite the Dust (DQ)
“Macron Is Shaping Up As Hyper-Presidency” (BBG)
George Osborne Says Theresa May Is A ‘Dead Woman Walking’ (G.)
Theresa May’s Premiership In Peril As Loose Alliance Agreed With DUP (G.)
UK’s May Isolated Ahead Of Brexit Talks As Key Aides Quit (R.)
The Inconvenient Truth of Consumer Debt (DDMB)
Tesla’s Market Value Zooms Past Another Car Maker (MW)
The Actual Lizard People (Connelly)
Refugee Rescue Ships Not ‘Colluding With People Smugglers’ (Ind.)
Fractal Planting Patterns Yield Optimal Harvests, No Central Control (PhysOrg)

 

 

A huge difference from the overarching narrative.

US Weeks Away From A Recession According To Latest Loan Data (ZH)

While many “conventional” indicators of US economic vibrancy and strength have lost their informational and predictive value over the past decade (GDP fluctuates erratically especially in Q1, employment is the lowest this century yet real wage growth is non-existent, inflation remains under the Fed’s target despite its $4.5 trillion balance sheet and so on), one indicator has remained a stubbornly fail-safe marker of economic contraction: since the 1960, every time Commercial & Industrial loan balances have declined (or simply stopped growing), whether due to tighter loan supply or declining demand, a recession was already either in progress or would start soon. This can be seen on both the linked chart, and the one zoomed in below, which shows the uncanny correlation between loan growth and economic recession.

And while we have repeatedly documented the sharp decline in US Commercial and Industrial loan growth over the past few months (most recently in “We Now Know “Who Hit The Brakes” As Loan Creation Crashes To Six Year Low“) as US loans have failed to post any material increase in over 30 consecutive weeks, suddenly the US finds itself on the verge of an ominous inflection point. After growing at a 7% Y/Y pace at the start of the year, which declined to 3% at the end of March and 2.6% at the end of April, the latest bank loan update from the Fed showed that the annual rate of increase in C&A loans is now down to just 1.6%, – the lowest since 2011 – after slowing to 2.3% and 1.8% in the previous two weeks.

Should the current rate of loan growth deceleration persist – and there is nothing to suggest otherwise – the US will post its first negative loan growth, or rather loan contraction since the financial crisis, in roughly 4 to 6 weeks. An interesting point on loan dynamics here from Wolf Richter, who recently wrote that a while after the 1990/1991 recession was over, the NBER determined that the recession began in July 1990, eight month after C&I loans began to stall. “As such, the current seven-month stall is a big red flag. These stalling C&I loans don’t fit at all into the rosy credit scenario. Something is seriously wrong.”

However, it wasn’t until loan growth actually contracted, that the 1990 recession was validated.  Well, the US economy is almost there again. And this time it’s not just C&I loan growth, or lack thereof, there is troubling. As the chart below shows, after peaking in late 2016, real-estate loan growth has also decelerated by nearly half, to 4.6%.

More troubling still, after flatlining at nearly double digit growth for much of 2016, starting last September there has been a sharp slowdown in commercial auto loans, whose growth is now down to just a third, or 3%, of what it was a year ago.

While it remains to be seen if C&I loans have preserved their uncanny “recession predictiveness” for yet another turn of the business cycle, the charts above confirm that the US economy is rapidly slowing, and validating the poor Q1 GDP print. Furthermore, one thing is clear: absent a substantial rebound in loan growth, whether for commercial, residential or auto loans, there is no reason to expect an imminent uptick in the US economy. We only note this, because next week the Fed plans to hike rates again. If it does so just as US loan growth contracts, it may be doing so smack in the middle of a recession.

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It’s more of a series of bubbles. But yes, Germany’s needs and demands are set to prevail over everyone else’s yet again. The EU’s inherent flaws will do it in.

This Super Bubble Is About to Pop (IM)

Right now, Italy is Europe’s weakest link. Italy has one of the most indebted governments in the world. It’s borrowed over $2.4 trillion. Its debt-to-GDP ratio is north of 130%. (For comparison, the US debt-to-GDP ratio is 104%.) But the situation is actually much worse. GDP measures a country’s economic output. However, it’s highly misleading. Mainstream economists count government spending as a positive when calculating GDP. A more honest approach would count it as a big negative. In Italy, government spending accounts for a whopping 50%-plus of GDP. Remove that from the calculation, and I suspect we’d see how hopelessly insolvent the Italian government truly is. In other words, Italy is flat broke. I don’t see how the Italian government could possibly extract enough in taxes from the productive part of the economy to ever pay back what it’s borrowed.

Meanwhile, Italian government bonds are in a super bubble. They’re currently trading near record-low yields. (When bond prices go up, bond yields do down.) Over $1 trillion worth of Italian bonds actually have negative yields. It’s a bizarre and perverse situation. Lending money to the bankrupt Italian government carries huge risks. So the yields on Italian government bonds should be near record highs, not record lows. Negative yields could not exist in a free market. They’re only possible in the current “Alice in Wonderland” economy created by central bankers. You see, the ECBhas been printing money to buy Italian government bonds hand over fist. Since 2008, the ECB and Italian banks have bought over 88% of Italian government debt, according to a recent study. This is stunning.

It means that Italy’s financial system depends completely on ECB money printing. Italian government bonds are, without a doubt, in super-bubble territory. It won’t be long before a pin pricks this bubble and… pop. That could happen soon. Earlier this month, the credit rating agency Fitch downgraded Italy’s credit rating from BBB+ to BBB. And Mario Draghi, the head of the ECB, recently announced that after five years of manic money printing, he’s finally achieved his wrongheaded goal of 2% inflation. [..] Now that the ECB has reached its 2% inflation target, Germany and other EU countries are pushing the central bank to stop printing so much money. This is the last thing the Italian government wants. Remember, the ECB buys a lot of Italian government bonds with those freshly printed euros.

If the ECB stops buying Italian government bonds, who will step up? The answer is nobody. Italian banks are already completely saturated with government bonds. Germany wants the money printing to stop. Italy wants it to continue. But, since the ECB has reached its stated inflation target and Germany has crucial elections later this year, I think Germany will get its way. This is very bad news for Italy’s government and banking system. Once the ECB—the only large buyer—steps away, Italian government bonds will crash and rates will soar. Soon it will be impossible for the Italian government to finance itself. Italian banks—which are already insolvent—will be decimated. They hold an estimated €235 billion worth of Italian government bonds. So the coming bond crash will pummel their balance sheets.

