Dec 252018
 December 25, 2018  Posted by at 10:28 am Finance Tagged with: , , , , , , , , , , , ,  5 Responses »

Caravaggio Nativity with St. Francis and St. Lawrence 1600


The Stock Market Just Booked Its Ugliest Christmas Eve Plunge — Ever (MW)
Japan’s Nikkei Drops 5% After Wall Street Slide Deepens (CNBC)
US Crude Plunges 6.7%, Settling At 18-Month Low At $42.53 (CNBC)
‘The Worst Is Yet To Come’: Experts Say Global Bear Market Coming (CNBC)
In Defense of the Fed (Stephen S. Roach)
Trump, Annoyed By Resignation Letter, Pushes Out Mattis Early (R.)
Mnuchin Holds Calls With Heads Of America’s 6 Biggest Banks Amid Shutdown (F.)
Facebook Is The ‘Biggest Concern’ Among The FAANGs (CNBC)
China Won’t Resort To Massive Monetary Stimulus Next Year – PBOC (CNBC)
Gatwick Drones Pair ‘No Longer Suspects’ (BBC)
Gatwick Police Say They Cannot Discount Possibility There Was No Drone (Ind.)
‘Home Alone’: Bored Trump Tweets Up Storm During Christmas Shutdown (RT)



Bette Davis and Joan Crawford were not each other’s biggest fans



I kid you not: plenty people are blaming this on Trump, too.

The Stock Market Just Booked Its Ugliest Christmas Eve Plunge — Ever (MW)

Never mind finding coal in your stocking for the holidays. Wall Street investors scored a rare — and unwanted — gift this year. The S&P 500 index fell by 2.7% Monday, marking the first session before Christmas that the broad-market benchmark has booked a loss of 1% or greater — ever. That statistic has been confirmed by Dow Jones Market Data, which said the largest decline in the index on the trading day before Christmas was Dec. 23 in 1933.

The Dow Jones Industrial Average finished down 653 points, or 2.9%, representing its worst decline on the session prior to Christmas in the 122-year-old blue-chip gauge’s history. Check out the table below from Dow Jones Market Data:

U.S. stock indexes ended trading at 1 p.m. Eastern Time on Christmas Eve and will be closed on Christmas. The current dynamic in the market has it set for its worst monthly and yearly decline in about a decade, amid nagging concerns that the Federal Reserve is normalizing interest rates too rapidly, and that a continuing tariff dispute between China and the U.S. could devolve and help lead to a domestic recession, as international economies are already demonstrating signs of a slowdown. Also stoking anxiety was a tweet from Treasury Secretary Steven Mnuchin to assess the health of the banking system, which has raised some questions about liquidity among those institutions that had not previously been raised. Treasury officials insist that the calls to bank executives were just a routine checkup.

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The ongoing success of Abenomics.

Japan’s Nikkei Drops 5% After Wall Street Slide Deepens (CNBC)

Japan’s Nikkei retreated to a 20-month low on Tuesday after a slide on Wall Street deepened with a series of unnerving U.S. political developments. The Nikkei share average ended the day down 5.01 percent at 19,155.74 after brushing its lowest since late April 2017. The day’s performance put the index well into bear market territory — off more than 20 percent since its October high. Japan’s broader Topix closed 4.88 percent lower at 1,415.55 after touching 1,412.90, its weakest since November 2016.

Meanwhile, in China, the Shanghai Index posted losses of more than 2 percent by mid-day, but then gained some ground back into the afternoon. Chinese sectors lost ground across the board, led by financial shares and energy firms as oil prices slumped. So far this year, the Shanghai stock index is down about 24 percent. Those Asia moves followed Wall Street stocks extending their steep sell-off on Monday, with the S&P 500 down nearly 15 percent so far this month, as investors were rattled by the U.S. Treasury secretary’s convening of a crisis group and by other political developments.

Many financial markets in Asia, Europe and North America are closed on Tuesday for Christmas Day. “Negative sentiment has replaced logic, as is often the case during a sell-off. A third of the selling is induced by panic, another third by loss-cutting and the remaining third by speculators trying to make a profit from the market rout,” said Takashi Hiroki, chief strategist at Monex Securities in Tokyo. “The sell-off is triggered almost entirely by developments in the U.S. markets, rather than by negative factors unique to the domestic market.”

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Oil swings too much to be safe.

US Crude Plunges 6.7%, Settling At 18-Month Low At $42.53 (CNBC)

U.S. crude plunged nearly 7 percent on Monday, hitting its lowest levels in a year and half, as the oil market fell in tandem with equities amid deepening turmoil in Washington DC. The Dow Jones Industrial Average plummeted more than 600 points, while the S&P 500 closed in bear market territory. Both stock indexes were buffeted by headlines out of Washington, including a government shutdown and President Donald Trump’s reported desire to fire Federal Reserve chair Jerome Powell over the central bank’s interest rate increases.

The selling in global risk assets on Christmas Eve deepened a nearly three-month slide in oil prices. From peak to trough, U.S. crude has fallen nearly 45 percent from its 52-week high at the start of October. Brent has fallen as much as 42 percent over the same period. “For now, there’s no place to hide in any of these markets. Oil’s being taken down with the stock market and the negative sentiment that’s sweeping across really everything, and for now the downward pressure is going to persist,” John Kilduff, founding partner at energy hedge fund Again Capital told CNBC’s “Closing Bell” on Friday.

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The so-called experts see themselves as mighty smart when all they’ve done is suck from the fed’s trough. Humbug!

‘The Worst Is Yet To Come’: Experts Say Global Bear Market Coming (CNBC)

Volatility on Wall Street has led shares across the globe on a wild ride in recent months, resulting in a number of stock markets dipping into bear territory. That’s set to worsen in the new year, experts told CNBC on Monday. Bear markets — typically defined as 20 percent or more off a recent peak — are threatening investors worldwide. In the U.S., the Nasdaq Composite closed in a bear market on Friday and the S&P 500 entered one on Monday. Globally, Germany’s DAX and China’s Shanghai Composite have also entered bear market levels. Major market risks remain, experts said. The Federal Reserve is likely to continue raising interest rates and worries about a global economic slowdown — made worse by a trade war between the U.S. and China — are mounting.

“I would love to be more optimistic but i just don’t see too many positives out there. I think the worst is yet to come next year, we’re still in the first half of a global equity bear market with more to come next year,” Mark Jolley, global strategist at CCB International Securities, told CNBC’s “Squawk Box.” For Jolley, the big risk lies in the credit markets. With the Fed projecting another two interest rate hikes in 2019, companies will find it increasingly difficult to service their debt causing some to default or get downgraded, he said. Such weakness in the credit markets will spill over to stocks, noted Jolley. “My core scenario will be a credit event, which will further weigh on equity markets, which will definitely weigh on high growth sectors like tech,” he said.

More generally, investors have fewer reasons to be optimistic now because the Fed tightening monetary policy means there will be less money for investments, said Vishnu Varathan, head of economics and strategy at Mizuho Bank. “There is really no conviction for markets to buy back because they’re not sure this is the bottom, and so they are thinking this is the proverbial falling knives,” Varathan told CNBC’s “Squawk Box.”

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The Fed spent the past 10 years making sure its member banks kept on making indecent amounts of money. And now they need to be defended?

In Defense of the Fed (Stephen S. Roach)

I have not been a fan of the policies of the US Federal Reserve for many years. Despite great personal fondness for my first employer, and appreciation of all that working there gave me in terms of professional training and intellectual stimulation, the Fed had lost its way. From bubble to bubble, from crisis to crisis, there were increasingly compelling reasons to question the Fed’s stewardship of the US economy. That now appears to be changing. Notwithstanding howls of protest from market participants and rumored unconstitutional threats from an unhinged US president, the Fed should be congratulated for its steadfast commitment to policy “normalization.”

It is finally confronting the beast that former Fed Chairman Alan Greenspan unleashed over 30 years ago: the “Greenspan put” that provided asymmetric support to financial markets by easing policy aggressively during periods of market distress while condoning froth during upswings. Since the October 19, 1987 stock-market crash, investors have learned to count on the Fed’s unfailing support, which was justified as being consistent with what is widely viewed as the anchor of its dual mandate: price stability. With inflation as measured by the Consumer Price Index averaging a mandate-compliant 2.1% in the 20-year period ending in 2017, the Fed was, in effect, liberated to go for growth.

And so it did. But the problem with the growth gambit is that it was built on the quicksand of an increasingly asset-dependent and ultimately bubble- and crisis-prone US economy. Greenspan, as a market-focused disciple of Ayn Rand, set this trap. Drawing comfort from his tactical successes in addressing the 1987 crash, he upped the ante in the late 1990s, arguing that the dot-com bubble reflected a new paradigm of productivity-led growth in the US. Then, in the early 2000s, he committed a far more serious blunder, insisting that a credit-fueled housing bubble, inflated by “innovative” financial products, posed no threat to the US economy’s fundamentals. As one error compounded the other, the asset-dependent economy took on a life of its own.

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Someone better collect some pieces on Mattis from 2 years ago. Won’t look anything like the sainthood declarations he’s getting today.

Trump, Annoyed By Resignation Letter, Pushes Out Mattis Early (R.)

U.S. President Donald Trump on Sunday said he was replacing Defense Secretary Jim Mattis two months earlier than had been expected, a move officials said was driven by Trump’s anger at Mattis’ resignation letter and its rebuke of his foreign policy. On Thursday, Mattis had abruptly said he was quitting, effective Feb. 28, after falling out with Trump over his foreign policy, including surprise decisions to withdraw all troops from Syria and start planning a drawdown in Afghanistan. Trump has come under withering criticism from fellow Republicans, Democrats and international allies over his decisions about Syria and Afghanistan, against the advice of his top aides and U.S. commanders.

The exit of Mattis, highly regarded by Republicans and Democrats alike, added to concerns over what many see as Trump’s unpredictable, go-it-alone approach to global security. Trump said Deputy Defense Secretary Patrick Shanahan would take over on an acting basis from Jan. 1. In announcing his resignation, Mattis distributed a candid resignation letter addressed to Trump that laid bare the growing divide between them, and implicitly criticized Trump for failing to value America’s closest allies, who fought alongside the United States in both conflicts. Mattis said that Trump deserved to have a defense secretary more aligned with his views.

Trump, who tweeted on Thursday that Mattis was “retiring, with distinction, at the end of February,” made his displeasure clear on Saturday by tweeting that the retired Marine general had been “ingloriously fired” by former President Barack Obama and he had given Mattis a second chance.

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The only interesting question: why go public with something so ordinary?

Mnuchin Holds Calls With Heads Of America’s 6 Biggest Banks Amid Shutdown (F.)

No need to panic. That was the message Treasury Secretary Steven Mnuchin sought to convey after holding unscheduled Sunday afternoon calls with the heads of the largest banks in America, Jamie Dimon of JPMorgan, Brian Moynihan of Bank of America, Michael Corbat of Citigroup, Tim Sloan of Wells Fargo, David Solomon of Goldman Sachs and James Gorman of Morgan Stanley. In a statement released by Treasury, Mnuchin said these CEOs confirmed “markets continue to function properly.” These bankers also assured Mnuchin their firms have the liquidity to fund themselves and their lending activities, and reported no clearance or margin issues on their trades, Treasury said.

A decade ago, such calls and terse press releases were routine Sunday events as Treasury officials, the Federal Reserve, and bank heads worked together to stem the worst financial panic since the Great Depression. This time, however, Mnuchin’s unusual efforts come amid a growing economy where credit is flowing freely. Instead of a financial panic, his comments seemed aimed at market concerns coming from political turmoil in Washington.

On Monday, Mnuchin will convene a call with the President’s Working Group on financial markets “to discuss coordination efforts to ensure normal market operations,” bringing together the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Commission.

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They’re all grossly overvalued.

Facebook Is The ‘Biggest Concern’ Among The FAANGs (CNBC)

One industry analyst has sounded the alarm on Facebook, calling the company the “biggest concern” among the so-called FAANG stocks. “The digital economy operates on trust, and they’ve broken trust on so many levels,” Ray Wang, principal analyst and founder at Silicon Valley-based Constellation Research, told CNBC’s “Squawk Box” on Monday. The FAANG stocks consist of Silicon Valley tech giants Facebook, Amazon, Apple, Netflix and Google-parent Alphabet.

Wang said many of Facebook’s trust woes have been “centralized” around Chief Operating Officer Sheryl Sandberg, who was in the spotlight after a New York Times report in mid-November about the executive and the social media company’s internal operations. The Times report came on the back of a series of scandals and incidents which have mired Facebook in controversy and sent its stock sinking in 2018. As of its last close after extended hours trade on Dec. 21, the company’s stock price was more than 40 percent off its 52-week high. Asked about the possibility of Sandberg departing from Facebook, Wang said it was “in the rumor category.”

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China’s afraid of the exchange rate.

China Won’t Resort To Massive Monetary Stimulus Next Year – PBOC (CNBC)

China will not resort to “flood-like” stimulus in monetary policy next year, although it will consider more cuts as needed to reserves held at commercial banks, local media quoted a central bank adviser as saying in a report on Tuesday. The Chinese economy will face downward pressure in 2019, while the pace of growth will gradually stabilize, the 21st Century Business Herald quoted Sheng Songcheng, an advisor to the People’s Bank of China (PBOC), as saying. “Monetary policy will remain prudent and won’t be a ‘flood.’ Otherwise, funds will likely flow into the property sector again,” Sheng was quoted as saying by the state-backed newspaper.

There remains room for further cuts in banks’ reserve requirement ratios (RRRs), and Sheng does not recommend broad-based reductions in interest rates, it said. China will bolster support next year for its economy, the world’s second-largest, by cutting taxes and keeping liquidity ample, the official Xinhua news agency said after last week’s Central Economic Work Conference, an annual closed-door gathering of party leaders and policymakers. [..] On exchange rates, the central bank adviser said China should defend the yuan at the key seven-per-dollar level. “The key threshold of seven per dollar is very important. If the yuan weakens past that crucial point, the cost of stabilizing the exchange rate will be greater,” Sheng was quoted as saying.

