Nov 232018
 
 November 23, 2018  Posted by at 9:53 am Finance Tagged with: , , , , , , , , , , , , ,  


René Magritte Golconda 1953

 

438 Stocks on the NYSE Plunged 40%-94% from 52-Week Highs (WS)
Margin Debt Plunges, Next Up: Margin Calls (WS)
QE Created Dangerous Financial Dependence, Italy Hooked, Withdrawal Next (DQ)
Bitcoin Price Crash Causes Bankruptcy And Mass Mine Closures (Ind.)
UK’s Poorest Dying Nearly 10 Years Younger Than Rich (Ind.)
MPs Unite To Condemn May’s ‘Blindfold Brexit’ (Ind.)
Yanis Varoufakis: “The EU Declared War And Theresa May Played Along” (NS)
China Bans Millions From Flights As ‘Social Credit’ System Introduced (Ind.)
Google Wants To Data Mine Your Home And Kids’ Bedroom (ZH)
How Do You Give Thanks For Freedoms That Are Constantly Being Eroded? (RI)
CIA Holds ‘Smoking Gun Phone Call’ Of MbS On Khashoggi Murder (Hurriyet)
Comey, Loretta Lynch Subpoenaed To Testify Before Congress (AFP)
Hillary Clinton: Europe Must Curb Immigration To Stop Rightwing Populists (G.)
Clinton, Blair, Renzi: Why We Lost, And How To Fight Back (G.)
Elephant-Sized Mammal Cousin Lived Alongside Dinosaurs (R.)

 

 

“It’s barely a correction, technically speaking..”

438 Stocks on the NYSE Plunged 40%-94% from 52-Week Highs (WS)

It’s barely a correction, technically speaking, with the S&P 500 down 9.9% from its all-time closing high, the Dow down 9.2%, the Nasdaq down 14%, and the Russell 2000 small-caps index down 15%. But beneath the surface, there has been some serious bloodletting for many stocks. For example, 438 stocks among the 2,051 or so stocks traded on the New York Stock Exchange (NYSE) have plunged between 40% and 94% from their 52-week highs. This does not include any stocks traded on the Nasdaq. They have their own blacklist.

Those 438 plungers on the NYSE include a bunch of foreign companies trading on the NYSE (some are trading as ADRs). They include lots of companies in the oil-and-gas sector, homebuilders, gold miners, retailers, aluminum and steel makers, a weed company (other NYSE-listed weed companies are only down 30% to 40% and didn’t make this blacklist), financial services firms and banks, including some of the biggest in the world. Here is a brief rundown. Below is the complete list. Note that some of these stocks – such as GE, which is also on this blacklist – have plunged far more from their all-time highs established in prior years.

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Tempting to bring up Lehman, but if anything it’s starting to feel like Lehman cubed.

Margin Debt Plunges, Next Up: Margin Calls (WS)

There are many ways to use leverage to fund stock holdings, including credit card loans, HELOCs, loans at the institutional level, loans by companies to its executives to buy the company’s shares, or the super-hot category of SBLs, where brokers lend to their clients. None of them are reported on an overall basis. The only form of stock market leverage that is reported monthly is “margin debt” – the amount individual and institutional investors borrow from their brokers against their portfolios. Margin debt is subject to well-rehearsed margin calls. And apparently, they have kicked off. In the ugliest stock-market October anyone can remember, margin debt plunged by $40.5 billion, FINRA (Financial Industry Regulatory Authority) reported this morning – the biggest plunge since November 2008, weeks after Lehman Brothers had filed for bankruptcy:

During the stock market boom since the Financial Crisis, this measure of margin debt has surged from high to high, reaching a peak in May 2018 of $669 billion, up 60% from the pre-Financial Crisis peak in July 2007, and up 117% since January 2012. Since the peak in May, margin debt has dropped by $62 billion (-9.2%). Note the $40.5-billion plunge in October:

In the two-decade scheme of things, the relationship between stock market surges and crashes and margin debt becomes obvious. Back during the dot-com bubble, dot-com stocks, traded mostly on the Nasdaq, included what today are booming survivors like Amazon, barely hangers-on like RealNetworks, or goners like eToys. At the time, these stocks soared by stunning amounts, and people, such as myself, used margin debt, to enhance their returns. When stocks plunged, the margin calls came, and these people had to sell their holdings into an illiquid and plunging market. They ended up selling their best and most liquid stuff first and watched their trash get trashed further. When it was over by October 2002, the Nasdaq had plunged 78%. Over the same period, margin debt plunged 54%.

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“..who will purchase the roughly €275 billion of government securities Italy is forecast to issue in 2019?”

QE Created Dangerous Financial Dependence, Italy Hooked, Withdrawal Next (DQ)

The Bank of Italy, on behalf of the ECB, has bought up more than €360 billion of multiyear treasury bonds (BTPs) since the QE program was first launched in March 2015. In fact, the ECB is now virtually the only significant net buyer of Italian bonds left standing. This raises a key question, Nowotny said: With the ECB scheduled to exit the bond market in roughly six weeks time, “who will purchase the roughly €275 billion of government securities Italy is forecast to issue in 2019?”

With foreigners shedding a net €69 billion of Italian government bonds since May, when the right-wing League and anti-establishment 5-Star Movement took the reins of government, and Italian banks in no financial position to expand their already bloated holdings, it is indeed an important question (and one we’ve been asking for well over a year). According to former Irish central bank governor and ex-member of the ECB’s Governing Council Patrick Honohan, speaking at an event in London, when the ECB’s support is removed, “the yield on Italian government bonds will be much more vulnerable.”

[..] Perhaps the biggest risk the ECB runs in this latest escalation of tensions with Italy’s populist government is in reminding investors just how much governments in the Eurozone have come to depend on the ECB’s QE program. But it’s not just Italian bonds that are hooked on QE. In the past three years the ECB has spent €512 billion gobbling up German bonds (current 10-year yield: 0.35%); €416 billion on French bonds (10-year yield: 0.76%); €256 billion on Spanish bonds (1.62%); €114 billion on Dutch bonds (0.52%); €72 billion on Belgian bonds (0.83%); €57 billion on Austrian bonds (0.61%), and €36 billion on Portuguese bonds (1.98%).

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So far, crypto fails to replace whatever it is that is failing.

Bitcoin Price Crash Causes Bankruptcy And Mass Mine Closures (Ind.)

Bitcoin mining operations in the US and China are facing closures after the plummeting price of bitcoin means they may no longer be profitable. The world’s most valuable cryptocurrency is currently trading at around $4,500, having lost almost a third of its value in the space of a week. Bitcoin mining – the process of generating new units of the cryptocurrency by solving complex puzzles – requires vast amounts of electricity to power the computers performing the calculations. This means that the profitability of mining falls when bitcoin’s price drops, and if the price falls too far then operations may no longer be economically viable.

The biggest casualty so far may be the US-based mining firm Giga Watt, which was forced to file for Chapter 11 bankruptcy this week after it was unable to pay debts of around $7 million. “The corporation is insolvent and unable to pay its debts when due,” the filing stated, according to CoinDesk. The majority of bitcoin mining operations are based in China, where electricity costs are some of the lowest in the world. Yet despite the cheap electricity, images and videos of mining operations shutting down in the country have been spreading across social media. Hong Kong-based mining platform Suanlitou announced this week that it was unable to cover electricity fees for a 10-day period in November, according to the South China Morning Post.

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This is Theresa May’s prime achievement, and it’s hard to see why nobody calls her on it. The application of austerity and the Hostile Environment on Britain is her baby.

UK’s Poorest Dying Nearly 10 Years Younger Than Rich (Ind.)

The poorest groups in society are dying almost a decade earlier than the richest, new research shows, prompting concern that welfare cuts and a rising cost of living are leaving the most vulnerable “out of the collective gain”. The study by academics at Imperial College London revealed the life expectancy gap between the most affluent and most deprived sections of society increased from six years in 2001 to eight years in 2016 for women, and from nine to 10 years for men. Women in the most deprived communities in 2016 lived until an average 79 years old, compared with 87 years in the most affluent group, while for men, the life expectancy was 74 years among the poorest, compared with 84 years among the richest.

The findings, published in the journal Lancet Public Health, also reveals that the life expectancy of England’s poorest women has fallen in the last seven years – having dropped by three months since 2011. Child mortality rates were also considerably higher among deprived communities, with poorer children two-and-a-half times more likely to die before they reach adulthood than their peers from affluent families. The findings show that people in the poorest sectors died at a higher rate from all illnesses – but that a number of diseases showed a particularly stark difference between rich and poor, notably respiratory diseases, heart disease, lung and digestive cancers and dementias.

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One step up and two steps back every step of the way.

MPs Unite To Condemn May’s ‘Blindfold Brexit’ (Ind.)

MPs of all parties accused Theresa May of delivering a “blindfold Brexit” after she admitted her deal left the public in the dark on a range of vital questions about Britain’s future. Decisions about future trade, the Irish border backstop, fisheries and whether the UK will remain tied to EU rules until after the next general election have all been shelved, a 26-page “political declaration” struck with the EU revealed. The admission came as the deal still looked doomed to defeat in a landmark vote next month – as both pro- and anti-EU Tories attacked it during feisty Commons exchanges in which few supporters spoke up.

Significantly, two leading Brexiteers praised by Ms May for working with her on the document – Iain Duncan Smith and Owen Paterson – said they could not back it unless the backstop was stripped out. More than 80 Tories have criticised the package, pointing to a heavy defeat and a constitutional crisis, unless most can be talked around in the next few weeks of frantic arm-twisting.

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Merkel is a disaster “..but we’re going to miss her because whatever comes next will be worse.“

Yanis Varoufakis: “The EU Declared War And Theresa May Played Along” (NS)

In 2016, shortly before the EU referendum, Yanis Varoufakis warned that the UK was destined for a “Hotel California Brexit”: it could check out but it could never leave. The former Greek finance minister spoke from experience. In 2015, his efforts to end austerity – “fiscal waterboarding” – were thwarted by the EU. Theresa May’s draft Brexit deal confirmed Varoufakis’s prophecy: the UK would be condemned to purgatory. With fortuitous timing, on the evening that May’s agreement was published, Varoufakis delivered an Oxford Union lecture on Europe’s future. The 57-year-old Marxist and game theorist wryly remarked that Conservative cabinet ministers praised his analysis in private.

“The UK should never have entered the negotiations,” he told me when we met afterwards. “You do not negotiate with the EU because the EU does not negotiate with you. It sends a bureaucrat, in this case it was Mr Barnier…they could have sent an android, or an algorithm.” May’s fatal error, Varoufakis said, was to accept a two-phase negotiation: a divorce agreement followed by a new trade deal. “This was a declaration of war because Barnier said: ‘You will give us everything we want: money, people, Ireland. And only then will we discuss what you want.’ Well, that isn’t a negotiation, that’s a travesty. And Theresa May agreed to play along.” But Varoufakis, who helped persuade Jeremy Corbyn to support Remain in 2016, has little sympathy for the “People’s Vote” movement.

“It’s offensive. What was the first vote? Wasn’t it a people’s vote? To call it a people’s vote is to try and delegitimise the original vote – to say it was dictatorial, it was rigged.” He added: “You have to explain two things: first, how are you going to get the referendum completed before the Article 50 period is over? Secondly, how can you have a binary choice between five or six options? Explain those things and I’m with you.” [..] I asked Varoufakis how he viewed the liberal adulation of [Angela Merkel]. “I’m a dialectician: she has been a disaster and we’re going to miss her. She is a disaster because she squandered immense political capital that could have been used to reshape Europe. But we’re going to miss her because whatever comes next will be worse.”

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“Punishments [..] are also believed to include slowing internet speeds, reducing access to good schools for individuals or their children, banning people from certain jobs, preventing booking at certain hotels and losing the right to own pets.

China Bans Millions From Flights As ‘Social Credit’ System Introduced (Ind.)

Millions of Chinese nationals have been blocked from booking flights or trains as Beijing seeks to implement its controversial “social credit” system, which allows the government to closely monitor and judge each of its 1.3 billion citizens based on their behaviour and activity. The system, to be rolled out by 2020, aims to make it “difficult to move” for those deemed “untrustworthy”, according to a detailed plan published by the government this week. It will be used to reward or punish people and organisations for “trustworthiness” across a range of measures. A key part of the plan not only involves blacklisting people with low social credibility scores, but also “publicly disclosing the records of enterprises and individuals’ untrustworthiness on a regular basis”.

The plan stated: “We will improve the credit blacklist system, publicly disclose the records of enterprises and individuals’ untrustworthiness on a regular basis, and form a pattern of distrust and punishment.” For those deemed untrustworthy, “everywhere is limited, and it is difficult to move, so that those who violate the law and lose the trust will pay a heavy price.” The credit system is already being rolled out in some areas and in recent months the Chinese state has blocked millions of people from booking flights and high-speed trains. According to the state-run news outlet Global Times, as of May this year, the government had blocked 11.14 million people from flights and 4.25 million from taking high-speed train trips.

[..] People are awarded credit points for activities such as undertaking volunteer work and giving blood donations while those who violate traffic laws and charge “under-the-table” fees are punished. Other infractions reportedly include smoking in non-smoking zones, buying too many video games and posting fake news online. Punishments are not clearly detailed in the government plan, but beyond making travel difficult, are also believed to include slowing internet speeds, reducing access to good schools for individuals or their children, banning people from certain jobs, preventing booking at certain hotels and losing the right to own pets.

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Admit it or not, but it’s a very small step from China to Google.

Google Wants To Data Mine Your Home And Kids’ Bedroom (ZH)

New patents show Google is quietly developing a smart-home automated system that will routinely eavesdrop on your daily life. The patents describe how cameras and sensors will be mounted in almost every room of the house, scanning and analyzing every movement a human makes. According to the patent description, the smart cameras could recognize Will Smith’s face on a T-shirt. After cross-referencing this data against the human’s browser history, the smart-home might announce or send them a message, “You seem to like Will Smith. His new movie is playing in a theater near you.”

By blending that with an in-depth analysis of other electronic devices in the home, and audio signatures to determine gender, Google will have enough data to create a corporate profile on the human and even their family. The system will then calculate “fashion tastes” by scanning the human’s outfit, and could even determine their income or social class based on any “expensive mechanical and/or electronic devices” it detects. Even creepier, the smart-home will track audio signatures too, could be used to identify users, but also determine gender and age. With a treasure trove of data mined from every room of the home, the smart-home will then tell the human what to watch, what to eat, where to go, and what to buy.

If this all seems invasive, it is essential to understand that tech companies are already data mining you, it just happens to be online: “Google and Facebook both record and analyze user behavior, use it to sort people into categories, and then target them with ads and other content. Facebook likely knows your race and religion, while Google uses your emails and search history to sort you into ad-ready brackets. Netflix infers all types of data on users based on what they watch, then serves back hyper-specific movie and TV categories. This patent simply expands the areas in which your behavior is already mined and recorded from your phone and laptop to your bedroom,” wrote The Atlantic.

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“Washington didn’t intend Thanksgiving to be a day for offering up glib platitudes that require no thought, no effort and no sacrifice.”

How Do You Give Thanks For Freedoms That Are Constantly Being Eroded? (RI)

Listen: I know it’s been a hard, heart-wrenching, stomach-churning kind of year. It’s been a year of hotheads and blowhards and killing sprees and bloodshed and takedowns. It’s been a year in which tyranny took a few more steps forward and freedom got knocked down a few more notches. It’s been a year with an abundance of bad news and a shortage of good news. It’s been a year of too much hate and too little kindness. It’s been a year in which politics and profit margins took precedence over decency, compassion and human-kindness. We’ve been operating in this soul-sucking, topsy-turvy, inside-out, upside-down state for so long that it’s hard not to be overwhelmed by all that is wrong in the world in order to reflect and give thanks for what is good.

And now we find ourselves at this present moment, more than 200 years after George Washington issued the first Thanksgiving proclamation as a time to give thanks for a government whose purpose was to ensure the safety and happiness of its people and for a Constitution designed to safeguard civil and religious liberty. But how do you give thanks for freedoms that are constantly being eroded? How do you express gratitude for one’s safety when the perils posed by the American police state grow more treacherous by the day? How do you come together as a nation in thanksgiving when the powers-that-be continue to polarize and divide us into warring factions?

Washington didn’t intend Thanksgiving to be a day for offering up glib platitudes that require no thought, no effort and no sacrifice. He wanted it to be a day of contemplation, in which we frankly assessed our shortcomings, acknowledged our wrongdoings, and resolved to be a better, more peaceable nation in the year to come.

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Nice new tidbits every single day. “CIA has more wiretapped phone calls at hand than the public knows about.”, “Khashoggi was barred from media appearances after criticizing Trump in late 2016..”

CIA Holds ‘Smoking Gun Phone Call’ Of MbS On Khashoggi Murder (Hurriyet)

The CIA is in possession of a phone call recording of Saudi Crown Prince Mohammed bin Salman in which he is heard giving an instruction to “silence Jamal Khashoggi as soon as possible,” Hürriyet columnist Abdulkadir Selvi wrote on Nov. 22. According to Selvi, CIA Director Gina Haspel “signalled” during her trip to Ankara last month the existence of the wiretapped phone call between Crown Prince Mohammed and his brother Khaled bin Salman, who is Saudi Arabia’s ambassador to the United States. Citing unidentified sources, the Turkish columnist wrote that the two Saudi officials are heard in the CIA recording discussing the “discomfort” created by Khashoggi’s public criticism of the kingdom’s administration.

[..] “It is said that the crown prince gave an instruction to silence Jamal Khashoggi as soon as possible and this instruction was captured during the CIA wiretapping. The subsequent murder is the ultimate confirmation of this instruction,” Selvi added, stressing that an international investigation into the murder, if opened, “can reveal more jaw-dropping evidence, as CIA has more wiretapped phone calls at hand than the public knows about.” [..] Trump declared on Nov. 20 that he will not further punish Saudi Arabia for the murder, making clear in an exclamation-filled statement that the benefits of good relations with the kingdom outweigh the possibility its crown prince ordered the killing. Khashoggi was barred from media appearances after criticizing Trump in late 2016, according to the U.S. State Department.

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There may not be enough time before the new Congress is sworn in. It may become up to the Senate.

Comey, Loretta Lynch Subpoenaed To Testify Before Congress (AFP)

Former FBI director James Comey and former attorney general Loretta Lynch have been subpoenaed to testify before Congress next month before Republicans relinquish control of the House, documents showed Thursday. Comey confirmed he had received a subpoena from the House Judiciary Committee but said he would resist if made to answer questions behind closed doors. “I’m still happy to sit in the light and answer all questions,” he said on his Twitter account. “But I will resist a ‘closed door’ thing because I’ve seen enough of their selective leaking and distortion. Let’s have a hearing and invite everyone to see.”

Lynch, who served under former president Barack Obama, did not immediately comment, but copies of the subpoenas made public Thursday show she was summoned to testify on December 4. Comey was ordered to appear before the committee on December 3. US President Donald Trump has repeatedly accused Comey and Lynch of covering for Hillary Clinton in an investigation into her use of a private server for emails while she was secretary of state. He has often leveled charges of bias in countering a probe by Special Counsel Robert Mueller into whether the Trump campaign colluded with a Russian effort to sway the 2016 elections in the Republican’s favor.

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This is not just revisionist hypocrisy, this is Orwell.

Hillary Clinton: Europe Must Curb Immigration To Stop Rightwing Populists (G.)

Europe must get a handle on immigration to combat a growing threat from rightwing populists, Hillary Clinton has said, calling on the continent’s leaders to send out a stronger signal showing they are “not going to be able to continue to provide refuge and support”. In an interview with the Guardian, the former Democratic presidential candidate praised the generosity shown by the German chancellor, Angela Merkel, but suggested immigration was inflaming voters and contributed to the election of Donald Trump and Britain’s vote to leave the EU. “I think Europe needs to get a handle on migration because that is what lit the flame,” Clinton said, speaking as part of a series of interviews with senior centrist political figures about the rise of populists, particularly on the right, in Europe and the Americas.

“I admire the very generous and compassionate approaches that were taken particularly by leaders like Angela Merkel, but I think it is fair to say Europe has done its part, and must send a very clear message – ‘we are not going to be able to continue provide refuge and support’ – because if we don’t deal with the migration issue it will continue to roil the body politic.” [..] “The use of immigrants as a political device and as a symbol of government gone wrong, of attacks on one’s heritage, one’s identity, one’s national unity has been very much exploited by the current administration here,” she said.

“There are solutions to migration that do not require clamping down on the press, on your political opponents and trying to suborn the judiciary, or seeking financial and political help from Russia to support your political parties and movements.” Brexit, described by Clinton as the biggest act of national economic self-harm in modern history, “was largely about immigration”, she said.

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There are many more in this list, the former left sold out everywhere.

We came, we saw, we became irrelevant.

And Hillary is still entirely clueless about Trump’s appeal.

Clinton, Blair, Renzi: Why We Lost, And How To Fight Back (G.)

Hillary Clinton, Tony Blair, Matteo Renzi: three of rightwing populism’s greatest scalps. Clinton admits she was left dumbfounded by her 2016 election defeat at the hands of Donald Trump. Renzi’s centre-left party was defeated this year after a surge in the anti-establishment vote in Italy, a country he calls “the incubator” of populism. Blair may not have lost at the ballot box, but his legacy, particularly on Europe, was upended in the Brexit referendum. All three are shunned by sections of their own party that accuse them of being responsible for the failure of the centre-left to offer a sufficiently radical alternative.

But all three are still thinking deeply about rightwing populism – its causes and the threat it poses – the mistakes of the centre left, including their own, and how modern politics appears to be mobilising resentment towards a perceived elite. [..] All three interviewees argue that one significant problem for mainstream politicians is that detailed, reasoned arguments stand little chance against the antics of the populist, whose simplified, amplified rhetoric is apt to drown out costed healthcare programmes or earnest paeans to liberal values. And politicians are no longer held to their promises. “The press does not know how to cover these candidates who are setting themselves on fire every day, who are masters of diversion and distraction,” Clinton said. “That is new.

“I always believed in the [2016 US presidential] campaign … the moderators would ask the hard questions, they would force us to respond and they would draw out the differences. That never happened. Because the guy I was running against is a master at just waving his hands and tweeting and insulting, and dominating the news cycles.”

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Mammals lost out for about 150 million years, came back only when the dinosaurs were wiped out. Mammals would need to rule for another 100 million years or so to match the dinosaur rule.

Elephant-Sized Mammal Cousin Lived Alongside Dinosaurs (R.)

A stoutly built mammal cousin the size of an elephant that munched on plants with its horny beak roamed the European landscape alongside dinosaurs during the Triassic Period about 205 million to 210 million years ago, scientists said on Thursday. Scientists announced the surprising discovery in Poland of fossils of a four-legged beast called Lisowicia bojani that demonstrated that dinosaurs were not the only behemoths on Earth at that time and that the group of mammal-like reptiles to which Lisowicia belonged, called dicynodonts, did not die out as long ago as previously believed. “We think it’s one of the most unexpected fossil discoveries from the Triassic of Europe,” said paleontologist Grzegorz Niedzwiedzki of Uppsala University in Sweden.


A comparison of the Lisowicia bojani with a recent elephant. Tomasz Sulej and Grzegorz Niedzwiedzki/Handout via REUTERS

Lisowicia, the largest-known non-dinosaur land animal alive at its time, was about 15 feet (4.5 meters) long, 8.5 feet (2.6 meters) tall and weighed 9 tons. The only other giants around at the time were early members of the dinosaur group called sauropods that had four legs, long necks and long tails. “The Lisowicia skull and jaws were highly specialized: toothless and the mouth was equipped with a horny beak, as in turtles and horned dinosaurs,” Niedzwiedzki said, adding that it was unclear whether it had tusks as some of its relatives did. The Triassic was the opening chapter in the age of dinosaurs, followed by the Jurassic and Cretaceous periods. The first dinosaurs appeared roughly 230 million years ago. Many of the earliest dinosaurs were modest in size, overshadowed by big land reptiles including fearsome predators called rauisuchians and crocodile-like phytosaurs.

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Feb 272018
 
 February 27, 2018  Posted by at 11:02 am Finance Tagged with: , , , , , , , , ,  


Lewis Wickes Hine Mother and child, Ellis Island, New York 1907

Stock Market Rests Happily on Smoldering Powder Keg (WS)
China’s Bailouts Won’t End With Anbang (Balding)
US January New Home Sales Crash As Rates Spike (ZH)
US Gross National Debt Spikes $1 Trillion in Less Than 6 Months (WS)
Dark Money: The Secret Force Behind Today’s Rigged Markets (Nomi Prins)
Problem With Rising Rates: Corporate America Has Binged On Debt (CNN)
European Companies’ Alarming Leverage (BBG)
Central Banks Need To Stay Vigilant For Further Volatility – Lagarde (BBG)
US Will Overtake Russia As Top Oil Producer By 2019 (R.)
The Matrix? Alice In Wonderland? Praise For Corbyn From UK Business (Ind.)
Generational Battle Lines Harden Over Pensions (G.)
The Real Reason Behind The US Student Debt Problem (F.)
20 US States Sue Federal Government, Seeking End To Obamacare (R.)
US Supreme Court Rebuffs Trump, Won’t Hear Immigration Appeal (BBG)
And Now the Schiff Memo (Jim Kunstler)
East Ghouta: The Last Great Battle Of The Syrian War? (Duran)
Women ‘Sexually Exploited In Return For Aid’ in Syria (BBC)

 

 

The beauty of low rates.