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Multiple banks. Zombies and dominoes.

Another Spanish Bank about to Bite the Dust (DQ)

After its most tumultuous week since the bailout days of 2012, Spain’s banking system is gripped by a climate of fear, uncertainty and distrust. Rather than allaying investor nerves, the shotgun bail-in and sale of Banco Popular to Santander on Tuesday has merely intensified them. For the first time since the Global Financial Crisis, shareholders and subordinate bondholders of a failing Spanish bank were not bailed out by taxpayers; they took risks in order to make a buck, and they bore the consequences. That’s how it should be. But bank investors don’t like not getting bailed out. Now they’re worrying it could happen again. As Popular’s final days showed, once confidence and trust in a bank vanishes, it’s almost impossible to restore them.

The fear has now spread to Spain’s eighth largest lender, Liberbank, a mini-Bankia that was spawned in 2011 from the forced marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria. This creature’s shares were sold to the public in May 2013 at an IPO price of €0.40. By April 2014, they were trading above €2, a massive 400% gain. But by April 2015, shares started sinking. By May 2017, they were trading at around €1.20. But since the bail-in of Popular, Liberbank’s shares have seriously crashed as panicked investors fled. Scenting fresh blood, short sellers were piling in. On Friday alone, shares plunged another 17%. At one point, they were down 38% before bouncing at the close of trading, much of it driven by the bank’s own share buybacks:

In the last three weeks a whole year’s worth of steadily rising gains on the stock market have been completely wiped out. The main causes of concern are the bank’s high risk profile and low coverage rate. By the close of the first quarter of 2017, Liberbank’s default rate had reached 13%, over three%age points higher than the national average (9.8%), while its unproductive asset coverage rate was just 42.1%, compared to 47% for Banco Sabadell, 48% for Bankia, 50% for CaixaBank and 55% for Unicaja. Worse still, the vast bulk of the bank’s unproductive assets are real estate investments. After Popular, it is the Spanish entity with most exposure to toxic real estate assets, according to the financial daily El Confidencial — a remarkable feat given the bank already had the lion’s share of its impaired real estate assets transferred onto the balance sheets of Spain’s “bad bank,” Sareb.

[..] Banco Popular’s demise is a stark reminder that Europe’s banking woes are far from resolved, despite the trillions of euros thrown at them. “The message the market is sending is that you have to buy solvent banks and stay away from those that pose high risks,” said Rafael Alonso, an analyst at Bankinter, one of Spain’s more solvent banks. Another Spanish bank that could be considered to pose high risks is Unicaja, the product of another merger of failed cajas that is (or at least was) scheduled to launch its IPO some time in June or July. As things currently stand, the timing could not be worse. The greater the uncertainty over Liberbank’s future, the lower the projected valuation of Unicaja’s IPO falls. Before Popular’s forced bail-in and acquisition, the Unicaja was valued at around €2.3 billion; now, just days later, it’s valued at less than €1.9 billion. If the trend continues, the IPO will almost certainly be shelved.

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From literally zero to a comfortable majority in just weeks. Maybe someday we’ll learn how it was done. We may not like it. Follow the money.

“Macron Is Shaping Up As Hyper-Presidency” (BBG)

Polling stations opened across France on Sunday as voters begin electing a parliament that will determine how much power recently elected President Emmanuel Macron will actually have. If polls are to be believed, it will be a lot. The latest surveys suggest Macron’s Republic on the Move movement, or REM, will win a comfortable majority in the 577-seat National Assembly, allowing him to push through his plans to loosen French labor laws and simplify its tax system. The 39-year-old Macron was elected in May after creating a centrist political movement that took millions of votes away from the two parties that have dominated French politics for decades. During one month in office, he’s further weakened the Socialist Party and the center-right Republicans by poaching some of their leading members for cabinet positions.

“Macron is shaping up as hyper-presidency, with a very strong central authority,” said Dominique Reynie, a politics professor at Sciences Po institute in Paris. “He’s got a party that he founded and fully controls. He’s got opposition parties that risk fragmenting.” Sunday’s ballot is for 539 seats in France. Voting has already closed in 27 constituencies for France’s overseas territories and another 11 to represent French expats. Voting started at 8 a.m. Paris time and most polling booths will close at 6 p.m., though local prefects can allow voting to continue until 8 p.m. The interior ministry will release turnout figures at noon and at again at 5 p.m. In 2012, about 59% of registered voters went to the polls. Little will be settled Sunday night. Under France’s two-round system for the parliamentary elections, any candidate with more than 12.5% of the registered voters goes through to runoffs on June 18, so long as no one gets 50% on Sunday. In the previous election five years ago, only 36, or about 6%, of the constituencies were settled in the first round.

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And he’s right. I wrote that even before the election. But Osborne and Cameron have been as disastrous for the UK as May now is.

A new poll shows that elections today would see Labour at 45% and Tories at 39%.

When will people fully appreciate that Jeremy Corbyn is the one person around who does not smear and gossip and play personal petty politics?

George Osborne Says Theresa May Is A ‘Dead Woman Walking’ (G.)

George Osborne has called Theresa May “a dead woman walking” and suggested the prime minister would be forced to resign imminently. The former chancellor said the campaign had undone the work of himself and former prime minister David Cameron in winning socially liberal seats such as a Bath, Brighton Kemptown and Oxford East, now lost to Labour and the Lib Dems. “She is a dead woman walking and the only question is how long she remains on death row,” the editor of the Evening Standard said, defending his paper’s attacks on May as speaking from a “socially liberal, pro-business, economically liberal position” that he said had been consistent as editor and chancellor. Speaking on the BBC’s Andrew Marr show, Osborne said he and Cameron had spent “years getting back to office, winning in seats like Bath and Brighton and Oxford and I am angry when we go backwards and I am not afraid to say that”.

Political strategist Lynton Crosby, blamed by May’s advisers for an overly negative, presidential-style campaign with robotic slogans, had been undermined by the prime minister’s own flaws, Osborne said. “They are professionals,” he said, blaming May’s “failure to communicate and a disastrous manifesto”. Osborne said blame should be on the shoulders of May, though her advisers Nick Timothy and Fiona Hill resigned on Saturday. “You can’t just blame the advisers. The only person who decides to have an election is the prime minister, the person who decides what’s in the manifesto is the prime minister.” He said the party had been furious with May on her return to Downing Street when she gave a speech that failed to acknowledge party colleagues who had lost their seats, including ministers. “The Tory party was absolutely furious that Theresa May failed to acknowledge the loss and suffering of many MPs,” he said.