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The level of incompetence is sobering.

Police tell BBC News they “cannot discount the possibility that there may have been no drone at all”.

Gatwick Drones Pair ‘No Longer Suspects’ (BBC)

A man and woman arrested in connection with drone sightings that grounded flights at Gatwick Airport have been released without charge. The 47-year-old man and 54-year-old woman, from Crawley, West Sussex, had been arrested on Friday night. Sussex Police said there had been 67 reports of drone sightings – having earlier cast doubt on “genuine drone activity”. Det Ch Supt Jason Tingley said no footage of a drone had been obtained. And he said there was “always a possibility” the reported sightings of drones were mistaken.

However, he later confirmed the reported sightings made by the public, police and airport staff from December 19 to 21 were being “actively investigated”. “We are interviewing those who have reported these sightings, are carrying out extensive house-to-house inquiries, and carrying out a forensic examination of a damaged drone found near the perimeter of the airport.” Det Ch Supt Tingley said it was “a working assumption” the device could be connected to their investigation, but officers were keeping “an open mind”.

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‘We are working with human beings saying they have seen something..’ Cue 150,000 ruined holidays.

Gatwick Police Say They Cannot Discount Possibility There Was No Drone (Ind.)

Detectives investigating the Gatwick drone attacks which caused three days of chaos for passengers say it is possible there never were any drones. Police do not have any footage of the flying machines at the airfield and are relying on accounts from witnesses and the discovery of a damaged device. The revelation by Detective Chief Superintendent Jason Tingley came after the couple arrested by Sussex Police on Friday night were released without charge. Asked about speculation there never was a drone, he said: “Of course, that’s a possibility. We are working with human beings saying they have seen something. “Until we’ve got more clarity around what they’ve said, the detail – the time, place, direction of travel, all those types of things – and that’s a big task.”

Mr Tingley said one of the “working theories” was that the damaged drone found close to the airport in Sussex was responsible for causing the disruption. “Always look at it with an open mind, but actually it’s very basic common sense that a damaged drone, which may have not been there at a particular point in time has now been seen by an occupier, a member of the public, and then they’ve told us, ‘we’ve found this’. “Then we go and forensically recover it and do everything we can at that location to try and get a bit more information.” [..] Gatwick Airport has offered a £50,000 reward through Crimestoppers for information leading to the arrest and conviction of those responsible for the chaos.

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It doesn’t matter what anybody does, Trump still hoards the attention.

‘Home Alone’: Bored Trump Tweets Up Storm During Christmas Shutdown (RT)

With the US government shut down due to the dispute over funding President Donald Trump’s border wall, and his family in Florida, the chief executive has chosen to spend the Christmas holiday taking potshots at critics on Twitter. Funding for about a quarter of US government services ran out on Friday at midnight, as Senate Democrats refused to endorse a House funding bill that would’ve given Trump $5.7 billion for the border wall. Trump was supposed to celebrate Christmas at Mar-a-Lago with his family, but elected to stay in the White House instead, tweeting up a storm.

Trump tweeted twenty times on Thursday, as the shutdown loomed. He continued posting on Friday (ten), Saturday (seven) and Sunday (eight), then ramped up the schedule on Monday, with ten tweets by the early afternoon. In addition to his usual complaints about “Fake News” and Democrats, Trump has also taken aim at the Federal Reserve, praised Saudi Arabia, and dismissed Washington’s envoy to the anti-ISIS coalition as an “Obama appointee” who gave Iran $1.8 billion “in CASH” as part of the “horrific” nuclear deal. He also complained, tongue firmly in cheek, about being “all alone (poor me) in the White House waiting for the Democrats to come back and make a deal on desperately needed Border Security.”

Though Trump’s Twitter tirades usually trigger the trolls, that last one brought up a multitude of call-backs to the president’s cameo in 1992’s Christmas comedy ‘Home Alone 2: Lost in New York.’

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Dec 202018

Giovanni Bellini Madonna and Child with St. John the Baptist and Female Saint 1500-04


It’s 100 days to Brexit (Ind.)
Powell Breaks The Market (ZH)
A Major Technical Breakdown Just Occurred In Stocks (Colombo)
Peter Schiff : Not A Bear Market But ‘A House Of Cards The Fed Built’ (MW)
Asian Shares Battered After Fed Raises Rates For Fourth Time (G.)
Short-Term Funding Bill Announced To Stop Trump’s Government Shutdown (Ind.)
Trump Plans Full Withdrawal Of US Troops From Syria (AFP)
Don’t Hold Your Breath on US Troop Withdrawal from Syria (CN)
US Occupation of Middle East Doesn’t Suppress Terrorism, It Causes It (Murray)
Big Pharma Returning To US Price Hikes In January After Pause (R.)
Italy Avoids EU Sanctions After Reaching 2019 Budget Agreement (G.)
French Police Threaten To Join Protesters (NW)
London’s Gatwick Airport Shut Down After Drones Spotted Overhead (AP)
Der Spiegel Says Top Journalist Faked Stories For Years (G.)
Finless Porpoise, China’s Smiling Angel, Fights To Survive (AFP)



Yes it is. And so of course the UK talked about one thing only. Did Corbyn call Theresa May a ‘stupid woman’ or did he say ‘stupid people’ about a group of Tories, as a whole contingent of lipreaders claimed?

They sure know what’s important, and what not.

It’s 100 days to Brexit (Ind.)

The vote of the House of Commons on the Brexit deal will now be in the week beginning 14 January, the prime minister confirmed on Monday. She hopes that her MPs are slowly coming round to the deal as the least worst option. She may also hope that Jeremy Corbyn gives his MPs a free vote, in which case enough of them may vote for her deal as a way of avoiding another referendum. It still seems more likely that Theresa May will lose, in which case the Brexit timetable will slip further. She would probably then ask the Commons to vote again after it had rejected the other options.

The one that is easiest to eliminate would be that of leaving the EU without a deal, even if it were dressed up as a “managed no deal” – at least, it ought to be easy to eliminate this option, but, until all the hoops have been jumped through, a no-deal Brexit remains the default, which is why there was such a fuss about no-deal planning at yesterday’s cabinet. The more difficult course for parliament to rule out is that of postponing Brexit and holding a referendum. If Corbyn backs a final say referendum, a Commons vote could be close, but, if May can defeat that option, she could then ask MPs to vote again on her deal. That seems to be her plan: to wear parliament down. That way she might finally win the vote at a second attempt a week later, in the week beginning 21 January – or even after that.

By then, the country would be running out of time to complete Brexit by 29 March. The problem is that a vote to approve the deal, important though it is, is only one of the things that need to be done to take us out of the EU. Once the deal has been approved, parliament also has to pass legislation to give effect to the withdrawal agreement in UK law. This will be called the EU (Withdrawal Agreement) Bill – yet another bill that sounds similar to all the others. It will be a complex and contentious bill that will be tricky to get through a hung parliament. In particular, it will contain a mechanism to entrench parts of the withdrawal agreement in UK law and make it hard for future parliaments to change them.

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Well, not really. Powell and his predecessors built such a huge zombie that it can’t be called a market. So he’s not breaking a market but a zombie, and how exactly can that be a bad thing?

Powell Breaks The Market (ZH)

“Everything was awesome” and then Jay Powell said… Some years ago, we took away the lesson that the markets were very sensitive to news about the balance sheet, so we thought carefully about how to normalize it and thought to have it on automatic pilot, and use rates to adjust to incoming data. That has been a good decision, I think, I don’t see us changing that…. we don’t see balance sheet runoff as creating problems” And everything broke…

Overnight futures show hopeful buying – “surely The Fed will deliver and capitulate… for goodness sake, someone has to rescue my FANG portfolio!!??” – But The Fed did not – cutting their rate outlook by a mere one hike, with plenty still seeing 3 hikes ahead in 2019…

The market now expects 18bps of RATE CUTS in 2020!!!

And Futures collapsed…

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Same here with my buddie Jesse: comparing what happens with today’s zombie, with functioning markets of the past, is dangerous and of limited value.

A Major Technical Breakdown Just Occurred In Stocks (Colombo)

The much-anticipated December Fed meeting has finally come and gone, and the stock market did not like what it heard. The Fed raised rates by 0.25% and cut its expectation for 2019 rate hikes from three to two. Because the Fed didn’t sound as dovish as many investors would have liked, the S&P 500 promptly fell 1.54% to a fresh 2018 low. From a technical perspective, today’s action is extremely concerning because the S&P 500 broke the key 2,550 to 2,600 support zone that I’ve been showing for the past couple months. Today’s breakdown increases the probability of further bearish action unless the index somehow manages to close back above that zone.

The longer-term S&P 500 chart shows how critical today’s breakdown is. Today’s breakdown is the second important technical breakdown in recent months (the first one being the break below the trendline that formed in early-2016, which I said was a bad omen). Assuming today’s breakdown remains intact, 2,100 (the 2015 and 2016 highs) is the next price target and support level to watch.

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Peter Schiff appears to agree with me, only he calls it a house of cards, not a zombie.

Peter Schiff : Not A Bear Market But ‘A House Of Cards The Fed Built’ (MW)

Where in the world is Peter Schiff, as the stock market entered an apparent unraveling phase? Find the chief executive of Euro Pacific Capital, a longtime gold bug and market pundit, on a beach in Puerto Rico, where he’s taken up residence as he watches the equity market get rocked. “I’m watching the U.S. economy implode from the beach,” Schiff told MarketWatch during a recent phone interview. “We’re in a lot of trouble,” he said. “This isn’t a bear market, we’re in a house of cards that the Fed built,” he said. Indeed, despite recent attempts to rebound, the Dow Jones is on track for its worst year since 2008 — down by about 3.5% — when the financial crisis brought global markets to their knees, according to Dow Jones Market Data.

The same goes for the S&P 500 which would also notch its worst year in a decade, if its roughly 4% decline thus far this year hold. Schiff is a polarizing figure on Wall Street, a man that critics say has harbored a persistent and unrealized post-crisis narrative for the Fed’s monetary policy, with predictions of soaring inflation and a dollar collapse. However, the prominent investor should be worthy of investors’ attention, on the back of his prescient calls ahead of the 2008 financial crisis, which earned him plaudits as one of the few able to spot a global economic crisis emanating from the housing market.

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“The Fed’s been a huge friend of the stock market and they are now a little bit of an enemy and will probably become worse of an enemy..”

Asian Shares Battered After Fed Raises Rates For Fourth Time (G.)

Asian stock markets have taken a battering after the US Federal Reserve voted to raise borrowing costs for the fourth time this year, signalling a further squeeze on liquidity around the world. In Tokyo, the Nikkei closed down nearly 3% to its lowest point for 14 months as the Fed’s pledge to continue with “gradual” rate hikes next year sent shivers through financial markets. Shares in Hong Kong and Seoul were both down more than 1% while stocks in Sydney finished at a two-year low. Futures trading pointed to a drop of 2% in the FTSE100 index in London and the Dax in Frankfurt when when the markets open on Thursday morning.

Investors’ confidence that the global economy is headed for a significant slowdown was further weakened when China’s central bank introduced a new lending facility for small private businesses, which was seen as a targeted rate cut designed to kickstart the spluttering economy. The move by the People’s Bank of China shows the two biggest economies are out of step with Beijing responding to a rate hike in the US with a de facto cut. The Shanghai Composite share index was down nearly 1% in afternoon trade while the yuan wad fixed 0.22% lower against the US dollar. [..] “The Fed’s been a huge friend of the stock market and they are now a little bit of an enemy and will probably become worse of an enemy before this is all over,” Bob Doll, Nuveen chief equity strategist and senior portfolio manager, told Bloomberg.

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McConnell saves the day…

Short-Term Funding Bill Announced To Stop Trump’s Government Shutdown (Ind.)

Senate Majority Leader Mitch McConnell has introduced a short-term spending bill to finance the US government and avoid a shutdown at the end of the week Mr McConnell, the leading Republican in the Senate, said that the funding bill known as a continuing resolution “will ensure continuous funding for the federal government” until 8 February. The short-term bill needs to be approved by both the Senate and the House of Representatives before it can proceed to President Donald Trump’s desk to be signed into law. Mr McConnell’s bill comes as Congress races against time before funding for the government runs out on Friday at midnight, amid a contentious push by Mr Trump to make $5bn worth in funding for his controversial border wall a requirement for any spending agreement.

But, while Mr Trump had indicated that he would take responsibility for a shutdown in order to make a point about the wall, the White House has since stepped back from that threat. We have other ways that we can get to that $5 billion”, White House Press Secretary Sarah Huckabee Sanders said on Tuesday. On the Senate floor, Mr McConnell lashed out at Democrats, who will reclaim their House majority in January, for failing to give Mr Trump any of the $5bn he has asked for. “This seems to be the reality of our political moment,” Mr McConnell said. “It seems like political spite for the president may be winning out over sensible policy.”

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We’re going to see endless and contradictory ‘analyses’ of this. It’s already drawn out the likes of Lindsey Graham and Mario Rubio and exposed them as deep state soldiers.

Trump Plans Full Withdrawal Of US Troops From Syria (AFP)

The United States will withdraw its troops from Syria, a US official told AFP on Wednesday, after President Donald Trump said America has “defeated ISIS” in the war-ravaged country. The stunning move will have extraordinary geopolitical ramifications and throws into question the fate of US-backed Kurdish fighters who have been tackling Islamic State jihadists. “We have defeated ISIS in Syria, my only reason for being there during the Trump Presidency,” the Republican president tweeted. The US official told AFP that Trump’s decision was finalized Tuesday. “Full withdrawal, all means all,” the official said when asked if the troops would be pulled from all of Syria.