Stock Market Rests Happily on Smoldering Powder Keg (WS)

There is nothing like a big shot of leverage to fire up the stock market. And that’s what the market got in 2017, when the S&P 500 surged 26%, and in January 2018, when the index soared another 7.5% through January 26 – until suddenly something happened. One measure of leverage in the stock market is margin debt – the amount individual and institutional investors borrow from their brokers against their portfolios – which surged $22.9 billion in January to a new record of $665.7 billion, according to FINRA (Financial Industry Regulatory Authority), which regulates member brokerage firms and exchange markets, and which has taken over margin-debt reporting from the NYSE.

For the 12-month period through January, margin debt soared $112.2 billion, among the largest 12-month gains in the history of the data series, behind only the 12-month periods ending in: • December 2013 ($123 billion) • July 2007 ($160 billion) • March 2000 ($133.7 billion) • November 1997 ($132 billion). But it’s not just the recent surge; it’s the length of the surge. With only a few noticeable down periods, margin debt has soared for nine years in a row and now exceeds the prior peak of July 2007 ($416 billion) by 60%. By comparison, over the same period, nominal GDP (not adjusted for inflation) has grown 32%, and the Consumer Price Index has grown 20%.

In other words, margin debt has ballooned twice as fast from peak to peak as GDP and three times as fast as the Consumer Price Index. The chart below shows margin debt based on the FINRA data, which includes margin debt from its own member firms and from NYSE Member firms, and is therefore more complete and larger than the NYSE data was. For example, NYSE margin debt in November 2017, the last month available, was $580.9 billion while FINRA’s data for November showed margin debt of $627.4 billion. And in January, FINRA warned about the levels of margin debt – marked in green on the chart. Note the spike that started in June 2016:

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Xi’s main problem: he can’t let these companies go belly-up. And there’s lots of them, some big, some smaller.

China’s Bailouts Won’t End With Anbang (Balding)

When the China Insurance Regulatory Commission announced last week that it was seizing Anbang, the only surprise was that it took so long. Last year, the company was told to sell its overseas assets, its founder was placed behind bars, and banks were ordered to stop offering its products. So what, if anything, does this latest incident tell us about China’s economy and its attempt to crack down on debt? Anbang is often referred to as an insurance company, but this is misleading. Although the company does offer some run-of-the-mill products, such as property and casualty insurance, what really drove its growth were unusually structured life-insurance products. At the end of 2016, shortly before regulators intervened, property and casualty premiums made up a mere 4% of the group’s revenue. Life insurance made up 96%.

The growth in this business stunned even China analysts accustomed to tales of fabulous growth. From 2010 to 2016, Anbang’s annual life-insurance premium revenue increased from 1 million yuan to 114.2 billion yuan, or total growth of 11 million %. Even during a period of rapid economic expansion, annualized growth of 593% is amazing. The problem was that the life-insurance products were actually high-yielding debt instruments; investors could opt out of the insurance portion in as little as two years. With some products yielding more than 5% in the first three years, this essentially made Anbang a highly leveraged investor taking on significant risks to cover its cost of capital. Customers were basically extending loans to Anbang that it used to overpay for assets. Regulators finally stepped in to prevent a collapse that could have led to significant instability – with some 35 million customers demanding their money back.

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Econ 101 redux: “..prices will be forced to adjust lower as affordability collapses..”

US January New Home Sales Crash As Rates Spike (ZH)

Following the significant disappointment of January’s existing home sales, hopes were high for a rebound in new home sales (+3.5% expected after December’s 9.3% plunge) but those hopes were crushed as January new home sales crashed 7.8% MoM. This is the lowest level since August, even as the supply of homes at current sales rate climbed to 6.1 months from 5.5 months.

This is the biggest two-month drop in new home sales SAAR since August 2013. The Median price dropped from $336,700 to $323,000 – the lowest since October…

16% of new homes sold in January cost more than $500,000, down from 22% last month. As sales in the Northeast collapsed: • Northeast -33.3%, from 36K to 24K • Midwest +15.4%, from 65K to 75K • South -14.2%, from 351K to 301K • West +1.0%, from 191K to 193K So we are sure NAR will blame ‘inclement’ weather – as opposed to soaring rates and plunging affordability. Just as we warned previously, the following chart shows, that surge in rates will have a direct impact on home sales (or prices will be forced to adjust lower) as affordability collapses… This won’t end well.

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When trapped by crazy, go crazier.

US Gross National Debt Spikes $1 Trillion in Less Than 6 Months (WS)

As of the latest reporting by the Treasury Department, the US gross national debt rose by $41.5 billion on Thursday, February 22, to a grand total of $20.8 trillion. Here’s the thing: On September 7, 2017, five-and-a-half months ago, just before Congress suspended the debt ceiling, the gross national debt stood at $19.8 trillion. At that time, I was holding my breath waiting for the gross national debt to take a huge leap in a single day – as it always does after the debt ceiling gets lifted or suspended – and jump to the next ignominious level. It sure did the next day, when it jumped $318 billion. And it continued. Over a period of 8 weeks, the gross national debt jumped by $640 billion.

Four weeks after that, it had ballooned by $723 billion, at which point Fed Chair Yellen – whose cheap-money policies had enabled Congress to do this for years – said that she was “very worried about the sustainability of the US debt trajectory.” Then Congress served up another debt ceiling – a regular charade lawmakers undertake to extort deals from each other, beat the White House into submission, and keep the rest of the world their on their toes. It goes like this: First they pass the spending bills, directing the Administration to spend specific amounts of money on a gazillion specific things spread around specific districts. Then they block the means to pay the credit card bill. That debt ceiling was suspended on February 8, at which point the gross national debt began to surge again, adding $960.4 billion, a 5% jump in the gross national debt in just 5.5 months:

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Dark money will end up killing everything.

Dark Money: The Secret Force Behind Today’s Rigged Markets (Nomi Prins)

Markets were up again big today and volatility was down. But we haven’t seen the last of rising volatility, nor of the central banks’ attempts to thwart it. This week, new Fed Chair Jerome Powell will be giving his first congressional testimony, and you can be sure that markets are waiting on his words with bated breath. Before his testimony, the Fed will be releasing its Monetary Policy Report, which will also give an indication to the direction of Fed policy. Because these will be his first official comments as Fed chair, Powell will want to both make a personal mark and make sure markets don’t panic over his remarks. I believe he will temper his comments to neutralize any negative market impact the report could have. Wall Street wants to hear that Powell’s not going to aggressively hike rates.

The risk is that, as an article from CNBC reports, “Powell may not clarify anything,” in which case, “traders could be stuck with the same dilemma that shook stocks and sent bond yields spiking [last] Wednesday after the release of the minutes from the Fed’s January meeting.” I think Powell will sound as dovish as he can to avoid that outcome. So even if he confirms rate hikes will be executed at the already forecast pace of three rates this year, he won’t indicate there could be more, which should keep markets calmer and bullish. In other words, I don’t believe that Powell will implement dramatically different monetary policy from his predecessors Janet Yellen or Ben Bernanke. The Fed will do whatever the markets need. Banks have grown accustomed to what I call “dark money” and don’t want Powell to rock the boat.

What is dark money? Dark money basically means money coming from central banks. In essence, central banks “print” money or electronically fabricate money by buying bonds or stocks. They use other tools like adjusting interest rate policy and currency agreements with other central banks to pump liquidity into the financial system. That dark money goes to the biggest private banks and financial institutions first. From there, it spreads out in seemingly infinite directions, affecting different financial assets in different ways. These dark money flows stretch around the world according to a pattern of power, influence and of course, wealth for select groups. Dark money is the No. 1 secret life force of today’s rigged financial markets. It drives whole markets up and down. It’s the reason for today’s financial bubbles.

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CNN wakes up.

Problem With Rising Rates: Corporate America Has Binged On Debt (CNN)

Corporate America, egged on by ridiculously-low borrowing costs, has built up more debt than any time since the end of the Great Recession. The credit binge has allowed companies to grow faster, invest in the future and reward shareholders with huge dividends and share buybacks. Yet elevated levels of debt will also make businesses vulnerable when the next recession strikes or if borrowing costs spike because of rising interest rates. Either outcome will make it harder for Corporate America to pay back the $4 trillion of debt coming due by 2022. This risk has been underlined by the recent surge in Treasury yields and rising concerns that inflation could force the Federal Reserve to consider aggressive rate hikes.

“Removing the easy money punch bowl could trigger the next default cycle,” S&P Global Ratings wrote in a recent report titled “Debt high, defaults low – something’s gotta give.” For nearly a decade, companies have taken advantage of extremely cheap money set by the Fed and foreign central banks trying to pump up sluggish growth. Excluding the highly leveraged financial sector, corporate debt relative to GDP matched an all-time high during the third quarter of 2017, according to an analysis of the most recent numbers by Informa Financial Intelligence. “It’s certainly a reason to be cautious, particularly when we are long into this growth cycle and the Fed is raising rates,” said David Ader, chief macro strategist at Informa Financial Intelligence. “Everything is fine and well – until it isn’t,” he said.

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US, China, Europe et al. Leverage is all that’s left.

European Companies’ Alarming Leverage (BBG)

Much has been written recently about whether companies are going to look overstretched as monetary policy is tightened and bond yields rise. Some excellent research on European non-financial corporates by our Bloomberg Intelligence colleagues Laurent Douillet and Tim Craighead shines more light on the subject. It’s a slightly worrying picture. First off, they looked at cumulative free cash flows over the five years between 2012 and 2016, and then compared them with shareholder payouts and M&A spending. In every sector, except telecoms, free cash flow was exceeded by combined dividends, buybacks and deal-making, as this chart shows:

Consumer companies, drugs makers and industrials have splurged the most on dividends and takeovers. When you take a first glance at leverage, this doesn’t appear to be the end of the world. When you look at the most recent period, net debt to Ebitda looks pretty undemanding, except for the utilities – which are something of a problem child in Europe generally. Even if you look at free cash flow as a proportion of total debt, utilities are probably the only real outlier. Yet if you take a stricter view of what makes up debt, and include pension deficits and operating lease obligations, things start to look less benign. Operating leases are something that Gadfly’s Chris Bryant has looked at before, as companies will have to include them as part of their assets and associated debts when the new IFRS 16 accounting rules come in next year. If you use an adjusted measure of debt by including pensions and leases, as our BI colleagues have done, you get this:

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Blah blah.

Central Banks Need To Stay Vigilant For Further Volatility – Lagarde (BBG)

Central banks need to stay vigilant as uncertainty remains over the impact of the normalization of monetary policies in advanced economies, IMF Managing Director Christine Lagarde said. “We have known for some time that this is coming, but it remains uncertain as to how exactly it will affect companies, jobs, and incomes,” Lagarde told a conference in Jakarta on Tuesday. “Clearly, policy makers need to stay vigilant about the likely effects on financial stability, including the prospect of volatile capital flows.” Stock markets from the U.S. to Asia were in turmoil in recent weeks on concerns that the U.S. could raise interests rates at a faster pace than previously thought. Investors are awaiting Jerome Powell’s first public comments in the role of Fed chairman on Tuesday.

The global economy is on a broad-based upswing, involving about two-thirds of the world, and it offers an opportunity to reform financial markets, upgrade labor laws, and lower barriers to entry in overly protected industries, Lagarde said. The IMF forecasts global economic growth of 3.9 percent this year and in 2019. “As I have been saying recently, the time to repair the roof is when the sun is shining,” Lagarde said. “Repairing the roof also means using fiscal reforms to generate higher public revenues, where needed, and improve spending. By boosting public finances, countries can increase infrastructure investment and development spending, especially on social safety nets for the most vulnerable.‘”

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Burn baby burn.

US Will Overtake Russia As Top Oil Producer By 2019 (R.)

The United States will overtake Russia as the world’s biggest oil producer by 2019 at the latest, the International Energy Agency (IEA) said on Tuesday, as the country’s shale oil boom continues to upend global markets. IEA Executive Director Fatih Birol said at an event in Tokyo the United States would overtake Russia as the biggest crude oil producer “definitely next year”, if not this year. “U.S. shale growth is very strong, the pace is very strong … The United States will become the No.1 oil producer sometime very soon,” he told Reuters separately. U.S. crude oil output rose above 10 million barrels per day (bpd) late last year for the first time since the 1970s, overtaking top oil exporter Saudi Arabia.

The U.S. Energy Information Administration said early this month that U.S. output would exceed 11 million bpd by late 2018. That would take it past top producer Russia, which pumps just below that mark. Birol said he did not see U.S. oil production peaking before 2020, and that he did not expect a decline in the next four to five years. The soaring U.S. production is upending global oil markets, coming at a time when other major producers — including Russia and members of the Middle East-dominated OPEC — have been withholding output to prop up prices. U.S. oil is also increasingly being exported, including to the world’s biggest and fastest growing markets in Asia, eating away at OPEC and Russian market share.

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Briatin’s much further down the rabbit hole than it wants to see.

The Matrix? Alice In Wonderland? Praise For Corbyn From UK Business (Ind.)

A Labour Party led by Jeremy Corbyn as the party of business? JC as the last, best hope for the business community? It’s the sort of thing that would make even one of those nutty internet conspiracy theorists who believe that contactless payments are a satanic plot scoff. Now? Now we’re in Terri May’s Brexit wonderland and the Cheshire Cat is pissing himself. Madness is part of everyday life and nothing seems strange anymore, not even the CBI’s director general Carlyn Fairbairn saying this: “The Labour leader’s commitment to a customs union will put jobs and living standards first by remaining in a close economic relationship with the EU. It will help grow trade without accepting freedom of movement or payments to the EU.”

Or Stephen Martin, the director general of the Institute of Directors, saying this: “Labour has widened the debate today on the UK’s relationship with the EU post-Brexit, and many businesses, particularly manufacturers, will be pleased to hear the Opposition’s proposal to keep a customs union on the table.” You remember the scene from the Wachowskis’ Matrix where Morpheus references Lewis Carroll’s most famous work? “You take the blue pill, you stay in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland and I show you how deep the rabbit hole goes.” With the Tory party having taken leave of its senses in favour of plunging us into a nightmare beyond anything either Carroll or the the brothers could have conceived, the red pill suddenly doesn’t seem quite as scary as it once did, not now the Tories’ mad ideologues are making merry. The Corbyn rabbit hole might actually be the better option.

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Prediction: no-one’s even going to try to control this, because it would mean having to admit that pensions are Ponzis.

Generational Battle Lines Harden Over Pensions (G.)

A report by the Intergenerational Foundation, a charity that funds research into issues that divide the generations, has found that far from losing out to younger people, baby boomers have proved themselves adept at ensuring they are the winners across many areas of public policy. Governments, say the authors, have been “tempted by short-term pressures to set rates that clearly disadvantage the young and favour the older generations” – compare university fees charged at an interest rate of 6.1% with the 2% the elderly are charged on loans to pay for residential care costs. Another example can be found in the rates of interest offered on state-sponsored savings bonds. The pensioner bond, which was launched by George Osborne and proved so popular it was credited with helping the Tories secure a majority in the 2015 general election, paid a 4% rate of interest.

National Savings bonds for everyone else pay a maximum 2.2%. Worst of all is the huge bill in store for younger people in 30 or 40 years’ time by virtue of the current calculations of future liabilities. Pension liabilities are top of the list, with public sector pensions in particular carrying a heavy cost. The foundation’s concern is that the government overestimates the state’s capacity to pay for future liabilities by exaggerating how fast the UK’s income will grow over time. If GDP growth is forecast at an absurdly high rate then the income will supposedly be in place to pay generous pension payments in 30 years. If that growth fails to materialise, those who are in their 20s and 30s today will need to find large sums of cash to fill the hole when they are in their 50s and 60s.

The debate centres on the discount rate, which is the calculation of a fund’s long-term growth, which is used to reflect how much money should be set aside today to pay for tomorrow. Downgrade the discount rate by 0.5% and the government will need to set aside additional pension contributions worth 3% of salaries, it says. “From this you can see very starkly why representatives of older workers have been lobbying strongly for higher discount rates. If they succeed in keeping discount rates 1% above what they should be, they have essentially transferred 6% of the total pension bill for each of these years from the old to the young, so the young will have to pay this bill,” the authors say.

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Failed education systems.

The Real Reason Behind The US Student Debt Problem (F.)

The New York Fed publishes the always-interesting Quarterly Report on Household Debt and Credit. The Q4 2017 version came out recently. In total, Americans carried $13.15 trillion in debt as of year-end 2017. Most of it is mortgage debt—about 71% of the total, if you include home equity loans. Much to our surprise, the next-largest category isn’t auto loans or credit cards. It’s student loans, which are now 10% of total debt. Their share has been growing steadily. This might be okay if the debt enhanced the student’s financial security, but for millions of Americans, that’s not what has happened. Borrowers don’t achieve the desired results but remain stuck with the debt anyway. While delinquency rates for other forms of debt fell after the recession, student loans didn’t. As of year-end 2017, about 11% of nearly $1.4 trillion in student debt was at least 90 days delinquent.

It’s actually worse than that. Roughly half of student debt is held by borrowers who aren’t required to make payments yet. That’s because they are still in school, unemployed, or otherwise excused. Much of that debt would likely be delinquent too. Also important: The delinquent loans tend to be small (less than $10,000) and held by borrowers who never earned degrees. These borrowers probably thought they were doing the right thing. They wanted decent jobs and saw that having a college degree was necessary to get one. So why is college the key to gainful employment? It hasn’t always been so. It’s because employers require a degree as a job qualification… and that’s partly the fault of IQ tests.

[..] College degrees are convenient, legal substitutes for the kind of testing employers haven’t been able to use since the 1970s. So apart from whatever you learn in college, merely having the credential became necessary to career success. As a result, everyone in the equation made certain choices. • Employers: demand a college degree even for jobs that don’t require college-level skills. • Workers: get a college degree even if you must take on debt. Colleges: Raise prices since so many students are begging for degrees.
This made college more expensive, forcing students to borrow more and more money.

Politicians jumped in to promote and guarantee those loans. And here we are.

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Thw two parties will have to come together to solve this. Just blaming the other won’t do it.

20 US States Sue Federal Government, Seeking End To Obamacare (R.)

A coalition of 20 U.S. states sued the federal government on Monday over Obamacare, claiming the law was no longer constitutional after the repeal last year of its requirement that people have health insurance or pay a fine. Led by Texas Attorney General Ken Paxton and Wisconsin Attorney General Brad Schimel, the lawsuit said that without the individual mandate, which was eliminated as part of the Republican tax law signed by President Donald Trump in December, Obamacare was unlawful. “The U.S. Supreme Court already admitted that an individual mandate without a tax penalty is unconstitutional,” Paxton said in a statement.

“With no remaining legitimate basis for the law, it is time that Americans are finally free from the stranglehold of Obamacare, once and for all,” he said. The U.S. Justice Department did not immediately respond to a request for comment on whether the Trump administration would defend the law in court. The individual mandate in Obamacare was meant to ensure a viable health insurance market by forcing younger and healthier Americans to buy coverage. Republicans have opposed the 2010 law formally known as the Affordable Care Act, the signature domestic policy achievement of Trump’s Democratic predecessor Barack Obama, since its inception.

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The Supreme Court is wise enough to keep its distance from executive and legislative branches.

US Supreme Court Rebuffs Trump, Won’t Hear Immigration Appeal (BBG)

The U.S. Supreme Court rejected a Trump administration appeal aimed at ending deportation protections for young undocumented immigrants, steering clear for now of the debate over the fate of hundreds of thousands of people. The justices, without published dissent, turned away the administration’s appeal of a ruling that has kept the Obama-era program in place. The rejection buys time for the so-called dreamers even as Congress has been unable to agree on legislation to give them permanent protection. The Senate earlier this month blocked three proposals that would have shielded the dreamers. The administration was asking the Supreme Court to take the unusual step of bypassing an appeals court and granting fast-track review of a federal trial judge’s decision.

The court’s rebuff leaves open the possibility that the justices could consider the case later, after a San Francisco-based federal appeals court hears it. “It is assumed that the Court of Appeals will proceed expeditiously to decide this case,” the Supreme Court said in its two-sentence order. The Deferred Action for Childhood Arrivals program “is clearly unlawful,” White House spokesman Raj Shah said in a statement. “We look forward to having this case expeditiously heard by the appeals court and, if necessary, the Supreme Court, where we fully expect to prevail,” he said. DACA, begun under President Barack Obama, protects undocumented immigrants who were brought to the U.S. as children. Applicants are shielded from deportation and allowed to apply for work permits.

The first group of DACA recipients had been set to lose their protected status in March before U.S. District Judge William H. Alsup’s Jan. 9 order. The Trump administration appeal argued that the judge’s order “requires the government to sanction indefinitely an ongoing violation of federal law being committed by nearly 700,000 aliens.” The administration resumed accepting DACA renewal applications after the order. Congress is at an impasse over legislation to protect the dreamers, as President Donald Trump and many Republicans insist that it must be combined with strict new limits on legal immigration. Even though the judge’s order means the prior March deadline isn’t in force, House Speaker Paul Ryan of Wisconsin said this month, “we want to operate on deadlines. We clearly need to address this issue in March.”

Alsup said the Department of Homeland Security based its decision to end the program on the “flawed legal premise” that Obama lacked the authority to set it up in the first place. In issuing his temporary order, which extends the protection while the lawsuit goes forward, Alsup said the “public interest” would be served by keeping the program in place. The judge pointed to Trump tweets that suggested he actually supported DACA. A September tweet read: “Does anybody really want to throw out good, educated and accomplished young people who have jobs, some serving in the military? Really! . . . .” Alsup wrote: “We seem to be in the unusual position wherein the ultimate authority over the agency, the chief executive, publicly favors the very program the agency has ended.”

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” Can I be alone in wondering how these agencies can mount massive prosecutions of nobodies like George Papadopoulos and Rick Gates while ignoring the much better documented intrigues?..”

And Now the Schiff Memo (Jim Kunstler)

The excruciating quandary President Trump presents to the nation is dragging the sad remnant of the thinking class ever-deeper into a netherworld of desperation, paranoia, and mendacity that may exceed even their own official fantasies about the enemy in the White House. Everything about the lumbering, blundering occupant of 1600 Pennsylvania Avenue drives his Dem/Prog opponents — or #Resistance, if you will — plumb batshit: his previous incarnations as a shady NYC real estate schmeikler, as a TV clown, as a business deadbeat, as a self-described pussy-grabber… his vulgar casinos, his mystifying hair-do, his baggy suits and dangling neckties, his arrant, childish, needless lying about trivialities, his intemperate tweets, his unappetizing associates, his loutish behavior in foreign lands, his fractured, tortured syntax, his obvious insincerity, his sneery facial contortions… and lots lots more — and of course that doesn’t even touch the actual policy positions he struggles to articulate.

In sum, Trump represents such a monumentally grotesque embarrassment to the permanent Washington establishment that they will pay any price, bear any burden, meet any hardship, support any friend, oppose any foe, in order to assure the removal of this odious caitiff. And in the process abandon all reason and decency. To complicate matters, there really are policy differences that, despite Mr. Trump’s oafish profferings, must somehow be faced for the sake of the country’s future — two of the clearest, just for example, being whether we will have coherent, enforceable immigration laws and whether we will continue to allow the sale of tactical military rifles to the general public. These are matters, by the way, which people of sound mind and honorable intentions could actually resolve through open legislative debate.

[..] in creating this horror movie, the #Resistance is dangerously perverting institutions that may not recover from being written into the script. For instance, the Department of Justice, its subsidiary, the FBI, and sundry intel outfits whose highest officers have been enlisted as cast members. Can I be alone in wondering how these agencies can mount massive prosecutions of nobodies like George Papadopoulos and Rick Gates while ignoring the much better documented intrigues of officials such as Bruce Ohr, Andrew McCabe, Peter Strzok, Lisa Page, Sally Yates, James Comey, Loretta Lynch, John Brennan, Debbie Wasserman-Schultz, Hillary Clinton, and possibly even the sainted Barack Obama?

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All the west has left is fabricated narratives.

East Ghouta: The Last Great Battle Of The Syrian War? (Duran)

Just as was the case with the crisis in Aleppo in 2016, the crisis in east Ghouta today is the subject of much handwringing in the Western media. There are also – just as there were in 2016 – pleas to President Putin to “show mercy”. In 2016 these pleas came mainly from British Foreign Minister Boris Johnson. This time they are coming from German Chancellor Merkel and French President Macron. Meanwhile – as in 2016 – there is grandstanding against Russia at the UN Security Council by the US’s UN ambassador. In 2016 it was Samantha Power; this time it is Nikki Haley. Just as in 2016 we are now seeing overheated and hysterical demands for ‘military action’ to ‘bring the killing to a stop’, with all concerns about what that might lead to brushed aside.

To complete the truly extraordinary parallels, there has even been a US bombing raid on Syrian forces far away in eastern Syria in Deir Ezzor province, just as there was during the fighting in Aleppo in 2016. Moreover the Russian response to the US threats and to the US bombing raid appears to be the same as it was in 2016: the deployment of further powerful additional military forces to Syria and to Khmeimim air base. In 2016 it was S-300VM Antey 2500 anti aircraft missiles; today it is additional S-400 anti aircraft missiles and (reportedly) SU-57 fighters. As to what is really behind the furious campaign to stop the attack on east Ghouta, it is the same as was the case with the furious campaign to stop the attack on eastern Aleppo in 2016: to prevent a Jihadi enclave which threatens one of Syria’s two great cities – Aleppo in 2016, Damascus today – from being destroyed.