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The DUP is a fatally flawed option. May has signed her own political death warrant. Bloomberg: “Theresa May could reportedly face a leadership challenge as soon as Tuesday”

Theresa May’s Premiership In Peril As Loose Alliance Agreed With DUP (G.)

Theresa May’s plan for a loose alliance with the Democratic Unionists to prop up her government was thrown into confusion last night after the Northern Ireland party contradicted a No 10 announcement that a deal had been reached. A Downing Street statement on Saturday said a “confidence and supply” agreement had been reached with the DUP and would be put to the cabinet on Monday. But the DUP last night put the brakes on that announcement, saying talks were continuing, not finalised. The DUP leader, Arlene Foster, said “discussions will continue next week to work on the details and to reach agreement on arrangements for the new parliament”. Following talks between May and the DUP last night, a second statement from No 10 clarified that no final deal had been reached.

[..] The Observer has learned that the DUP was planning to dodge a row when negotiations began by avoiding the inclusion of any controversial social policies, such as opposition to gay marriage or abortion, in its so-called “shopping list” of demands to the Tories. Party sources said it would be seeking commitments from May that there would be no Irish unity referendum and no hard border imposed on the island of Ireland. However, some Tories remained concerned that a pact would damage a brand they have spent years trying to detoxify. “More and more colleagues are becoming distinctly uneasy about the idea of a formal pact with the DUP,” said one senior Conservative. “It is up to the DUP if they want to support a Conservative government and vote for various measures that we put through, but there is a feeling that we are damaged if we are seen to be entering into a formal agreement with a party whose views on a number of things we just don’t share.

“Why should we damage what we painstakingly built up through David Cameron’s work on personal issues, and indeed what the prime minister’s own instincts are, with any form of formal linkage with people who plainly have some views that the vast majority of Conservative MPs would not share?” Nicky Morgan, an education secretary under David Cameron, said: “As a former minister for women and equalities, any notion that the price for a deal with the DUP is to water down our equalities policies is a non-starter.” An online petition calling for May to resign rather than form a coalition with the DUP had attracted more than 500,000 signatures Saturday night. The DUP is opposed to abortion and same-sex marriage. It has also appointed climate change sceptics to senior posts within the party.

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The Tories need internal cleansing even more than Labour.

UK’s May Isolated Ahead Of Brexit Talks As Key Aides Quit (R.)

British Prime Minister Theresa May secured a deal on Saturday to prop up her minority government but looked increasingly isolated after a botched election gamble plunged Britain into crisis days before the start of talks on leaving the EU. Her Conservatives struck an outline deal with Northern Ireland’s Democratic Unionist Party (DUP) for support on key legislation. It was a humiliating outcome after an election that May had intended to strengthen her ahead of the Brexit push. Instead, voters stripped the Conservatives of their parliamentary majority. As May struggled to contain the fallout, her two closest aides resigned. Newspapers said foreign minister Boris Johnson and other leading party members were weighing leadership challenges. But Johnson said he backed May.

May called the early election in April, when opinion polls suggested she was set for a sweeping win. May’s aides, Nick Timothy and Fiona Hill quit on Saturday following sustained criticism within the party of the campaign. Gavin Barwell was named new chief of staff. The Conservative lawmaker who lost his seat on Thursday and has experience working as a party enforcer in parliament. The change was unlikely to significantly quell unrest within the party. Most of May’s cabinet members have kept quiet on the issue of her future, adding to speculation that her days as prime minister are numbered. A YouGov poll for the Sunday Times newspaper found 48% of people felt May should quit while 38% thought she should stay. [..] Britain’s largely pro-Conservative press questioned whether May could remain in power.

The Sun newspaper said senior members of the party had vowed to get rid of May, but would wait at least six months because they feared a leadership contest could propel the Labour party into power under Jeremy Corbyn, who supports renationalization of key industries and higher taxes for business and top earners. Survation, the opinion polling firm that came closest to predicting correctly the election’s outcome, said a new poll it conducted for the Mail on Sunday newspaper showed support for Labour now 6%age points ahead of the Conservatives. “She’s staying, for now,” one Conservative Party source told Reuters. Former Conservative cabinet minister Owen Paterson, asked about her future, said: “Let’s see how it pans out.”

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“Sometime between now and Armageddon, interest rates will go up..”

The Inconvenient Truth of Consumer Debt (DDMB)

Oh, but for the days the hawks had a hero in Sydney. Against the backdrop of a de facto currency war, the Reserve Bank of Australia stood as a steady pillar of strength. The RBA held the line on interest rates, maintaining a floor of 2.5%, even as its global central bank peers drove rates to the zero bound and beyond into negative territory. The abrupt end to the commodities supercycle drove the RBA to join the global currency war. The mining-dependent nation’s economy was so debilitated that policy makers felt they had no choice but to ease financial conditions. In February 2015, after an 18-month honeymoon, the RBA reduced its official rate to 2.25%, marking the start of a cycle that ended last August with the fourth cut to a record low of 1.5%. The Bank of Canada has taken a similar journey in recent years.

It embarked upon a mild tightening campaign in 2010 that raised the overnight loan rate from a record low of 0.25% to 1% in September 2010. The bank maintained that level until early 2015. Two weeks before the RBA’s first cut, the Bank of Canada lowered rates to 0.75%. The January move, which shocked the markets, was followed in July 2015 with an additional ease to 0.5%, where it remains today. Bank of Canada Governor Stephen Poloz, who replaced Mark Carney after he departed to head the Bank of England, explained the moves as necessary to counter the downside risks to inflation emanating from the oil price shock to the country’s economy. Two resource-rich economies reacting similarly to body blows is intuitive enough. They eased the pressure on their given economies. How they’ve landed in their current predicaments is less easy to explain.

Propelled by soaring home prices from Sydney to Toronto to Melbourne to Vancouver, Australia’s household debt-to-income has hit a record 190%, the highest among developed nations; it is trailed closely by Canada, which has a 167% ratio. To put this in perspective, at the peak of the housing bubble, debt-to-income in the U.S. peaked at 130%. Then, economists took perverse pleasure in squelching the alarm these frightening figures elicited. “It’s not the level of debt that matters, it’s the cost to service that debt.” Is it a surprise that economists today are equally dismissive of households’ heavy debt burdens? Mortgages take a lifetime to expunge; incomes flow in every year. That myopic mindset best captures the shackles that bind today’s global economy. Of course it’s acceptable to build infinitely high levels of debt – as long as rates never rise.