Currently, about 2,000 US forces are in Syria, most of them on a train-and-advise mission to support local forces fighting IS. The official would not provide a timeline for a withdrawal, saying only: “We will ensure force protection is adequately maintained, but as quickly as possible.” Echoing Trump, White House spokeswoman Sarah Sanders said IS has been defeated territorially, noting the US-led coalition that includes dozens of nations would continue fighting IS. “These victories over ISIS in Syria do not signal the end of the Global Coalition or its campaign,” Sanders said in a statement. “We have started returning United States troops home as we transition to the next phase of this campaign.”

[..] Republican Senator Lindsey Graham, a Trump ally, said the president’s decision was shortsighted. “President @realDonaldTrump is right to want to contain Iranian expansion,” Graham said on Twitter. “However, withdrawal of our forces in Syria mightily undercuts that effort and put our allies, the Kurds at risk.” Charles Lister, a senior fellow at the Middle East Institute, called the decision “extraordinarily short-sighted and naive.” “This move will look like a ‘withdrawal,’ not a ‘victory,’ and yet more evidence of the dangerous unpredictability of the US president,” Lister said. “This is not just a dream scenario for ISIS, but also for Russia, Iran and the Assad regime, all of whom stand to benefit substantially from a US withdrawal.”

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It is quite possible that the deep state will eventually swallow Trump’s announcement whole. However, if he had gone through the usual channels to make his announcement, they would have caught it before it became public. That’s why he has Twitter.

Don’t Hold Your Breath on US Troop Withdrawal from Syria (CN)

The announcement on Wednesday that the U.S. will withdraw all remaining troops from Syria within the next month looked at first like a rare victory for Donald Trump in his admittedly erratic opposition to senseless wars of adventure. “We have defeated ISIS in Syria, my only reason for being there,” the president tweeted with an unmistakable air of triumph. Don’t get your hopes up. Just about everything in these initial reports is either wrong or misleading. One, the U.S. did not defeat the Islamic State: The Syrian Arab Army, aided by Russia, Iran, and Hezbollah militias did. Two, hardly was ISIS the only reason the U.S. has maintained a presence in Syria. The intent for years was to support a coup against the Assad government in Damascus—in part by training and equipping jihadists often allied with ISIS.

For at least the past six months, the U.S. military’s intent in Syria has been to counter Iranian influence. Last and hardly least, the U.S. is not closing down its military presence in Syria. It is digging in for an indefinite period, making Raqqa the equivalent of the Green Zone in Baghdad. By the official count, there are 503 U.S. troops stationed in the Islamic State’s former capital. Unofficially, according to The Washington Post and other press reports, the figure is closer to 4,000—twice the number that is supposed to represent a “full withdrawal” from Syrian soil. It would be nice to think Washington has at last accepted defeat in Syria, given it is preposterous to pretend otherwise any longer.

Damascus is now well into its consolidation phase. Russia, Iran, and Turkey are currently working with Staffan de Mistura, the UN’s special envoy for Syria, to form a committee in January to begin drafting a new Syrian constitution. It would also be nice to think the president and commander-in-chief has the final say in his administration’s policies overseas, given the constitution by which we are supposed to be governed. But the misleading announcement on the withdrawal of troops, followed by Trump’s boastful tweet, suggest something close to exactly the opposite. As Trump finishes his second year in office, the pattern is plain: This president can have all the foreign policy ideas he wants, but the Pentagon, State, the intelligence apparatus, and the rest of what some call “the deep state” will either reverse, delay, or never implement any policy not to its liking.

Read more …

The Grand Coalition includes the media.

US Occupation of Middle East Doesn’t Suppress Terrorism, It Causes It (Murray)

Even the neo-con warmongers’ house journal The Guardian, furious at Trump’s attempts to pull US troops out of Syria, in producing a map to illustrate its point, could only produce one single, uncertain, very short pen stroke to describe the minute strip of territory it claims ISIS still control on the Iraqi border. Of course, the Guardian produces the argument that continued US military presence is necessary to ensure that ISIS does not spring back to life in Syria. The fallacy of that argument can be easily demonstrated. In Afghanistan, the USA has managed to drag out the long process of humiliating defeat in war even further than it did in Vietnam.

It is plain as a pikestaff that the presence of US occupation troops is itself the best recruiting sergeant for resistance. In Sikunder Burnes I trace how the battle lines of tribal alliances there today are precisely the same ones the British faced in 1841. We just attach labels like Taliban to hide the fact that invaders face national resistance. The secret to ending the strength of ISIS in Syria is not the continued presence of American troops. It is for America’s ever closer allies in Saudi Arabia and the Gulf to cut off the major artery of money and arms, which we should never forget in origin and for a long time had a strong US component. The US/Saudi/Israeli alliance against Iran is the most important geo-political factor in the region today.

It is high time this alliance stopped both funding ISIS and pretending to fight it; schizophrenia is not a foreign policy stance. There has been no significant Shia Islamic terrorist or other threat against the West in recent years. 9/11 was carried out by Saudi Sunni militants. Al Qaida, ISIS, Al Nusra, Boko Haram, these are all Sunni groups, and all Saudi sponsored. It is a matter of lunacy that the West has adopted the posture that it is Iran – which has sponsored not one attack on the West in recent memory – which is the threat in the Middle East.

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Trump will have to act, or risk looking like a fool.

Big Pharma Returning To US Price Hikes In January After Pause (R.)

Novartis and Bayer are among nearly 30 drugmakers that have taken steps to raise the U.S. prices of their medicines in January, ending a self-declared halt to increases made by a pharma industry under pressure from the Trump administration, according to documents seen by Reuters.The hikes will pose a new challenge to President Donald Trump’s pledge to lower the costs of prescription medications in the world’s most expensive pharmaceutical market. The U.S. Department of Health and Human Services (HHS) has proposed a slew of policies aimed at lowering prices and passing more of the discounts negotiated by health insurers on to patients.

Those measures are not expected to provide relief to consumers in the short-term, however, and fall short of giving government health agencies direct authority to negotiate or regulate drug prices. 28 drugmakers filed notifications with California agencies in early November disclosing that they planned to raise prices in 60 days or longer. Under a state law passed last year, companies are required to notify payers in California if they intend to raise the U.S. list price on any drug by more than 16 percent over a two-year period. [..] “Requests and public shaming haven’t worked” to lower drug prices, said Michael Rea, chief executive of RX Savings Solutions, which helps health plans and employers seek lower cost prescription medicines. “We expect the number of 2019 increases to be even greater than in past years.”

Read more …

I think Salvini will get away with presenting this as a victory. But I may be wrong. How far removed is it from what Tsipras pulled in summer 2015? And how much is it like Macron and the yellow vests?

Italy Avoids EU Sanctions After Reaching 2019 Budget Agreement (G.)

Italy has managed to avert EU sanctions after reaching a compromise with the European commission over its 2019 budget. The Italian prime minister, Giuseppe Conte, said the government had managed to reach an agreement to reduce the deficit target to 2.04% of GDP from 2.4%. This has been achieved without making drastic changes to key budget proposals such as the promise of a universal basic income and lowering the pension age. “Over the last few weeks we worked to bring the positions closer without ever moving backwards with respect to the objectives the Italian people set us in the 4 March election,” Conte said.

“The economic-financial estimates about the measures that attracted the most attention of our European partners revealed that the resources [needed] were less than forecast.” The yield, or effective interest rate, on Italian 10-year government bonds fell to 2.79%, the lowest level since September. Less than two months ago the yield, the price the Italian government has to pay to borrow, rose to 3.8%. However, Valdis Dombrovskis, a European commission vice-president, described the agreement with Italy as a “borderline compromise” that fails to provide long-term solutions to the country’s economic problems. “But it enables us, for now, to avoid opening a debt procedure, as long as the negotiated measures are fully applied,” he said at a press conference in Brussels.

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Hilarious: “Police have accumulated some 23 million hours of overtime that is yet to be paid.”

French Police Threaten To Join Protesters (NW)

The French government is desperately trying to keep its exhausted police force onside following weeks of violent protests demanding economic reforms, improved living standards and the resignation of President Emmanuel Macron. On Wednesday, French officials met with police trade union leaders to work out a deal to soothe anger in law enforcement ranks regarding overwork, unpaid overtime and difficult working conditions, Le Monde reported. But some activists are calling on police to walk out on government negotiations, close down police stations and join the “gilets jaunes”—or yellow vest—protesters with whom they have been facing off since November 17. Negotiations between three unions—Alliance, UNSA-Police and Unity-SGP-FO—and Interior Minister Christophe Castaner on Tuesday failed to reach a settlement.

As talks resumed on Wednesday, France 24 reported that activists were calling on forces across the country to commit to a “slowdown” and only respond to emergencies until the dispute had been settled. Police have accumulated some 23 million hours of overtime that is yet to be paid. According to The Local France, police union leader Frédéric Lagache explained, “Faced with this irresponsibility [of the government], we are forced to be irresponsible in our actions.” The Alliance and Unity-SGP-FO unions called for a “black day for the police” on Wednesday. The Alliance is using Twitter and Facebook to rally support for what it calls “Act 1” of the police protests, using the name given to the ongoing demonstrations held by the gilets jaunes. The group has also threatened to hold “Act II” and “Act III” if required.

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I’m thinking one word here: copycats. Too easy not to try at home.

London’s Gatwick Airport Shut Down After Drones Spotted Overhead (AP)

London’s Gatwick Airport shut down late Wednesday while officials urgently investigated reports that two drones were flying above the airfield. The airport suspended all flights, causing severe disruptions just days before Christmas during one of the heaviest travel times of the year. Police and aviation authorities were still investigating early Thursday as incoming flights were diverted to other locations in Britain and nearby countries. Passengers complained on Twitter that their flights had landed at London Heathrow, Manchester, Birmingham and other cities. Other flights were sent to France and the Netherlands. One traveler whose flight was diverted tweeted that passengers were not being told when they could continue to their destination.

Gatwick advised travelers via Twitter to check flights scheduled for Thursday before heading to the airport. It also advised anyone planning to pick up arriving passengers to check first. Any problem at Gatwick causes a ripple effect throughout Britain and continental Europe, particularly during a holiday period when the air traffic control system is under strain. It is a busy airport 27 miles south of London, hosting a variety of short- and long-haul flights and serving as a major hub for the budget carrier easyJet. Gatwick normally operates throughout the night but the number of flights is restricted because of noise limitations. The airport website says it usually handles 18 to 20 flights overnight during the winter months.

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Yes, it’s priceless to read the Guardian on fake news.

Craig Murray tweets: ..The Guardian today published a story about a German journalist who invented stories, but still has never apologised for its own 100% fabricated Luke Harding piece about Manafort’s “visits to Assange in the Embassy”, and Harding and Viner are still employed..

Der Spiegel Says Top Journalist Faked Stories For Years (G.)

The German news magazine Der Spiegel has been plunged into chaos after revealing that one of its top reporters had falsified stories over several years. The media world was stunned by the revelations that the award-winning journalist Claas Relotius had, according to the weekly, “made up stories and invented protagonists” in at least 14 out of 60 articles that appeared in its print and online editions, warning that other outlets could also be affected. Relotius, 33, resigned after admitting to the scam. He had written for the magazine for seven years and won numerous awards for his investigative journalism, including CNN Journalist of the Year in 2014.

Earlier this month, he won Germany’s Reporterpreis (Reporter of the Year) for his story about a young Syrian boy, which the jurors praised for its “lightness, poetry and relevance”. It has since emerged that all the sources for his reportage were at best hazy, and much of what he wrote was made up. The falsification came to light after a colleague who worked with him on a story along the US-Mexican border raised suspicions about some of the details in Relotius’s reporting, having harboured doubts about him for some time.

The colleague, Juan Moreno, eventually tracked down two alleged sources quoted extensively by Relotius in the article, which was published in November. Both said they had never met Relotius. Relotius had also lied about seeing a hand-painted sign that read “Mexicans keep out”, a subsequent investigation found. Other fraudulent stories included one about a Yemeni prisoner in Guantanamo Bay, and one about the American football star Colin Kaepernick.

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Sometimes I think that if all my friends are leaving, why would I stay behind?

Finless Porpoise, China’s Smiling Angel, Fights To Survive (AFP)

In an oxbow lake along the middle reaches of the Yangtze River, a breathy sigh pierces the surface stillness as one of China’s most endangered animals comes up for a gulp of hazy air. A slick black back with no dorsal fin arches briefly above the water line before plunging back down. Such glimpses of the shy Yangtze finless porpoise, the only aquatic mammal left in China’s longest river and known in Chinese as the “smiling angel” for its perma-grin, are increasingly rare. Pollution, overfishing, hydroelectric dams and shipping traffic have rendered them critically endangered, worse off even than China’s best-known symbol of animal conservation, the panda.

AFP Photo/Johannes EISELE

China’s government estimates there were 1,012 wild Yangtze finless porpoises in 2017, compared to more than 1,800 giant pandas, which is no longer endangered. But researchers see signs of hope. Porpoise numbers fell by nearly half from 2006-2012 to an estimated 1,040. But the rate of decline has slowed markedly since then, suggesting that conservation may be making a dent. A central component of the rescue effort is the introduction of porpoises to several conservation areas off the busy river, where researchers say numbers have been actually increasing. [..] Chinese officials are keen to avoid a repeat of the “baiji”, or Yangtze dolphin, the river’s only other aquatic mammal, which since 2006 has been considered extinct in a huge conservation setback for China. Losing the “smiling angel” would be a further tragedy, conservationists say.

Read more …

Dec 122014
 December 12, 2014  Posted by at 6:31 pm Finance Tagged with: , , , ,  11 Responses »

DPC Youngstown, Ohio. Steel mill and Mahoning River 1902

Please allow me to revert back again a little to what I wrote earlier today in Will Oil Kill The Zombies? I think we need to be clear on what’s going on here. The oil market actually works. And that’s a rarity in today’s world of manipulated everything, of no mark to market, of huge stock buybacks financed by zero interest rates, you know the story.