As to what would actually happen if – or rather when – that Jihadi enclave is finally destroyed, I can do no better than quote Marcus Papadopoulos “Once East Ghouta is liberated from Al-Qaeda, the world will see the same response from its inhabitants as the world saw once East Aleppo was liberated: jubilation. And, like with East Aleppo, East Ghouta will serve as another testimony about the facade that is the White Helmets.” Why all these frantic attempts to save an Al-Qaeda controlled Jihadi enclave from being destroyed near Damascus? The short answer is that just as the destruction in 2016 of the Jihadi enclave in eastern Aleppo showed to the Western ‘democracy promotion’ lobby that their regime change war in Syria could not be won, so the destruction of the Jihadi enclave in east Ghouta near Damascus today would show to the Western ‘democracy promotion’ lobby that their regime change war in Syria is irretrievably lost.

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The UN is just as guilty as Oxfam etc.

Women ‘Sexually Exploited In Return For Aid’ By Charities In Syria (BBC)

Women in Syria have been sexually exploited by men delivering aid on behalf of the UN and international charities, the BBC has learned. Aid workers said the men would trade food and lifts for sexual favours. Despite warnings about the abuse three years ago, a new report shows it is continuing in the south of the country. UN agencies and charities said they had zero tolerance of exploitation and were not aware of any cases of abuse by partner organisations in the region. Aid workers told the BBC that the exploitation is so widespread that some Syrian women are refusing to go to distribution centres because people would assume they had offered their bodies for the aid they brought home. One worker claimed that some humanitarian agencies were turning a blind eye to the exploitation because using third parties and local officials was the only way of getting aid into dangerous parts of Syria that international staff could not access.

The United Nations Population Fund (UNFPA) conducted an assessment of gender based violence in the region last year and concluded that humanitarian assistance was being exchanged for sex in various governorates in Syria. The report, entitled “Voices from Syria 2018”, said: “Examples were given of women or girls marrying officials for a short period of time for ‘sexual services’ in order to receive meals; distributors asking for telephone numbers of women and girls; giving them lifts to their houses ‘to take something in return’ or obtaining distributions ‘in exchange for a visit to her home’ or ‘in exchange for services, such as spending a night with them’.” It added: “Women and girls ‘without male protectors’, such as widows and divorcees as well as female IDPs (Internally Displaced Persons), were regarded as particularly vulnerable to sexual exploitation.” Yet this exploitation was first reported three years ago.

Danielle Spencer, a humanitarian adviser working for a charity, heard about the allegations from a group of Syrian women in a refugee camp in Jordan in March 2015. [..] “I remember one woman crying in the room and she was very upset about what she had experienced. Women and girls need to be protected when they are trying to receive food and soap and basic items to live. The last thing you need is a man who you’re supposed to trust and supposed to be receiving aid from, then asking you to have sex with him and withholding aid from you.” She continued: “It was so endemic that they couldn’t actually go without being stigmatised. It was assumed that if you go to these distributions, that you will have performed some kind of sexual act in return for aid.”

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Mar 302017
 
 March 30, 2017  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  


Carole Lombard 1926

 

Fed’s Williams Says Bank Lending Slowdown Doesn’t Worry Him Yet (YF)
Retailing in America: Game Theory in Reverse (DiMartinoBooth)
‘Deep Subprime’ Auto Loans Are Surging (BBG)
Margin Debt Hit All-Time High in February (WSJ)
US Oil Export Surge Steals More OPEC Share (CNBC)
Australia World’s Worst Money Laundering Property Market (TI)
Sydney, Melbourne House Price Gains Accelerate (AFR)
Auckland Housing Market Losing All Capital Gains Of The Last 12 Months (INZ)
House Panel Passes Bill To Audit The Fed (MW)
Hawaii Judge Places Indefinite Hold On Trump Travel Ban (BBC)
Paul Ryan Opposes Trump Working With Democrats On Healthcare (R.)
Democrats Against Single Payer (Jacobin)
American Empire Crumbling (Quinn)
The EU Cannot Survive If It Sticks To Business As Usual (Varoufakis)
Capitalism Inevitably Creates A ‘Sad’ Unfair World – Physicist (Ind.)
‘That Was Some Weird Shit’ (NYMag)
146 Feared Dead In Mediterranean, Boy The Sole Survivor (R.)

 

 

Today’s main theme just has to be W’s ‘That Was Some Weird Shit’. Here’s the graph to go with it.

Fed’s Williams Says Bank Lending Slowdown Doesn’t Worry Him Yet (YF)

A recent slowdown in bank lending has some observers concerned that the post-election pops in optimism are sending a false signal about the strength of the U.S. economy. To San Francisco Fed president John Williams, however, this decline is out of step with everything else credit markets are saying about the economy. “The big picture is: I don’t see any signs of a slowing either on the demand side or on the credit supply side,” Williams told Yahoo Finance on Wednesday. “Overall, the other indicators, everything we see, [says] economic conditions are good,” Williams added. “Confidence is good, and we’re not seeing any signs of bank lending standards changing fundamentally. So it’s hard to see anything, from my viewpoint, that [says] credit is less available.”

In recent months, the growth rate of commercial and industrial loans, as tracked by the Federal Reserve’s weekly H.8 report on assets and liability of U.S. banks, has been on the decline. This is viewed by many as a negative development in an economy where lending and borrowing activity serve as proxies for the economy’s overall health. But Williams also cautioned that lending data can reveal economic developments on a lag. For example, he noted to Yahoo Finance that in 2008 bank lending increased, which contradicted the notion that the financial markets were seizing up. Indeed, companies were unable to borrow by tapping the bond markets. However, the lending did increase because companies drew from existing lines of credit.

Right now, Williams noted that one story behind the drop in C&I loan growth going around is that oil and gas companies last year drew on lines of credit, boosting loan growth at the time. And thus the current decline in lending, which appears out of step with broader economic conditions, is occurring largely because of difficult year-over-year comparisons.

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Retail demise exposes banks.

Retailing in America: Game Theory in Reverse (DiMartinoBooth)

On March 21st, Sears Holding Corporation submitted a filing with its regulators that it has “substantial doubt” it can continue as a “going concern.” Don’t recall companies being charged with making their own death throes’ announcements from your Accounting coursework? You are correct. Meet the new and improved U.S. accounting rules that have just come into effect for public companies reporting annual periods that ended after December 15, 2016, Sears included. The change shifted the onus to disclose from a given company’s auditors to its management. It was telling that the Sears news fell on the very same day discount retailer Payless announced it could soon file for bankruptcy protection. That same day, the less ubiquitous Bebe female fashion chain said it too was ‘exploring strategic options,’ typically code for that same ill-fated Chapter in the court system.

[..] At the opposite end of the denial spectrum sits Boston Fed President Eric Rosengren, who is and has been publicly worried about an entirely different sort of challenge facing the real estate market. It’s no secret that apartment prices are soaring. Over the past year, prices have risen 11%, leading the broad market. While that increase may seem benign in and of itself, consider how the sector has fared over the course of the recovery: prices have recouped an eye-watering 240% of their peak-to-trough losses. In sharp contrast, retail has performed the worst; it’s only recovered 96% of its losses. Rosengren is rightly worried that the “sharp” increase in apartment prices could catalyze financial instability. He went on to say that, “Because real estate holdings are widespread, and the monetary and macro-prudential tools for handling valuation concerns are somewhat limited, I believe we must acknowledge that the commercial real estate sector has the potential to amplify whatever problems may emerge when we at some point face an economic downturn.”

If you would indulge a translation: The bubble in commercial real estate (CRE) could trigger systemic risk, which of course, no central bank can contain. The ‘macro-prudential’ tools to which Rosengren refers include rules and caps on banks’ exposure to CRE. Odds are, however, that the horse has already fled the barn. Over the past five years, CRE lending has been running at roughly double economic growth, a dangerous dynamic. The result: banks’ exposure to CRE has reached record levels. Last year alone, bank holdings of CRE and multifamily mortgages rose nine and 12%, respectively. More worrisome yet is that the most concentrated cohort – those with more than 300% of their risk-based capital at risk – is banks with less than $50 billion in assets; most have assets south of $10 billion. How exactly will small banks confront a systemic risk conflagration? That pesky potential presumably is what’s robbing Rosengren of sleep at night. He might just remember that small German lenders called Landesbanks were where subprime bombs detonated unexpectedly way back when.

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Anyone who can fog a mirror is back

‘Deep Subprime’ Auto Loans Are Surging (BBG)

About a third of the risky car loans that are bundled into bonds are considered “deep subprime,” a level that has surged since 2010 and is translating to higher delinquencies on the loans, according to Morgan Stanley. Consumers are falling behind on most subprime car loans, but deep subprime borrowers have deteriorated fastest, the analysts said. Sixty-day delinquencies for bonds backed by these loans have risen 3 percentage points since 2012, compared with just 0.89 percentage points on all other subprime auto securities, Morgan Stanley’s Vishwanath Tirupattur, James Egan and Jeen Ng said in a report dated March 24. “The securitization market has become more heavily weighted towards issuers that we would consider deep subprime,” the strategists wrote. “Auto loan fundamental performance, especially within ABS pools, continues to deteriorate.”

The percentage of subprime auto-loan securitizations considered deep subprime has risen to 32.5% from 5.1% since 2010, Morgan Stanley said. The researchers define deep subprime as lenders with consumer credit grades known as FICO scores below 550. The scale from Fair Isaac Corp. ranges from 300 to 850 and while there’s no firm definition of subprime, borrower scores below 600 are in general considered high credit risks. As Wall Street banks have found it tougher to profit under new regulatory regimes born out of the last subprime crisis, they’ve become more willing to underwrite riskier auto-loan asset-backed security sales. Investors, starved for returns with about $8 trillion of debt globally carrying negative yields, have in turn proven to be insatiable, further facilitating higher levels of risk in the market for the securities.

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The casino’s open for business.

Margin Debt Hit All-Time High in February (WSJ)

Margin debt climbed to a record high in February, a fresh sign of bullishness for flummoxed investors trying to navigate the political and economic crosscurrents driving markets. The amount investors borrowed against their brokerage accounts climbed to $528.2 billion in February, according to the most recent data available from the New York Stock Exchange, released Wednesday. That is up 2.9% from $513.3 billion in January, which had been the first margin debt record in nearly two years. With margin debt, investors pledge securities, typically stocks or bonds, to obtain a loan from their brokerage firms. The money doesn’t have to be used to buy more investments, though it often is. The gauge tends to climb—and pull back—along with broader stock market gauges, which have been rising to fresh records in the wake of November’s presidential election.

Rising levels of margin debt are generally considered to be a measure of investor confidence. Investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. But experts say a steep rise can indicate that investors are losing sight of market risks and betting that stocks can only go up. Margin debt has a history of peaking right before financial collapses like the ones in 2000 and 2008. When stocks move lower, investors who are buying with borrowed money often must pull out of the market, exacerbating the decline. Before January, the previous record high for margin debt was $505 billion in the spring of 2015. Margin debt then started falling, months ahead of a summer swoon that sent major indexes down more than 10%.

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As demand falls.

US Oil Export Surge Steals More OPEC Share (CNBC)

As OPEC tries to keep oil off the world market, U.S. oil producers are pouring more onto it. The U.S. last week sent more than 1 million barrels a day of crude out of the country, the third biggest export week ever, and double the average amount exported in 2016. It is also the third time this year that U.S. exports exceeded a million barrels a day, an industry record. “It should be somewhat supportive of [U.S. oil prices] in the short run, particularly if the exports keep up. But it obviously is a challenge for the global market and a renewed threat to OPEC and their designs of keeping prices up,” said John Kilduff of Again Capital While the U.S. exported oil, it also exported fuel last week — a steadily growing business. The U.S. sold 1.1 million barrels of diesel fuel, in line with the recent average, but 608,000 barrels a day of gasoline, up from less than 400,000 barrels a day a year ago.

Analyst say the jump in exports means U.S. producers are grabbing more share at the expense of OPEC and its partners, at a time when the cartel and other producers are considering whether to extend their deal to hold 1.8 million barrels of oil off the market. But the U.S. may also be seeing the early signs of a potential rebalancing of its own supply picture, and that could ultimately help clear a logjam of domestic oil barrels. “What we’re now seeing in the U.S. is refinery utilization increasing, as the maintenance season draws to a close. At the same time, there’s good demand for gasoline and diesel which is helping get inventories under control. Those product inventories are less than they were this time last year,” said Andrew Lipow, president of Lipow Oil Associates. U.S. refineries supplied 9.5 million barrels a day of gasoline last week, up from 9.2 million the week earlier. Refinery runs increased by 425,000 barrels a day.

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Transparency International reports.

Australia World’s Worst Money Laundering Property Market (TI)

The real estate market has long provided a way for individuals to secretly launder or invest stolen money and other illicitly gained funds… According to the Financial Action Task Force (FATF), real estate accounted for up to 30% of criminal assets confiscated worldwide between 2011 and 2013… In many such cases, property is purchased through anonymous shell companies or trusts without undergoing proper due diligence by the professionals involved in the deal. The ease with which such anonymous companies or trusts can acquire property and launder money is directly related to the insufficient rules and enforcement practices in attractive markets… This assessment identifies the following 10 main problems that have enabled corrupt individuals and other criminals to easily purchase luxurious properties anonymously and hide their stolen money in Australia, Canada, the UK and the US:

• Inadequate coverage of anti-money laundering provision
• Identification of the beneficial owners of legal entities, trusts and other legal arrangements is still not the norm
• Foreign companies have access to the real estate market with few requirements or checks
• Over-reliance on due diligence checks by financial institutions leads to cash transactions going unnoticed
• Insufficient rules on suspicious transaction reports and weak implementation
• Weak or no checks on politically exposed persons and their associates
• Limited control over professionals who can engage in real estate transactions: no “fit and proper” test
• Limited understanding of and action on money laundering risks in the sector
• Inconsistent supervision
• Lack of sanctions

Australia has severe deficiencies under all 10 areas identified in the research and is therefore not in line with any of the commitments to tackle corruption and money laundering in real estate made in international forums. In Australia, real estate agents are not subject to the provisions of the Anti-Money Laundering and CounterTerrorism Financing Act 2006. Other professionals such as lawyers and accountants who may also play a role in the sector are not covered either. This means that properties can be bought and sold without any due diligence on the parties. Currently there are no requirements for real estate agents or any professional involved in real estate deals to submit STRs, even if they suspect illegal activity is taking place, and there are no requirements or rules for verifying whether customers are PEPs or their close associates…

In Australia, Canada and the US, the current anti-money laundering framework shows a tendency to rely on financial institutions to conduct the necessary background checks on real estate transactions… there are no checks on cash transactions. In Australia, 70% of Chinese buyers pay in cash and they represent the largest proportion of foreign purchases in the country.

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How this does not scare very single person out of their socks, I can’t imagine.

Sydney, Melbourne House Price Gains Accelerate (AFR)

House price growth accelerated further in March, with gains in Sydney and Melbourne pushing higher than previous cyclical peaks, preliminary CoreLogic figures show. Data for the first 28 days of the month shows Sydney prices have risen 19% over the past year while Melbourne has posted a 16% gain, the company said on Thursday. The combined capital city average of 1.4% – the same pace of growth as February – suggests that the strengthening in the two largest cities offsets further weakness in other markets. “The early results come after a strong rebound in housing market conditions through the latter half of 2016 and into 2017,” CoreLogic head of research Asia Pacific Tim Lawless said. “The strong capital gain results are further evidenced by a continuation in low stock levels, high auction clearance rates and strong investment demand.”

In other data that will underpin property prices, official figures released on Thursday show Sydney’s population hit five million, and Melbourne is the country’s fastest-growing capital. Some caution is needed. A methodology change by CoreLogic last year exaggerated price growth in Sydney and Melbourne while also exacerbating the declines in the falling Perth market. CoreLogic has not yet revised the figures to account for the methodology and distortions will only drop out of the year-on-year comparison in June. It’s clear the market is buoyant, however. Even with lenders tightening loan conditions to investor borrowers, they are increasing discounts to owner owner occupiers to protect market share, Deloitte’s annual Australian mortgage report said on Thursday.

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Nice bubble you got there. Wouldn’t want anything to happen to it, would you?

Auckland Housing Market Losing All Capital Gains Of The Last 12 Months (INZ)

The Auckland housing market is on the verge of having all of the capital gains it made in the last 12 months wiped out. Prices of Auckland properties have fallen so much in the last few months that median prices are within a hair’s breadth of going into negative territory on an annual basis. They may already be there. In February the average price of Auckland homes sold by Harcourts, the country’s largest real estate agency, was $934,428, down 1.1% compared to where it was in February last year. While Harcourts’ average prices can be a bit choppy on a month by month basis, the figures do not appear to be an aberration. According to the Real Estate Institute of New Zealand, Auckland’s median selling price peaked at $868,000 in October last year and has declined every month since. In February it hit $800,000, down 7.8% from October’s peak.

But just as significantly, Auckland’s median price in March last year was $820,000. So even if the median price for March this year doesn’t fall any further from where it was in February, or if it increases by anything less than $20,000, Auckland’s median price will have declined to the point where it will be below where it was 12 months previously. Then it’s goodbye capital gains. The interesting thing about those numbers is that the downward trend they show is occurring at a time when Auckland’s migration-driven population growth is increasing at record levels and construction of new housing continues to fall miserably below the numbers that are required, exacerbating the region’s growing housing shortage. How can this be? As you might expect, the market is being influenced by forces converging from several different directions.

One of the biggest changes to affect the Auckland market over the last few months has been the relative absence of local ethnic Chinese buyers. It would be hard to underestimate the impact they were having on Auckland’s residential property market up until about the end of the third quarter of last year. They dominated some of what are often called the “big room” auctions where several dozen properties could be auctioned in a single day, and it wasn’t uncommon for them to account for around 70% of sales. Often they were competing amongst themselves for properties and their bidding could be fierce. Sometimes it seemed as if the prices they were prepared to pay knew no limits. Then late last year, just as the market geared up for the summer selling season, the Chinese tide went out.

Auckland now has a significant population of Chinese people, so there will always be some who are actively buying or selling properties. But the numbers are well down on where they were a year ago. Auctions that were packed with Chinese buyers this time last year are now much quieter and Chinese faces are often more notable by their absence rather than their presence. When they are buying, they are more likely to be buying a home for themselves or perhaps their children than a pure investment property, and their bidding has been far more cautious than it was just a few months ago. Often they will bid on a property only to let it be passed in, figuring that they may not face much competition from other buyers in post-auction negotiations. With the odd exception, the days of the bidding frenzy are over.

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All for it.

House Panel Passes Bill To Audit The Fed (MW)

A House panel on Tuesday approved legislation that would let a government watchdog audit the Federal Reserve’s monetary policy decisions, a move bitterly opposed by the central bank. The House Committee on oversight and government reform passed the measure by voice vote after roughly 30 minutes of debate. The bill was the brainchild of Ron Paul, the former House Republican and libertarian presidential candidate and sharp critic of the U.S. monetary policy. Versions of the bill have twice passed the House by wide margins but then stalled due to lack of support from Democrats in the Senate and the Obama administration. Analysts said the measure has a better chance to become law now that Republicans control both houses of Congress and the White House. Paul’s son, Rand, the Republican senator from Kentucky, has introduced a similar measure in the Senate.

Democrats in the committee were firmly against the bill. “This bill would open the floodgates to political interference in monetary-policy making,” said Del. Eleanor Holmes Norton, a Democrat from the District of Columbia. Rep. Carolyn Maloney, a Democrat from New York, said the measure would lead to higher interest rates because it would undermine the market’s confidence in the independence of the central bank. Republicans said the measure was needed to rein in the Fed. “It is ironic that the arsonists that caused the financial collapse are now being given credit…for putting out the fire. Almost every macroeconomist concedes in retrospect that [the Fed’s] extended period of easy money led to the financial crisis,” said Rep. Thomas Massie, a Republican from Kentucky.

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What good could it do to go to the Ninth Circuit Court at this point?

Hawaii Judge Places Indefinite Hold On Trump Travel Ban (BBC)

A US federal judge in Hawaii has indefinitely extended the suspension of President Trump’s new travel ban. Judge Derrick Watson’s ruling means Mr Trump will be barred from enforcing the ban on six mostly Muslim nations while it is contested in court. In a lawsuit, the US state says the ban would harm tourism and the ability to recruit foreign students and workers. President Trump says his revised travel ban seeks to prevent terrorists from entering the United States. Judge Watson made the ruling late on Wednesday after hearing arguments from attorneys for the state of Hawaii and the US Department of Justice. The judge turned his earlier temporary restraining order into a preliminary injunction that would have a more lasting effect.

President Trump’s executive order on 6 March would have placed a 90-day ban on people from Iran, Libya, Somalia, Sudan and Yemen and a 120-day ban on refugees. An earlier version of the order, issued in late January, sparked confusion and protests, and was blocked by a judge in Seattle. Other courts across the US have issued different rulings on Mr Trump’s revised ban, with a judge in Maryland halting a part of the ban earlier this month. Mr Trump has complained of “unprecedented judicial overreach”, pledging to take the case “as far as it needs to go”. An appeal against the Hawaii decision would be expected to go next to the Ninth Circuit Court of Appeals – the same court which in February said it would not block a ruling by a Seattle court to halt the original travel ban.

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Because working together is so last century?!

Paul Ryan Opposes Trump Working With Democrats On Healthcare (R.)

U.S. House of Representatives Speaker Paul Ryan, the top Republican in Congress, said he does not want President Donald Trump to work with Democrats on new legislation for revamping the country’s health insurance system, commonly called Obamacare. In an interview with “CBS This Morning” that will air on Thursday, Ryan said he fears the Republican Party, which failed last week to come together and agree on a healthcare overhaul, is pushing the president to the other side of the aisle so he can make good on campaign promises to redo Obamacare. “I don’t want that to happen,” Ryan said, referring to Trump’s offer to work with Democrats. Carrying out those reforms with Democrats is “hardly a conservative thing,” Ryan said, according to interview excerpts released on Wednesday.

“I don’t want government running health care. The government shouldn’t tell you what you must do with your life, with your healthcare,” he said. On Tuesday, Trump told senators attending a White House reception that he expected lawmakers to reach a deal “very quickly” on healthcare, but he did not offer specifics. “I think it’s going to happen because we’ve all been promising – Democrat, Republican – we’ve all been promising that to the American people,” he said. Trump said after the failure of the Republican plan last week that Democrats, none of whom supported the bill, would be willing to negotiate new healthcare legislation because Obamacare is destined to “explode.”

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Who’s left to represent actual Americans?

Democrats Against Single Payer (Jacobin)

Virginia Democratic senator Chuck Robb, one of the DLC’s founders, warned in 1989 that “policies forged in the economic crisis of the 1930s and the social and cultural schisms of the 1960s” were irrelevant to most Americans. Two years later, Bill Clinton’s issue director Bruce Reed, who doubled as policy director for the DLC, made sure to distance Clinton from single payer. The issue flared up again during the 2008 Democratic primary fight, where both Obama and Hillary Clinton tried hedging their bets. Clinton put forward a plan that was basically Obamacare while insisting that “Medicare for All” could still be on the cards under the right circumstances. Meanwhile Obama repeatedly flip-flopped, at one point telling an audience that “the Canadian model won’t work in the United States” and that “we’ve got to develop a uniquely American approach,” and nine days later hinting to a different audience that over time single payer may be on the table.

DLC leaders felt reassured however, telling the New York Times they were “pleased that none of the Democratic candidates supports a single-payer health-care system.” So Democrats’ attempts to quell their base’s clamoring for a comprehensive, public health-care system isn’t new. What is new is the open, public disparagement of such a goal — not just by Democratic leaders, but by leading liberal commentators, too. Ironically, this appears largely to have been due to the Sanders campaign — or rather, the challenge it posed to Hillary Clinton’s previously wide-open road to the White House. Needing to differentiate herself from Sanders’s unabashed progressivism, and to dampen popular enthusiasm for his message, Clinton began attacking his policies, despite her historic sympathy toward single payer.

Sanders’s proposals were “ideas that sound good on paper but will never make it in real life,” she told crowds; for good measure, she insisted that single-payer health care “will never, ever come to pass.” Two years earlier, she explained her opposition to the policy on the basis that “we don’t have a one size fits all; our country is quite diverse.” In January 2016, she warned breathlessly that Sanders’s plan would “end all the kinds of health care we know” and claimed it would “send health insurance to the states,” while her daughter warned that it would “dismantle Obamacare” and “strip millions and millions and millions of people off their health insurance.”

As late as October, Clinton’s team was still trying to distance herself from Trump’s accusation that she — heaven forbid! — “wants to go to a single-payer plan,” with her spokesman directing Politifact to an earlier fact-check confirming her lack of support for the policy. (Lest we mistake this for mere expediency, we can rest assured that at least some of the Clinton camp really felt this way: campaign manager John Podesta declared in an email to ThinkProgress editor-in-chief Judd Legum that Sanders’s “actual proposal sucks, but we live in a leftie alternative universe.”)

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Jim Quinn’s series on the similarities between Isaac Asimov’s Foundation Trilogy and Strauss & Howe’s Fourth Turning.

American Empire Crumbling (Quinn)

You can hear the creaking as the winds of this Fourth Turning winter howl through the branches of this dying empire. Trump may have forced the Deep State Second Foundation to reveal itself as they seek to destroy him, but the relentless decline of the American Empire continues unabated. Tinkering around the edges of a healthcare system designed to benefit mega-corporations and the Deep State will do nothing to reverse or even delay the decline. Slowing the growth of government when the national debt is already $20 trillion and headed to $30 trillion within the next decade won’t cure the rot in our tree trunk. Completely ignoring the $200 trillion of unfunded welfare state liabilities helps accelerate the inevitable collapse of this empire. Cutting taxes while expanding the war making machine known as the military industrial complex does nothing to reverse what is already in motion.