But then there’s the inconvenient truth that when the price of the collateral backing those millions of subprime mortgages cratered, those irrelevant debt loads became relevant overnight. The same can be said of today’s delicate dynamic. Australia and Canada will be just fine so long as they don’t suffer a shock in any form to their respective economies. Some policy makers have begun to push back against the conventional stupidity. “Sometime between now and Armageddon, interest rates will go up,” warned Australia’s Treasury Secretary John Fraser on May 30. “That’s something people need to be mindful of.” Bear in mind that household debt has been growing at multiples of income, a disconnect that can only exist in a wonderland of permanently low interest rates.

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Tesla sold less than 84,000 cars in 2016. VW sold 10 million. Guess which is worth more? Time to get free money out of the way, because it only serves to distort valuation, economies and societies.

Tesla’s Market Value Zooms Past Another Car Maker (MW)

Tesla on Friday became the world’s No. 3 car maker by market capitalization, surpassing Germany’s BMW and getting further ahead of U.S. competitors General Motors and Ford. Tesla’s market value now stands at $59.7 billion. The two car makers it has yet to surpass are Toyota, which is still a ways off at $172 billion, and Daimler at $78 billion. Tesla stock has hit a string of records in the past two months, and was slated to hit another closing all-time high on Friday. It reached a closing record of $370 on Thursday, and traded as high as $376.87 on Friday.

The meteoric stock rise pushed Tesla’s market cap to surpass Ford’s and GM’s in April. Tesla sold nearly 84,000 cars in 2016, up 64% from the previous year. The company has set a goal to be able to make cars at an annual rate of 500,000 a year by the end of 2018. The top auto makers by vehicles produced are Volkswagen and Toyota, each of which make about 10 million of the 90 million vehicles produced world-wide, according to the International Organization of Motor Vehicles Manufacturers. Tesla shares are up more than 73% so far this year. That compares with gains of approximately 9% for the S&P 500. The stock has gained more than 62% over the past 12 months, more than four times the gains for the benchmark.

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This is a history lesson that’s part of a longer piece on neo-liberalism and the Shock Doctrine.

The Actual Lizard People (Connelly)

The Mont Pelerin Society was created on 10 April 1947 at a conference organised by the economist Friedrich von Hayek and Swiss businessman Albert Hunold. (By the end of the conference, Hunold would be appointed secretary. He also became editor-in-chief of The Mont Pelerin Quarterly magazine). The Society was basically a union for the rich and powerful, which boasted Prime Ministers and Presidents, journalists, European and American aristocracy, economists, business people, authors and academics. It was backed and funded by The (New York) Foundation for Economic Education, and the William Volker Fund based in Kansas City which provided subsidies. Credit Suisse, then known as The Schweizerische Kreditanstalt, paid for almost all the conference costs.

As the cigar-smoke, whiskey and heady self-righteousness swilled around the ballroom lights, Hayek joined with Milton Friedman and their luminaries, including Austrian-American economist, Ludvig von Mises and noted Austrian-British philosopher, Karl Popper to form a small, exclusive club of free-marketeers, devoted to remaking the world in its image. That night began the systematic deconstruction of Roosevelt’s New Deal which, ironically, was responsible for the greatest expansion of the American middle class up until that point, according to historian Jason A Schwarz which in turn helped bolster middle-class wealth in allied nations. The wealth created during the New Deal endowed three generations with financial and social mobility, the riches that were still being spent and created in the 60s, 70s and 80s, at the cost of a fraction of the wealth of the world’s millionaires and billionaires.

The infrastructure built during the New Deal, cracking and creaking, is in use to this day. The Mont Pelerin group would draft a ten-point statement of aims which claimed “independent freedom can be preserved only in a society in which an effective competitive market is the main agency for the direction of economic activity.” The 10 point statement of aims concludes with: “Complete intellectual freedom is so essential to the fulfillment of our aims that no consideration of social expediency must ever be allowed to impair it”. The decisions made in that Swiss Hotel in 1947 was the formalisation of a long running class war that is still being fought today. Initially their progress was slow. They were in such a defensive mode, they achieved little that was tangible during the 50s and 60s, beyond an attack on the then dominant Neo-Keynesian economic management.

Their first opportunity to take back real power, and shift the world towards the capitalism of the 1920s and earlier decades, came with the US-inspired overthrow of the Allende Government in Chile on September 11th, 1973 which saw hundreds killed, 200,000 people exiled, and many more tortured, kidnapped and disappeared. It is often referred to as the first 9/11. It is estimated more than 10,000 people were killed under Pinochet’s regime. Mass Chilean unemployment persisted for years after Pinochet cut government spending by 27%, with education and health hit hardest, while adopting a “pro-business package” and a move towards “complete free trade” which removed “as many obstacles as possible that now hinder the private market”.

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Another crazy narrative that must be halted. The blame lies in Brussels, not with people trying to prevent other people from drowning.

Refugee Rescue Ships Not ‘Colluding With People Smugglers’ (Ind.)

Humanitarian ships rescuing refugees in the Mediterranean Sea are not acting as a “pull factor” driving increasing refugee boat crossings or “colluding” with smugglers, research has found. A report by the Forensic Oceanography department at Goldsmiths, University of London, rejected a “toxic narrative” seeking to blame NGOs for the worsening crisis. Experts dismantled allegations made by agencies such as Frontex and leading European politicians, who claimed charities were encouraging smugglers to use more dangerous tactics on the treacherous passage between Libya and Italy. The Blaming the Rescuers report’s author, Lorenzo Pezzani, said: “The evidence simply does not support the idea that rescues by NGOs are to blame for an increase in migrants crossing.

“The argument against NGOs deliberately ignores the worsening economic and political crisis across several regions in Africa that has driven up the numbers of crossings in 2016. “The violence against migrants in Libya is so extreme that they attempt the sea crossing with or without search and rescue being available.” The United Nations has documented “slave auctions” where African migrants are openly bought and sold in the war-torn country, as well as endemic rates of rape, abuse, torture and forced labour. Despite the dire situation, the EU has been giving funding, training and equipment to the Libyan coastguard in efforts to turn back migrant boats and prevent the crossings. Humanitarian groups, which have documented the coastguard abusing migrants and attacking their ships, say forcing refugees from international waters back into Libya is a violation of international law.