We know that the market works because of for instance this article from CNBC:

Oil Pressure Could Sock It To Stocks

“Oil has pretty much spooked people,” said Daniel Greenhaus, chief global strategist at BTIG. “There just isn’t a bid. With everything in energy and the oil price collapsing as it is, who is going to step in and be a buyer now? The answer is nobody.”

b>”It’s (oil) actually much weaker than the futures markets indicate. This is true for crude oil, and it’s true for gasoline. There’s a little bit of a desperation in the crude market,” said Kloza.”The Canadian crude, if you go into the oil sands, is in the $30s, and you talk about Western Canadian Select heavy crude upgrade that comes out of Canada, it’s at $41/$42 a barrel.

“Bakken is probably about $54.” Kloza said there’s some talk that Venezuelan heavy crude is seeing prices $20 to $22 less than Brent, the international benchmark. Brent futures were at $63.20 per barrel late Thursday.

“In the actual physical market, it’s fallen by even more than the futures market. That’s a telling sign, and it’s telling me that this isn’t over yet. This isn’t the bottoming process. The physical market turns before the futures,” he said.

It’s not about where WTI and Brent are at any given moment. Even if WTI is down another 3.60% today so far at $57.79. Whatever WTI tells us, the real world out there trumps it by a mile and a half. The prices at which oil actually sells in the real world are way below WTO and Brent standards, a very big and scary development. There are tons of parties that will sell at any price they can get. There is no better way to drive prices down further, it’s a vicious circle down a drain.

The market is setting future prices as we go along, that’s the – inevitable – mechanism. It’s called price discovery. We knew ISIS was selling at $30 or so, but tar sands at $30 and both Canada and Venezuela heavy crude at $40, that’s way more than an outlier. At WTI standard prices, too many can’t move nearly enough product anymore, and with credit having been slashed, moving product is the sole way to survive. How much of this ongoing process would you think we have we seen to date?

Here’s one of the first oil-producing countries about which serious alarm bells are raised. It’s not Venezuela or Nigeria, it’s Canada. From MarketWatch:

Falling Oil Threatens Canada’s Bulletproof Banking System

While the U.S. financial system – as well as many international banks – has gotten hopped up on a wide assortment of financial opiates and stumbled through more than a dozen bank-fueled crises through the decades, Canada boasts a stellar track record of banking sobriety. However, a spectacular death spiral in crude-oil futures – West Texas Intermediate settled Thursday at $59.95, a more than five-year low – threatens to deliver a serious shock to the banking system of the U.S.’s northern neighbor, according to a research note published Thursday by Pavilion Global Markets. Canada ranks as one the world’s five largest energy producers and a net exporter of oil, according to the U.S. Energy Information Administration. So, a big drop in oil would pose several risks to Canada’s oil-dependent economy.

“The drop in oil prices, as mentioned above, will have wide-ranging implications on the Canadian economy,” Pavilion strategists Pierre Lapointe and Alex Bellefleur said in the note. It’s not just that Canada’s banks will find themselves saddled with souring loans from underwater energy producers. The problem, Pavilion argues, is that Canada’s employment rate could suffer as oil-related businesses are forced to close.

Here’s how they put it: “In this context, the risk to Canadian banks doesn’t stem necessarily from a narrow view of loans to oil companies, but morefrom a broad macro risk perspective. As employment in the oil industry declines, a negative income and wealth shock to many households will take place, impacting a variety of loans (credit card, mortgage) on Canadian bank balance sheets.”

This is what I’ve been hammering on for weeks: the benefits of cheap oil are no match for the destruction that touches on a thousand different parts of our economies. It doesn’t help that much of both Canadian and American oil, especially the unconventional kinds, were drowning in debt even before oil turned south with a vengeance. But that’s not even the most crucial part.

Our entire economies revolve around oil, it’s not just something that you put in your car, oil is everywhere, it’s built our world and it maintains it.. And therefore the effects of a sudden 40% price drop – and counting – will be felt everywhere. What we’ve seen so far can still be labeled ‘orderly’, but that’s not going to last. Still, look at the bright side: at least you can say that for once in your life you’ve witnessed a functioning market.

Dec 092014
 December 9, 2014  Posted by at 8:04 pm Finance Tagged with: , , , , , , , ,  11 Responses »

DPC North approach, Pedro Miguel Lock, Panama Canal 1915

And on the Seventh Day, God sold his shares? What do you think, is He short the market? Short oil? Oil does look up a tad, but then the dollar lost about a percent vs the euro, so that definitely feels like a headfake from where I’m sitting. The dollar lost more vs the euro than oil gained against the dollar. Gold and silver have somewhat more solid looking gains, but that’s against the same feverish buck, so what does it really mean? We’ll have to wait and see.

Now, be honest, who’s getting nervous yet? WTI oil yesterday fell 4.5% and tumbled through $63. $63, brother, you remember when it was $80 and you were thinking wow, that’s a long way down? That’s when you took that suit to the cleaners, and that feels like just yesterday, don’t it, and here we are, it’s down another 20%+. Anyone worried about their Christmas bonuses yet? New Year’s?

The central-bank-propped-up stock exchanges didn’t even like what they saw anymore either yesterday, let alone today. Greece down -13%, Shanghai -5.4%, Argentina -7.1%, Europe on average -2.5%. And that’s on a weak dollar day… Think we’ll have a lot of those days? Think God is short the greenback?

Is oil going to break the whole facade? What do YOU think? You think that maybe we’ve had enough of this charade? Is this the one God, let alone the Yellens and Draghis on this planet can’t manipulate from their comfy seats? The Fed can buy Exxon and Conoco, and Draghi can try and support Shell and BP, or maybe the Bank of England should, but oil is a global thing, it’s not like Treasuries or Greek debt that you can just buy a $1 trillion handful of every week or so.

But maybe God found a way to keep some more of the stuff in the ground. Who was it again that said nature developed man only to get rid of a carbon imbalance on the planet, to get it out of the soil and back into the atmosphere?

God’s representatives on earth anno 2014, central bankers, can’t control oil anymore than they can consumer spending. Anything else, they’re fine. But that makes them weak, it’s their Achilles heel, the things they can’t control. It didn’t used to be that way, but today central bankers are like movie stars. Exactly because they did everything they could to keep asset prices up. These days, you never leave home without one. Or as the Rolling Stones put it 40 years ago (when central banking was something entirely different from what it is now):

When your spine is cracking and your hands, they shake
Heart is bursting and you butt’s gonna break
Your woman’s cussing, you can hear her scream
You feel like murder in the first degree

Ain’t nobody slowing down no way
Everybody’s stepping on their accelerator crude oil tanker
Don’t matter where you are
Everybody’s gonna need a ventilator central banker

US Thanksgiving weekend spending was down 11%, and movie theatre box office no less than 20%. Sure online sales and Netflix went up a notch, but come on, a 16 year low Thanksgiving box office and the second installment of the Hunger Games trailing 25% behind the first, how does that spell recovery to you? Think God liked part 1 that much better?

Americans, like everybody else, are down and out. Their spines are cracking and their hands are shaking, and they don’t have a central banker on their side. Their central banker has sold all she could to the ‘other side’, and now she has no choice but to let oil prices kill millions of jobs, unless somehow an actual supply and demand market rises from its zombie state, the same market she has been very complicit in killing off.

If you don’t have real markets, and nobody knows anymore what anything’s worth, the only thing left to drive the financial world is herd mentality. Lemmings have that too. The world is going to regret letting Yellen et al destroy the market principle, and price discovery. Capitalism as a system cannot possibly work without price discovery. It leads to the few making out – literally – like bandits in the night, to the many left with nothing but debt, and to imploding societies.

Oil is the one substance that can make them implode. Because our entire societies are built on it. And from it, too. The industry that drives it, drives everything. And bringing down its revenues by 40% and falling will break that industry, and the society it designed and built. When oil was briefly at $40 in 2008, that was less of a factor, because their was some resilience still left in the whole global economic make-up. Today, it’s whole different story.

The American miracle idea of energy independence is fully reliant on a shale patch that went over $100 billion deeper into debt every year for years running just to produce that not-so-miracle. Take away 40%+ of what revenue it did take in, and there is no independence left. All that’s left is fracking fluids in your drinking water, and a few trillion in debt that the Big Kahuna lenders will seek to unload upon the real economy.

Oil prices at some point will rise again, but by then, and when is anyone’s guess, the price fall we see today may have done so much damage to the very structure of our economies that far fewer people will be able to afford it.

Those box office and holiday sales numbers are only a first red flag for where we’re going. As are the snap elections in Greece (spinned by Brussels) and Japan: incumbents who feel they have an edge for now, and decide to grab the opportunity.

It’s panic and fear and most of all it’s volatility. That’s our foreland. A weaker dollar for a day, which lets oil prices breath a little, which in turn lets gold sit pretty while it lasts. Tomorrow could be very different all over again. But most of all, looking at the trend in a wider context, this means a whole lot more trouble for the 95% of people who live in the real economy. Much much more. There’s nobody left to protect them from anything at all that goes on. They’ve been sold out to the highest bidder and the lowest common denominator.

And they can pray to God, but I hear he might be shorting them too.

Jul 162014
 July 16, 2014  Posted by at 8:01 pm Finance Tagged with: , ,  1 Response »

Marion Post Wolcott Old buildings in New Orleans Jan 1941

There’s a lot of interesting pieces being written on a daily basis, if you care to look for them, and there’s never enough time and space to afford them the attention they should really deserve. Luckily, there are still many people out there, even in the financial world, who have a pretty astute understanding of what’s going on versus what we are told to believe there is. Not that I don’t think there are no smart people in finance, just that many of them watch the world through the blinders their world comes with. Most of us – and therefore them, too – follow the herd, after all.

I like, for instance, the angle of Joe Calhoun at Alhambra Investment Partners, who argues that the US has already turned into Japan:

Return To Normalcy – Even The Supply Of Greater Fools Is Limited

For all those who worried that the US might turn into Japan, well worry no more, that ship has sailed. Over a half decade of zero interest rates says we already have become Japan, with the same demographic, productivity and structural problems so well documented. High taxes, a shrinking workforce, offshored production, protection of large incumbent firms, political gridlock, a falling savings rate, a growing xenophobia and an affinity for sushi all point to America as the economic kissing cousin of the land of the setting sun. Turns out the Vapors were not just one hit wonders but keen eyed economic forecasters as well.

The US economy isn’t acting normally, now in the 6th year of an anemic expansion the likes of which we haven’t seen since, well, never. The temptation is to compare this period with the Great Depression but even the recovery from the early part of that self inflicted economic wound was better in some respects. The unemployment rate has fallen but the path of improvement has been a road less traveled in economic history. No matter the reason, full time employment has become an unreachable dream for too many Americans. Multiple part time jobs and underemployment have made debt a way of life [..] to achieve the perception, the illusion, of success, if not the real thing.

A return to normalcy would mean a rejection of the idea that debt is the sine qua non of economic growth. A return to normalcy would mean a recognition that the Fed’s monetary gnomes are the ones who got us in this mess and are therefore wholly unsuited in their role as the economy’s knight in shining armor. A return to normalcy would mean rewarding and recognizing savers as the unsung heroes of economic growth. A return to normalcy would mean a shared prosperity for all rather than just the privileged few with access to the Fed or the ear of their congressional representative.

Achieving the goals of the Fed’s extraordinary policies – full employment and low inflation – would require an extraordinary set of conditions to develop. The economy would have to achieve a rate of growth that has escaped it for years while the Fed would have to extricate itself from a policy regime they barely – and that is generous – understand. I see no reason other than wishful thinking to believe those conditions can be met.

And what I also like a lot is Salient Partners’ Ben Hunt and his take on Mario Draghi in Wonderland:

Mario Draghi is Alice. The Red King? Well, That’s Us

We’re all familiar with the Queen of Hearts from Alice in Wonderland, less so with the Red King. He’s sleeping all the while, and when Alice goes to wake him up she’s warned off by Tweedledee and Tweedledum, who tell her that everything in Wonderland – including Alice herself – is perhaps just the dream of the Red King. Wake him up and maybe, just maybe, everything goes … poof! Europe is once again nearing a potential Red King moment, something last seen in the summer of 2012.

Then the wake-up call was a series of national elections, particularly in Greece. Today it’s a restructuring of the European financial system, a process started in 2012 with the recapitalization of Spanish banks, continued with the depositor bail-in of Cypriot banks, and now at a tipping point with the imminent ECB regulatory control over all large EU banks. Mario Draghi is Alice, and the dream is a unified European identity triumphant over individual national identities, symbolized and crystalized in a single currency, the Euro. The Red King? Well, that’s us. [..]

So what makes the summer of 2014 different from the summer of 2012? If Draghi sang a lullaby to the fitful Red King two years ago with his “whatever it takes” pledge, why won’t he do the same today by following through with a no-muss-no-fuss ECB regulatory take-over of major EU banks? Odds are he will. But what’s different today is that it’s his own institution on the line. What’s different today is that a heartfelt speech and a mythical OMT program – pure Narratives, in other words – are not sufficient. The ECB actually has to assume responsibility for these banks if Draghi is to move forward with the next step of the Grand Plan, and there’s nothing intangible or mythic about that.

I think that the best way to understand the recent spate of write-downs and default notifications from European banks (Erste Bank on July 4th, Espirito Santo on July 10th) is in the context of this regulatory unification of big EU banks. For the first time in decades these banks are being examined for real. No more patsy national regulators with their revolving doors and inherited culpability, but a highly professional independent banking bureaucracy looking carefully at every bottle and tin in the pantry because they’re scared to death of swallowing some poisonous balance sheet. The problem for the ECB, of course, is that Espirito Santo and Erste are not isolated incidents, any more than Laiki and Fortis and Anglo Irish and WestLB and BMPS and … should I go on? … were isolated incidents.