In addition to the absolutely quantifiable reasons why the American Empire will collapse, there are demographic, cultural, and societal trends which will contribute dramatically to the fall. The rapidly aging populace, with 10,000 Americans per day turning 65 years old, is the driving force towards national bankruptcy, as this inexorable demographic tsunami sweeps over the fraying fabric of welfare state promises. The onslaught of illegal immigrants and purposeful execution of a plan by the effete liberal elite to weaken our common American culture through the insertion of Muslim refugees into our communities, is undermining the shared values which built the country. The immigrants who built this country assimilated, learned the language, worked hard, and adopted our common culture. The hordes invading America at this time hate our values and refuse to assimilate. This Soros funded effort to create diversity havoc throughout the world is part of the globalization one world order plan.

As Europe disintegrates under the unrelenting wave of violent refugees creating upheaval, chaos, and spreading religious zealotry through viciousness, the next target is the mighty American Empire. Fighting in the streets between the normal law abiding Trump supporters and the Soros funded, draped in black, flag burning, social justice warrior criminals has begun. Widespread societal strife is just around the corner. When the next financial crisis, created by the Deep State to further their plans, destroys the remaining wealth of the barely surviving middle class, all hell will break loose in the streets. The 86% of the country occupied by red state, gun owning, Trump supporters will openly go to war against the condescending, left wing, violence provoking blue state liberals. Blood will be spilled in copious amounts. It always does during Fourth Turnings.

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It cannot survive, period.

The EU Cannot Survive If It Sticks To Business As Usual (Varoufakis)

Angela Merkel, the German Chancellor, had for years opposed the idea of a Europe that proceeds at different speeds – allowing some countries to be less integrated than others, due to their domestic political situation. But now – after the colossal economic mismanagement of the euro crisis has weakened the EU’s legitimacy, given Eurosceptics a major impetus, and caused the EU to shift to an advanced stage of disintegration – Mrs Merkel and her fellow EU leaders seem to think that a multi-speed Europe is essential to keeping the bloc together. At the weekend, as EU leaders gathered to celebrate the 60th anniversary of the Treaty of Rome, leaders of the remaining 27 member states signed the Rome Declaration, which says that they will “act together, at different paces and intensity where necessary, while moving in the same direction, as we have done in the past.”

The failure to keep the EU together along a single path toward common values, a common market and a common currency will come to be embraced and rebranded as a new start, leading to a Europe in which a coalition of the willing will proceed with the original ambition while the rest form outer circles, connected to the inner core by unspecified bonds. In principle, such a manifold EU will allow for the East’s self-proclaimed illiberal democracies to remain in the single market, refusing to relocate a single refugee or to adhere to standards of press freedom and judicial independence that other European countries consider essential. Countries like Austria will be able to put up electrified fences around their borders. It could even leave the door open for the UK to return as part of one of Europe’s outer circles. Whether one approves of this vision or not, the fact is that its chances depend on a major prerequisite: a consolidated, stable eurozone.

One only needs to state this to recognize the second paradox of our post-Brexit reality: In its current state, the eurozone cannot provide the stability that the EU – and Europe more broadly – needs to survive. The refusal to deal rationally with the bankruptcy of the Greek state is a useful litmus test for the European establishment’s capacity to stabilize the eurozone. As it stands, the prospects for a stabilized eurozone do not look good. Business as usual – the establishment’s favored option – could soon produce a major Italian crisis that the eurozone cannot survive. The only alternative under discussion is a eurozone federation-light, with a tiny common budget that Berlin will agree to in exchange for direct control of French, Italian and Spanish national budgets. Even if this were to happen, which is doubtful given the political climate, it will be too little, too late to stabilize the eurozone.

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“Professor Jeremy Baumberg, director of the NanoPhotonic Centres at Cambridge University, was distinctly unimpressed. “It seems to me an extremely poorly written paper, conflating many ideas in a rather unrigorous mishmash,” he said.”

Capitalism Inevitably Creates A ‘Sad’ Unfair World – Physicist (Ind.)

Capitalism is inherently unfair and will produce a world full of ‘sad’ and disgusting inequalities, but Communism is also “doomed to fail”, a leading scientist claims to have proved using the laws of physics. Professor Adrian Bejan told The Independent he was so excited by the “huge” implications of his theory that he kept having to pinch himself. A former member of the Romanian national basketball team, he is now an expert in thermodynamics and fluid mechanics at Duke University in the US, having written 30 books and more than 600 scientific papers. He now claims to have shown that physics can essentially explain economics. Inequality has been seen as a factor in the election of Donald Trump as US President and in the UK referendum vote in favour of Brexit.According to Oxfam, the richest eight men own the same wealth as the poorest 50% of the world’s population.

Professor Bejan said it was possible to explain how such inequality can develop by demonstrating that wealth moves around in a society like water in a river basin using the laws of physics. In a natural environment, water flows from small tributaries into larger and larger streams. And, according to Professor Bejan’s theory, the same is true of money. So, in a free market system, wealth will naturally flow from the poorest in the small tributaries to the richest in the wide rivers. Using this analogy, Communism is comparable to an attempt to restrict the flow of water to a network of equally sized concrete channels, which Professor Bejan said would inevitably be overcome by the forces of nature. But, just as humans do sometimes harness rivers to produce energy or divert them around cities, it is possible to alter the flow of money in society, he added.

And this is exactly what is being done by liberal democracies around the world with measures such as free education and healthcare, anti-trust regulations designed to prevent large corporations abusing their power, and the rule of law. “I want to see less inequality in the distribution of wealth. I get not just sad, but disgusted by it,” Professor Bejan said.

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Getting more popular by the day.

‘That Was Some Weird Shit’ (NYMag)

The inauguration of Donald Trump was a surreal experience for pretty much everyone who witnessed it, whether or not they were at the event and regardless of who they supported in the election. On the dais, the stoic presence of Hillary Clinton – whom candidate Trump had said he would send to prison if he took office – underlined the strangeness of the moment. George W. Bush, also savaged by Trump during the campaign, was there too. He gave the same reason for attending that Bill and Hillary Clinton did: to honor the peaceful transfer of power. Bush’s endearing struggle with his poncho at the event quickly became a meme, prompting many Democrats on social media to admit that they already pined for the relative normalcy of his administration. Following Trump’s short and dire speech, Bush departed the scene and never offered public comment on the ceremony. But, according to three people who were present, Bush gave a brief assessment of Trump’s inaugural after leaving the dais: “That was some weird shit.” All three heard him say it.

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On and on and on.

146 Feared Dead In Mediterranean, Boy The Sole Survivor (R.)

Dozens of people are feared to have drowned after a rubber boat carrying migrants and refugees from Libya sank in the Mediterranean. The sole survivor – a 16-year-old Gambian boy – told rescuers that 146 other people were on board when the boat sank. A Spanish frigate, the Canarias, found the boy hanging on to a piece of debris in the sea on Tuesday. He was transferred to an Italian Coast Guard ship and brought to the Sicilian island of Lampedusa early on Wednesday. “He was very tired when they found him. He’s resting now, so we’ll have more details later,” said the International Organisation for Migration (IOM) spokesman Flavio Di Giacomo in Rome, after speaking to staff in Lampedusa.

“The boy said they left Sabratha, Libya, a couple of days ago on a rubber boat with 147 sub-Saharan Africans on board, including five children and some pregnant women,” Di Giacomo said. In the past two days, rescuers have picked up more than 1,100 migrants at sea and recovered one body, Italy’s Coast Guard said. The Coast Guard did not comment on the latest shipwreck. So far this year nearly 600 migrants have died trying to reach Italy from North Africa, IOM estimates, after 4,600 deaths last year. Migrant arrivals to Italy are up more than 50% this year on the same period of last year. Early on Wednesday the Golfo Azzurro, a humanitarian vessel, rescued about 400 migrants – mainly from Morocco, Algeria, Libya, Gambia and Bangladesh – including 16 women and two children.

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Oct 122015
 
 October 12, 2015  Posted by at 7:27 pm Finance Tagged with: , , , , , ,  


Jack Delano Gallup, New Mexico. Train on the Atchison, Topeka & Santa Fe 1943

Some things you CAN see coming, in life and certainly in finance. Quite a few things, actually. Once you understand we’re on a long term downward path, also both in life and in finance, and you’re not exclusively looking at short term gains, it all sort of falls into place. The only remaining issue then is that so many of you DO look at short term gains only. Thing is, there’s no way out of this thing but down, way down.

Yeah, stock markets went up quite a bit last week. Did that surprise you? If so, maybe you’re not in the right kind of game. You might be better off in Vegas. Better odds and all that. From where we’re sitting, amongst the entire crowd of its peers, this was a major flashing red alarm late last week, from Investment Research Dynamics:

September Liquidity Crisis Forced Fed Into Massive Reverse Repo Operation

Something occurred in the banking system in September that required a massive reverse repo operation in order to force the largest ever Treasury collateral injection into the repo market. Ordinarily the Fed might engage in routine reverse repos as a means of managing the Fed funds rate. However, as you can see from the graph below, there have been sudden spikes up in the amount of reverse repos that tend to correspond the some kind of crisis – the obvious one being the de facto collapse of the financial system in 2008. You can also see from this graph that the size of the “spike” occurrences in reverse repo operations has significantly increased since 2014 relative to the spike up in 2008. In fact, the latest two-week spike is by far the largest reverse repo operation on record.

Besides using repos to manage term banking reserves in order to target the Fed funds rate, reverse repos put Treasury collateral on to bank balance sheets. We know that in 2008 there was a derivatives counter-party default melt-down. This required the Fed to “inject” Treasury collateral into the banking system which could be used as margin collateral by banks or hedge funds/financial firms holding losing derivatives positions OR to “patch up” counter-party defaults (see AIG/Goldman).

What’s eerie about the pattern in the graph above is that since 2014, the “spike” occurrences have occurred more frequently and are much larger in size than the one in 2008. This would suggest that whatever is imploding behind the scenes is far worse than what occurred in 2008. What’s even more interesting is that the spike-up in reverse repos occurred at the same time – September 16 – that the stock market embarked on an 8-day cliff dive, with the S&P 500 falling 6% in that time period. You’ll note that this is around the same time that a crash in Glencore stock and bonds began. It has been suggested by analysts that a default on Glencore credit derivatives either by Glencore or by financial entities using derivatives to bet against that event would be analogous to the “Lehman moment” that triggered the 2008 collapse.

The blame on the general stock market plunge was cast on the Fed’s inability to raise interest rates. However that seems to be nothing more than a clever cover story for something much more catastrophic which began to develop out of sight in the general liquidity functions of the global banking system. Without a doubt, the graphs above are telling us that something “broke” in the banking system which necessitated the biggest injection of Treasury collateral in history into the global banking system by the Fed.

That should scare even the crocodile hunter, I venture, but he’s dead, and you’re not. So move one to the next sign that you’re in way over your head. How about Tyler Durden quoting Bank of America. Turns out, last week’s gains were down to one thing, and one only: short covering. In fact, the second biggest short squeeze in history. So much short covering that stock prices went up. And that’s why they did.

Stocks Soar To Best Week In A Year On “Mother Of All Short Squeezes”

With China shut and The Fed going full dovish panic-mode over growth fears, world markets went crazy…
• S&P up 7 of last 8 days +3.2% – best week since Oct 2014
• Russell 2000 +4.5% – best week since Oct 2014
• Nasdaq up 7 of last 8 (since Death Cross) closed above 50DMA
• Trannies up 8 of last 9 +4.9% – best week since Oct 2014
• Dow up 8 of last 9 +3.5% – best week since Feb 2015
• "Most Shorted" +4.7% – biggest squeeze in 8 months
• Biotechs -2.3%
• Financials +2.2% – best week in 3 months
• Asian Dollar Index +1.4% (worst week USD vs Asian FX since Oct 2011)
• Dollar Index -1.2% (worst week for USD vs Majors in 2 months)
• AUD +4% – best week since Dec 2011
• 2Y TSY Yields +6.5bps – biggest rise in 7 weeks
• 5Y TSY Yields +11bps – biggest rise in 4 months
• WTI Crude +8.9% – 2nd best week since Feb 2011
• OJ +4.8% – best day since March
• Silver +3.8% – best week since May

LOLume!!

 

The last 8 days have seen a massive short-squeeze… 2nd biggest in history

 

The last 2 times stocks were short-squeezed this much, did not end well…

 

And the following stunning chart shows the percent of S&P 500 names above their 50-day moving-average has soared from 4% to 60% in a few weeks…

h/t @ReformedBroker

Got that? The biggest injection of Treasury collateral in history combined with the 2nd biggest short squeeze in history. Still want to buy stocks? Think there’ll be an actual recovery?

And then there’s this mass selling of Treasuries by emerging markets, as per the following Economist graph.

How many trillions are we down so far? And you still want to buy ‘assets’? You sure you can spell the word please? Josh Brown at the Reformed Broker thinks maybe that’s not the smartest move around:

QE Causes Deflation, Not Inflation

In America, Japan and the Eurozone velocity has continued to decline since the financial crisis in 2008. Thus, US, Japan and Eurozone money velocity, measured as the nominal GDP to M2 ratio, has declined from 1.94x, 0.7x and 1.29x respectively in 1Q98 to 1.5x, 0.55x and 1.05x in 2Q15.

Indeed, US money velocity is now at a six-decade low. This is why those who have predicted a surge in inflation in recent years caused by the Fed printing money have so far been proven wrong. For inflation, as defined by conventional economists like Bernanke in the narrow sense of consumer prices and the like, will not pick up unless the turnover of money increases. This is the problem with the narrow form of mechanical monetarism associated with the likes of American economist Milton Friedman.

[..] QE is deflationary because it shrinks net interest margins for banks via depressing treasury bond yields. It also enriches the already wealthy via asset price inflation but they do not raise their consumption in response, because how much more shit can they possibly buy? Finally, it leads to a preference of share buybacks vs investment spending because the payback from financial engineering is so much easier and more immediate.

Now, we’re not sure that QE ’causes’ deflation, or let’s put it this way: perhaps QE doesn’t cause the deflation we see, but it certainly reinforces it. ‘Our’ deflation originates in our debt. And there’s more than plenty of that to go around.

More is still being added on a daily basis. Though we’re approaching the limits of that. Which is a good thing on the one hand, but a bad one on the other: we’re all going to feel like heroine junkies going cold turkey. Not a pleasant feeling. But still healthier in the long run.

That US money velocity is at its lowest pace in 60(!) years -do let that one sink in- is a huge component of what deflation really is: not rising or falling prices, but the interaction of falling/rising money supply vs falling/rising money velocity.

And in that sense, isn’t it interesting to note that “US money velocity is now at a six-decade low.”?! And that, accordingly, no matter how much money is injected into the economy, if it is not being spent, deflation is inevitable?!

Why is it not being spent? Because America, wherever you look, and at whatever level, the country is drowning in debt. And so is the rest of the planet. If a large enough part of your ‘gains’ goes toward paying of what you’ve already spent in the past, you’re just a hamster on a wheel. Well, hamsters rule the planet.

And, now that we’re talking about it, deflation is inevitable anyway in the aftermath of the by far biggest credit mountain in the history of not just mankind, but of the planet, if not the universe.

It may be hard to let sink in if you and/or your pension fund own large(-ish) portfolios of stocks and bonds, or if you make a living trading the stuff, but come on, how long do you think you can keep the charade going? or should that be: ‘could keep it going’?

To add insult to injury, Bloomberg tells us that margin dent is falling fast in ‘da markets’. Ergo: smarter money is paying its money down, before too much of it vanishes into the great beyond. Watch that graph and imagine it going all the way back down to 2012, and then think about where your ‘assets’ will be.

Margin Debt in Freefall Is Another Reason to Worry About S&P 500

Most people get concerned about margin debt when it’s shooting up. To Doug Ramsey, the problem now is that it’s falling too fast. The CIO of Leuthold Weeden whose pessimistic predictions came true in August’s selloff, says the tally of New York Stock Exchange brokerage loans flashed a bearish sign when it slid more than 6% in July and August. The retreat took margin debt below a seven-month moving average that suggests demand for stocks is dropping at a rate that should give investors pause. For years, bull market skeptics have warned that surging equity credit portended disaster for U.S. shares, pointing to a threefold runup between the market low in March 2009 and the middle of this year. Ramsey, who says that surge was never strong enough to form the basis of a bear case, is now worried about how fast it’s unwinding.

“Margin debt contracting is a sign of loss of investor confidence and it’s confirmation of a lot of other evidence we have that we’ve entered a cyclical bear market,” Ramsey said in a phone interview. “We got a lot of traditional warning signs leading up to the high in terms of market action, and deteriorating breadth and margin debt is important to the supply-demand analysis.” Margin debt, compiled monthly by the NYSE, represents credit extended by brokerages for clients to buy stock. It hews closely to benchmark indexes such as the S&P 500, primarily because equity is used to back the loans and as its value rises, so does the capacity to lend.

Of course, the entire global economy has been hanging together with strands of duct tape for decades now, but hey, it looks good as long as you don’t take a peek behind the facade, right? But you know, it all comes together in that money velocity graph earlier.

People have massively toned down their spending, some because they’ve grown wary of what’s going on, but most because they either have nothing left to spend or they are too deep in debt to have anything left after they pay their money down.

And there’s no cure for that. Not even a people’s QE will do it, no matter what shape it would come in. The entire world economy would need to restructure its various debt levels.

Problem with that is, A) we’ve already committed to bail out our banks at the cost of our entire societies, and B) we largely owe our debts to those same banks. So why should they let us off the hook now? They own us.

Meanwhile, even if you think that last bit is silly, how do you yourself think you can squeeze your behind out of the massive short squeeze that happened last week? By purchasing shares? Really?

Oct 102015
 
 October 10, 2015  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , ,  


DPC Masonic Temple, New Orleans 1910

Deutsche Bank: Tip of the Iceberg for Cutbacks at European Banks? (WSJ)
Banks Take Spotlight As Earnings Season Heats Up (Reuters)
Standard Chartered ‘To Cut 1,000 Senior Jobs’ (BBC)
Margin Debt in Freefall Is Another Reason to Worry About S&P 500 (Bloomberg)
China Is Becoming A Big Red Flag For US Stocks (MarketWatch)
Buried In The Fed Minutes Is Another Downgrade To The US Economy (MarketWatch)
BofA: Here’s The Precise Moment When We Should Have Known QE Went Wrong (BBG)
Greek Debt Has Become Highly Unsustainable: IMF (Reuters)
ECB Should Focus Asset-Backed Purchases on Periphery: Pimco (Bloomberg)
The Hidden Debt Burden of Emerging Markets (Carmen Reinhart)
US Hedge Fund Threatens Peru With Lawsuit Over Debt (BBC)
Brazil: In A Hole And Still Digging (Ogier)
War on Islamic State: A New Cold War Fiction (Nafeez Ahmed)
Gene Patents Probably Dead Worldwide Following Australian Court Decision (ArsT)
EU Gets Ready To Lock Up, Deport Migrants (CNBC)
Greek Islands See Surge In Refugee Arrivals (Kath.)
No Place Left To Die On Greece’s Lesbos For Refugees Lost At Sea (Reuters)

UniCredit, Credit Suisse, Standard Chartered and Deutsche Bank. Next!

Deutsche Bank: Tip of the Iceberg for Cutbacks at European Banks? (WSJ)

Deutsche Bank’s warning that it expects a €6.2 billion third-quarter loss highlights a potentially bumpy financial-reporting season looming for European banks, as a slate of new chief executives confront concerns over profitability. Credit Suisse, Standard Chartered and Deutsche Bank, all under new chief executives, are among banks facing muted growth in their home markets and coping with more stringent regulation and capital requirements. Those issues, coupled with factors including uncertainty over China’s growth, U.S. interest rates and the slide in global commodities prices, have combined to depress profits for European banks. Meanwhile, U.S. rivals, most of which restructured fairly quickly following the global financial crisis, are now in growth mode, winning business away from European rivals, who have been slower to adapt.

European banks need to rethink quickly or risk losing more ground, according to analysts. Restructuring “remains top of the agenda” for Europe’s banks, analysts at Morgan Stanley wrote in a note this week, predicting U.S. banks once again would put in a better revenue performance this year in fixed income and equities and continue beating European rivals next year across investment banking. Deutsche Bank late on Wednesday took a multi-billion-dollar charge against assets in its investment bank and retail- and private-banking operations for the third quarter. It said the charge would materially impact third-quarter results, which it reports on Oct. 29. New CEO John Cryan on that day will announce a new strategy, widely expected to ratchet up the bank’s earlier attempts to cut costs and shed unwanted assets.

Credit Suisse Chief Executive Tidjane Thiam, who joined the bank in July, is expected to outline sharp investment banking cuts, as part of an effort to meet global capital rules and new Swiss bank-specific requirements. The bank is also thought to be readying a substantial capital increase to be unveiled alongside Mr. Thiam’s grand plan. A poll of investors by Goldman Sachs analysts found 91% expected the bank to raise more than 5 billion Swiss francs ($5.16 billion) in fresh capital. On Thursday, in response to an article in the Financial Times that reported that Credit Suisse planned to raise an amount in line with that figure, the bank said: “we are conducting a thorough assessment of Credit Suisse’s strategy, evaluating all options for the group, its businesses and its capital usage and requirements.”

Read more …

US banks are dropping too.

Banks Take Spotlight As Earnings Season Heats Up (Reuters)

The financial sector, recently a weak performer in the stock market, will garner the majority of investor attention next week as a number of big banks post their quarterly results. Goldman Sachs, Bank of America, Wells Fargo, Citigroup and JPMorgan – the five biggest U.S. banks by market cap – are due to report results as the sector has trailed the market in recent weeks and earnings estimates have fallen. Financial companies are expected to show earnings growth of 8.4%, behind only telecoms and consumer discretionary companies in expected growth for the quarter. However, that growth is down from the 14.8% expected at the start of the quarter, and down by half from the 17.8% growth expected at the start of the year.

In the last 30 days, banks have seen their estimates steadily lowered, with Goldman the biggest victim. Its estimates for the quarter are down by 25% in that time period. While the broader market has recovered from losses sustained in the latter half of August, banks have struggled. The Fed’s decision not to raise rates, coupled with economic concerns and worries about trading revenues, have tethered shares of the big banks. The S&P 500 financials index has underperformed the broader market, and has slumped 5.6% this year so far, compared with a 2.2% decline in the S&P 500. In the last month, the S&P 500 has gained 2.2%, but the five biggest financial institutions are all flat or down.

Read more …

That’s 1000 senior staff who were no longer contributing any profits.

Standard Chartered ‘To Cut 1,000 Senior Jobs’ (BBC)

Standard Chartered bank, a London-based lender that makes most of its profit in Asia, could cut up to 1,000 senior jobs, according to an internal memo sent to staff. The move from chief executive Bill Winters is meant to cut costs. The bank has grown very quickly since the financial crisis and some roles are now not needed, sources told the BBC. Standard Chartered said it had disclosed before “that there would be further personnel changes to come”. “We have already acted to reduce management layers, and a result will have up to 25% fewer senior staff,” the bank said in a statement. Mr Winters told staff in the memo that about a quarter of senior managers, of director level or above, would be cut. There are about 4,000 bankers in the grades affected by the decision.

The bank employs about 88,000 people in total. It has grown rapidly, from about 44,000 in 2005. Mr Winters took over from former diplomat Peter Sands in June and said he would simplify Standard Chartered with a “new management team and simpler organisational structure”. The bank has already shed some businesses, in Hong Kong, China and Korea, booking a gain of $219m and improving its capital position. Standard Chartered hired Mark Smith from Asia-focused rival HSBC to join as new chief risk officer. Mr Winters also cut the dividend to help the bank strengthen its capital base – a safety net protecting it from unexpected financial knocks. He has also not ruled out raising more capital if needed.

Read more …

Freefall? That little drop is nothing. Wait till it falls back to, say, 2010 levels. Margin debt levels simply indicate to what extent markets are casino’s.

Margin Debt in Freefall Is Another Reason to Worry About S&P 500 (Bloomberg)

Most people get concerned about margin debt when it’s shooting up. To Doug Ramsey, the problem now is that it’s falling too fast. The CIO of Leuthold Weeden whose pessimistic predictions came true in August’s selloff, says the tally of New York Stock Exchange brokerage loans flashed a bearish sign when it slid more than 6% in July and August. The retreat took margin debt below a seven-month moving average that suggests demand for stocks is dropping at a rate that should give investors pause. For years, bull market skeptics have warned that surging equity credit portended disaster for U.S. shares, pointing to a threefold runup between the market low in March 2009 and the middle of this year. Ramsey, who says that surge was never strong enough to form the basis of a bear case, is now worried about how fast it’s unwinding.

“Margin debt contracting is a sign of loss of investor confidence and it’s confirmation of a lot of other evidence we have that we’ve entered a cyclical bear market,” Ramsey said in a phone interview. “We got a lot of traditional warning signs leading up to the high in terms of market action, and deteriorating breadth and margin debt is important to the supply-demand analysis.” Margin debt, compiled monthly by the NYSE, represents credit extended by brokerages for clients to buy stock. It hews closely to benchmark indexes such as the S&P 500, primarily because equity is used to back the loans and as its value rises, so does the capacity to lend. “There’s a natural progression of the two moving together,” Tim Ghriskey at Solaris Asset Management said. “We look at it as being predictive if it gets too extreme on either side.”