[..] The Goldsmiths report also placed partial blame on the EU’s Operation Sophia mission, which had a “major impact on smugglers’ tactics” by intercepting and destroying larger and safer wooden boats. “The Libyan coastguard’s use of violence when intercepting vessels also affected smugglers’ tactics and at times led to boats capsizing, endangering everyone on board,” it added. It concluded that those blaming NGOs are choosing to ignore the role other actors, including EU agencies and national governments, have played in making migrant crossings more dangerous. “We believe that the toxic narrative falsely claiming that NGO search and rescue is to blame for the migrant crossing situation is part of a worrying tendency to criminalise solidarity initiatives towards migrants,” Mr Pezzani said.

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Wonderful. I think, however, that saying it contradicts the Tragedy of the Commons is a bridge too far. Because these people do choose what’s best for themselves.

Fractal Planting Patterns Yield Optimal Harvests, No Central Control (PhysOrg)

Bali’s famous rice terraces, when seen from above, look like colorful mosaics because some farmers plant synchronously, while others plant at different times. The resulting fractal patterns are rare for man-made systems and lead to optimal harvests without global planning. To understand how Balinese rice farmers make their decisions for planting, a team of scientists led by Stephen Lansing (Nanyang Technological University) and Stefan Thurner (Medical University of Vienna, Complexity Science Hub Vienna, IIASA, SFI), both external faculty at the Santa Fe Institute, modeled two variables: water availability and pest damage. Farmers that live upstream have the advantage of always having water; while those downstream have to adapt their planning on the schedules of the upstream farmers.

Here, pests enter the scene. When farmers are planting at different times, pests can move from one field to another, but when farmers plant in synchrony, pests drown and the pest load is reduced. So upstream farmers have an incentive to share water so that synchronous planting can happen. However, water resources are limited and there is not enough water for everybody to plant at the same time. As a result of this constraint, fractal planting patterns emerge, which yield close to maximal harvests. “The remarkable finding is that this optimal situation arises without central planners or coordination. Farmers interact locally and take local individual free decisions, which they believe will optimize their own harvest. And yet the global system works optimally,” says Lansing.

“What is exciting scientifically is that this is in contrast to the tragedy of the commons, where the global optimum is not reached because everyone is maximizing his individual profit. This is what we are experiencing typically when egoistic people are using a limited resource on the planet, everyone optimizes the individual payoff and never reach an optimum for all,” he says. The scientists find that under these assumptions, the planting patterns become fractal, which is indeed the case as they confirm with satellite imagery. “Fractal patterns are abundant in natural systems but are relatively rare in man-made systems,” explains Thurner. These fractal patterns make the system more resilient than it would otherwise be. “The system becomes remarkably stable, again without any planning—stability is the outcome of a remarkably simple but efficient self-organized process. And it happens extremely fast. In reality, it does not even take ten years for the system to reach this state,” Thurner says.

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Jun 082017
 
 June 8, 2017  Posted by at 9:37 am Finance Tagged with: , , , , , , , , , ,  1 Response »
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Roy Lichtenstein Femme d’Alger 1963

 

UK Press Gang Up On Jeremy Corbyn In Election Day Coverage (G.)
US Market Risk Is Highest Since Pre-2008 Crisis – Bill Gross (BBG)
Global Financial System More Leveraged Than 2008 – Paul Singer (BBG)
UK Housing Weakens Further as Market Emits ‘Ominous’ Signals (BBG)
The Cost of Getting It Wrong (Claire Connelly)
The UAE Needs Qatar’s Gas to Keep Dubai’s Lights On (BBG)
Oil Prices Drop More Than 4% On Surge In Stockpiles (CNBC)
China’s Top Property-Bubble Prophet Says Prices Set to Soar 50% (BBG)
Banco Popular Wipeout Leaves CoCo Bonds On The Drawing Board (BV)
A Reform Beyond Macron’s Grip: The Revolving Door of French Politics (BBG)
OECD Puts Greek Growth At Just 1.1% This Year (K.)
Athens To Seek Growth Package At Eurogroup Meeting (K.)
Greece Says Colombian Gangs Plundering Hospitals Europe-Wide (AP)
Greek Room Owners Threaten To Return Permits in Airbnb Challenge (K.)
Bid For EU States To Stop Migrants, Refugees ‘Asylum Shopping’ (K.)

 

 

The Daily Mail ran 13 pages yesterday on the theme of Corbyn and Labour being terrorist apologists. No shame, no morals. In the same vein, I tried to find an objective piece on the Comey testimony, but couldn’t find one. The UK press has no faith in its voters, the US press has none in its Senate: the press draws the conclusions before anyone else can. The media cares little about credibility, it’s all echo chambers all the way down.

UK Press Gang Up On Jeremy Corbyn In Election Day Coverage (G.)

The Sun has urged its readers not to “chuck Britain in the Cor-bin” on its final front page before the country votes in the general election. The tabloid, owned by Rupert Murdoch’s News Corp, published an editorial on its front page under the headline “Don’t Chuck Britain in the Cor-bin” alongside 10 bullet points that described the Labour leader Jeremy Corbyn as a “terrorists’ friend”, “useless on Brexit”, “puppet of unions” and “Marxist extremist”. The article said readers could “rescue Britain from the catastrophe of a takeover by Labour’s hard-left extremists”. The Daily Mail front page roared, “Let’s reignite British spirit” on the back of a Theresa May speech and also promoted a feature inside called “Your tactical voting guide to boost the Tories and Brexit”.

The Daily Mirror reiterated its support for the Labour party with a front page headline of “Lies, damned lies, and Theresa May”, while the Daily Telegraph ran a story headlined “Your Country Needs You” based on an editorial by the prime minister that urged “patriotic” Labour supporters to vote Conservative. The Daily Express front page said: “Vote for May Today”. Meanwhile, the Times reported that the Conservatives had a seven-point in the final opinion poll before the election, and the Guardian covered May and Corbyn’s late attempts to win support from voters. Thursday’s front pages come after the Daily Mail devoted 13 pages to attacking Labour, Jeremy Corbyn, Diane Abbott and John McDonnell on Wednesday under the headline: “Apologists for terror”. The tabloid urged readers to support the Conservatives in an editorial on its first and second pages, but concentrated its fire on Labour’s leadership, compiling hostile anecdotes dating back to the 1970s.