The problem is that no amount of public scrubbing and show trials can change the fact that the entire European banking system has been an enthusiastic accomplice to domestic political interests for the past 30+ years, stuffing their collective balance sheets to the gills with loans in direct or indirect service to domestic political demands. [..] But precisely because the politically-inspired rot is so widespread, taking a bank like Espirito Santo into the street and shooting it in the head no more solves Europe’s systemic banking crisis than executing Bear Stearns in March 2008 solved the US systemic banking crisis. As Dorothy Parker once wrote, “beauty is only skin deep, but ugly goes clear to the bone.” That’s the European financial system: politically ugly, clear to the bone.

But my favorite for the day has to be the rather incomparable Paul B. Farrell at MarketWatch, who watches events unfold with a combination of the liberty and experience that come with age, and the brains he was born with. Farrell writes about the work of Harvard philosopher Michael Sandel, who makes one wish we had a whole bunch more solid philosophers, and, even more, that they would be listened to. Sandel himself perhaps best explains the reason why we are are not listening.

Our Market Society Has Made A Deal With The Devil (Paul B. Farrell)

For years we’ve been asking: Why does capitalism blindly drive the human brain down this self-destructive path, whether it’s money, global warming, gun sales or voting rights? Why more books and ministers filling arenas with the message, God Wants You to Be Rich? Why is Pope Francis warning that a new “worship of the ancient golden calf has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy?” Why? There is someone who brilliantly explains why free-market capitalism is controlling our brains, sabotaging our world: Harvard philosopher Michael Sandel, author of bestseller “What Money Can’t Buy: The Moral Limits of Markets, and Justice: What’s the Right Thing to Do?”

For more than three decades Sandel’s been teaching us why capitalism is undermining human morality. And why we choose to deny it. Why do we bargain away our moral soul? His classes number over a thousand. You can even take his course online free . He summarized capitalism’s takeover of the human conscience in “What Isn’t for Sale?” in the Atlantic. Listen:

“Without being fully aware of the shift, Americans have drifted from having a market economy to becoming a market society … where almost everything is up for sale.” Capitalism is America’s new “way of life where market values seep into almost every sphere of life and sometimes crowd out or corrode important values, non-market values.”

“The years leading up to the financial crisis of 2008 were a heady time of market faith and deregulation — an era of market triumphalism,” says Sandel. “The era began in the early 1980s, when Ronald Reagan and Margaret Thatcher proclaimed their conviction that markets, not government, held the key to prosperity and freedom.” Then in the 1990s the “market-friendly liberalism of Bill Clinton and Tony Blair … consolidated the faith that markets are the primary means for achieving the public good.” Yes, Ayn Rand’s “pure, uncontrolled, unregulated laissez-faire capitalism” took over America’s brain, our soul, became the nation’s collective unconscious.

Today “almost everything can be bought and sold,” warns Sandel. “Markets, and market values, have come to govern our lives as never before.” Yet few are aware of this historic shift. “We did not arrive at this condition through any deliberate choice. It is almost as if it came upon us,” says Sandel.

As a result, “market values were coming to play a greater and greater role in social life. Economics was becoming an imperial domain. Today, the logic of buying and selling no longer applies to material goods alone. It increasingly governs the whole of life.” Everything has a price.

Examples everywhere: “For-profit schools, hospitals, prisons … outsourcing war to private contractors … police forces by private guards … drug companies aggressive marketing of prescription drugs prohibited in most other countries.” Ads in “public schools … buses … corridors … cafeterias … naming rights to parks and civic spaces … blurred boundaries within journalism, between news and advertising … buying and selling the right to pollute … campaign finance in the U.S. that comes close to permitting the buying and selling of elections.”

Here I would argue, since I don’t see either Sandel or Farrell do it explicitly, that in the end, if you follow the logic, this means that people, too, are for sale. If everything has a price, everyone has a price. Or at least everybody has to work their behinds off not to be for sale, but they do so working jobs that, if you look with an objective eye, simply mean they’ve sold themselves. Basically, anyone who works a job they wouldn’t work if they weren’t paid to do it, is for sale. Not a popular point of view when you ask people to look in a mirror, but hard to argue with.

The 2008 crash ended our faith in conservative free-market capitalism: “The financial crisis did more than cast doubt on the ability of markets to allocate risk efficiently. It also prompted a widespread sense that markets have become detached from morals,” says Sandel. But so what? “Why worry that we are moving toward a society in which everything is up for sale?”

Two big reasons concern Sandel, both echo the warnings of Pope Francis and Piketty: One is inequality: “Where everything is for sale, life is harder for those of modest means.” If wealth just bought things like yachts inequalities might not matter. “But as money comes to buy more and more, the distribution of income and wealth looms larger.” Second, corruption: “Putting a price on the good things in life can corrupt … the meaning of citizenship.”

Sandel warns America’s new capitalism brain is devaluing “nonmarket values worth caring about. When we decide that certain goods may be bought and sold” they become “commodities, as instruments of profit and use.” But “not all goods are properly valued in this way … Slavery was appalling because it treated human beings as a commodity, to be bought and sold at auction.”

Nor do we permit “children to be bought and sold, no matter how difficult the process of adoption can be.” The same with citizenship … jury duty … voting rights. “We believe that civic duties are not private property but public responsibilities. To outsource them is to demean them, to value them in the wrong way.” Yet today many are for sale, have a price.

I’m doing the equivalent of licking my fingers here.

Sandel’s core message is simple: “The good things in life are degraded if turned into commodities. So to decide where the market belongs, and where it should be kept at a distance, we have to decide how to value the goods in question – health, education, family life, nature, art, civic duties, and so on. These are moral and political questions, not merely economic ones.” But in today’s new capitalist world, everything has a price.

Worse, that debate never happened during the 30-year rise of “market triumphalism … without quite realizing it, without ever deciding to do so, we drifted from having a market economy to being a market society.” The difference is profound: “A market economy is a tool … for organizing productive activity. A market society is a way of life in which market values seep into every aspect of human endeavor … where social relations are made over in the image of the market.” Where everything has a price.

But not only did the debate not happen, it may never. Because politicians aren’t up to debating values. They’re pushing America past the point of no return. Today, “political argument consists mainly of shouting matches on cable television, partisan vitriol on talk radio, and ideological food fights on the floor of Congress” warns Sandel. So it is “hard to imagine a reasoned public debate about such controversial moral questions as the right way to value procreation, children, education, health, the environment, citizenship, and other goods.”

Here I would add what I’ve often talked about: basic human necessities should not be part of a market either. Since everyone needs water, food, heat and shelter, we should never even risk leaving them in the hands of just a few people or corporations. And this is the ultimate slippery scale: if you give them one finger, they’ll take your whole hand at some point. It’s like when you allow money into your political system: money will end up buying the entire system outright. Once it’s got a way in, there’s nothing you can do about it anymore.

But look at where we are with regards to our water supply, our food supply; much of it is already ‘reformed’, privatized and owned by big corporations. And look at how much money people must pay for their homes, in 30 or 40 year loans. In Sweden, they have trouble getting people to pay off their homes in 50 years. There are countries where multi-generational mortgages are the norm. We sold our ethics, our values and our necessities, and for the most part we never even noticed. We put ourselves up for sale.

Can we change? “The appeal of using markets to put a price on public values is that there’s no judgment on the preferences they satisfy.” Morals become irrelevant. No debate is needed. Markets don’t “ask whether some ways of valuing goods are higher, or worthier, than others. If someone is willing to pay for sex, or a kidney … the only question the economist asks is ‘How much?’ Markets … don’t discriminate between worthy preferences and unworthy ones.”

Unfortunately capitalism eliminates moral values, just as Nobel economist Milton Friedman and capitalist philosopher Ayn Rand were to preaching conservatives for a long time. As Sandel puts it: “Each party to a deal decides for him- or herself what value to place on the things being exchanged. This nonjudgmental stance toward values lies at the heart of market reasoning, and explains much of its appeal.” But unfortunately, market capitalism “has exacted a heavy price … drained public discourse of moral and civic energy.” Capitalism never has to ask the tough question: “What’s the right thing to do?”

Sandel is a great teacher. And, yes, he’s too idealistic. We need more like him. But you don’t have to be a fatalist to know that without a global economic catastrophe, today’s market capitalists — billionaires, bankers, CEOs, hedgers, lobbyists and every special interest group getting rich off the new Market Society — will never, never voluntarily surrender their control of America’s wealth machine. No, they will keep blindly driving us down their self-destructive path with the delusional conviction God wanted them to get rich. The truth is, they made a wager with the devil … money for a soul.

Thing is, we’re not just talking about billionaires or bankers here, we’re talking about ourselves. We are the ones who allowed this to happen. We are the ones who in out increasingly blind chase for more lost sight of what we incrementally had less of. We let it slip out of our hand because we were too busy doing other things. We never realized we couldn’t win one without losing the other.

Farrell says that Sandel’s writings should be “required for Wall Street insiders, corporate CEOs, and all 95 million Main Street investors.” I think it should be for every single one of us. Because we no longer understand what we lost, and how much we lost. And blaming other people for it is not helpful either; only by seeing our own faults and failures in what we lost do we have a shot at getting at least some of it back.

Global Equity Melt-up In Full Swing Even If Investors Hate Themselves (AEP)

There is no longer much doubt. We are in the midst of a late-cycle blow-off in global equity markets Bank of America’s monthly survey of world fund-managers shows that investors have their second highest allocation to stock markets in thirteen years at 61pc. It is lead by shares in technology, energy, and even banks, and is stretched to a net 35pc overweight in Europe. “The summer ‘melt-up’ is likely to be followed by an autumn correction,” it said This happened in 2007 as you can see from the chart below, and again in early 2011 just before the European Central Bank triggered Part II of the EMU debt crisis by raising rates twice. Investors seem determined to keep dancing until the music actually stops, even though the largest majority since the height of the dotcom bubble think equities are overvalued. They are chasing momentum. It is irresistible to try to eke a little more out of the rally.

This dovetails with warnings from the Bank for International Settlements that markets are now “euphoric”, with the fear gauge (volatility) almost switched off, and the Tobin’s Q measure of the S&P 500 flashing more emphatic overvaluation warnings than in 2007. We are not necessarily at the end of this surge. Cash holding are still very high at 4.5pc, so funds still have a little more money to throw at stocks. High cash levels are theoretically a contrarian buy signal, while anything under 3.5pc is a sell signal, but as you can see it was a counter-indicator in 2007. The proportion in cash peaked at the top of boom. It offered false comfort.

[..] There is a reason why funds are not buying bonds. Central banks are doing it for them. This is either by QE – the Bank of Japan is eating up 70pc of all new debt issuance by the Japanese government – or by FX reserve accumulation.
IMF data shows that central banks have added $774bn to $11.86 trillion over the last year. Almost all of this went into bonds. Sovereign wealth funds are buying bonds too. These behemoths are crowding out the private market. So in a sense, the equity rally is a function of the collective acts of monetary authorities pushing investors into stocks. This of course is why the BIS is in despair. “Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally,” it said. Just wait until the Fed tightens in earnest.

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Need any more proof?

Market Rigging Explained (Nanex/Zero Hedge)

We received trade execution reports from an active trader who wanted to know why his larger orders almost never completely filled, even when the amount of stock advertised exceeded the number of shares wanted. For example, if 25,000 shares were at the best offer, and he sent in a limit order at the best offer price for 20,000 shares, the trade would, more likely than not, come back partially filled. In some cases, more than half of the amount of stock advertised (quoted) would disappear immediately before his order arrived at the exchange. This was the case, even in deeply liquid stocks such as Ford Motor Co (symbol F, market cap: $70 Billion). The trader sent us his trade execution reports, and we matched up his trades with our detailed consolidated quote and trade data to discover that the mechanism described in Michael Lewis’s “Flash Boys” was alive and well on Wall Street.

Let’s take a look at what we found from analyzing 5 large trades executed at different times over a 4 minute period in Ford Motor Co. Before each of these trades, the activity in the stock was whisper quiet. Here’s a chart showing millisecond by millisecond trade and quote counts in Ford leading up to one of these 5 trades:

You can clearly tell when the trade hits: activity explodes to over 80 quotes in 1 millisecond (this is equivalent to 80K messages/second as far as network/system latency goes). But the point here is that nothing was going on in this stock in the immediate period before this trade hits the market. In this particular example, there were a total of 24,800 shares advertised for sale at $17.38 (all trades and offered liquidity will be at this same price) from 8 exchanges. The trader wanted 20,000 of these shares. What he got was only 12,133 shares and 600 of these were on a dark pool (which wasn’t part of the 24,800 shares of liquidity on the lit exchanges)! Worse, someone ELSE was filled for 1,570 shares during these same milliseconds! Remember, nothing was happening in Ford until his order came into the market. Based on the other 4 examples, we are sure that no trades would have occurred during these few milliseconds of time if it wasn’t for this trader’s order.

What happened to the 24,800 shares offered and why couldn’t he get at least 20,000 of them? How is it that others were able to get shares during this time? This is especially disturbing when you consider these other traders (HFT) only bought shares in reaction to the original trader’s order.

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There’s A Big Hole In The Bull Case For Stocks (MarketWatch)

Some say the stock market’s high price-to-earnings ratio is justified by low interest rates. That seems plausible, right? Think again. There is precious little historical support for this notion. To be sure, virtually everyone I hear from or talk to is certain that above-average high P/E ratios are justified by low rates. The belief is so widespread on Wall Street that few have bothered to examine the historical record. If they did, they would be very surprised indeed. One analyst who did take the trouble to do so is Clifford S. Asness of AQR Capital Management. More than a decade ago, he published his analysis of data extending back more than a century. Titled “ Fight the Fed Model ,” his study appeared in the fall 2003 issue of the Journal of Portfolio Management. Asness’ findings are best understood in terms of a statistic known as the “R-squared,” which reflects the degree to which fluctuations in one thing predicts or explains changes in another. The R-squared ranges between 0 and 1, with 1 indicating the highest possible degree of predictive power and 0 meaning there is no detectable relationship. [..]