NYSE margin debt surged from $182 billion to $505 billion in the six years ended in June 2015, roughly tracing the trajectory of the S&P 500, which tripled over the period. The biggest gains came in 2013, with credit rising 35% as U.S. stocks climbed 30% for the best returns in 16 years. Since June, it’s been the other way around, with margin debt falling 6.3% to $473 billion at the NYSE’s last update, which covered August. The S&P 500 slid 4.4% at the end of that period as stocks entered a correction. To Ramsey, a decline as precipitous as that is more worrisome than the preceding run-up. “A lot of people intimated when we broke out to a new high in margin debt a couple years ago that it was out of control, but the%age change in margin debt from the low of 2009 was almost identical to the S&P’s,” Ramsey said. “Now that trend has rolled over.”

Read more …

Sudden plunges on over-optimistic models.

China Is Becoming A Big Red Flag For US Stocks (MarketWatch)

China is fast becoming a major source of worry for the stock market again, after commentary from a number of U.S. companies this week warned that demand from the second-largest economy may have dropped sharply over the past month. That doesn’t bode well for the third-quarter earnings reporting season, which was already expected to be the worst quarter for U.S. companies in six years. Worries about a slowdown in China aren’t new. The more than 40% tumble in the Shanghai Composite and the devaluation of the yuan over the summer helped fuel the selloff on Wall Street in late August, when the S&P 500 index entered correction territory for the first time in about three years.

But those worries had been soothed somewhat, after the Chinese market stabilized in September, and following upbeat comments from some U.S. companies about how business in the country had improved. Nike helped spark some of that optimism in late September, after the blue-chip athletic apparel and accessories giant reported a 30% jump in sales in Greater China in its fiscal first quarter, which ended Aug. 31. But dire outlooks on China from Alcoa, Yum Brands and Nu Skin Enterprises this week could wipe away that optimism, especially considering how sudden the companies’ outlooks soured.

Read more …

“Over the last year, productivity has increased by just 0.7%, far below the long-run average of 2.2%. Why it is falling remains a puzzle.”

Buried In The Fed Minutes Is Another Downgrade To The US Economy (MarketWatch)

A goal of a 4% economy? That objective, mentioned frequently in the 2016 presidential race, is getting farther away, according to the latest projections from the staff of the Federal Reserve. Minutes of the Fed’s Sept. 16-17 policy meeting disclose the Fed staff further trimmed its assumptions for the rates of productivity and potential growth over the medium term. The minutes did not specifically quantify the new forecast of the Fed’s in-house economists. The Fed staff’s view was already gloomy. A mistaken leak this summer by the U.S. central bank revealed, going into the Fed’s June policy committee meeting, the U.S. central bank’s staff penciled in potential growth averaging just 1.74% over 2015-2020, according to the document now on the Fed’s website. That’s down from an average growth rate of 3.1% over the past 50 years.

Ordinarily those forecasts would have been kept secret for five years. Fed officials – in other words, the people who get to vote on interest rates – think the economy can growth a little faster than the staff. They pencil in 2.0% for the economy’s long-run growth rate. Potential growth in the long run is a function of two things: population growth and productivity. Productivity is the secret sauce of the economy but it has dropped off sharply since the Great Recession. Over the last year, productivity has increased by just 0.7%, far below the long-run average of 2.2%. Why it is falling remains a puzzle. With trend growth so low, the economy is in a pickle. Even moderate gross domestic product in the range of 2.0-2.5% that the Fed expects can produce inflation. “It’s a bad place to be,” said Robert Brusca, chief economist at FAO Economics.

Read more …

It went wrong when it began.

BofA: Here’s The Precise Moment When We Should Have Known QE Went Wrong (BBG)

“There’s no such thing as a free lunch” is an oft-quoted maxim in economics, and it seems like a maxim that could easily be applied to the Federal Reserve’s bond-buying program known as quantitative easing. In a new note titled “The real cost of QE,” Bank of America’s FX strategist Athanasios Vamvakidis takes a critical look at the U.S. central bank’s particular brand of unconventional monetary policy, and its changing relationship with financial markets. He contends that “excessive reliance on unconventional monetary policy” is not without side effects, many of which are only now being felt in markets.

At some point during Fed QE, the markets started reacting positively to bad news. In our view, this is when things started going wrong. Bad news became good news for asset prices, as markets expected more QE by the Fed. Asset prices were increasingly deviating from fundamentals, as the markets were trading the Fed instead of the economic reality. This was clearly not sustainable.

Vamvakidis argues that the market’s violent reaction to the Fed’s announcement in the spring of 2013 that it planned to “taper” its bond purchases was one sign that QE had already gone wrong.

We should have known something is wrong. The Fed “taper tantrum” could have been the first signal that QE had gone too far. The second warning may have been the across-the-board emerging markets sell-off that started in mid-2014, as QE tapering was coming to an end and the market started pricing Fed tightening, a sell-off that intensified substantially this year.

All of this doesn’t mean Vamvakidis believes QE should have never happened, of course. He does recognize that the Fed policy helped the U.S. avert another Great Depression in the aftermath of the financial crisis, but he doesn’t believe that bond-buying should be the first choice for action whenever something goes south in the economy. He calls the first round of QE “a necessity,” but is more skeptical of the Fed’s subsequent programs known as QE2 and QE3. Moreover, he notes that despite the continued expansion of balance sheets at a number of central banks around the world, monetary policy conditions have tightened and liquidity has fallen, as shown in the below BofAML chart:

Read more …

EU refuses to do anything in next 30 years?!

Greek Debt Has Become Highly Unsustainable: IMF (Reuters)

Greece cannot deal with its public debt through reforms alone and needs a significant extension of grace periods and longer maturities from its European creditors, the head of the IMF’s European department said. The European Commission has forecast in May that Greek debt would reach more than 180% of its gross domestic product this year and euro zone governments, the main creditors of Greece, have promised to start debt relief talks later this year, once Athens implements agreed reforms. “We think that Greek debt… has become highly unsustainable,” Poul Thomsen told a news conference in Lima, on the sidelines of a meeting of the IMF. “We think that Greece cannot deal with its debt without debt relief. Greece cannot deal with debt just through reforms and adjustment,” he said.

Thomsen said that the discussion on how to provide debt relief to Greece has shifted from a nominal haircut on the stock of its debt to capping gross financing needs. The chairman of euro zone finance ministers told Reuters on Thursday that there was broad support for capping Greece’s financing needs at 15% of GDP annually. “What the exact targets should be, we will have to discuss, but there is no doubt in our mind that if Europe wants to go the route of providing relief by lengthening the grace period and lengthening the repayment period, we are looking at a significant lengthening of the grace period and significant lengthening of the repayment period,” Thomsen said.

Read more …

Too late now.

ECB Should Focus Asset-Backed Purchases on Periphery: Pimco (Bloomberg)

The ECB should refocus its asset-backed securities purchase program on the countries most in need of its help, according to Pacific Investment Management Co. The ECB is too cautious in its acquisitions and should concentrate on buying bonds from nations with higher debt and deficits such as Spain and Portugal, Pimco money managers Felix Blomenkamp and Rachit Jain wrote in a note to investors. It has mainly bought notes secured by high-quality collateral, including prime mortgages and auto loans, from safer countries such as Germany, France and the Netherlands, they said.

Pimco is expanding on a similar call it made earlier this week for the ECB to concentrate on buying peripheral government bonds. The ECB is acquiring debt including asset-backed securities, which bundle individual loans into bonds that can transfer risk to investors from banks, to encourage lenders to offer more credit and stimulate Europe’s economy. “The ECB’s low risk appetite in ABS has guided its purchases primarily to select sectors in core countries, which in our view never really needed help to begin with,” they said. “ABSPP should be refocused to more specific sectors, especially in peripheral economies, where loan margins remain high and credit availability is scarce.”

Read more …

What to watch for going forward in EM: Derivatives and credit events.

The Hidden Debt Burden of Emerging Markets (Carmen Reinhart)

[..] it was not until after the eruption of the 1994-1995 peso crisis that the world learned that Mexico’s private banks had taken on a significant amount of currency risk through off-balance-sheet borrowing (derivatives). Likewise, before the 1997 Asian financial crisis, the IMF and financial markets were unaware that Thailand’s central-bank reserves had been nearly depleted (the $33 billion total that was reported did not account for commitments in forward contracts, which left net reserves of only about $1 billion). And, until Greece’s crisis in 2010, the country’s fiscal deficits and debt burden were thought to be much smaller than they were, thanks to the use of financial derivatives and creative accounting by the Greek government.

So the great question today is where emerging-economy debts are hiding. And, unfortunately, there are severe obstacles to exposing them – beginning with the opaqueness of China’s financial transactions with other emerging economies over the past decade. During its domestic infrastructure boom, China financed major projects – often connected to mining, energy, and infrastructure – in other emerging economies. Given that the lending was denominated primarily in US dollars, it is subject to currency risk, adding another dimension of vulnerability to emerging-economy balance sheets. But the extent of that lending is largely unknown, because much of it came from development banks in China that are not included in the data collected by the Bank for International Settlements (the primary global source for such information).

And, because the loans were rarely issued as securities in international capital markets, it is not included in, say, World Bank databases, either. Even where data exist, the figures must be interpreted with care. For example, data collected on a project-by-project basis by the Global Economic Governance Initiative and the Inter-American Dialog could provide some insight into Chinese lending to several Latin American economies. For example, it seems that, from 2009 to 2014, total Chinese lending to Venezuela amounted to 18% of the country’s annual GDP, and Ecuador received Chinese loans exceeding 10% of its GDP.

Read more …

The blessings of modern-day trade deals. The debt is 30 years old…

US Hedge Fund Threatens Peru With Lawsuit Over Debt (BBC)

A US hedge fund has threatened to sue Peru over bonds issued by the country’s former military regime. Hedge fund Gramercy purchased the defaulted debt at a discount in 2008 after other bondholders failed to reach a deal. Peru’s finance minister said the government would oppose any legal action outside its borders. Purchasing defaulted bonds on the cheap to make a profit in a settlement is a common hedge fund tactic. The country defaulted on the $5.1bn in bonds in the 1980s. Gramercy has threatened to bring a claim against Peru under a tribunal system established in a US-Peruvian trade deal. This type of action has been called “predatory” by groups in favour of sovereign debt relief plans. Argentina has been engaged in a prolonged court battle with hedge funds over bonds it defaulted on in 2005. This week Peru has played host to meetings of the World Bank and IMF. Among the topics discussed was how to help country’s restructure debt after a default to avoid drawn-out court battles.

Read more …

Brazil’s hole will get much deeper. How on earth can they stage a World Cup in 2018?

Brazil: In A Hole And Still Digging (Ogier)

Brazil has long been hailed as the country of the future. But the decision last month by Standard & Poor’s to strip Latin America’s largest economy of its coveted investment grade status provided confirmation — if any were needed — of its fall from grace. “Brazil is going through its worst period,” says Nicola Tingas, chief economist at Acrefi, a credit association for non-banking institutions. “There is structural disorder, which goes beyond the mere economic cycle. It destroys capital. Confidence has been destroyed. The economy has been weakened.” For a long time, the resilience of the Brazilian economy had confused the most pessimistic economists and offered bright opportunities for high yield investors. Dilma Rousseff herself challenged such “pessimists” during the latest presidential campaign.

But a year after she won a second presidential term, Brazil is in a terrible mess. Debt financing costs have soared and Brazil’s CDS spreads became greater than Russia’s that month when they neared 400 points. “The fiscal deterioration is now faster than our baseline scenario and the political risks remain challenging,” said Shelly Shetty, head of Latin American sovereigns at Fitch Ratings, during Fitch’s global sovereigns conference in New York in September. Joaquim Levy, the embattled finance minister, has publicly admitted the scale of the problem. “Obviously, the house is not in order,” he said in Congress after the government presented a budget blueprint that included a R$30bn ($7.6bn) deficit in early September. This marked the beginning of the end of the fiscal credibility of the government, according to most observers.

“People were aware of the risk of a downgrade,” says Monica de Bolle, a researcher at the Peterson Institute in Washington “Under these circumstances, nobody could have sent a budget that includes a deficit just under the nose of the credit rating agencies. And even after the downgrade, the [Brazilian] government has kept adopting a form of ostrich policy.” Recession has now settled in. The official forecast is one of a severe GDP contraction of 2.44%. Figures were revised last month from 1.5%. Marcelo Carvalho, the BNP Paribas Latin America chief economist, has forecast a further 2% decline next year. “A recession that lasts for two consecutive years is a very rare occurrence in Brazil. We have data that span a hundred years and this only happened once before in the early 1930s, just after the Great Depression. So we now have a scenario that is similar, despite the fact the world economy is not as ugly as it was after the 1929 crisis,” he says.

Read more …

The flipside of the western narrative.

War on Islamic State: A New Cold War Fiction (Nafeez Ahmed)

Russia is bombing “terrorists” in Syria, and the US is understandably peeved. A day after the bombing began, Obama’s Defence Secretary Ashton Carter complained that most Russian strikes “were in areas where there were probably not ISIL (IS) forces”. Anonymously, US officials accused Russia of deliberately targeting CIA-sponsored “moderate” rebels to shore-up the regime of Bashir al-Assad. Only two of Russia’s 57 airstrikes have hit ISIS, opined Turkish Prime Minister Ahmet Davutoglu in similar fashion. The rest have hit “the moderate opposition, the only forces fighting ISIS in Syria,” he said. Such claims have been dutifully parroted across the Western press with little scrutiny, bar the odd US media watchdog. But who are these moderate rebels, really?

The first Russian airstrikes hit the rebel-held town of Talbisah north of Homs City, home to al-Qaeda’s official Syrian arm, Jabhat al-Nusra, and the pro-al-Qaeda Ahrar al-Sham, among other local rebel groups. Both al-Nusra and the Islamic State have claimed responsibility for vehicle-borne IEDs (VBIEDs) in Homs City, which is 12 kilometers south of Talbisah. The Institute for the Study of War (ISW) reports that as part of “US and Turkish efforts to establish an ISIS ‘free zone’ in the northern Aleppo countryside,” al-Nusra “withdrew from the border and reportedly reinforced positions in this rebel-held pocket north of Homs city”.

In other words, the US and Turkey are actively sponsoring “moderate” Syrian rebels in the form of al-Qaeda, which Washington DC-based risk analysis firm Valen Globals forecasts will be “a bigger threat to global security” than IS in coming years. Last October, Vice President Joe Biden conceded that there is “no moderate middle” among the Syrian opposition. Turkey and the Gulf powers armed and funded “anyone who would fight against Assad,” including “al-Nusra,” “al-Qaeda in Iraq (AQI),” and the “extremist elements of jihadis who were coming from other parts of the world”. This external funding enabled Islamist factions to systematically displace secular Free Syria Army (FSA) leaders, culminating in the rise of IS. In other words, the CIA-backed rebels targeted by Russia are not moderates.

They represent the same melting pot of al-Qaeda affiliated networks that spawned the Islamic State in the first place. And they rose to power in Syria not in spite, but because of the US rubber-stamping the jihadist funnel through the so-called “vetting” process. This summer, for instance, al-Qaeda led rebels received accelerated weapons shipments in a US-backed operation to retake Idlib province from Assad. Notice here that the US priority was to rollback Assad’s forces from Idlib – not fight IS. Yet the brave Western press, so outspoken on Russian duplicity, somehow overlooked how this anti-ISIS coalition operation failed to target a single IS fighter.

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At least and at last one bit of good news.

Gene Patents Probably Dead Worldwide Following Australian Court Decision (ArsT)

Australia’s highest court has ruled unanimously that a version of a gene that is linked to an increased risk for breast cancer cannot be patented. The case was brought by 69-year-old pensioner from Queensland, Yvonne D’Arcy, who had taken the US company Myriad Genetics to court over its patent for mutations in the BRCA1 gene that increase the probability of breast and ovarian cancer developing, as The Sydney Morning Herald reports. Although she lost twice in the lower courts, the High Court of Australia allowed her appeal, ruling that a gene was not a “patentable invention.” The court based its reasoning on the fact that, although an isolated gene such as BRCA1 was “a product of human action, it was the existence of the information stored in the relevant sequences that was an essential element of the invention as claimed.”

Since the information stored in the DNA as a sequence of nucleotides was a product of nature, it did not require human action to bring it into existence, and therefore could not be patented. Although that seems a sensible ruling, the pharmaceutical and biotechnology industry has been fighting against this self-evident logic for years. The view that genes could be patented suffered a major defeat in 2013, when the US Supreme Court struck down Myriad Genetics’ patents on the genes BRCA1 and the similar BRCA2. The industry was hoping that a win in Australia could keep alive the idea that genes could be owned by a company in the form of a patent monopoly. The victory by D’Arcy now makes it highly likely that other judges around the world will take the view that genes cannot be patented.

This is a result that will have major practical consequences, and is likely to save thousands of lives. In the past, holders of gene patents were able to stop other companies from offering tests based on them, for example to detect the presence of the BRCA1 and BRCA2 genes that were linked with a greater risk of breast and ovarian cancers. This patent monopoly allowed companies like Myriad to charge $3,000 (£2,000) or more for their own tests, potentially placing them out of the reach of those unable to afford this cost, some of whom might then go on to develop cancer because they were not aware of their higher susceptibility, and thus unable to take action to minimise their risks.

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The shameless EUs reponse to tragedy: lock ’em up.

EU Gets Ready To Lock Up, Deport Migrants (CNBC)

European authorities have relocated its first group of migrants that have flocked to Europe as part of a bloc-wide plan to share the weight of the growing refugee crisis. However, those who fail to gain asylum may not be so lucky. A group of Eritrean refugees prepare to board a plane to travel to Sweden as part of a new programme of the European Union to relocate refugees at the Ciampino airport of Rome. Italy Friday sent 19 Eritrean men and women to Sweden as part of the first batch of migrants taking part in the relocation program. This, albeit small, start is part of the commitment made by EU member countries last month to relocate 160,000 asylum seekers throughout Europe over the next two years.

The agreement was reached in order to help alleviate pressure on countries like Italy and Greece, where over 470,000 migrants have landed since January alone, according to EU border agency Frontex. At the same time, however, Italy was deporting 28 Tunisians and 35 Egyptians back home. A press release by justice and interior ministers from across the EU Thursday revealed plans to ramp up deportations and prepare dedicated detention centers that would lock up migrants as a “last resort.” “When we talk about refugees, we need to also talk of those who are not refugees,” Dimitris Avramopoulos, European Commissioner for Migration, Home Affairs and Citizenship, said in a statement. “We need to be better and more effective, not just at helping people and offering refuge, but also at returning those who have no right to stay.”

“All of these actions have to go together,” he said. An expanded return program would see more migrants who fail to gain asylum status deported to their home countries. Ministers believe the move will deter migrants who lack legitimate asylum claims from making the journey to Europe, the statement explains. The €3.1 billion Asylum, Migration and Integration Fund will help finance the return program, along with the €800 million set aside for deportations by member states for the six years between 2014 and 2020. But EU countries should also be prepared to lock up migrants temporarily until they can safely return home , the statement adds.. “All measures must be taken to ensure irregular migrants’ effective return, including use of detention as a legitimate measure of last resort,” the press release stated.

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“All of a sudden, with the kind of weather that you have in the Balkans, this can be a tragedy at any moment..” Not can be, is, and has been for a long time.

Greek Islands See Surge In Refugee Arrivals (Kath.)

The number of refugees arriving on Greek islands has risen from 4,500 a day in late September to 7,000 over the past week, the International Organization for Migration (IOM) said Friday, as a toddler was found dead off the coast of Lesvos in the eastern Aegean. Speaking ahead of a visit to Lesvos Saturday and a meeting with Prime Minister Alexis Tsirpas in Athens later in the week, UN High Commissioner for Refugees Antonio Guterres said asylum seekers appeared to be making a move before weather conditions deteriorate. “All of a sudden, with the kind of weather that you have in the Balkans, this can be a tragedy at any moment,” Guterres said. The IOM data came as a baby died after the motor of the rubber dinghy carrying him and another 56 people broke down off Levsos, the coast guard said Friday.

The 1-year-old boy, whose nationality was not reported, was found unconscious and taken to a hospital, where he was pronounced dead. Also Friday, sources said that a police officer who was photographed kicking a refugee in a temporary reception center on Lesvos had been identified. He is expected to be summoned to explain himself following an urgent investigation into the incident. Meanwhile, the UN refugee agency (UNHCR) welcomed the departure Friday of a first group of asylum seekers from Italy to Sweden under the EU’s relocation scheme and expressed hope that the Greek program will start soon. “We think it will be a slow start but will accelerate once the process functions,” UNHCR spokesperson Melissa Fleming said.

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Running out of nameless graves.

No Place Left To Die On Greece’s Lesbos For Refugees Lost At Sea (Reuters)

He stood on the mud, crows cawing overhead, pointing at unmarked graves. “Here’s a mother with her baby. And here’s another young woman. Over there, that’s a 60-year-old man.” Buried beneath low mounds of earth, facing Mecca, lay Afghan, Iraqi and Syrian refugees who drowned this summer in the Aegean Sea trying to reach Europe in flimsy inflatable boats. Scanning the area, Christos Mavrakidis, a somber, hardened man who looks after one of the main cemeteries on Greece’s Lesbos island, listed the years of other deaths: “2013, 2014, 2015.” Now there is no room left in the narrow plot of land in the pauper’s section of St. Panteleimon cemetery, close to where the colonnaded tombs of wealthy Greeks are built in the classical Greek style, and flowers adorn lavish marble graves.

“Something must be done,” he said. “They are a lot. They are too many.” No one can say where the next bodies will be buried. Nearly half a million people, mostly Syrians, Afghans and Iraqis fleeing war and persecution, have made the dangerous journey to Europe this year. Almost 3,000 have died, the U.N. refugee agency estimates. Just 4.4 km off the Turkish coast, Lesbos, Greece’s third-biggest island and popular with tourists, is one of the preferred entry points for migrants into the EU. Arrivals surged in late summer to sometimes thousands a day as people rushed to beat autumn storms that make the Aegean Sea even more treacherous. The number of burials at St. Panteleimon has also risen. More than three dozen migrants are buried in a tiny, dusty plot on a hill overlooking the island. Four were buried there last week alone.

Some of the makeshift, earthen graves bear a small marble plaque with a name in paint or marker: “Saad 4-9-2015.” Others state simply: “Unknown 25-8-2015”; “Unknown 28-8-2015”; “No 14 5-1-2013”. The most recent graves lack any marking. Mavrakidis placed his hand over his mouth and nose, the air filled with what he called “the stench of death” rising from the open grave of a young Iraqi man whose body was exhumed that morning after his family managed to trace him through DNA. Many more dead have never been found. Locals say fishermen sometimes dump bodies back into the sea, like fish they are not permitted to catch, to avoid having to hand them over to the authorities and face questioning and bureaucracy.

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Jul 022015
 
 July 2, 2015  Posted by at 9:49 am Finance Tagged with: , , , , , , , ,  


William Henry Jackson New Orleans, “Canal Street from the Clay monument” 1890

Varoufakis Says He Won’t Be Finance Minister After a ‘Yes’ Vote
Why We Recommend A NO In The Referendum – In 6 Short Bullet Points (Varoufakis)
Juncker, Draghi and Lagarde Should Hang Their Heads In Shame (Davis)
Syriza Can’t Just Cave In. Europe’s Elites Want Regime Change In Greece (Milne)
“US Should Have Stopped IMF From Sending Redlined Document To Greece” (HuffPo)
US Sen. Bernie Sanders Blasts Greece’s Creditors (HuffPo)
Europe Wants to Punish Greece With Exit (Crook)
Democracy And Monetary Union: How Not To Do It (Janssen)
Europe Has Suffered A Reputational Catastrophe In Greece (AEP)
Tsipras Refuses To Bow To Threats To Greek Banking System (Telegraph)
In Greek Crisis, Germany Should Learn From Its Fiscal Past (WaPo, Jan 28)
In Athens, Scavenging From Bins Has Become A Way To Survive (Telegraph)
The Hard Line on Greece (Sorkin)
Fear-Mongering Is The Enemy Of Democracy (Suzanne Moore)
How Varoufakis Saw The “Worst Case Scenario” Over A Year Ago (Zero Hedge)
Berlin Accuses Tsipras Of Seeking Scapegoats Outside Own Ranks (Guardian)
Greek Tourism Bookings Are Nosediving (Kathimerini)
China Eases Margin Lending Rules to Support Flagging Stock Market (FT)
China’s Fix for a Margin-Debt Boom Roiling Stocks? More Leverage (Bloomberg)
Normal Banks Are Helping Shadow Banks Grow, a Lot (Bloomberg)
Reaganomics Won’t Save Japan (Pesek)
Belgium Adopts Law Against ‘Vulture Funds’ (AFP)
China’s May Thermal Coal Imports Collapse 41% On-Year (HSN)

How and why could this surprise people? Of course he steps down. Fantastic interview on Bloomberg. Said he’d cut his arm off before signing a deal without debt restructuring.

Varoufakis Says He Won’t Be Finance Minister After a ‘Yes’ Vote

Greek Finance Minister Yanis Varoufakis said he would resign if Greece votes to accept European Union bailout proposals. In the event of a “yes” vote in Sunday’s referendum, “I will not” be finance minister on Monday evening, Varoufakis said in an interview in Athens with Bloomberg Television. “But I will help whoever is.” Varoufakis said that he expects Greeks to reject the bailout proposals.

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Straightforward. No use getting scared now.