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“Instead of buying low and selling high, you’re buying high and crossing your fingers…”

US Market Risk Is Highest Since Pre-2008 Crisis – Bill Gross (BBG)

U.S. markets are at their highest risk levels since before the 2008 financial crisis because investors are paying a high price for the chances they’re taking, according to Bill Gross, manager of the $2 billion Janus Henderson Global Unconstrained Bond Fund. “Instead of buying low and selling high, you’re buying high and crossing your fingers,” Gross, 73, said Wednesday at the Bloomberg Invest New York summit. Central bank policies for low-and negative-interest rates are artificially driving up asset prices while creating little growth in the real economy and punishing individual savers, banks and insurance companies, according to Gross. The U.S. economy is expected to grow 2.2% this year and 2.3% in 2018, according to forecasts compiled by Bloomberg. Trump administration officials have said their policies will boost annual growth to 3%.

Despite being concerned about high asset prices, Gross said he feels required to stay invested and sees value in some closed-end funds. Examples he gave are the Duff & Phelps Global Utility Income Fund and the Nuveen Preferred Income Opportunities Fund. He also said he has about 2% to 3% in exchange-traded funds to get yield and add diversification. “They’re appetizers, not entrees,” he said in an interview outside the conference. Gross’s fund has returned 3.1% in the year through June 6, outperforming 22% of its Bloomberg peers. It has posted a total return of 5.4% since Gross took over management in October 2014 after he was ousted from PIMCO. ”If there’s a common factor it’s the expansion of credit,” Gross said on Bloomberg TV Wednesday. “And the credit that’s being generated by central banks. Money is being pumped out into the system and money that is yielding less than nothing seeks a haven not only in bonds that are under-yielding but in stocks that are overpriced.”

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We know.

Global Financial System More Leveraged Than 2008 – Paul Singer (BBG)

Billionaire investor Paul Singer said “distorted” monetary and regulatory policies have increased risks for investors almost a decade after the financial crisis. “I am very concerned about where we are,” Singer said Wednesday at the Bloomberg Invest New York summit. “What we have today is a global financial system that’s just about as leveraged – and in many cases more leveraged – than before 2008, and I don’t think the financial system is more sound.” Years of low rates have eroded the effectiveness of central banks to contend with downturns, Singer said at the event in an interview with Carlyle Group co-founder David Rubenstein. “Suppressive” fiscal, regulatory and tax policies have also exacerbated income inequality and led to the rise of populist and fringe political movements, he added. Confidence “could be lost in a very abrupt fashion causing conceivably a ruckus in bond markets, stock markets and in financial institutions,” said Singer, founder of hedge fund Elliott Management, which is known for being an activist investor.

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Volatility is back.

UK Housing Weakens Further as Market Emits ‘Ominous’ Signals (BBG)

While the general election had an impact on activity in May, damping buyer demand and new sellers coming to the market, RICS used its latest monthly report to highlight broader, and more damaging, risks. That includes the dearth of homes for sale, which has pushed up values in recent years, cutting off many potential first-time buyers. RICS Chief Economist Simon Rubinsohn said the report shows the issue of affordability may even worsen further.“Perhaps the most ominous signal is that contributors still expect house prices to increase at a faster pace than wages over the medium term despite the difficulty many first-time buyers are clearly having,” he said. On the shortage, “it’s hard to see this as anything other a major obstacle to the efficient functioning of the housing market.”

In May, RICS’s monthly price index fell to 17 – the lowest since August – from 23 in April, indicating modest price gains. A gauge for London, where prime properties have been under pressure, remained below zero for a 14th month. Nationally, the supply-demand imbalance means it’s a sellers’ market and recent reports show that any uncertainty about the election had little effect on U.K. asking prices, which according to Rightmove jumped 1.2% to a record in May. For some, it’s reminiscent of the overheating seen before the financial crisis.“Prices are too expensive,” Josh Homans at surveyors Valunation said in the RICS report. “Excessive” valuations are increasing and “we are now in a 2007 situation,” he said.

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One of those must reads. Economics is all but dead, but not entirely yet.

The Cost of Getting It Wrong (Claire Connelly)

What most of us have long believed about how the economy works is based on a set of fundamental myths, supported by a series of inappropriate and misleading metaphors, from which it is difficult to escape. The emotional investment we have made in these myths has allowed for levels of unemployment, underemployment, inequality and relative poverty which would have seemed incredible a generation ago. Somehow we have convinced ourselves of the following:
– Governments need taxpayers’ money to pay for things.
– Governments, like households, need to at least balance their budgets.
– Deficits are bad and government surpluses are good.
– Deficits paid for by printing money causes inflation.
– Surpluses set aside savings which can be spent in the future.
– Lower wages promote full employment.

Wrong, wrong, all wrong. The federal government does not need taxpayers’ money. Actually, it is the other way around. The government issues the currency. We use it. Taxes help to control inflation and stop us spending too much. (It can also be used to control behaviour, as witnessed by taxes on cigarettes and alcohol). Professor Steve Keen says the government, and the public, have the most basic fundamentals of macroeconomics backwards. “Expenditure is what causes income,” he said. “Reducing expenditure also reduces income.” “Individuals can save (without a significant effect on national income), but if you extrapolate that to the whole economy, you are going to make a huge error.” Similarly, the economist says the idea that the government can save by paying down the national debt is misleading.

“Believing that government saving will increase employment or growth is like believing the Earth sits at the centre of the universe”, he says. All it does is destroy spending which would otherwise have created private sector incomes. “If you don’t understand where income comes from, then it means you don’t understand economics, or the economy.” “Individuals can save money by spending less than they earn but if everyone decides to do that, income falls by precisely as much as you try to save. If the government does the same thing, by saving money at a national level, you cause a recession.”

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As solid as the Saudi grip on OPEC cuts: “Abu Dhabi’s Petroleum Ports Authority removed the ban on Wednesday – just one day after announcing it.”

The UAE Needs Qatar’s Gas to Keep Dubai’s Lights On (BBG)

When it comes to natural gas shipments, the United Arab Emirates needs Qatar more than Qatar needs the U.A.E. The U.A.E. joined Saudi Arabia in cutting off air, sea and land links with Qatar on Monday, accusing the gas-rich sheikhdom of supporting extremist groups. But the U.A.E., which depends on imported gas to generate half its electricity, avoided shutting down the pipeline supplying it from Qatar, which has the world’s third-largest gas deposits. Without this energy artery, Dubai’s glittering skyscrapers would go dark for lack of power unless the emirate could replace Qatari fuel with more expensive liquefied natural gas. Qatari natural gas continues to flow normally to both the U.A.E. and Oman through a pipeline, with no indication that supplies will be cut, according to a person with knowledge of the matter who asked not to be identified because the information isn’t public.