How did anyone ever come to believe that the P/E should be adjusted by interest rates? I can think of two possible explanations: one based on lazy thinking and the other on Wall Street’s bullish bias. I mention the first possibility because Asness found some statistical support for the interest-rate-adjusted P/E over the 20-year period between 1982 and 2001. It might therefore be that some believers in the adjusted P/E genuinely believed they had history on their side, even though they were focusing on only a small and unrepresentative subset of the full record. My hunch, however, is that Wall Street’s bullish bias is the bigger reason why so many think an interest-rate-adjusted P/E is superior to the unadjusted. The adjusted version does have some superficial plausibility, and that’s all Wall Street needed to tell a story for why we should buy into a market that is otherwise increasingly overvalued.

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Why We’re Doomed: Interest and Debt (CH Smith)

Even if the economy were growing at a faster pace, it wouldn’t come close to offsetting the interest payments on our ever-expanding debt. If you want to know why the Status Quo is unsustainable, just look at interest and debt. These are not difficult to understand: debt is a loan that must be paid back or discharged/written off and the loss absorbed by the lender. Interest is paid on the debt to compensate the owner of the money for the risk of loaning it to a borrower. It’s easy to see what’s happening with debt and the real economy (as measured by GDP, gross domestic product): debt is skyrocketing while real growth is stagnant. Put another way–we have to create a ton of debt to get a pound of growth. There is no other way to interpret this chart.

The Status Quo has only survived this crushing expansion of debt by dropping interest rates to historic lows. This is a chart of the yield on the 10-year Treasury bond, which reflects the extraordinary decline in interest rates over the past two decades. The Federal Reserve has pegged rates at essentially 0% for years. That means the strategy of lowering interest rates to enable more debt has run out of oxygen: rates can’t drop any lower, and so they can either stay at current levels or rise. Near-zero interest rates for banks borrowing from the Fed doesn’t mean conventional borrowers get near-zero rates: auto loans are around 4%, credit cards are still typically 16% to 25%, garden-variety student loans are around 8% and conventional mortgages are about 4.25% to 4.5% for 30-year fixed-rate home loans. This decline in interest rates means households can borrow more money while paying the same amount in interest. So the interest payment on a $30,000 car today is actually less than the payment on a $15,000 auto loan back in 2000.

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Not a sign that he’s feeling calm and collected.

Mark Carney Blasts BIS For Calling For Rate Rises In A “Vacuum” (Telegraph)

Mark Carney has rejected calls by the Bank for International Settlements (BIS) for a swift return to normal interest rates, lambasting the lauded Swiss institution for operating “in a vacuum” and “outside political and economic reality”. The Governor of the Bank of England said that BIS, considered to be the “bank of central banks” and a bastion of monetary policy, was issuing recommendations from a false premise. Mr Carney views, which are the strongest dismissal of BIS yet among global central bankers, came hours after a shock rise in inflation led to more calls for a rise in interest rates. The jump in the Consumer Prices Index, from 1.5pc in May to 1.9pc in June, was the biggest monthly rise since October 2012.

Giving evidence to the Treasury Select Committee on financial stability, Mr Carney was asked his view on The Daily Telegraph’s interview with Jaime Caruana in which the head of BIS warned that the world economy is just as vulnerable now to financial crisis as it was in 2007. Mr Caruana had warned that investors were ignoring the risks of monetary tightening. In its annual report last month, BIS said the policy of “forward guidance”, adopted by the Bank of England and America’s Fed, was encouraging investors to take on more risk. Mr Carney told the MPs that the BIS report was “interesting”. But he added “It’s a report that’s made in a vacuum though, the vacuum of Basel, a world where a central bank doesn’t have a mandate… a world where a central bank is not accountable to Parliament and through Parliament to the people, to achieve specific targets.”

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JPMorgan Pulls Back From Mortgage Lending On Foreclosure Worries (Reuters)

JPMorgan Chase & Co, the second-largest U.S. mortgage lender, is backing away from making home loans to less creditworthy borrowers after losing faith in its ability to recover much money from foreclosing on homes, even with government guarantees. The shift reflects a change in the way JPMorgan runs its mortgage business: while it used to regard collateral and U.S. government lending programs as key backstops to most of its loans, it now pays closer attention to the credit quality of borrowers. The bank wants to reduce the chances of having to foreclose on a loan, because it’s bad business. “The cost to take a customer through the foreclosure process is just astronomical now,” Kevin Watters, chief executive of JPMorgan Chase’s residential mortgage banking business in New York, told Reuters in an interview. In addition to federal standards, states, and in some cases local governments, have written their own rules making it more expensive for banks to recover loan losses, he said.

According to foreclosure data firm RealtyTrac, it took an average of 120 days to foreclose on a home at the beginning of 2007, just as the housing bubble was starting to burst. In the first quarter of 2014, it took 572 days, or more than 1.5 years. Lenders have generally been paying more attention to borrowers’ credit quality since the financial crisis, but JPMorgan is going a step further in its reluctance to rely on government loan guarantees and insurance. If other lenders choose the same path as JPMorgan, it could become more difficult for people to secure financing to buy homes, even though government programs are intended to help credit flow to these borrowers, said Christopher Mayer, a professor of real estate finance at Columbia University. “This could reduce the number of first-time buyers and slow the speed with which people who lost their homes during the crisis can become homeowners again,” said Mayer.

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You think?

U.K. Buy-to-Let Real Estate: Headed for Mayhem? (Bloomberg)

Shahram Kordestani, who owns seven U.K. rental homes, has advice for investors eager to join the swelling ranks of landlords: Do so at your peril. Kordestani, who has been renting homes in London and southeast England for about 12 years, said when interest rates rise, the jump in mortgage payments will hammer buy-to-let investors who have helped push up property values. “There is going to be mayhem,” said Kordestani, 52. “Whoever pays those prices is going to suffer.”

The loan-to-income cap that Bank of England Governor Mark Carney introduced last month to cool Britain’s housing market does not apply to buy-to-let — the fastest-growing type of mortgage by value. Economists say a hike in the central bank’s benchmark interest rate or falling prices could result in a repeat of the past, when repossessions of private-landlord homes hit a record high after the 2008 financial crisis. “It was a mistake not to include buy-to-let investment,” said Rob Wood, a former central bank official who is now an economist at Berenberg Bank in London. “It’s one way in which households can speculate on house prices rising and that is exactly the sort of dangerous debt build-up that Mark Carney was trying to avoid.”

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Let’s not confuse cost of living with inflation.

As UK Cost Of Living Rises, Young People Hit Hard (CNBC)

Low wage growth has plagued Britain’s economic recovery, failing to pick up despite firm signs elsewhere of a strengthening economy. Average weekly pay (including bonuses) in the three months to April expanded by just 0.7% year-on-year. This was below expectations and down from 1.9% in the three months to March. “It is becoming harder for people to get by as average wages continue to fall behind the rising cost of living. Ministers may have moved on from Britain’s living standards crisis but it’s still the top concern for families,” Frances O’Grady, general secretary of the TUC union, said in a statement. “An economic recovery based on shrinking pay packets is not one built to last.”

Young Britons have been hit hard by the rise in living costs, with a report by the Institute for Fiscal Studies (IFS) finding that “the recession and its aftermath have been much harder on the young than the old.” Between 2007-2008 and 2012-2013, real (inflation-adjusted) median household income among 22-30 year olds fell by 13%. In comparison, income fell 7% among 31-59 year olds, and remained stable for those aged 60 and over. This slide in real wages was driven, firstly, by a fall of 4%age points in employment of those in their 20s, the IFS said. The employment level remained unchanged among 31-59 year olds. Secondly, young peoples’ real median pay fell by 15%, while for people between the ages of 31-50, pay fell just 6%.

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Print print.

China Developers At Risk As Trust Funds Dry Up (Reuters)

China’s shadow banking firms slashed lending to property developers in the first half of this year, closing off a crucial funding avenue just as the housing market cools, potentially spelling trouble for the sector and the broader economy. Trust companies, which pool money from rich people and companies to make high-interest loans and are part of the China’s vast and opaque shadow banking system, were a ready source of cash during the housing boom, particularly for smaller developers that had trouble borrowing from banks. But in the first half of this year, trusts lent real estate firms 39% less than in the previous six months, according to trust research company Use Trust based in Nanchang. At the same time, the average interest on 48.3 billion yuan ($7.78 billion) in loans made through wealth management products climbed 16 basis points to 9.67%.

That bodes ill for Chinese developers who must repay nearly 600 billion yuan ($96.83 billion) worth of trust loans next year, according to brokerage firm Jefferies. “Default risk is heightening because trusts rely heavily on house prices rising,” said Xie Ya Xuan, an economist at China Merchants Securities’ Research and Development Center in Shenzhen. Trust firms, under greater scrutiny from regulators worried about rapid growth of shadow banking, are both finding it harder to raise money themselves and growing wary of lending to developers, particularly smaller ones, while the market cools. New home prices in China fell in June for the third straight month, private sector surveys show, as some developers cut prices to spur sales, with many expected to offer steeper cuts as they scramble to meet 2014 sales targets.

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Don’t trust any numbers coming out of Beijing.

China Is “Fixed”: GDP Beats As Retail Sales, Home Prices Tumble (Zero Hedge)

Having glimpsed the ugly reality of the under-belly of the Chinese economy last week, and the divergence between that and the government’s PMI survey fallacy, it is no surprise that by the magic of excel, GDP and Industrial Production modestly beat expectations (+7.5% YoY vs 7.4% exp and +9.2% YoY vs +9.0% exp respectively). However, despite epic credit injections, home prices tumbled 9.2% YoY and Retail Sales missed expectations rising only 12.4% YoY. Even as it is self-evident that re-flating the next chosen bubble, or attempting to socialize losses, is not sustainable in the long-run, it is clear (given the surge in deposit creation in recent months) that China has chosen the path of short-term easy-street as opposed to the reform-based hard-street they had promised.

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Property Looms Over China’s Target (WSJ)

China is back on its official growth target. But given mounting property pain, investors have to wonder what trajectory it’s really on. Official figures show the economy grew 7.5% in the second quarter from a year earlier, the same rate as the government’s full-year growth target. On a seasonally adjusted basis, it expanded an annualized 8.2%, an acceleration from 6.1% in the first quarter, confirming earlier signals that the economy had picked up steam. It’s not hard to see why. A bundle of stimulus measures flowed through the economy, including a cheaper currency, easier lending conditions and accelerated government spending. Growth in total social financing, the broadest measure of lending in the economy, had been on a slowing trajectory for a year before picking back up in May and June.

One big fillip is from railroads. ANZ economists figure spending on new railways could be above 1 trillion yuan ($161 billion) this year, nearly 60% higher than last year and more than the amount spent in 2010, when China used railway construction as a stimulus in the wake of the global financial crisis. What’s harder to see is a bottom in the all-important property market. That will be the ultimate determinant of how much more stimulus Beijing will have to apply to keep the growth rate steady. Residential construction starts measured by floor space fell 15% last quarter from a year earlier, less steep than the first quarter, but still bad. And most troubling, unsold apartment inventories continue to rise, up 25% in June from a year earlier. Until buyers start eating away at the empty space, developers are unlikely to start new projects.

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Back to the shadows.

China Shadow-Banking Curb Fuels Loan-Backed Debt Spree (Bloomberg)

Chinese banks’ sales of bonds backed by loans have surged 22-fold this year as the government seeks to curb shadow banking, while still allowing lenders to make room on their balance sheets for new financing. Banks have issued 78.7 billion yuan ($12.7 billion) of such securities, compared with 3.6 billion yuan in the same period last year and 15.8 billion yuan for all of 2013, Bloomberg-compiled data show. Such transactions must get approval from regulators and are more transparent than wealth-management products and trusts, which have been used by banks to bypass capital controls.

Premier Li Keqiang is seeking to shift financing to official channels after shadow-banking assets jumped 32% in 2013 to 38.8 trillion yuan, according to Barclays Plc estimates. The banking regulator tightened rules on new trust products in April, after failures of such investments sparked protests. Authorities approved the first asset-backed security tradable on the Shanghai stock exchange last month, and yesterday authorized the first mortgage-backed notes since 2007. “Regulators are closing one door, but opening a window,” said Liu Dongliang, a senior analyst in Shanghai at China Merchants Bank Co., the nation’s sixth-biggest lender. “To Chinese regulators, asset-backed securities, which are standardized products, are safer and more transparent than the shadow-banking products that are hard to monitor.”

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9 EU Countries Ready To Block Economic Sanctions Against Russia (RT)

France, Germany, and Italy are among EU members who don’t want to follow the US lead and impose trade sanctions on Russia. US sanctions are seen as a push to promote its own multibillion free-trade pact with Europe. “France, Germany, Luxembourg, Austria, Bulgaria, Greece, Cyprus, Slovenia, and EU President Italy see no reason in the current environment for the introduction of sectorial trade and economic sanctions against Russia and at the summit, will block the measure,” a diplomatic source told ITAR-TASS. In order for a new wave of sanctions to pass, all 28 EU members must unanimously vote in favor. EU ministers plan to discuss new sanctions against Russia at their summit in Brussels on Wednesday, July 16. Even if only one country vetoed, sanctions would not be imposed. With heavyweights like France and Germany opposed to more sanctions the measure will likely again be stalled, the source said.

According to the source, the US sees slapping Russia with sanctions as a way to promote its own trade agenda with Europe, a side rarely explored in mainstream media. The Transatlantic Trade and Investment Partnership (TTIP) between the US and Europe would create the world’s largest free trade zone, but some worry it could balloon into an “economic NATO” or could end up putting corporation interest above national. “Last year the EU and the US started difficult negotiations on a free trade agreement, which would force the EU into serious concessions, in particular, agricultural quality standards and regulation on genetically modified products. In this circumstance, restrictions against Russia will force EU countries to expand trade with the US,” the source said, citing shale gas as an example.