Why We Recommend A NO In The Referendum – In 6 Short Bullet Points (Varoufakis)

1) Negotiations have stalled because Greece’s creditors (a) refused to reduce our un-payable public debt and (b) insisted that it should be repaid ‘parametrically’ by the weakest members of our society, their children and their grandchildren

2) The IMF, the United States’ government, many other governments around the globe, and most independent economists believe — along with us — that the debt must be restructured.

3) The Eurogroup had previously (November 2012) conceded that the debt ought to be restructured but is refusing to commit to a debt restructure

4) Since the announcement of the referendum, official Europe has sent signals that they are ready to discuss debt restructuring. These signals show that official Europe too would vote NO on its own ‘final’ offer.

5) Greece will stay in the euro. Deposits in Greece’s banks are safe. Creditors have chosen the strategy of blackmail based on bank closures. The current impasse is due to this choice by the creditors and not by the Greek government discontinuing the negotiations or any Greek thoughts of Grexit and devaluation. Greece’s place in the Eurozone and in the European Union is non-negotiable.

6) The future demands a proud Greece within the Eurozone and at the heart of Europe. This future demands that Greeks say a big NO on Sunday, that we stay in the Euro Area, and that, with the power vested upon us by that NO, we renegotiate Greece’s public debt as well as the distribution of burdens between the haves and the have nots.

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And this is from the Conservative side in the US..

Juncker, Draghi and Lagarde Should Hang Their Heads In Shame (Davis)

The Euro-clique that is the Troika should be ashamed of itself. This organisation, comprising the European Commission, the ECB, and the IMF run by yet another member of the cold-hearted Euro-elite, Christine Lagarde, is inflicting on the Greek people a policy that is little short of barbarism. They have only themselves to blame if the Greeks reject their latest demands in the upcoming referendum. Not only is unemployment running at 25%, and at nearly 60% amongst the under 25s, but the Greek lower middle class, the traders that make any economy run, has been decimated. Suicide is up 45%. 30% of the Greek people are living in poverty. Nearly one in five of the population does not have enough to eat, with food purchases having fallen by 28.5%.

Pensioners, now the bread-winners in many households (pensions are now the main – and often only – source of income for almost half of Greek families), have seen a 61% fall in their pension payments. Greek pensions were, pre-crisis, extremely generous, sometimes ridiculously so. In some sectors pensions could be more than 100% of final salaries, with some public sector workers taking retirement in their early 50’. Coupled with an aging population – 20% of Greeks are over age 65, one of the highest%ages in the Eurozone – this was a major factor in Greece’s problems. But Greek pensions are no longer so generous. On top of the cut to monthly payments, the standard retirement age for men is being lifted to 67, one of the highest in Europe.

Almost half of pensioners live on less than the poverty line of €665 per month. Food poverty is worsening people’s health. The stillbirth rate is up by 21% and infant mortality rose by 40% between 2008 and 2011. TB rates have doubled. HIV infection is up. Malaria has re-emerged after nearly half a century. Health care is funded by insurance, so when people lose their jobs they lose their health care. Along with cuts in state funding and the subsequent hospital closures, the economy of the health service is being destroyed. Thousands of doctors have left the country. Those that remain work for about €12,000 a year. Some clinics now depend upon volunteers and doctors who work for nothing.

This destruction is repeated throughout Greece’s public sector. There is little doubt that it needed reform. It was rotten, with overpaid jobs and excessive pensions allocated by rousfeti (political patronage) and the distribution of its services often lubricated by fakelaki (bribes). But what was needed was modernising rationalisation, not the fit of devastation that has left much of Greece dependent on soup kitchens and charity clinics.

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“This is, after all, a system where unelected institutions and other states have the power to override elected governments..”

Syriza Can’t Just Cave In. Europe’s Elites Want Regime Change In Greece (Milne)

It’s now clear that Germany and Europe’s powers that be don’t just want the Greek government to bend the knee. They want regime change. Not by military force, of course – this operation is being directed from Berlin and Brussels, rather than Washington. But that the German chancellor Angela Merkel and the troika of Greece’s European and IMF creditors are out to remove the elected government in Athens now seems beyond serious doubt. Everything they have done in recent weeks in relation to the leftist Syriza administraton, elected to turn the tide of austerity, appears designed to divide or discredit Alexis Tsipras’s government. They were at it again today, when Tsipras offered what looked like almost complete acceptance of the austerity package he had called a referendum on this Sunday.

There could be no talks, Merkel responded, until the ballot had taken place. There’s no suggestion of genuine compromise. The aim is apparently to humiliate Tsipras and his government in preparation for its early replacement with a more pliable administration. We know from the IMF documents prepared for last week’s “final proposals” and reported in the Guardian that the creditors were fully aware they meant unsustainable levels of debt and self-defeating austerity for Greece until at least 2030, even on the most fancifully optimistic scenario. That’s because, just as the earlier bailouts went to the banks not the country, and troika-imposed austerity has brought penury and a debt explosion, these demands are really about power, not money.

If they are successful in forcing Tsipras out of office, a slightly less destructive package could then be offered to a more house-trained Greek leader who replaced him. Hence the ECB’s decision to switch off emergency funding of Greece’s banks after Tsipras called the referendum on an austerity scheme he had described as blackmail. That was what triggered the bank closures and capital controls, which have taken Greece’s crisis to a new level this week as it became the first developed country to default on an IMF loan. The EU authorities have a deep aversion to referendums, and countries are routinely persuaded to hold them again if they give the wrong answer. The vote planned in Greece is no exception. A barrage of threats and scaremongering was unleashed as soon as it was called.[..]

This is, after all, a system where unelected institutions and other states have the power to override elected governments – in fact to impose not only policies but effectively governments too, as we may be about to see in Greece. Anti-democratic firewalls are built into Europe’s institutions.

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Great angle. Nobody talks about Obama’s silence.

“US Should Have Stopped IMF From Sending Redlined Document To Greece” (HuffPo)

The United States should have intervened a week ago when the latest talks between Greece and its creditors began to fall apart, a former senior IMF official told The Huffington Post on Tuesday. Appeals for compromise over the Greek debt crisis come too late now, economist Peter Doyle said. [..] To really help the situation, Doyle, the former IMF senior manager, said the U.S. needed to step into the negotiations between Greece and its creditors at a crucial moment a week ago. As the largest single contributor to the IMF, the U.S. has the greatest say over its policies. Specifically, Doyle argues that the U.S. should have stopped the creditors from sending back Greece’s latest proposal covered with redlined changes on June 24 and then leaking it to the media.

The way the counterproposal was made was widely seen as humiliating to Greece. Moreover, it did not offer any new concessions on debt relief, pension reforms or increases in the value-added tax. Greece reacted furiously to the counterproposal, beginning a downward turn that culminated Saturday in Greece’s withdrawal from the talks and announcement of the referendum. “I was truly amazed that the U.S. allowed the IMF to send back to Greece that redlined document,” Doyle said. “It must have slipped through the cracks in the White House,” he added. “That redlined document was completely humiliating, and it says nothing about debt relief.”

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If Obama won’t speak, someone else will have to do it.

Bernie Sanders Blasts Greece’s Creditors (HuffPo)

Sen. Bernie Sanders (I-Vt.) attacked the IMF and European authorities on Wednesday for imposing what he called excessive austerity measures on Greece in negotiations over the country’s debt payments. “It is unacceptable that the IMF and European policymakers have refused to work with the Greek government on a sensible plan to improve its economy and pay back its debt,” Sanders said in an exclusive statement to The Huffington Post. “At a time of grotesque wealth inequality, the pensions of the people in Greece should not be cut even further to pay back some of the largest banks and wealthiest financiers in the world.”

Sanders, a 2016 Democratic presidential candidate and veteran progressive lawmaker, called the loans-for-austerity policies that the IMF and eurozone nations have imposed on Greece an “abysmal failure,” and demanded that the United States and other world powers grant Greece new debt-repayment terms that would allow its economy to recover from the damage it has sustained since 2008. “Instead of trying to force the Greek government and its people into even more economic pain and suffering, international leaders throughout the world, including the United States, should enable Greece to enact pro-growth policies that improve the lives of all of its people, not just the wealthy few,” Sanders said.

Sanders appeared to single out the IMF, the creditor over which the United States has the most direct influence. The U.S. controls more votes in IMF decisions than any other nation. “If Greece’s economy is going to succeed, these austerity policies must end,” Sanders said. “The IMF must give the Greek government the flexibility and time that it needs to grow its economy in a fair way.”[..]

It’s not clear what impact, if any, Sanders’ statement will have on the Greek crisis, since the United States – notwithstanding its controlling votes at the IMF – has remained largely on the sidelines during the current impasse. Treasury Secretary Jack Lew has been in close consultation with his eurozone and Greek counterparts throughout negotiations, but he’s refrained from specific prescriptions, instead making broad appeals for both sides to compromise. Peter Doyle, a former senior manager at the IMF, criticized the approach in an interview with HuffPost on Wednesday, arguing that the Obama administration should have vetoed a redlined document the creditors presented to Greece on June 26 that was viewed as especially humiliating.

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There’s more to this.

Europe Wants to Punish Greece With Exit (Crook)

In my more than 30 years writing about politics and economics, I have never before witnessed such an episode of sustained, self-righteous, ruinous and dissembling incompetence –and I’m not talking about Alexis Tsipras and Syriza. As the damage mounts, the effort to rewrite the history of the European Union’s abject failure over Greece is already underway. Pending a fuller postmortem, a little clarity on the immediate issues is in order. On Monday, European Commission President Jean-Claude Juncker said at a news conference that he’d been betrayed by the Greek government. The creditor institutions, he said, had shown flexibility and sought compromise. Their most recent offer involved no wage cuts, he emphasized, and no pension cuts; it was a package that created “more social fairness.”

Tsipras had misled Greeks about what the creditors were asking. The talks were getting somewhere. Agreement on this package could have been reached “easily” if Tsipras hadn’t collapsed the process early Saturday by calling a referendum. What an outrageous passel of distortion. Since these talks began five months ago, both sides have budged, but Tsipras has given vastly more ground than the creditors. In particular, he was ready to accede to more fiscal austerity — a huge climbdown on his part. True, the last offer requires a slightly milder profile of primary budget surpluses than the creditors initially demanded; nonetheless, it still calls for severely (and irrationally) tight fiscal policy. In contrast, the creditors have refused to climb down on the question of including debt relief in the current talks, absurdly insisting that this is an issue for later.

On Tuesday, Tsipras made his most desperate attempt yet to bring the issue forward. Far from expressing any desire to compromise, dominant voices among the creditors – notably German Finance Minister Wolfgang Schaeuble, who often seemed to be calling the shots – have maintained throughout that there is nothing to discuss. The program already in place had to be completed, and that was that. Yes, the program had failed. No, it wouldn’t achieve debt sustainability. Absolutely, it was pointlessly grinding down Greek living standards even further. What did that have to do with it? Juncker says the last offer made no demand for wage cuts. Really? The offer says the “wage grid” should be modernized, including “decompressing the [public sector] wage distribution.”

On the face of it, decompressing involves cuts. If the creditors were calling for public-sector wages to be decompressed upward perhaps they should have made this clear. Regardless, the increases in value-added taxes demanded by the creditors mean lower real wages, public and private alike. As for no pension cuts, the creditors called for phasing out new early-retirement penalties and the so-called social solidarity payment for the poorest pensioners. Those are cuts. The creditors called for a lot else, too. Remember that the Greek economy is on its knees. Living standards have collapsed and the unemployment rate is 25%. Now read the offer document, and see if you think the advance in “social fairness” that Juncker stressed at his news conference shines through.

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“..democracies are already well under way to be made “market conforming..”

Democracy And Monetary Union: How Not To Do It (Janssen)

There is not a shadow of a doubt that EMU is incomplete. The key problem is that sovereign debt of individual euro area member states is no longer backed by a central bank of their own. Indeed, when adopting the single currency, member states not only become members of EMU, they are also divorcing in some way from their national central bank. The Banca d’ Espana (just to name one) continues to exist but with its competence on monetary policy transferred to Frankfurt, the government in Madrid can no longer call upon the assistance of a money-creating institution in case of emergency. This peculiar combination of one supranational central bank together with 19 different sovereign debt stocks has made euro area member states extremely vulnerable in the event of a run on the bond market for their sovereign debt.

No longer able to resort to their own national central bank as a lender of last resort, governments inside EMU have no other choice but to adopt brutal austerity – or else default – in dealing with any liquidity crisis. In a sense, Eurozone member states can be compared to emerging economies that are issuing debt in a (foreign) currency they have no control over and get into serious trouble when market momentum changes and access to finance is completely cut off. Until 2010, this gap in the construction of monetary union in Europe went completely unnoticed. However, when the crisis in Greek public finances erupted back in 2009 and with central bankers openly declaring their increasing unwillingness to accept Greek debt as collateral, the fault-line in monetary union became painfully clear.

Financial markets reacted in a predictable way, by panicking and staging a self-fulfilling prophecy. Realising that, in the absence of the ECB backing up Spanish, Italian, French, or Belgium sovereign debt, a run on these bonds could trigger default, markets started running for the exit by massively dumping them. The rest of the story is well-known. Euro Area Member states, trying to calm down markets, embarked on the experiment of highly pro-cyclical austerity and topped this up with wage devaluation. Their hopes soon turned out to be vain as austerity and internal devaluation triggered a double dip recession, thus even stoking markets’ worst fears of default and/or the break-up of monetary union.

This vicious circle was only broken some years later (2012) when the ECB’s president, Mario Draghi, finally addressed market concerns about the absence of a lender of last resort by orally promising to do “anything it takes” to save the single currency. Europe has paid a high price for this. The price does not simply come in the form of economic stagnation, record high unemployment and rising inequalities. An even more worrying issue is that the principle of democracy is being hollowed out. Elected governments have repeatedly found themselves confronted with little choice but to abide by what the markets seem to be demanding or, alternatively, to obey the detailed “diktats” prescribed by the ECB in – not so – secret letters. [..]

A couple of years ago, at the height of the euro crisis, Chancellor Angela Merkel publicly stated that democracies in Europe needed to “conform to the markets”. With monetary policy in the hands of a supranational central bank, with fiscal policy enchained by the Stability Pact and the Fiscal Compact with its Fiscal Councils, democracies are already well under way to be made “market conforming” under the tutelage of these gatherings of independent professionals. The next step seems to be to also bring wages and wage bargaining under the discipline of experts’ councils and to do this on the basis of rules forcing workers across the Euro Area to compete with each other in poaching each other’s jobs. It is not a prospect that augurs well for a democratic Europe.

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“If you were of a suspicious mind, you might wonder whether Mr Tsipras has not in fact lured European leaders and officials into a legal trap..”

Europe Has Suffered A Reputational Catastrophe In Greece (AEP)

Oxi Day has totemic significance in Greece. It commemorates the defiant Greek “No” to Mussolini’s ultimatum in October 1940, and the heroic acceptance of war against a vastly bigger military machine. It is the same word that will top the ballot sheet when Greeks vote in a snap referendum this Sunday on creditor demands, and prime minister Alexis Tsipras is not shy in evoking the same spirit of wartime resistance. His speech to the nation on Wednesday night was peppered with talk of ultimata. He accused “extreme Right-wing circles” of forcing the closure of the Greek banks and the imposition of capital controls through liquidity asphyxiation. He lashed out at “authoritarians” in charge of the IMF and EU institutions. He spoke of attempts to blackmail the Greek people.

And he vowed to campaign against the creditor package – which, strictly speaking, is no longer on offer – deeming it the “destruction of Europe”. Where this will take him, and take Greece, is anybody’s guess. The latest Efimerida ton Syntakton poll shows the “No” side leading by 54pc against 33pc for “yes”. But that lead – if it really exists – may evaporate as the ghastly consequences of financial collapse become clearer by the day. Distraught pensioners have been gathering in small, tense crowds outside banks trying to withdraw their weekly allowance of €120 (£85). Many have not been paid. A throng of veterans protested outside the finance ministry on Wednesday morning, denouncing EU “dictatorship” and Mr Tsipras with equal fury.

Ambulances in parts of northern Greece have run out of fuel. The Greek Chamber of Commerce warns of “serious shortages” of basic goods and pharmaceutical supplies within days. The radical-Left Syriza government is skating on very thin ice. If Europe’s creditor powers have succeeded in bringing Greece to its knees, they have paid a fearful price themselves. As Pyrrhus said after the battle of Asculum: “Another such victory, and we will be utterly ruined.” We can already see that the EU itself has suffered a reputational catastrophe on several fronts. This is of far greater importance in the sweep of events than daily twists and turns in Athens. It has brought about a state of affairs where a member of its own eurozone family has become the first developed country in history to default to the IMF.

Let us be clear what this means. The currency union itself is delinquent. The rich countries of northern Europe are refusing to pay African, Asian and Latin American states. Blaming it on Greece alone does not wash. The eurozone has shown itself unable to manage its basic moral responsibilities. Russian president Vladimir Putin could hardly resist his own wicked dig, professing “great concern” over the EU’s vanishing credibility. This default is doubly shameful given that the original IMF-Troika loan in 2010 was not intended to save Greece. The extra debt was imposed on an already bankrupt Greek state to buy time for the euro, against Greek interests.

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And all the other stuff yesterday was just gossip.

Tsipras Refuses To Bow To Threats To Greek Banking System (Telegraph)

Greece’s embattled prime minister has refused to back down over a referendum on the country’s bail-out future, despite being threatened with imminent financial ruin and a banking collapse as early as Monday if he chooses to press ahead with the vote. In his third address on national television in the past five days, a defiant Alexis Tsipras vowed to let the Greek people have their say on the austerity terms they will need to sign up to in order to retain their 14-year membership of the single currency. Mr Tsipras is backing a “No” vote, a move that has drawn opprobrium from across the continent and been described as “dumb” by a senior ally of Germany’s Angela Merkel. “Come Monday, the Greek government will be at the negotiating table after the referendum, with better terms for the Greek people,” said Mr Tsipras.

Wednesday was the first day in five years that Greece has not been subject to a bail-out programme, freezing the bankrupt country out of €15bn in rescue funds. The government has been forced to impose draconian controls on cash withdrawals and shut down the banks for more than a week to prevent a devastating bank run. Branches are due to open again on July 7 after the referendum vote is held. But creditor powers are now threatening the country with the threat of an imminent financial collapse unless Mr Tsipras calls off the plebiscite. Slovakia’s finance minister, Peter Kazimir, made clear the ultimatum that was now facing Athens: “I’m afraid that Greece’s banks might not reopen with the euro as the currency in case the referendum on Sunday ends with a No,” he said.

The ECB decided to maintain the current €89bn cap on emergency funding that it is providing to keep the banking system afloat. The show of bullish resistance from Mr Tsipras is likely to further anger European leaders, who spent their third consecutive day refusing any dialogue with his government, pushing the country to the brink of a disorderly ejection from the eurozone. “We see no grounds for further talks at this point,” said Jeroen Dijsselbloem, the president of the Eurogroup of finance ministers. Greece became the first country since Robert Mugabe’s Zimbabwe to default to the International Monetary Fund on Tuesday night. The non-payment now places the country’s future in the hands of its creditors.

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Stunning how little intellectual progress has been made in 5 months. We leave it all up to the nutcases in charge: “The world will be a better place when Germans know their history – all of it.”

In Greek Crisis, Germany Should Learn From Its Fiscal Past (WaPo, Jan 28)

If you made a list of countries you hope have learned from their past hundred years of mistakes, Germany would have to be at the top. Happily, the staunch opposition to a nativist fringe that the nation’s government and citizenry have shown in recent weeks makes it clear, again, that Germany understands the costs of bigotry and the virtues of tolerance. Unhappily, it has not learned the costs of a mad adherence to fiscal orthodoxy, despite the fact that its prosperity is rooted in the decision of its World War II adversaries to allow West Germany’s postwar government to write off half of its debts. Indeed, the policies that Angela Merkel’s government have inflicted on the nations of Southern Europe could not be more different from those that European leaders and the United States devised in the early 1950s to enable West Germany to rebuild its damaged economy.

Since the crash of 2008, Germany, as Europe’s dominant economy and leading creditor, has compelled Mediterranean Europe, and Greece in particular, to sack their own economies to repay their debts. Germany’s insistence has reduced Greece to a condition like that of the United States at the bottom of the Great Depression. Unemployment has soared to 25%, and youth unemployment to more than 50% ; the economy has shrunk by 26% and consumption by 40%. Debt has risen to 175% of the nation’s gross domestic product. And the funds from the loans that Germany and other nations have extended to Greece have gone almost entirely either to cover interest payments or repay past loans; only 11% has actually gone to Greece’s government.

Stuck on a treadmill of debt repayment and anemic economic activity, Greece, as the Financial Times noted, has been reduced to a “quasi-slave economy” run “purely for the benefit of foreign creditors.”Not surprisingly, when Greek voters went to the polls Sunday, they elected a new government that is demanding a renegotiation of its debt. German and European Union officials have responded with adamant opposition to any such changes.

Fortunately for Germany, its own creditors took quite a different stance after World War II. In the London Debt Agreement of 1953, the 20 nations — including Greece — that had loaned money to Germany during the pre-Nazi Weimar Republic and in the years since 1945 agreed to reduce West Germany’s debts by half. Moreover, they agreed that its repayments could not come out of the government’s spending but only and explicitly from export income. They further agreed to undervalue the German mark, so that German export income could grow. By the consent of all parties, the London Agreement, and subsequent modifications, were crafted in proceedings that made West Germany an equal party to its creditors: It could, and sometimes did, reject the creditors’ terms and insist on new negotiations.

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The morally bankrput union.

In Athens, Scavenging From Bins Has Become A Way To Survive (Telegraph)

Piled high with rubbish congealing in the summer heat, municipal dustbin R21 on Athens’ Sofokleous Street does not look or smell like a treasure trove. But for Greece’s growing army of dustbin scavengers, its deposits of rubbish from nearby stores and grocery shops make it a regular point of call. “Sometimes I’ll find scrap metal that I can sell, although if I see something that looks reasonably safe to eat, I’ll take it,” said Nikos Polonos, 55, as he sifted through R21’s contents on Tuesday morning. “Other times you might find paper, cans, and bottles that you can get money for if you take them back to the shops for recycling.” One reason for R21’s popularity is because it is just down the road from a church soup kitchen, where the drug-addicted, the poor and homeless queue up for meals three times daily.

But many of those who now forage in such dustbins each day are simply ordinary working people – or were, at least, until Greece’s economic meltdown shot unemployment up to 25%. Mr Polonos, a quietly spoken man of 55, is typical of the new class of respectably destitute. He lost his job as a construction worker three years ago, when Greece’s building boom dried up, and in the current climate, cannot see himself finding paid work in the foreseeable future. Yet he dresses as smartly as he can in second-hand trousers and shirt, and does not see himself as any kind of vagrant. “I don’t want to ever look like him,” he said, gesturing to a tousle-haired drug addict slumped in a doorway near the soup kitchen.

“I never believed I would end up like this, but as long as Greece is in this terrible situation, my construction skills are not in demand. A lot of my friends are doing what I do now, and some people I know are even worse off. They have turned to drugs and have no hope at all.” The exact numbers of people who now scrape a living by rummaging through Athens’ bins is hard to estimate, since many only operate at night when their friends and neighbours will not see them. But according to Panos Karamanlikis, a volunteer at the soup kitchen, the numbers have increased by two or three times since 2011 alone. “A lot of them are normal people from normal homes,” said Mr Karamanlikis, who lost his job himself back in 2006 when the insurance company he worked for shed 60% of its work force. “They will go out and look for cigarette stubs on the streets, tin cans to recycle, anything.”

Stephen Graham, an anti-austerity campaigner from England who has spent the last three months travelling through Greece to study its economic problems, said that well-to-do scavengers were a common sight in the Athens suburb where he lived. “These are people who still have trappings of their old way of life, who still have clothes for work and smartphone contracts they can’t get out of,” he said. “They go to different neighbourhoods to scavenge so that people they know don’t see them. Seeing them is something I’ll never forget.”

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Schäuble’s been preparing this for years.

The Hard Line on Greece (Sorkin)

In July 2012, Timothy F. Geithner, the United States Treasury secretary at the time, traveled to Sylt, an island off Germany in the North Sea. Mr. Geithner was there for a meeting with Wolfgang Schäuble, Germany’s finance minister, who would spend his summers at his vacation home on the tiny island. The topic was Greece. In the home’s library, the two men spoke about Greece’s prospects and begun discussing ways for the European Union to keep the country in the eurozone. To Mr. Geithner’s dismay, however, Mr. Schäuble took the conversation in a different direction. “He told me there were many in Europe who still thought kicking the Greeks out of the eurozone was a plausible — even desirable — strategy,” Mr. Geithner later recounted in his memoir, “Stress Test: Reflections on Financial Crises.”

“The idea was that with Greece out, Germany would be more likely to provide the financial support the eurozone needed because the German people would no longer perceive aid to Europe as a bailout for the Greeks,” he says in the memoir. “At the same time, a Grexit would be traumatic enough that it would help scare the rest of Europe into giving up more sovereignty to a stronger banking and fiscal union,” Mr. Geithner wrote. “The argument was that letting Greece burn would make it easier to build a stronger Europe with a more credible firewall.” Fast-forward three years. What Mr. Schäuble articulated that summer afternoon to Mr. Geithner is finally taking shape.