Qatar sends about 2 billion cubic feet of gas a day through a 364-kilometer (226-mile) undersea pipeline. Dolphin Energy, the link’s operator, is a joint-venture between Mubadala Investment, which holds a 51% stake, and Occidental Petroleum and Total, each with a 24.5% share. Since 2007, the venture has been processing gas from Qatar’s North field and transporting it to the Taweelah terminal in Abu Dhabi, according to Mubadala’s website. Dolphin also distributes gas in Oman. Apart from preserving gas shipments from Qatar, the U.A.E. on Wednesday actually eased efforts to isolate its smaller neighbor. The oil-port authority in Abu Dhabi, the U.A.E. capital, lifted restrictions on international tankers that have sailed to Qatar or plan to do so. Abu Dhabi’s Petroleum Ports Authority removed the ban on Wednesday – just one day after announcing it.

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The Saudi-Qatar spat is growing and oil plunges? Huh?

Oil Prices Drop More Than 4% On Surge In Stockpiles (CNBC)

U.S. crude prices plunged toward $46 a barrel on Wednesday after weekly government data left the oil market with virtually nothing to cheer. West Texas Intermediate futures dropped more than 4% as stockpiles of oil in the US surged by 3.3 million barrels in the week ended June 2, according to the Energy Information Administration. That confounded analysts’ estimates for a 3.5 million-barrel decline. WTI prices fell as far as $45.92, a four-week low, following the report. The drop below $47 was a “big deal” said John Kilduff at energy hedge fund Again Capital. The next level to watch is the March low just below $44 a barrel, struck after oil prices fell through a number of key technical levels, culminating in a flash crash to $43.76. The bad news kept on coming below the headline figure. Gasoline stocks also jumped by 3.3 million barrels, more than five times the expected increase. Inventories of distillate fuels like diesel and heating oil rose by 4.4 million barrels, 15 times the anticipated rise.

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Author of “China’s Guaranteed Bubble”.

China’s Top Property-Bubble Prophet Says Prices Set to Soar 50% (BBG)

China’s home prices could rise by another 50% in the nation’s biggest cities, as the latest measures to rein them in are likely to be eased by policy makers seeking to support the broader economy. So says Zhu Ning, deputy director of the National Institute of Financial Research at Tsinghua University in Beijing and author of “China’s Guaranteed Bubble: How Implicit Government Support Has Propelled China’s Economy While Creating Systemic Risk.” As measures to curb housing prices drag on growth in the second half and early next year, he says, the government will resort to its old playbook of dialing them back again to shore up expansion. “We’re living through a bubble,” Zhu said. “If we don’t engage in more meaningful reform, which we haven’t, we’re very likely to have a financial crisis or a burst of the bubble. It’s a matter of sooner or later.”

Real estate prices in major cities will surge again “by another 50% or so” after measures to rein them in are eased, said Zhu, without specifying a time. Because policy makers have previously imposed curbs only to ease them again, people see them as a bluff, he said. Last year 45% of new loans went to mortgages. Local authorities have boosted down-payment requirements, restricted purchases by non-residents, and capped the number of dwellings that a household can own. Since March, at least 26 cities have imposed resale lock-up periods, with Hebei’s Baoding city slapping a decade-long ban on some homes, according to Shanghai-based Tospur Real Estate Consulting.

Zhu said he arrived at the 50 percent estimate based on the average price appreciation after past curbs were lifted, an ever-stronger belief among buyers that housing prices will rise, China’s humongous supply of credit, and tighter controls on capital outflows. Over the past year, however, Zhu, who earned his doctorate in finance at Yale, said he’s had more doubts over whether the thinking of western-trained economists applies to a nation that’s proven naysayers wrong “with its might and its determination” for three decades. “Over the past 12 months my confidence has really been shaken,” he said, adding that a crisis remains probable. “Could China be the black swan that we’ve never seen before?”

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Where would the EU be without creative accounting?

Banco Popular Wipeout Leaves CoCo Bonds On The Drawing Board (BV)

Banco Popular’s wipeout has left CoCo bonds on the drawing board. The Spanish lender’s failure and rescue by rival Santander did not provide the expected test for bonds which convert into equity under stress: the securities were wiped out before they could be triggered. It’s still not clear whether the bonds work as intended. The collapse of Spain’s sixth-largest bank by assets marked the first big loss for investors in so-called contingent convertible bonds. The securities were created after the 2008 financial crisis to provide an extra buffer when banks are struggling. They permit lenders to preserve capital by suspending dividends, and convert into ordinary shares when capital ratios run low.

The Popular trauma has eased one fear: that investors would panic when a CoCo bond went down, creating a spiral of contagion to other lenders. Similar securities issued by other Spanish banks actually rose in value on June 7, suggesting that investors see Popular as an isolated case. Yet in another way, Popular’s bonds fell short. The securities are supposed to provide extra capital before a bank fails, allowing it to absorb losses over time without failing or requiring a government bailout. But regulators deemed Popular non-viable before any of the triggers in its bonds could blow. The CoCo bonds suffered the same fate as other, more senior bonds that only suffer losses when a bank goes bust.

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Civil servants and jobs for life. It’s like talking about dinosaurs.

A Reform Beyond Macron’s Grip: The Revolving Door of French Politics (BBG)

French President Emmanuel Macron has promised to change how politics is done in France, starting with the parliament to be elected beginning Sunday. Half of the 500-plus candidates for his young party are women. Half have never held office. They all had to apply online. But he isn’t taking the biggest step: requiring that anyone running for parliament resign from his or her government job. Unlike many other other developed countries, France allows bureaucrats to hold political office—multiple offices, in fact—without having to quit the civil service. And they have a guaranteed right to return. Should the bureaucrat-candidate lose an election, there’s a job for life waiting back at the Agriculture Ministry or the Ministry for Overseas Territories. And a pension at retirement.

Having lawmakers remain part of the civil service creates conflicts of interest, said Dominique Reynie, head of Fondapol, a political research institute. “You have lawmakers making funding decisions about institutions such as universities and hospitals where they are still officially employed,” he said. “We have a parliament that’s inbred.” Among the many beneficiaries of the system: Macron’s prime minister, Edouard Philippe, several others in the cabinet and fully 55% of the parliament that just finished its five-year term. Macron himself, though he’s never been in parliament, kept bureaucrat status through several government and private jobs until he resigned last year to start his political party.