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Let’s see what happens. $50 billion is peanuts.

BRICS Agree on $50 Billion Bank With Something for Everyone (Bloomberg)

Leaders of the five BRICS nations agreed on the structure of a $50 billion development bank by granting China its headquarters and India its first rotating presidency. Brazil, Russia and South Africa were also granted posts or units in the new bank. The leaders also formalized the creation of a $100 billion currency exchange reserve, which member states can tap in case of balance of payment crises, according to a statement issued at a summit in Fortaleza, Brazil. Both initiatives, which require legislative approval, are designed to provide an alternative to financing from the International Monetary Fund and the World Bank, where BRICS countries have been seeking more say. The measures coincide with a slowing of economic growth in the five countries to about 5.4% this year from 10.7% in 2007, according to economists surveyed by Bloomberg.

“The BRICS are gaining political weight and demonstrating their role in the international arena,” Brazilian President Dilma Rousseff said after a signing ceremony. Until the eve of the summit, India and South Africa had vied with China to host the headquarters of the bank, dubbed the New Development Bank. The administration of Indian Prime Minister Narendra Modi gave in after it was reminded that his country’s previous administration had agreed to Shanghai as the bank’s headquarter, according to an Indian official, who requested not to be named because the talks were not public.

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Portugal’s a place to watch.

Portugal’s Bank Woes Just Got More Complicated (CNBC)

The saga surrounding troubled Portuguese lender Banco Espirito Santo (BES) took another twist on Wednesday, with the fortunes of a telecoms merger shedding more light on the strength of the country’s banking sector. Portugal Telecom rushed Wednesday to salvage a possible tie-up with Oi, the Brazilian telecoms company, after a possible default by Rioforte, an investment unit of the Espirito Santo group, called the deal into question. The two telecoms firms said they had signed a “memorandum of understanding”, in the hope of keeping the deal alive, and insisted they remained committed to “full completion” of the deal. Shares in Portugal Telecom rose 6.8% in morning trade. Concerns about a Portugal Telecom-Oi deal arose after Rioforte – a holding company of the Espírito Santo Group, which is responsible for its non-financial investments – missed a debt repayment of €847 million ($1.15 billion) on Tuesday evening.

Portugal Telecom bought the debt from Luxembourg-based Rioforte in April and it was held in subsidiaries of Portugal Telecom that were given to Oi in May in anticipation of the deal. However, both parties have now revised the terms of the merger and the Rioforte debt will be passed back to Portugal Telecom. The company has also said that it would pursue legal and procedural options against Rioforte and related parties to the “full extent of the law” in the hope of securing repayments on the debt. But Bill Blain, a fixed income strategist at Mint Partners, argued that debt of the various Espirito Santo holding companies was most likely “toast”. With regards to BES, he said the troubled lender should be now worried about its exposure to Portugal Telecom. “In the utter absence of any clear information or transparency, my best guess is that BES looks more and more likely to bail-in subordinated debt holders,” he said in a note, with junior debt holders facing the possibility of losing part of their investment.

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Espirito Santo’s Rioforte Fails to Repay $1.2 Billion of Debt (Bloomberg)

Rioforte Investments SA, a holding company in Portugal’s Espirito Santo group, failed to pay 847 million euros ($1.2 billion) of short-term debt, becoming the second company in the group to miss a payment. Rioforte owes the money to Portugal Telecom SGPS SA, which said today the payment wasn’t made. Rioforte owns 49% of Espirito Santo Financial Group, which in turn holds 20% of Banco Espirito Santo SA, Portugal’s second-biggest bank by market value. Investors are concerned that financial problems within the Espirito Santo group will spill into the bank and subordinated bondholders may be made to take losses in a rescue. Luxembourg-based Rioforte plans to file for creditor protection, a person familiar with the matter said yesterday, asking not to be identified because they’re not authorized to speak about it. “This increases the risk that subordinated bondholders will get bailed in,” said Bill Blain, a strategist at brokerage Mint Partners Ltd. in London. “This is not good news for the bank.”

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Mario Draghi is Alice. The Red King? Well, That’s Us (Ben Hunt)

So what makes the summer of 2014 different from the summer of 2012? If Draghi sang a lullaby to the fitful Red King two years ago with his “whatever it takes” pledge, why won’t he do the same today by following through with a no-muss-no-fuss ECB regulatory take-over of major EU banks? Odds are he will. But what’s different today is that it’s his own institution on the line. What’s different today is that a heartfelt speech and a mythical OMT program – pure Narratives, in other words – are not sufficient. The ECB actually has to assume responsibility for these banks if Draghi is to move forward with the next step of the Grand Plan, and there’s nothing intangible or mythic about that.

I think that the best way to understand the recent spate of write-downs and default notifications from European banks (Erste Bank on July 4th, Espirito Santo on July 10th) is in the context of this regulatory unification of big EU banks. For the first time in decades these banks are being examined for real. No more patsy national regulators with their revolving doors and inherited culpability, but a highly professional independent banking bureaucracy looking carefully at every bottle and tin in the pantry because they’re scared to death of swallowing some poisonous balance sheet. The problem for the ECB, of course, is that Espirito Santo and Erste are not isolated incidents, any more than Laiki and Fortis and Anglo Irish and WestLB and BMPS and … should I go on? … were isolated incidents.

The problem is that no amount of public scrubbing and show trials can change the fact that the entire European banking system has been an enthusiastic accomplice to domestic political interests for the past 30+ years, stuffing their collective balance sheets to the gills with loans in direct or indirect service to domestic political demands. What? You mean that 6 billion euros lent to politically-connected business interests in Angola (a Portuguese colony until 1975) were maybe not such a good idea for Espirito Santo? I’m shocked! But precisely because the politically-inspired rot is so widespread, taking a bank like Espirito Santo into the street and shooting it in the head no more solves Europe’s systemic banking crisis than executing Bear Stearns in March 2008 solved the US systemic banking crisis. As Dorothy Parker once wrote, “beauty is only skin deep, but ugly goes clear to the bone.” That’s the European financial system: politically ugly, clear to the bone.

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Return To Normalcy – Even The Supply Of Greater Fools Is Limited (Alhambra)

The Fed has kept interest rates at zero for 6 years now and their expectations setting forward guidance says 7 is in the bag. For all those who worried that the US might turn into Japan, well worry no more, that ship has sailed. Over a half decade of zero interest rates says we already have become Japan, with the same demographic, productivity and structural problems so well documented. High taxes, a shrinking workforce, offshored production, protection of large incumbent firms, political gridlock, a falling savings rate, a growing xenophobia and an affinity for sushi all point to America as the economic kissing cousin of the land of the setting sun. Turns out the Vapors were not just one hit wonders but keen eyed economic forecasters as well.

The US economy isn’t acting normally, now in the 6th year of an anemic expansion the likes of which we haven’t seen since, well, never. The temptation is to compare this period with the Great Depression but even the recovery from the early part of that self inflicted economic wound was better in some respects. The unemployment rate has fallen but the path of improvement has been a road less traveled in economic history. No matter the reason, full time employment has become an unreachable dream for too many Americans. Multiple part time jobs and underemployment have made debt a way of life, starting with the ubiquitous student loan and throughout life as a way to achieve the perception, the illusion, of success, if not the real thing.

Companies aren’t investing for the future, preferring to spend on the present through stock buybacks and dividends that in many cases exceed their current cash flow, the difference being plugged with debt. Balance sheets are seen as sound by investors who see cash on the asset side of the ledger, forgetting apparently that there is a liability side as well. Where we have seen investment, the returns have left much to be desired. The capital sunk into extracting high cost oil and gas is staggering, approaching $1 trillion per year and $5.5 trillion globally since 2008. What we got for that staggering sum is not a single field that can produce profitably at less than $80/barrel and $4.5 per foot of gas. In some cases, the search for oil has gone to such extremes the breakeven prices are well over $100/barrel.

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Scary graph.

Every Time Is Different, And The Same (STA)

Market crashes are an “emotionally” driven imbalance in supply and demand. You will commonly hear that “for every buyer there must be a seller.” This is absolutely true to a point. However, what moves prices up and down, in a normal market environment, is the price level at which a buyer and seller complete a transaction. In a market crash, however, the number of people wanting to “sell” vastly overwhelms the number of people willing to “buy.” It is at these moments that prices drop precipitously as “sellers” drop the levels at which they are willing to dump their shares in a desperate attempt to find a “buyer.” This has nothing to do with fundamentals. It is strictly an emotional panic which is ultimately reflected by a sharp devaluation in market fundamentals.”

(Note: this is also the danger of excessive margin debt in the financial markets. Margin debt is comprised of “loans” based on the value of a stock portfolio. As prices plunge, the drop in valuations trigger “calls” on margin loans which then requires more sells. The additional selling triggers more selling, and so on. In a highly complacent market environment, as we have currently, there is little attention paid to geopolitical tensions, economic or fundamental data or a variety of other relevant risks. The emotional “greed” to chase returns overrides the sense of logic. “Warnings” that do not immediately lead to a market correction are simply viewed as wrong. However, as investors, are we not repeatedly told to “buy when there is blood in the streets.” Yet, in order to be able to buy in times of “panic,” one would have needed to have “sold” into “exuberance.”

The point is simple. Stock market crashes are triggered by an “emotional panic,” rather than a fundamental data point. While fundamentals are indeed important in determining the long-term (10 years or more) return on an investment, they are terrible at predicting “emotionally driven” turning points in market prices. Like a crowded theatre, no one worries when one or two people exit the building. However, the problem comes when someone yells “fire” and everyone tries to exit the building at the same time. The rush for the exits sends share prices plummeting regardless of the underlying fundamentals.

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Our Market Society Has Made A Deal With The Devil (Paul B. Farrell)

There is someone who brilliantly explains why free-market capitalism is controlling our brains, sabotaging our world: Harvard philosopher Michael Sandel, author of bestseller “What Money Can’t Buy: The Moral Limits of Markets, and Justice: What’s the Right Thing to Do?” For more than three decades Sandel’s been teaching us why capitalism is undermining human morality. And why we choose to deny it. Why do we bargain away our moral soul? His classes number over a thousand. You can even take his course online free. He summarized capitalism’s takeover of the human conscience in “What Isn’t for Sale?” in the Atlantic. Listen: “Without being fully aware of the shift, Americans have drifted from having a market economy to becoming a market society … where almost everything is up for sale.” Capitalism is America’s new “way of life where market values seep into almost every sphere of life and sometimes crowd out or corrode important values, non-market values.” His course should be required for Wall Street insiders, corporate CEOs, and all 95 million Main Street investors.

Here’s an overview: “The years leading up to the financial crisis of 2008 were a heady time of market faith and deregulation — an era of market triumphalism,” says Sandel. “The era began in the early 1980s, when Ronald Reagan and Margaret Thatcher proclaimed their conviction that markets, not government, held the key to prosperity and freedom.” Then in the 1990s the “market-friendly liberalism of Bill Clinton and Tony Blair … consolidated the faith that markets are the primary means for achieving the public good.” Yes, Ayn Rand’s “pure, uncontrolled, unregulated laissez-faire capitalism” took over America’s brain, our soul, and became the nation’s collective unconscious. For both the GOP and Dems. Today “almost everything can be bought and sold,” warns Sandel. “Markets, and market values, have come to govern our lives as never before.” Yet few are aware of this historic shift. “We did not arrive at this condition through any deliberate choice. It is almost as if it came upon us,” says Sandel.

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Oxfam director.

Why Your Morning Corn Flakes Could Milk Your Money (MarketWatch)

For many of us, climate change evokes images of skies darkened by coal-burning plants or oceans slick from spilled oil. But it’s time to take a closer look at another industry with hands dirty from polluting the atmosphere — an industry whose investors have a great deal to lose if nothing is done to stop the climate crisis: Food companies. People don’t normally think “climate change” when they sit down to enjoy a favorite meal. Tony the Tiger and the Pillsbury Doughboy don’t evoke images of droughts, floods or storms. But maybe they should. Oxfam recently released a report, “Standing on the Sidelines,” which shows that reckless deforestation, nitrous oxide released from the overuse of fertilizers, large-scale land clearance, and other harmful production practices in the industrial-scale supply chains of the world’s 10-biggest food companies are huge contributors to global warming that, ironically, could cause tens of millions of people to suffer hunger unnecessarily.

Together, these 10 companies, Associated British Foods, Coca-Cola, Danone, General Mills, Kellogg, Mars, Mondelez, Nestlé, PepsiCo and Unilever, create an astounding 264 million tons of greenhouse gas emissions every year — as much as 69 coal-fired power plants. If these “Big 10” were a country, it would be the 25th biggest polluter on the planet, spewing more emissions than oil and gas producers Qatar and the United Arab Emirates. The emissions these companies cause are contributing to a growing humanitarian catastrophe. By 2050, there could be 50 million more people made hungry because of climate change. More frequent, unpredictable and extreme storms, floods, droughts and shifting weather patterns are affecting food supplies, driving up food prices and causing more hunger and poverty.

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Huge ND Wastewater Spill Prompts Calls For Fracking Regs (

Beaver dams have so far prevented about 1 million gallons of fracking wastewater discovered spilled July 8 from a rural North Dakota pipeline from spreading too far. But area residents, environmentalists and even a Republican state legislator all want more reliable measures. The spill of the toxic saltwater, a byproduct of hydraulic fracturing, came from gas extraction operations at the Fort Berthold Indian Reservation and occurred days before it was discovered. The federal Environmental Protection Agency said the underground pipeline spilled about 24,000 barrels, or 1 million gallon, in North Dakota’s thriving oil and gas region. The water, which can be 10 times saltier than seawater and contains salt and fossil fuel condensates, was being piped away from fuel extraction sites for safe disposal.