Greece is in a harrowing last-minute standoff with the European Union over whether it will remain part of the eurozone, and Greek citizens are set to make the decision in a referendum vote on Sunday. That vote is happening against a backdrop of bank runs; citizens are camped outside of banks, where capital controls now restrict the amount of money that can be removed. Politicians and investors have been trying to “war game” the outcome. Who is bluffing? The Greeks or the European Union. The conversation between Mr. Geithner and Mr. Schäuble gives a strong indication. As Mr. Geithner said of another conversation he had with Mr. Schäuble: “He has a clear view: Greece had binged, so it needed to go on a strict diet.” [..]

It may seem counterintuitive, but rather than make a Greece exit easy and seamless to avoid dislocations in financial markets, the E.C.B. has the perverse incentive to make it messy and difficult to deter others.

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“Though Germany was allowed to grow its way out of recession in 1953, it will not let Greece do this, because it would set “a bad example””

Fear-Mongering Is The Enemy Of Democracy (Suzanne Moore)

Project Fear stalks Europe. In suits and ties and chaffeur-driven cars, in hurried meetings, in corridors blaring with strip lights, around the cabinet tables, in meetings where strategy is scrawled on whiteboards, in advertising agencies where earnest young people compete to unsettle us in the most effective ways. Perhaps I am too old and dreamy to think that politics was ever about anything other than fear; that hope is a necessity not a luxury. Surely I know, really, that when you want someone to vote a certain way you have to frighten them into thinking that any alternative is worse. We may not know what we like, but we sure as hell as know what we don’t like. Project Fear is not a paranoid delusion of mine. This phrase was used by the Conservatives in the last election and the pro-UK Better Together campaign. [..]

Of course, Project Fear reaches its apotheosis in Greece. If there is a referendum, the Greek people will be asked to vote for a hell they already know or one they can only imagine. They will continue to be lectured on profligacy and infantilised as lazy children, while their hospitals are running out of supplies, people are sleeping on the streets and unemployment soars. Those who stand in ATM queues are fearful, and who wouldn’t be? But from my last couple of visits to Greece, I would say that when a crisis is everyday, when you live on the brink, a strange calm sets in, a resilience that I can only compare to what I have seen in war zones, in that the need to get on with living overrides fear. No one can panic 24/7. “We will grow potatoes,” one man said to me. “We all watch out for each other,” said a woman.

For the thing about Project Fear is that when it becomes the weather, one learns to ignore it. As the Eurocrats huddle and speak of Greece, and then Spain and Italy, as some kind of totemic ethnic “other”, we should be disturbed. Does this huge south need to be dealt with differently? Is this all a place of unpaid tax and bribery and siestas? Be fearful of this. “They will take what is ours” is the subtext here. There is no respect for seasonal economies like Greece’s, but the fear is myopic. How can we not see that all of Europe will lose, too, if it continues to impoverish these places?

With migrants arriving in Kos and hordes of the dispossessed massing in Libya, why would we want to alienate a nation just one country away from Isis? Greece spends a lot on defence, this is true. Can we not see why? But the troika are the agents of Project Fear. Though Germany was allowed to grow its way out of recession in 1953, it will not let Greece do this, because it would set “a bad example”. The aim of all these dealings becomes clearer. It is to remove the democratic challenge of Syriza to these huge, undemocratic institutions of the EU and IMF. Even many rightwing economists argue that the conditional loans given to Greece have only enriched the financial intuitions. The aim is not growth but punishment.

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Berlin turns out to be even crazier than he thought.

How Varoufakis Saw The “Worst Case Scenario” Over A Year Ago (Zero Hedge)

Over a year ago, and long before he became the mascot for fraught negotiations between Greece and its creditors, Yanis Varoufakis penned a lengthy essay on what might happen should the Greek government decide to stand firm in the face of pressure from Brussels, Frankfurt, and Berlin. Earlier today we learned that in fact, Greece will stick to its negotiating position even in default and will remain defiant to the end, or at least until the voters who swept PM Tsipras and Varoufakis into office indicate at the ballot box that concedeing the Syriza campaign mandate is an acceptable outcome. With the government urging Greeks to vote “no”, the Tsipras and Varoufakis’ gambit will be put to the test next week, or perhaps even as early as this afternoon when the ECB could decide to effectively bring the Greek banking sector to its knees.

In this context, we bring you Yanis Varoufakis’ vision of the endgame, straight from the embattled FinMin himself:

That Greece has the right and the opportunity to deploy these bargaining cards there is no doubt. The important question is this: What if Berlin and Frankfurt do not budge? What if they tell Athens to ‘go jump of the tallest cliff’? The Greek government currently claims that it has a budget surplus. While I strongly doubt this claim, I suspect that a small primary surplus can be concocted through some additional cost cutting and a leximin squeeze of top public sector incomes downwards (without affecting the lowest incomes, pensions and benefits). That should suffice to allow the Athens government to meet its needs during any medium term standoff with Berlin and Frankfurt, as the Greek state will need no financing either from the official sector or from the money markets. In short, the answer to a German “Go jump” can be: “We shall not jump but we shall stay rock solid within the Eurozone and behind our demand for a debt conference. Just watch us.”

Berlin and Frankfurt will, undoubtedly, be furious. They will issue a variety of threats, including the suspension of structural fund flows from Brussels. But the real battleground will be the banks. As they did with Cyprus, where they threatened the government with an immediate suspension of the island nation’s ELA, so too in the case of Greece they will threaten to pull the plug on the Greek banks. Two points need to be made here. First, the Greek banks no longer hold any Greek government debt, which means that their collateral with the European System of Central Banks cannot be downgraded legally. Secondly, Frankfurt will have to think twice before it issues the threat of bending its own rules to close down Greek banks – since doing this would threaten to engulf the whole of the Periphery’s banking system into another cascading panic.

Confronted with such a reality, I have good cause to hope that Berlin will prefer to accommodate the Greek government and to look with a great deal more ‘kindness’ the ‘request’ for a debt relief conference. And if it does not, and wishes to bring the Eurozone down with it, let it do its worst, I say.

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What’s creeping into the discussion is a sense that it’s normal and legit for Berlin to move for regime change in a sovereign nation. That’s scary.

Berlin Accuses Tsipras Of Seeking Scapegoats Outside Own Ranks (Guardian)

Berlin has delivered a blistering attack on Greece’s beleaguered radical prime minister, Alexis Tsipras, accusing him of lying to his own people and seeking scapegoats for the country’s misery everywhere but in his own ranks. The German government dismissed desperate attempts by Athens to salvage some form of bailout, prompting Tsipras to hit back, accusing the country’s creditors of trying to “blackmail” Greek voters with dire warnings that a vote against austerity in this weekend’s referendum would be a vote to leave the euro. Tsipras referred to leaders of other eurozone nations as “extremist conservative forces” and blamed them for the capital controls that have forced the banks to shut down and ration cash.

With relations between Greece and Germany now at their lowest point in the crisis, divisions have also opened up among the main EU powers over what to do about Greece after five years of bailout closed down on Tuesday and the country became the EU’s first to default on loans to the IMF. The trenchant criticism of Tsipras from Berlin reinforced the view that the German government might refuse to negotiate with the leftwing Syriza administration on any new rescue package after Sunday’s referendum in Greece – which Berlin insists is a vote on whether to stay in the euro. The validity of the vote is now also being questioned. The Council of Europe said one week’s notice fell short of international standards and the wording was unclear, while Greece’s highest court has been asked to cancel the plebiscite on constitutional grounds.

A judgement will not be made until Friday. Syriza’s allies in the German parliament – die Linke, or the Left – accused the chancellor, Angela Merkel, of seeking to topple the Greek prime minister. It is an open secret in Berlin that Merkel, and especially her hawkish finance minister, Wolfgang Schäuble, would be happy to see Tsipras fall as a consequence of Sunday’s vote. At the very least, German government sources say privately, Berlin wants Greece’s flamboyant finance minister, Yanis Varoufakis, replaced. The rising tension over the Greek debacle surfaced at the very top of the EU on Wednesday when Schäuble rejected the latest Tsipras letter to his creditors accepting most of the austerity terms that last Saturday he had described as “humiliation” and “extortion”, while arguing for much more generous rescue funding over two years and including debt relief.

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Insult and injury.

Greek Tourism Bookings Are Nosediving (Kathimerini)

The government’s decision to call a referendum, shut banks and default on its payment to the International Monetary Fund are taking a toll on Greek tourism, professionals warned on Wednesday. Andreas Andreadis, the head of the Association of Hellenic Tourism Enterprises (SETE), said that hotel bookings are down 50,000 a day due to the recent developments in the country. Given that last-minute bookings account for 20% of the year’s tourism traffic, the blow is expected to be severe for Greek tourism, with knock-on effects on employment if those bookings are lost for good. Furthermore, there is a growing wave of cancellations at Athens hotels, while bookings from Greeks have dropped to almost zero.

Andreadis said the activation of Target 2 – an interbank payment system for the real-time processing of cross-border transfers throughout the EU – would be vital as it would facilitate transactions with other countries and allow for essential imports, meaning that catering facilities at accommodation units would be able to operate. He went on to warn that food and drink stocks will only suffice to cover hotels’ needs for one more week. Data released on Wednesday by the Travelplanet 24 and Airtickets websites showed that air ticket bookings by Greek travelers for the July-September period showed a decline of up to 50%. Air ticket cancellations rose from an average rate of 1.05% to 7.2% in the period from June 27 to yesterday. This peaked on Monday, when the cancellation rate amounted to 22%.

Similarly, ferry ticket bookings had posted an annual increase of 10% up until June 25, but since Prime Minister Alexis Tsipras called a referendum there has been a dip of 60%. Meanwhile, SETE informed the US Embassy in Athens that a major US-based tour operator had told the association that it had received orders to withhold money owed to Greek hoteliers from bookings last month. The embassy is investigating the claims, while the IMF yesterday issued a statement denying that it had given any such order.

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Use your home as collateral to buy hugely leveraged stocks. Yeah, that sounds good…

China Eases Margin Lending Rules to Support Flagging Stock Market (FT)

China’s securities regulator has moved to curb downward pressure on the country’s tumbling stock market by relaxing collateral rules on margin loans, in a bid to prevent a vicious cycle of price falls and forced selling. Margin finance has been a major driver of the rally that propelled China’s main stock index to a seven-year high on June 12, but the market has since tumbled more than 20% due in part to worries about a clampdown on leveraged bets. The China Securities Regulatory Commission said late on Wednesday that brokerages are free to set their own rules for demanding more collateral from clients when stocks bought with borrowed money fall in value. Previous rules required clients to add assets to their accounts when their collateral ratio dropped below 130%, or else liquidate their positions.

“The new CSRC rules to stop forced liquidation have hit the nail on the head and will calm the market for now,” Hao Hong, research director at Bocom International, wrote in a note. Nevertheless, the Shanghai Composite Index was down 0.9% in early trading on Thursday, deepening Wednesday’s 5.3% decline. Shenzhen was down 1.5%. Stock exchange data show that after surging to a high of Rmb2.27tn ($366bn) on June 18 — from Rmb401bn a year earlier — outstanding margin loans have fallen Rmb236bn. But Mr Hao also warned that the relaxation may sow the seeds for a future crisis.

“Beyond the short term, we believe margin call is a necessary risk management mechanism for brokers. The premise of margin trades is that asset prices will rise perpetually. It simply cannot be true,” he said. In addition to loosening collateral requirements, the new rules allow margin loans to be extended for longer than the previous six-month limit, and eliminate the requirement that margin clients must have assets in their securities account worth at least Rmb500,000. The CSRC first proposed the changes on June 12 in the form of draft rules open for a month-long public comment period. But in its statement on Wednesday the regulator said that “because the situation is special” the rules would now take effect immediately.

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Please borrow more!

China’s Fix for a Margin-Debt Boom Roiling Stocks? More Leverage (Bloomberg)

As China’s stock-market slump spurs margin traders to unwind record bullish bets, authorities have responded with a policy that analysts say could exacerbate the problem: make it easier to take on even more leverage. Hours after a one-day tumble of 5.2% in the Shanghai Composite Index, China’s securities regulator eased collateral requirements for leveraged investors and allowed brokerages to securitize margin loans – a move that frees up room to extend credit after a nine-fold surge in outstanding margin debt in two years. Brokerages have leeway to boost lending by about $300 billion, based on regulatory caps announced Wednesday.

While a surge in leverage helped fuel the longest-ever bull market in Chinese stocks, traders have been closing out those positions for a record eight straight days as the Shanghai Composite tumbled more than 20% from this year’s high. Even if relaxed rules help prevent a free-fall in share prices, the risk is that more leverage will expose amateur investors to even greater losses later and spur bigger price swings in the world’s most-volatile market. “Beyond the short term, risk taking with leverage underwritten by the state plants seeds for even greater market peril in the future,” Hao Hong, a China strategist at Bocom International, wrote in an e-mailed note.

The China Securities Regulatory Commission will allow brokerages to accept new forms of collateral, including real estate, from clients with insufficient value in their stock accounts. The regulator, which cut short a public consultation on the rules due to “market conditions,” said investors no longer need to supply extra collateral within two days when it falls below 1.3 times the amount of borrowed money. The new guidelines let brokerages give six-month extensions to clients’ margin trading and short selling contracts, instead of liquidating the positions.

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At home as in China.

Normal Banks Are Helping Shadow Banks Grow, a Lot (Bloomberg)

It’s no secret that financial companies without government-backed deposits—often dubbed shadow banks—have been growing as a result of post-financial crisis regulations imposed on actual banks. But what’s often overlooked is just how much the “normal” kind of banks are helping to power that growth. U.S. banks’ loans to nondepository financial companies, or shadow banks, have jumped more than 230% over the past three years, according to the semiannual risk perspective report released by the Office of the Comptroller of the Currency on Tuesday. They were the fifth-largest category of commercial-loan holdings at banks at the end of last year, up from the 11th spot at the end of 2011.

To be sure, banks being involved with shadow banks isn’t new. During the crisis, loans to subprime mortgage lenders, managers of collateralized debt obligations, and hedge funds created all sorts of trouble for banks, along with the sort of softer relationships they had with such things as the mortgage-backed securities they issued and SIVs. Yet banks never really backed away from being a key cog in the shadow-banking system, as Bloomberg News reporter Donal Griffin laid out in an article in 2012 about how Citigroup was involved with collateralized loan obligations, money-market funds, and mortgage real estate investment trusts, even as the bank’s then-chief executive officer, Vikram Pandit, was vocally criticizing how regulations were shifting risk toward exactly such things.

It’s not just banks that are offering nonbanks a helping hand. Another report released Tuesday, from the overseer of Fannie Mae and Freddie Mac, shows that those companies may also be playing a role, as they increase the fees they charge lenders to guarantee mortgages. Over the past two years, the mortgage giants have been charging small lenders less (on a risk-adjusted basis) to guarantee loans than they charge large ones, in a switch from the past, according to the report. And many of those small lenders are nonbanks.

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Abe should go.

Reaganomics Won’t Save Japan (Pesek)

Can Ronald Reagan save Japan from a debt crisis? We’re about to find out as Prime Minister Shinzo Abe bets the remaining years of his mandate on the former U.S. president’s economic philosophy. Abe’s new plan to curb Japan’s debt burden, the world’s heaviest at almost 250% of GDP, doesn’t mention Reagan. But it’s impossible not to notice the influence of his widely-touted theory that healthy government finances require, above all, a thriving corporate sector. That should worry investors, credit rating companies and the Japanese people alike. Abe did announce some vague intentions to cap spending and reach a budget surplus in fiscal 2020. But the heart of his strategy for dealing with government debt is stoking broader economic growth.

It’s a questionable strategy, one that’s even more dubious because of where Abe expects this debt-erasing output to come from: giant companies profiting from a weaker yen and a “productivity revolution.” Unfortunately, Abe’s plan is based on the discredited notion that more money for companies and the wealthy will mean more money for government coffers. Japanese companies have been earning more money since at least 2012, when the yen began dropping to the benefit of exports. But instead of sharing the wealth by fattening paychecks, executives hoarded it. The amount of cash and deposits corporate Japan has on hand jumped 3.6% in March to a record $1.96 trillion. In 26 of the 30 months Abe has been in office, CEOs have chosen to save extra cash rather than deploy it.

Abe shouldn’t expect much growth to trickle down from productivity gains either. Japan’s insular and outdated business practices have long made it a laggard among developed nations. That was less problematic before China’s ascendance in the region. Japan is now an aging, inefficient and wildly expensive property in a cheap neighborhood. In order to sustain its living standards, Japan needs to innovate and develop new job-creating industries (think renewable energy, not cars and televisions). But as Georges Desvaux of McKinsey argues in a recent report, Abe has done very little since taking office to invest in Japan’s vast human capital. [..] The bottom line is that there’s little “new” about a plan that relies on growth to pay down debt. Reagan never managed to pull it off in the 1980s – U.S. debt actually rose, belying the theory that tax cuts pay for themselves.

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All of Europe should.

Belgium Adopts Law Against ‘Vulture Funds’ (AFP)

Belgium has passed a law to cap how much so-called “vulture funds” can recoup from government debt bought at rock-bottom prices from countries teetering on the brink of default. Under the new law, approved overwhelmingly by the country’s main political parties, if a Belgian judge determines a fund is acting as a “vulture,” then it cannot claim more than the discounted price paid for the bonds, rather than their face value. The move comes after Belgium was dragged into a more than decade-long battle between a group of US hedge funds led by NML Capital Management and Argentina over some $1.3 billion of defaulted debt. In May, NML demanded Argentinian accounts be frozen in Brussels – a move no longer allowed under the new law, which means a Belgian judge can refuse legal decisions made in other countries.

The decision is particularly important as Belgium is home to giant clearing house Euroclear, which processes vast numbers of global financial transactions. In March, a US judge ordered Euroclear to block any payments concerning Argentine bonds and notify the hedge funds that are claiming the debt. Ahmed Laaouej, the Socialist MP who first put forward the law, hailed its passing as a “victory over the vultures of finance” that came about “despite strong pressure from several national and international lobby groups”. “These pressures came from representatives of American finance and law firms operating in Europe and defending the interests of some clients, in this case vulture funds,” he said to AFP. “This law is a strong signal to unscrupulous investment funds which speculate in a shameful manner on the back of people in difficulty,” he added.

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Not for environmental reasons.

China’s May Thermal Coal Imports Collapse 41% On-Year (HSN)

China’s thermal coal imports, including bituminous and sub-bituminous coal, dropped 41% on the year and were down 26% on the month in May at 6.48 million mt, according to the latest data from Beijing’s General Administration of Customs (GAC). Australia exported 3.8 million mt of bituminous and sub-bituminous coal to China in May, down 18% on month, and down 21% on the year. China’s imports of Indonesian thermal coal fell 40% from April and were down also 40% from a year ago at 1.84 million mt in May. Thermal coal imports from Russia slumped 52% on year and down 16% on month at 0.78 million mt last month.

Over January-May, China imported a total of 36.14 million mt of bituminous and sub-bituminous coal and down 44% from the corresponding five-month period last year, data showed. Top supplier Australia exported a total 18.61 million mt of thermal coal to China during January-May this year, down 22% from the year before. Meanwhile, total imports of lignite dropped 32% from the previous year to 20.85 million mt during the same period, with May imports decreasing 29% on month to 3.54 million mt. Imports from China’s top lignite coal supplier — Indonesia — stood at 19.48 million mt between January and May, down 32% on year.

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May 302015
 
 May 30, 2015  Posted by at 10:48 am Finance Tagged with: , , , , , , , , , , ,  


Arnold Genthe San Francisco, “Grant Avenue at Sacramento Street.” 1930

Big Banks Run Everything: Austerity, The IMF (Salon)
Investors Helpless Against Wall Street’s Secret Brainwashing Machine (Farrell)
US Economy Shrank 0.7% in First Quarter as Trade Gap Jumped (Bloomberg)
Margin Debt Breaks Out: Hits New Record 50% Higher Than Last Bubble Peak (ZH)
No Recovery Has Seen This Many Dips Since The 1950s (MarketWatch)
The Desperate Plight of a Declining Superpower (Michael T. Klare)
The Curious Optimism Of The Godfather Of Inequality (Independent)
If You Ain’t Cheating, You Ain’t Trying – How Forex Has Changed (EconIntersect)
Greece Open To Compromise To Seal Deal This Week: Interior Minister (Reuters)
Greece Might Sidestep June 5 IMF Payment Deadline (Reuters)
Varoufakis’s Great Game (Hans-Werner SInn)
Chinese Stock Market’s Wile E. Coyote Moment (Pesek)
Stop Calling China a Currency Manipulator (Pesek)
French Far-Right Calls For In/Out EU Referendum (EUObserver)
Italy Rescues 3,300 Migrants In Mediterranean In One Day (BBC)
Germany Passes Japan To Have World’s Lowest Birth Rate (BBC)
More Charges Expected In FIFA Case (NY Times)

Very, very, good by Patrick Smith. Please read the whole thing.

Big Banks Run Everything: Austerity, The IMF (Salon)

Fascinating to watch the IMF as it fronts for the U.S. Treasury and international lenders in the Greek and Ukrainian debt crises. In the former, the fund pins the Syriza government to the wall because it dares to represent its electorate. In the latter, it stands by the Poroshenko government because it has no intention of representing anybody other than banks, corporations and the global strategy set. “Fascinating” is one word for this and it holds. “Greed in action” is three but they do a better job. Coincidentally enough, both the Greek and Ukrainian cases now near their respective denouements. Miss this and you miss a singularly plain display of power, the way it works and what it works for in the early 21st century.

Athens has debt payments of €1.6 billion due in June and must make them if it is to receive a further tranche of European and IMF funding. This is essential if Greece is to recover—not from the 2008 financial crash and its economic fallout, which was long ago absorbed, but from the recovery program the fund and the EU imposed in 2012. That is textbook neoliberalism, naturally, and the results are before us. PM Alexis Tsipras calls it “a humanitarian crisis,” and I have heard no one dare counter him on the point. The Kiev government owes international bondholders $35 billion, and $23 billion of it is also due in June. Slightly different situation here: Ukraine, too, needs to shake loose I.M.F. and European funds to revive an economy even worse than Greece’s, but this is not about ameliorating any kind of social crisis.

It is about inducing one, in effect, so the neoliberalization process can be completed and working people in Ukraine are made properly, structurally desperate. It is highly unlikely you will read about these two crises in the same news report—this would be asking too much of media committed to conveying disembodied data without context so that readers and viewers cannot understand what they are (not) being told. Let us, then, treat Greece and Ukraine together. It is where the fascination comes in.

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Behavioral economics.

Investors Helpless Against Wall Street’s Secret Brainwashing Machine (Farrell)

Yes, the new behavioral economics is Wall Street’s secret mind-control brainwashing machine. Call it behavioral economics, psychology of investing, the new science of irrationality, it is Wall Street’s most powerful weapon because you can’t see it. They even try to make you think they’re helping you. Bull. Behavioral economists used to be guardians of America’s 95 million Main Street investors, with an aura of integrity, professionals with a fiduciary responsibility. No more. They’re the investors’ enemy, working for Wall Street banks, for Washington politicians, operating in the shadows, like the NSA, developing tools and technologies to secretly control data, manipulate the brains of savers, voters, taxpayers and investors.

Don’t believe me? At first, I couldn’t believe the con game. Back in 2002 when Princeton psychologist Daniel Kahneman won the Nobel Prize in Economic Sciences we were hopeful. He disproved Wall Street’s oldest fraud, the myth of the “rational investor.” We cheered. Kahneman’s research that proved investors were never rational .. are in fact irrational .. always have been irrational .. and we always will be irrational. At first we assumed humans can change – we can still educate ourselves to be more rational. We even assumed Wall Street’s behavioral economists would help us become “less irrational.”

Fat chance. Since then, behavioral economists have been capitalizing on their newfound power to get personally richer: Getting research grants, speaking fees, university professorships and, of course, consulting contracts with Wall Street banks, Corporate America and Washington politicians. What did we get? In recent years many of their books resemble high school level self-help “Psych 101” books with cute titles like “Freakonomics,” “Nudge,” “Sway,” “Animal Spirits,” “Blink,” “Blunder,” “Beyond Greed & Fear,” “Predictable Irrational,” all cleverly packaged for mass-market consumption, all with implied promise that their book will make you less irrational, ready to beat the Wall Street casino.

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And they all just go and claim Q2 will be grand. But wasn’t this supposed to be a recovery? Yeah, yeah, snow, I know.

US Economy Shrank 0.7% in First Quarter as Trade Gap Jumped (Bloomberg)

The world’s largest economy hit a bigger ditch in the first quarter than initially estimated, held back by harsh winter weather, a strong dollar and delays at ports. GDP in the U.S. shrank at a 0.7% annualized rate, revised from a previously reported 0.2% gain, according to Commerce Department figures issued Friday in Washington. The median forecast of 84 economists surveyed by Bloomberg called for a 0.9% drop. By contrast, the report also showed incomes climbed, fueling the debate on whether GDP is being underestimated. A swelling trade gap subtracted the most from growth in 30 years as the appreciating dollar caused exports to slump while imports rose following the resolution of labor disputes at West Coast ports.

Federal Reserve officials are among those who believe the setback in growth will be temporary, helping explain why they are considering raising interest rates this year. “The numbers show the economy literally collapsed last quarter, but we know there were a lot of special factors,” Jim O’Sullivan at High Frequency Economics said before the report. O’Sullivan was the top forecaster of GDP in the past two years, according to Bloomberg data. “There’s a good chance we’ll see a second-quarter bounce back.” Economists’ forecasts ranged from a decline of 1.2% to an increase of 0.2%. The GDP estimate is the second of three for the quarter, with the third release scheduled for June, when more information becomes available. The economy grew at a 2.2% pace from October through December.