[..] “France is one of the rare countries in Europe where a civil servant can serve an elected mandate without resigning, and with the certainty of going back to their job in case of failure,” said Luc Rouban, a professor at Sciences Po in Lille who has compiled a database of all 2,857 French members of parliament back to 1958. “The absence of professional risk encourages employees from the public sector to run for office.”

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And that will make any agreements with the Troika impossible. All growth assumptions are wrong.

OECD Puts Greek Growth At Just 1.1% This Year (K.)

The OECD has further doused hopes regarding Greek growth this year, forecasting an expansion of 1.1%, and stresses the need to implement reforms and for the national debt to be lightened. The Organization for Economic Cooperation and Development wrote in its annual report on the global economy published on Wednesday that “delays in reform implementation and reaching an agreement on debt relief would weigh on confidence, hampering investment,” while adjusting its Greek GDP forecast. The 1.1% growth it expects contrasts with the 2.7% growth the budget provides for, the recent European Commission estimate for 2.1% and even the 1.8% forecast included in the midterm fiscal plan the government voted for last month.

Still, the OECD says in its Global Economic Outlook that the economy will expand by 2.5%. It anticipates the primary budget surplus to slide from last year’s 3.8% of GDP, but no lower than 2.5% of GDP for the next few years. The report notes that the Greek economy is beginning to recover although uncertainty remains over the country’s growth prospects. Further progress in reforms is necessary for productivity and exports to grow, the OECD argues. It makes special reference to the reforms in the products markets and in the reduction of nonperforming loans, which could lead to more exports and investments. It also warns that “the expansion of exports depends largely on the pace of world trade growth. Geopolitical tensions among Greece’s neighbors and a renewed large influx of refugees would pose additional risks.”

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Who does any of the parties involved think they’re fooling? A serious question.

Athens To Seek Growth Package At Eurogroup Meeting (K.)

Ahead of yet another crucial Eurogroup on June 15, the government has its mind set on seeking a package of growth-inducing measures which it hopes may, finally, pry open the door that will ultimately put Greece on the road to recovery. Athens believes that securing such a package could work to bridge the difference between the country’s EUpartners, and lead to an agreement which could pave the way for Greece to access international markets. Speaking to reporters on Wednesday, government spokesman Dimitris Tzanakopoulos outlined three basic principles that should govern any proposal that comes Greece’s way at the meeting of the eurozone finance ministers. Firstly, he insisted that the proposal must specify, in the clearest possible way, what midterm debt relief measures Greece should expect.

Secondly, these measures should also allow all the institutions, including the ECB, to proceed with positive sustainability studies of the Greek debt. Finally, he said, a proposal must include specific measures that will boost growth. The government reckons that a growth-oriented agreement will prompt the IMF to positively revise its projections on the Greek economy, reduce its demands with regard to the Greek program, and open the way for an agreement. Athens believes the formula that is being promoted to get the Fund to join the Greek bailout will stipulate that it will not have to provide immediate funding. Instead, the IMF’s contribution will be placed in a fund of sorts, which will be made available at a later date, on the condition that the midterm debt relief measures are implemented.

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Why have none of the other countries involved ever said a word?

Greece Says Colombian Gangs Plundering Hospitals Europe-Wide (AP)

Greek authorities say Colombian organized crime rings were behind a string of heists targeting costly medical diagnostic equipment from hospitals in Greece and another 11 European countries. Police say three Colombian suspects have been identified in connection with last month’s four thefts in Greece. Four out of about a dozen stolen pieces of equipment, worth more than half a million euros, have been recovered in Colombia. There were similar thefts in the past four years in France, Germany, Italy, Austria, the Netherlands, Spain, Poland, Lithuania, Luxembourg, Croatia and the Czech Republic, Major-General Christos Papazafeiris said. Papazafeiris, head of security police for the greater Athens region, said Wednesday the stolen equipment had been mailed to Colombia, and was seized in cooperation with local authorities.

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Airbnb is huge in Athens. Must cost the government a fortune in taxes. Why then liberalize laws even more?

Greek Room Owners Threaten To Return Permits in Airbnb Challenge (K.)

Owners of rooms for rent are threatening to return their operating licenses to the state unless the government withdraws legal clauses that fully liberalize the short-term urban lease market where accommodation is advertised through platforms such as Airbnb and Homeaway. According to a statement by the Confederation of Greek Tourism Accommodation Entrepreneurs (SETKE), if the room owners do hand in their licenses they will be able to enjoy the special privileges of the short-term rental market, which, it argues, has created unfair competition at the expense of legal accommodation. In its statement it claims this will lead to the elimination of the tourism accommodation sector’s 30,000 small entrepreneurs. “Instead of withdrawing the semi-liberal status of the short-term urban lease market under the 2016 law, the government is fully liberalizing it with a 2017 law abolishing the quantitative and qualitative limitations and permitting the rental for tourism purposes of all properties of all owners year round without any income limits,” SETKE says.

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The EU keeps thinking reality is whatever it wants it to be. The European Parliament President says: “The rules have to be the same for everybody.”. They’re not. They’re obviously different for Greece, and that’s not Greece’s doing.

Bid For EU States To Stop Migrants, Refugees ‘Asylum Shopping’ (K.)

As Greece continues to struggle to host thousands of migrants, European Parliament President Antonio Tajani on Wednesday called for a common agreement from all European Union member-states on the implementation of asylum procedures aimed at stopping migrants traveling from one country to another “shopping for asylum status.” “At the moment the rules are not properly harmonized,” Tajani told reporters. “The rules have to be the same for everybody. Otherwise we will end up with people shopping for asylum status, which undermines our credibility.” He noted that many refugees who have been accepted in European countries as part of an EU relocation program have continued their journeys to more prosperous nations such as Germany or Sweden.

Latvia welcomed 380 refugees as part of the relocation program but most of those – 313 – have already moved on to Sweden or Germany, according to Agnese Lace from Latvia’s Center for Public Policy. She said low salaries, a lack of jobs and language barriers meant asylum seekers had little incentive to remain in the country. Meanwhile Andras Kovats of the Hungarian Association for Migrants said Hungary’s failure to support integration was pushing new arrivals abroad. In a related development, Nils Muiznieks, the Council of Europe’s commissioner for human rights, expressed concern at reports of collective expulsions of asylum seekers from Greece to Turkey. “I urge the Greek authorities to cease immediately the pushback operations and uphold their human rights obligation to ensure that all people reaching Greece can effectively seek and enjoy asylum,” Muiznieks said in a statement.

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