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And the rise of margin debt in China must be worse and bigger.

Margin Debt Breaks Out: Hits New Record 50% Higher Than Last Bubble Peak (ZH)

For a few months in mid/late 2014 there was some concern among those who still don’t get that in this New Paranormal market the only real buyers are central banks, that while the stock market kept on rising, and rising, NYSE margin debt was flat, and in fact the total amount of purchases on margin at the end of 2014 was nearly the same to those in January. Meanwhile the S&P 500 had soared to recorder highs. A few things here: first, as we explained one year ago, in a world in which levered purchases take place via such shadow banking conduits as repo and primary broker arrangements, margin debt has become an anachronism from a bygone generation in which there wasn’t $2.5 trillion in Fed reserves supporting the market, and is now almost entirely meaningless.

But for those who still cling on to margin debt as indicative of anything, the latest NYSE report should provide some comfort: finally the long-awaited breakout in participation has arrived, and after stagnating for over a year, investors – mostly retail – are once again scrambling to buy stocks on margin, i.e., using debt, and as of April 30, the amount of margin debt just hit a new all time high of $507 billion, $30 billion more than the month before, and nearly 50% higher than the last bubble peak reached in October 2007.

It’s not just margin debt that hit a record high. Investor net worth, which is the inverse, or investor cash and credit balances less total margin debt, just dropped to ($227 ) billion, a new record low, meaning not only is the amount of investors leverage at an all time high, but investor net worth is also at an all time low.

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Because this is not a revovery.

No Recovery Has Seen This Many Dips Since The 1950s (MarketWatch)

The U.S. economy has fallen into negative territory three times since the current recovery began in mid-2009, a dubious feat that last occurred more than a half a century ago. What’s to blame for the most up-and-down recovery since the mid-1950s? Serious flaws in how GDPis calculated is one prime suspect. The government’s GDP report appears to have underestimated growth in the first quarter for decades, a problem that has become even more acute. At the same time GDP probably has overstated growth in the second and third quarters, so the underlying U.S. growth rate is probably the same. “The evidence of a seasonal quirk in the first-quarter GDP growth figures is pretty overwhelming,” said Paul Ashworth at Capital Economics. The second culprit – and evident ring leader – is the U.S. economy itself.

Bad policy, back luck or whatever you call it, the economy is no longer growing as fast as it used to. So any time there’s a temporary dip in economic activity because of poor weather, spiking oil prices or some other major event, it’s no surprise that GDP might show a contraction. The U.S. has grown at a mediocre 2.2% annual pace since the first full year of recovery in 2010. That’s just two-thirds as fast as the economy has grown since the government began keeping track in early 1930s. The less the economy grows, the easier it is for quarterly GDP to slip into the red from time to time, especially if some sort of “shock” occurs. The first-quarter suffered from several of them: unusually harsh weather, a dockworker’s strike, a soaring dollar that undercut U.S. exports and a drop in business investment tied to plunging oil prices.

Of course, such shocks are nothing new, and the economy in the past has shown more resistance to them. The U.S. did not experience a single negative quarter, for example, during the last three major economic expansions: the early 2000s, the 1990s and the 1980s. You have to go a lot further back to the weak 1973-75 expansion to find another episode of a quarterly contraction in a recovery phase. Another one occurred in the short-lived 1958-1960 recovery. The last U.S. recovery to include three negative quarters like the current one was from 1954 to 1957. Yet there is one big difference compared to today: the economy back then expanded by leaps and bounds. The U.S. grew at a 3.8% rate during the “Eisenhower recovery” following the end of the Korean War. And the fastest quarter of growth nearly reached 12% — more than twice as strong as the best quarter in the latest recovery.

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Only little children and psychopaths dream of superpower.

The Desperate Plight of a Declining Superpower (Michael T. Klare)

Take a look around the world and it’s hard not to conclude that the United States is a superpower in decline. Whether in Europe, Asia, or the Middle East, aspiring powers are flexing their muscles, ignoring Washington’s dictates, or actively combating them. Russia refuses to curtail its support for armed separatists in Ukraine; China refuses to abandon its base-building endeavors in the South China Sea; Saudi Arabia refuses to endorse the U.S.-brokered nuclear deal with Iran; the Islamic State movement (ISIS) refuses to capitulate in the face of U.S. airpower. What is a declining superpower supposed to do in the face of such defiance?

This is no small matter. For decades, being a superpower has been the defining characteristic of American identity. The embrace of global supremacy began after World War II when the United States assumed responsibility for resisting Soviet expansionism around the world; it persisted through the Cold War era and only grew after the implosion of the Soviet Union, when the U.S. assumed sole responsibility for combating a whole new array of international threats. As General Colin Powell famously exclaimed in the final days of the Soviet era, “We have to put a shingle outside our door saying, ‘Superpower Lives Here,’ no matter what the Soviets do, even if they evacuate from Eastern Europe.”

Strategically, in the Cold War years, Washington’s power brokers assumed that there would always be two superpowers perpetually battling for world dominance. In the wake of the utterly unexpected Soviet collapse, American strategists began to envision a world of just one, of a “sole superpower” (aka Rome on the Potomac). In line with this new outlook, the administration of George H.W. Bush soon adopted a long-range plan intended to preserve that status indefinitely. Known as the Defense Planning Guidance for Fiscal Years 1994-99, it declared: “Our first objective is to prevent the re-emergence of a new rival, either on the territory of the former Soviet Union or elsewhere, that poses a threat on the order of that posed formerly by the Soviet Union.”

H.W.’s son, then the governor of Texas, articulated a similar vision of a globally encompassing Pax Americana when campaigning for president in 1999. If elected, he told military cadets at the Citadel in Charleston, his top goal would be “to take advantage of a tremendous opportunity – given few nations in history – to extend the current peace into the far realm of the future. A chance to project America’s peaceful influence not just across the world, but across the years.”

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A simple moral question.

The Curious Optimism Of The Godfather Of Inequality (Independent)

Before Piketty, there was Atkinson. The subject of inequality is now, perhaps indelibly, associated with the young French economist who burst into the public arena last year and became an unlikely bestselling author across the Anglophone world. But Thomas Piketty himself drew heavily on the work of a British economist – a debt the Frenchman readily admits. “Tony Atkinson is the godfather of historical studies of income and wealth,” he enthused last year. It’s no exaggeration. Sir Anthony Atkinson has been researching inequality since the 1960s and published his first major book on the subject in 1978, when Mr Piketty was still at primary school. The Atkinson index of inequality is named after him. Some scholars expect him to be awarded the Nobel economics prize at some stage.

And now the 70-year-old London School of Economics professor has produced another tome on the subject, Inequality: What can be done?. Yet for all the book’s scholarly virtues and for all the esteem in which Sir Anthony is held within the profession, it seems unlikely it will sell as many copies as Mr Piketty’s blockbuster Capital in the 21st Century. Lightning, after all, rarely strikes twice in the same spot. When I meet Sir Anthony to discuss his latest work, I ask whether it rankles to see another, much more junior colleague become the celebrated face of the subject. Sitting in his rather spartan office just off Lincoln Inn’s Fields, he smiles at the suggestion: “Not at all. He [Piketty] is an amazing character. He’s very inventive. I think he’s managed to present the issue in a way that’s attracted a lot of attention.”

Nevertheless, Sir Anthony stresses that, much as he shares Mr Piketty’s concerns about the level of income inequality across much of the developed world, his own book has a different emphasis. “I think what I would have done differently is discuss more what we can do about it [inequality],” he says. He certainly doesn’t duck the challenge of coming up with constructive policy ideas. The final chapter of his book is overflowing with ideas on how to reduce inequality back to where it stood before what he calls the great “inequality turn” of the early 1980s, when Margaret Thatcher’s government entered office.

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“..the foreign exchange market seems to be designed to create opportunities for bad behaviour.”

If You Ain’t Cheating, You Ain’t Trying – How Forex Has Changed (EconIntersect)

“If you ain’t cheating, you ain’t trying” were the words of one trader working in the foreign exchange market. They belie an attitude that was widespread among traders in this market between 2009 and 2013. Cheating was simply a normal part of a trader’s day job. In fact, not cheating would be to shirk your duties. Widespread cheating in the foreign exchange market has turned out to be very costly indeed. In the past six months, six large banks around the world have paid out US$10 billion in fines over the manipulation of the global foreign exchange market. There have also been fines levied against banks for manipulating other over-the-counter markets such as LIBOR, the ISDAfix and the gold market.

In addition there have been fines for other bad behaviour by banks like money laundering, their role in the sub-prime mortgage crisis, violating sanctions, manipulation of the electricity market, assisting tax evasion, and mis-selling payment protection insurance. This brings the total amount of fines which banks have paid since 2008 to over US$160 billion. To put this in context, this is more than what the UK government spent on education last year. As the cost of misbehaviour mounts, banks are under increasing pressure to clean up their act. Despite widespread public cynicism, much has already changed within the banking sector. Banks have beefed up their risk function and increased oversight of traders.

They have also changed the “tone from the top”. Senior managers of the boom years who promoted a hard-driving, risk-taking culture have largely been replaced by bankers who talk more about ethics, careful risk management and serving the customer. A new legal regime has been put in place to hold senior bank employees personally responsible for wrong-doings on their watch. Banks are required to hold more equity on their balance sheets. There have been new laws which change the way bankers are paid, to emphasise long-term performance rather than short-term risk taking. Riskier trading and investment banking operations are being ring fenced from their more staid retail banks.

All these changes might be making bankers safer, but will they do anything to make the markets which they operate within any less likely to reward bad behaviour? We usually assume a market like foreign exchange emerges from millions of individual decisions. Changing this might sound impossible. But each of these decisions are made within a particular set of constraints. These constraints are the product of deliberate policy design choices. Changing behaviour in a market like foreign exchange involves looking carefully at the design of the market and asking whether this actually does the job it is supposed to do. As it currently stands, the foreign exchange market seems to be designed to create opportunities for bad behaviour..

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Depends what the other side demands…

Greece Open To Compromise To Seal Deal This Week: Interior Minister (Reuters)

Greece’s government is confident of reaching a deal with its creditors this week and is open to pushing back parts of its anti-austerity program to make that happen, the country’s interior minister said Saturday. Greece and its EU/IMF creditors have been locked in talks for months on a cash-for-reforms deal and pressure is growing for a deal, since Athens risks default without aid from a bailout program that expires on June 30. “We believe that we can and we must have a solution and a deal within the week,” Interior Minister Nikos Voutsis, who is not involved in Greece’s talks with the lenders, told Skai television. “Some parts of our program could be pushed back by six months or maybe by a year, so that there is some balance,” he said.

He did not elaborate on what parts of the ruling Syriza party’s anti-austerity program could be pushed back, but the comments suggested a greater willingness to compromise on pre-election pledges. Prime Minister Alexis Tsipras stormed to power in January on promises to cancel austerity, including restoring the minimum wage level and collective bargaining rights. The government earlier this week said it hoped for a deal by Sunday, though international lenders have been less optimistic, citing Greece’s resistance to labor and pension reforms that are conditions for more aid. Voutsis said Athens and its partners agreed on some issues, such as achieving low primary budget surpluses in the first two years.

But they still disagreed on a sales tax, with Greece pushing so any VAT hikes will not burden lower incomes. “A powerful majority in the political negotiations has showed respect for the fact that there can’t be further austerity strategies for the Greek issue, the Greek problem and the Greek people,” he said. [..] In an interview with Realnews newspaper published on Saturday, Economy Minister George Stathakis said Athens had no alternative plan. “The idea of a Plan B doesn’t exist. Our country needs to stay in the eurozone but on a better organized aid program,” he said. Stathakis was confident a deal will be reached. “Otherwise, mainly Greece but the European Union as well will step into unchartered waters and no-one wants that.”

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Or it may not. Keep ’em guessing.

Greece Might Sidestep June 5 IMF Payment Deadline (Reuters)

Cash-strapped Greece could avoid paying back the IMF on June 5 and win more time to negotiate a funding deal without defaulting if it lumps together all IMF repayments due in June and pays them at the end of the month, officials said on Tuesday. Greece has to repay the IMF €300 million on June 5, the first of four instalments due in June that total €1.6 billion. Cut off from markets, Athens has said it will not be able to make the June 5 payment without new loans from the euro zone, which insists it can only lend Greece more if the country agrees to reforms that would make its debt sustainable. “There is the possibility of putting together several payments that Greece would need to make to the IMF in the course of June and then just make one payment,” a senior euro zone official close to the talks with Athens said.

A second official close to the talks also acknowledged that possibility. “That’s basically a technical treasury exercise and they could tell the IMF that this is how they want to do it and the IMF would probably have to be OK with that,” the first official said. But the officials noted that Greece could only use such a trick if there was a credible prospect of a funding deal that could be communicated to markets and its citizens. Otherwise, the missed payment could trigger market panic and a bank run in Greece. “So they would get a few extra weeks. But unless there is some perspective how they would deal with this full payment, it would be a risky thing for the Greeks to do. And the consequences would be unpredictable,” said the first official. “People could want to withdraw their savings and who knows what Greece would have to do.”

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Target2 steps into the spotlight.

Varoufakis’s Great Game (Hans-Werner SInn)

Game theorists know that a Plan A is never enough. One must also develop and put forward a credible Plan B – the implied threat that drives forward negotiations on Plan A. Greece’s finance minister, Yanis Varoufakis, knows this very well. As the Greek government’s anointed “heavy,” he is working Plan B (a potential exit from the eurozone), while PM Alexis Tsipras makes himself available for Plan A (an extension on Greece’s loan agreement, and a renegotiation of the terms of its bailout). In a sense, they are playing the classic game of “good cop/bad cop” – and, so far, to great effect. Plan B comprises two key elements.

First, there is simple provocation, aimed at riling up Greek citizens and thus escalating tensions between the country and its creditors. Greece’s citizens must believe that they are escaping grave injustice if they are to continue to trust their government during the difficult period that would follow an exit from the eurozone. Second, the Greek government is driving up the costs of Plan B for the other side, by allowing capital flight by its citizens. If it so chose, the government could contain this trend with a more conciliatory approach, or stop it outright with the introduction of capital controls. But doing so would weaken its negotiating position, and that is not an option. Capital flight does not mean that capital is moving abroad in net terms, but rather that private capital is being turned into public capital.

Basically, Greek citizens take out loans from local banks, funded largely by the Greek central bank, which acquires funds through the European Central Bank’s emergency liquidity assistance (ELA) scheme. They then transfer the money to other countries to purchase foreign assets (or redeem their debts), draining liquidity from their country’s banks. Other eurozone central banks are thus forced to create new money to fulfill the payment orders for the Greek citizens, effectively giving the Greek central bank an overdraft credit, as measured by the so-called TARGET liabilities. In January and February, Greece’s TARGET debts increased by almost €1 billion per day, owing to capital flight by Greek citizens and foreign investors.

At the end of April, those debts amounted to €99 billion. A Greek exit would not damage the accounts that its citizens have set up in other eurozone countries – let alone cause Greeks to lose the assets they have purchased with those accounts. But it would leave those countries’ central banks stuck with Greek citizens’ euro-denominated TARGET claims vis-à-vis Greece’s central bank, which would have assets denominated only in a restored drachma. Given the new currency’s inevitable devaluation, together with the fact that the Greek government does not have to backstop its central bank’s debt, a default depriving the other central banks of their claims would be all but certain.

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The pinnacle question: “How do you deflate a giant bubble without enraging the masses or losing control of the economy?”

Chinese Stock Market’s Wile E. Coyote Moment (Pesek)

Shanghai’s stock market just experienced a Wile E. Coyote moment. For weeks, investors had been chasing higher and higher returns. On Wednesday, however, they suddenly looked down to find their road had disappeared. The realization came courtesy of China’s central bank, which had decided to drain cash from the financial system, and jittery brokerages, which had just tightened lending restrictions. That one-two punch didn’t just send Chinese stocks down 6.5%, the most in four months. It also raised existential questions about one of modern history’s greatest asset bubbles. And it is a bubble. The 127% gain in the Shanghai Composite Index over the past year defies financial gravity.

It’s been driven not by optimism about China’s economic fundamentals or corporate earnings, but record growth in margin debt. Such lending — fueled by speculation that the People’s Bank of China will soon cut interest rates and reduce lenders’ reserve requirements — exceeded $322 billion as of May 27, five times the level of a year earlier. And that’s just the official tally: China’s shadow banking system is estimated to have created $20 trillion of credit since Lehman Brothers went bankrupt in 2008. What makes China’s bubble unique is the government’s direct role in creating it, feeding it and now managing it. Last August, for example, as the Chinese stock market threatened to sag, state-run media started prodding the Chinese public to pile their life savings into shares.

During a single week in August 2014, Xinhua News Agency put out eight features espousing the wisdom and patriotism of owning equities. Beijing also reduced trading fees and allowed individuals to open as many as 20 accounts. The implicit message was that the Communist Party could and would protect stock investments, if need be. The plan succeeded beyond Beijing’s wildest expectations, leaving it with an epic challenge: How do you deflate a giant bubble without enraging the masses or losing control of the economy?

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“Convertible or not, the yuan is too big to ignore.”

Stop Calling China a Currency Manipulator (Pesek)

Christine Lagarde’s people say China’s currency is no longer undervalued. Jacob Lew’s argue it still is. There’s a lot at stake in the debate: The yuan can’t gain status as a global currency reserve if China is thought to be manipulating its value. So who should we believe, the head of the IMF or the U.S. Treasury Secretary? It’s worth asking Ben Bernanke. Now that the former Fed chairman is in the private sector, he can say what he really thinks — and, as he pointed out in a recent speech in Seoul, it’s not wise to ignore political factors when managing the rise of the Chinese economy. Bernanke argued that if Washington had heeded IMF requests to allow China to play a larger role in global institutions, Beijing wouldn’t now be creating the $100 billion Asian Infrastructure Investment Bank, which threatens to undermine the existing global financial system.

It’s worth extending Bernanke’s point to the yuan debate. Japan’s yen is down 30% since late 2012 (hitting a 12-year low this week) while the yuan has risen during the same period. So the IMF has good reason to contradict America’s assessment and bolster China’s case for reserve currency status. But there are two further reasons why the IMF must stand firm, no matter what U.S. officials and lawmakers say. First, China might go it alone. As Bernanke points out, the West is playing hardball with Beijing at its own risk. The AIIB is already diminishing the relevance of the World Bank and Asian Development Bank. What’s to keep Beijing, flush with $3.7 trillion of reserves, from now opening its own bailout fund for governments facing balance-of-payments shortfalls? China proposed a similar idea during the region’s 1997 economic crisis.

Although the idea died a quick death at that time amid fears the IMF and U.S. Treasury would lose influence, it might attract more interest now – especially if China promises to demand less austerity from needy countries like Greece. “If the IMF were to sidestep the explicitly stated desire of China’s government,” says Eswar Prasad of Cornell University in Ithaca, New York, “it would create more bad blood in an already contentious relationship regarding currency matters.” He worries it would “crystallize emerging market policymakers’ concerns that the IMF remains an institution run by and for the benefit of advanced economies.” That would encourage nations to rally around Beijing’s alternative lending institutions, and could deal a fatal blow to the post-World War II global financial architecture.

Second, Chinese economic reform is accelerating. Bernanke is right that the yuan has a ways to go before it can become a major reserve player. But a new Swift study shows the yuan is Asia’s most-active currency for payments to China and Hong Kong and number five globally. Convertible or not, the yuan is too big to ignore. In that sense, its inclusion in the IMF’s special drawing rights system – along with the dollar, euro, yen and pound – is a matter of when, not if.

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France steps out, it’s over.

French Far-Right Calls For In/Out EU Referendum (EUObserver)

France’s far-right National Front party has called for an in/out referendum on the EU at the same time as the UK holds its vote. Florian Philippot, an MEP and the party’s deputy head, wrote on Thursday (28 May) that president Francois Hollande should “follow the British example” and “follow the calendar outlined by our neighbours across The Channel”. “The time has come to ask everybody in Europe Yes or No – if they want sovereignty to decide on their own future”. He added that British PM David Cameron, who is currently on a tour of European capitals to sound out feeling on a renegotiation of EU powers, “with this referendum … has put himself in a powerful position to demand real reforms”.

He also said that if Hollande declines to do it, the National Front will put an in/out EU vote “at the heart” of its 2017 presidential election campaign. Speaking on BFM-TV earlier in the week, Philippot noted that his party wants a “referendum republic”, in which average people can trigger a popular vote on any subject if they file more than 500,000 signatures. He cited Switzerland as a model and listed French membership in Nato, in the Schengen passport-free area, and the EU-US free trade treaty as other potential votes. For its part, French daily Le Figaro, in an Ifop poll published on Friday, said 62% of French people would vote No to the EU constitution again if they were asked the same question as 10 years ago.

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“It represents an almost 30-fold increase on the same period last year..” How dare Europe still not have a comprehensive answer to this?

Italy Rescues 3,300 Migrants In Mediterranean In One Day (BBC)

Italy helped rescue a total of more than 3,300 migrants trying to cross the Mediterranean on Friday, the country’s coastguard has said. In one operation, 17 bodies were found on three boats. Another 217 people who were on board were rescued.
The coastguard said distress calls were made from 17 different boats on Friday. The International Organization for Migration (IOM) says at least 1,826 people have died trying to cross the Mediterranean so far in 2015. It represents an almost 30-fold increase on the same period last year, the IOM says. The Corriere della Serra newspaper said (in Italian) that most of the rescues on Friday took place close to the Libyan coast.

Irish, German and Belgian ships took part in the rescue, the newspaper said. The UN estimates that at least 40,000 people tried to cross the Mediterranean between the start of the year and late April. The rise has been attributed to chaos in Libya – the staging post for most crossings – as well as milder weather. Many migrants are trying to escape conflict or poverty in countries such as Syria, Eritrea, Nigeria and Somalia. On Thursday, the charity Medecins sans Frontieres reported that a 98-year-old Syrian man had been rescued from a boat, having travelled by sea from Egypt for 13 days. He was taken to Augusta in Sicily.

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Fear? Fear of what?

Germany Passes Japan To Have World’s Lowest Birth Rate (BBC)

A study says Germany’s birth rate has slumped to the lowest in the world, prompting fears labour market shortages will damage the economy. Germany has dropped below Japan to have not just the lowest birth rate across Europe but also globally, according to the report by Germany-based analysts. Its authors warned of the effects of a shrinking working-age population. They said women’s participation in the workforce would be key to the country’s economic future. In Germany, an average of 8.2 children were born per 1,000 inhabitants over the past five years, according to the study by German auditing firm BDO with the Hamburg Institute of International Economics (HWWI). It said Japan saw 8.4 children born per 1,000 inhabitants over the same time period.

In Europe, Portugal and Italy came in second and third with an average of 9.0 and 9.3 children, respectively. France and the UK both had an average of 12.7 births per 1,000 inhabitants. Meanwhile, the highest birth rates were in Africa, with Niger at the top of the list with 50 births per 1,000 people. Germany’s falling birth rate means the percentage of people of working age in the country – between 20 and 65 – would drop from 61% to 54% by 2030, Henning Voepel, director of the HWWI, said in a statement (in German). Arno Probst, a BDO board member, said employers in Germany faced higher wage costs as a result. “Without strong labour markets, Germany cannot maintain its economic edge in the long run,” he added. Experts disagree over the reasons for Germany’s low birth rate, as well as the ways to tackle the situation.

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Just the first round.

More Charges Expected In FIFA Case (NY Times)

Chuck Blazer was a powerful figure in international soccer, and he enjoyed the trappings that came with the role: two apartments at Trump Tower in Manhattan, expensive cars, luxury properties in Miami and the Bahamas. But for all of Mr. Blazer’s lavish living, he did not file personal income tax returns. And in August 2011, Steve Berryman, an IRS agent in Los Angeles, opened a criminal investigation. Thousands of miles away in New York, two FBI agents, Jared Randall and John Penza, were working on an investigation of their own, one that had spun off an unrelated Russian organized-crime case in December 2010. The agents on opposite sides of the country were looking at some of the same people.

In December 2011, news reports revealed that the FBI was asking questions about FIFA, global soccer’s governing body, and the California investigators called New York. The two agencies joined forces, setting in motion the sprawling international case that led to the arrests of top soccer officials this week. The investigation, which involved coordination with police agencies and diplomats in 33 countries, was described by law enforcement officials as one of the most complicated international white-collar cases in recent memory. Fourteen people have been indicted in bribery and kickback schemes linked to corruption in the highest echelons of FIFA. And United States authorities say more charges are all but certain.

“I’m fairly confident that we will have another round of indictments,” said Richard Weber, the chief of the I.R.S. unit in charge of criminal investigations. The American government’s aggressive move shocked the soccer world and led to questions about whether the United States had set out on a mission to topple the leadership of FIFA, which has long been troubled by allegations of corruption. But officials at the Justice Department, the F.B.I. and the I.R.S. said the impetus was criminal activity and organized crime that just happened to occur in the soccer world. “I don’t think there was ever a decision or a declaration that we would go after soccer,” Mr. Weber said. “We were going after corruption.” He added, “One thing led to another, led to another and another.”

Still, investigators quickly realized the potential scope of their case. By the time the F.B.I. and the I.R.S. teamed up, an undercover sting operation by the British newspaper The Sunday Times had revealed corruption in FIFA’s highest ranks. Reporters around the globe followed with articles about whether soccer’s top officials could be bought. “We always knew it was going to be a very large case,” Attorney General Loretta E. Lynch said.

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