The spill has been threatening Bear Den Bay on nearby Lake Sakakawea, which provides water for the reservation occupied by the Arikara, Hidasta and Mandan tribes, though the EPA said there is no evidence that the lake has been contaminated. In fact, it said, most of the saltwater had pooled near where it had spilled and that beaver dams in the area had kept it from spreading. As a result, the EPA said, the local soil has simply been absorbing the spill. That’s a bit too fortuitous for Wayde Schafer, a spokesman for the Sierra Club in North Dakota. He said there have been four other spills in the region recently, including three caused by lightning strikes and a fourth attributed to a cow that rubbed against a tank valve. With its current oil and gas boom, North Dakota has become the second most productive energy state behind Texas. By relying greatly on fracking, though, it also produces millions of barrels of wastewater daily that, like nuclear waste, must be buried underground forever.

In 2013 alone, there were 74 pipeline leaks that spilled 22,000 barrels of saltwater. Yet that same year, the North Dakota Legislature voted 86 to 4 against a bill that would have mandated flow meters and cutoff switches on wastewater-disposal pipelines. Energy companies protested the cost of such measures, and even state regulators argued they wouldn’t detect small leaks.

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May 022014
 May 2, 2014  Posted by at 6:21 pm Finance Tagged with: , , , ,  5 Responses »

Phillip Harrington Elvis in his Messerschmitt “bubble car”, with grandfather Jessie Presley 1956

More curious numbers every day. An increase of 288,000 jobs in the BLS report’s Establishment Survey, but a decline of 73,000 jobs in the Household Survey; an additional 988,000 Americans left the labor force for an all time high of 92 million not in the labor force, as the Labor Participation Rate moved towards lowest since January 1978 and the Birth/Death model added 234,000 jobs. This is where I think: you tell me.

Most interesting graph of the day must be the Bank of America one Tyler Durden posted, which shows where the smart money parted ways with the mom and pop greatest fools.

That takes me to a Jeremy Grantham note Durden also posted, in which Grantham describes how he and his people at GMO have tried to define bubbles to figure out when this one will burst. His preliminary conclusion is, with a lot of caveats, and I’m oversimplifying, that he would expect a run up in the S&P all the way to 2250 or higher before the crash, which he sees happening around the time of the next US presidential elections, in 2016.

  1. … this year should continue to be difficult with the February 1 to October 1 period being just as likely to be down as up, perhaps a little more so.
  2. But after October 1, the market is likely to be strong, especially through April and by then or in the following 18 months up to the next election (or, horrible possibility, even longer) will have rallied past 2,250, perhaps by a decent margin.
  3. And then around the election or soon after, the market bubble will burst, as bubbles always do, and will revert to its trend value, around half of its peak or worse, depending on what new ammunition the Fed can dig up.

Looking at that, I’m wondering about the double trend in that graph above: how much longer will mom and pop keep buying in the face of the smart money leaving, and how much more can the smart money sell? Does that look like a trend that can last another 30 months? What about UK housing prices, can they rise 30 more months? Does Grantham think Japan will last another 30 months, given that Abenomics looks like a sure failure, despite the ‘great’ March sales numbers which were due only to that April 1 tax hike? What does he think of China, where, no matter how much numbers may contradict each other, it looks hard to deny matters have hit a serious snag?

I’m wondering if models like Grantham’s maybe look too much and too exclusively at American markets through history, and pay too little attention to the fact that the – potential – influence of other markets has increased to higher levels than seen in at least a long time. Is that what we see when he posits the 2016 US elections as a possible turning point? That his theories are based on too much all US all the time, perhaps because the advent of Asian and other emerging markets has no precedent in history over the past 100 years?

I know that bubble collapses are impossible to pinpoint, and I know that Grantham comes with all the caveats he builds into his notes, and that it’s hard to foresee which central banks will come with which next round of bankers’ wives and children first, but then again, Grantham does post this graph from John Hussman, and he does write this comment:

Exhibit 8 shows an equally disturbing Hussman exhibit in which he has collated very bad things that happen to markets. His exhibit suggests that whenever this large collection of troublesome predictions line up like they have recently there has been a very serious and fairly immediate market decline. While I have no quarrel with the eventual outcome and recognize that possibly the bear market’s time may have come, particularly in light of recent market declines (April 13, 2014), I still think it’s less likely than my suggestion of a substantial and quite lengthy last hurrah.

Hussman’s graph, as is obvious, is based on US markets as much as Grantham’s thoughts are. Perhaps that is simply too limited in today’s world. Because I don’t think anyone could argue that either China or Japan, or Europe, would NOT be able to sink the S&P. Whereas 50 years ago, that would have looked entirely different.

Anyway, that struck me in what Grantham writes. Not that it’s impossible that a real big crash, of which he’s as sure as I am by the way, will take 30 more months to materialize, but I see too many risk factors around the globe that could sink the S&P, to agree with his analysis. For instance, I think the Fed may feel it can continue to taper because it’s found a way to transfer the negative effects to emerging markets (I’m sure that’s a major consideration), but a major shock in some of those markets may backfire and take enough air out of Wall Street to cause serious damage there.

All that remains in today’s financial systems is a paperthin layer of trust, in the Fed, the S&P, the government, and that’s true for many countries, with their own central banks etc. In the present time, those risks no longer simple add up, they get multiplied into a kind of exponential function. And that’s new, historical models don’t capture that. It’s new to the extent that analyzing only the S&P’s history may well be woefully insufficient. Global financial markets have developed a cross-breeding incestuous relationship that’s a sort of an all for one and one for all, in which they all rise together and get swallowed up by a sinkhole together. And the more QE is applied across global central banks, one after the other, the deeper that hole becomes, in an exponential fashion. I think that needs to be part of any US market analysis.

Payrolls in U.S. Rise Most Since 2012, Unemployment at 6.3% (Bloomberg)

Employers boosted payrolls in April by the most in two years and the jobless rate plunged to 6.3% as companies grew confident the U.S. economy was emerging from a first-quarter slowdown. The 288,000 gain in employment was the biggest since January 2012 and followed a revised 203,000 increase the prior month, Labor Department figures showed today in Washington. The median forecast in a Bloomberg survey of economists called for a 218,000 advance. Unemployment dropped to the lowest level since September 2008.

One cloud in today’s employment report is worker pay is stagnating. Average hourly earnings held at $24.31 in April, and were up 1.9% over the past 12 months, the smallest gain this year. The drop in the unemployment rate from March’s 6.7% came as the agency’s survey of households showed the labor force shrank by more than 800,000 in April. The so-called participation rate, which indicates the share of working-age people in the labor force, decreased to 62.8%, matching the lowest level since 1978, from 63.2% a month earlier.

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1 Million People Drop Out Of Labor Force; Participation Rate Lowest Since 1978 (Zero Hedge)

And so the BLS is back to its old data fudging, because while the Establishment Survey job number was a whopper, and the biggest monthly addition since January 2012, the Household Survey showed an actual decline of 73K jobs. What is much worse, is that the reason the unemployment rate tumbled is well-known: it was entirely due to the number of Americans dropping out of the labor force. To wit, the labor force participation rate crashed from 63.2% to 62.8%, trying for lowest since January 1978! And why did it crash so much – because the number of people not in the labor force soared to 92 million, the second highest monthly increase ever, or 988K, only ‘better’ than January 2012 which curiously was the one month when the establishment survey reported a 360K “increase” in jobs.

End result: the number out of the labor force is now an all time high 92 million, and the labor force tumbled by 800K to 155.4 million from 156.2 million as the delayed effect of the extended jobless benefits ending finally hits. What is most amusing is that the “persons who currently want a job” was unchanged at 6,146K – even the BLS said it was “puzzled why so many unemployed people are not looking for jobs.” We have some ideas, and no, they don’t include the addition of 234K “birth/death adjustment” jobs.

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Speculative Fever Is Back To 2008, With Compound Interest (AEP)

We are in a colossal bubble once again. It is worse than 2008 on many indicators, though the epicentre of risk is ever more concentrated in sovereign debt, especially the debt of those countries without a central bank (you all know who I mean). Today’s chart from Andrew Lapthorne as Societe Generale is remarkable. It tracks the nominal yield on a classic mix of different assets held by funds. The return on SG’s Quality Index is close to an all-time low of 2.4% (though this of course pick up pre-deflation fears, as well as speculative mania). He says there has been a rotation out of momentum stocks – ie, the US tech sector – and into value stocks and those with high dividend yield. That is not as comforting as it sounds.

“Is this yield and value-orientated positioning reflecting a more cautious outlook? So far we doubt it. April also saw the largest junk bond issue of all time, and corporates continue to issue large quantities of debt at incredibly low yields. So despite the US Federal Reserve continuing to taper and the back up in US bond yields … the yield on a global asset portfolio is close to where it was this time last year.” It was a similar message in Neil Mellor’s morning note from Bank of New York Mellon. The euro sovereign markets have gone mad. (Note that Irish 10-year yields are nearing US Treasury yields – the global benchmark price of money – and Spain is not far behind). Borrowing costs are back to 2008 levels, yet the debt burdens are massively higher, and still rising.

As Mr Mellor reminds us, Germany has shot down any prospect of an EMU fiscal union, and the Draghi backstop plan for Italian and Spanish debt (OMT) has been declared a treaty violation and probably ultra vires by the German constitutional court. The deflationary/lowflation climate is eroding the debt dynamics of the Club Med bloc. “Japan has managed a similar scenario over the years but only with the active connivance of the Bank of Japan and its acquiescence to debt monetisation – something that is worlds away in the euro-area,” he said. “All considered, it is difficult not to conclude that the euro-area debt markets are therefore in the grip of speculative forces – forces that convey progress and confidence, but belie an underlying economy that is only just getting to its feet after four years of penury.

“Greece is the euro-area microcosm: its growth remains anaemic, its unemployment queues long with a generation of youth part structurally disengaged, and with debt of 175% of GDP and rising, it is far from clear whether the country can pay its way and avoid further assistance: but despite these profound uncertainties, its government recently returned to the market and despite numerous defaults in recent years, saw its allocation of five year bonds oversubscribed to the tune of 7-1 despite offering a return of less than 5%. If nothing else this surely speaks volumes about the forces permeating markets in 2014.”

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This is from the Telegraph of all places. COuld we ask Cameron to make it rhyme with that great recovery story he’s peddling?

UK Suffers ‘Unprecedented’ Fall In Real Wages (Telegraph)

British workers have suffered an “unprecedented” decline in real wages over the past six years, with the average employee £2,000 worse off since the financial crisis hit, according to new research. The average worker saw a 8% decline in real wages between 2008 and 2013, said the National Institute of Economic and Social Research (NIESR). “The scale of the real wage falls is historically unprecedented, certainly in the past 50 years where broadly comparable records exist,” said Paul Gregg, Stephen Machin and Mariña Fernández Salgado, the authors of the report. Official data this month showed that workers experienced a 7.6% fall in real wages over the past six years. However, the research published by NIESR revealed that young workers, among the hardest hit by the downturn, also saw the biggest decline over the period, with pay falling by 14% between 2008 and 2013.

“For workers aged between 18 and 25, the fall in real wages in the recent period has been so extreme that, in real terms, wages are back to levels not seen since 1998,” the authors said. They noted that part of this was caused by shifts in part-time working, which could be linked to more people entering higher education. However, it noted that the fall in the 25 to 29-year-old age group was also substantial. Real pay among these workers fell by 12%, taking wage levels back to where they were in 1999. While the authors said recent falls in the unemployment rate were likely to be accompanied by stronger wage growth, they calculated that meaningful increases were unlikely to materialise until later this year, with the biggest effects not seen until 2016.

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The Great(est Fool) Rotation: Who’s Buying, And Who’s Selling? (Zero Hedge)

We could yarn on for hundreds of words discussing the ins and outs of falling volumes and record-er highs in US equity markets as Treasury bond yields collapse, macro- and micro-fundamental data slumps, and the total nonsense with regard to ‘cash on the balance sheets’ when it is all levered to the max. But when it comes to showing just who is buying the hope… and who is selling the hype, the following chart from BofAML sums it all upinstitutional clients sold the most since January and the 4th most on record in the last week as retail clients continued their buying streak. Institutional clients are dumping equities off to retail clients… thank you very much…

Last week, during which the S&P 500 was down 0.1%, BofAML clients were net sellers of $1.5bn of US stocks following a week of net buying.
Net sales were chiefly due to institutional clients, who have now sold stocks for the last five consecutive weeks and are the biggest net sellers year-to-date. Net sales by this group last week were their largest since January and the fourth-largest in our data history (since 2008).

Hedge funds were net buyers for the fourth consecutive week, and private clients also continued their net buying streak.

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No sh*t.

Bank Of England Warns Housing Market Boom May Turn To Crash (Guardian)

Britain’s booming housing market could be heading for a fresh crash, the Bank of England said in its toughest warning yet about the dangers of the return of rapidly rising property prices. Sir Jon Cunliffe, Threadneedle Street’s deputy governor for financial stability, said it would be dangerous to ignore the momentum apparent across the country and dropped strong hints of new measures to slow down the market in the months ahead. On a day when it emerged that one in 15 London homes are now selling for £1m or more, Cunliffe said Britain had a history of booms turning to bust. “This is a movie that has been seen more than once in the UK.”

The Bank’s deputy governor said that there were always risks to financial stability “blinking on the dashboard” but made clear his concern about the possibility that borrowers taking on large mortgages could find themselves in trouble when interest rates inevitably rose. “The growing momentum in the market is now in my view the brightest light on that dashboard”, Cunliffe said. “It has not yet been accompanied by a substantial increase in aggregate mortgage debt, though gross mortgage lending is growing and there are signs that debts are becoming more concentrated.”

Cunliffe said the housing market could have a “soft landing” as houses became less affordable and lenders tightened up the conditions for granting homes loans. “But other outcomes are very possible and the financial policy committee [FPC] will need be both vigilant and ready to act.” He said the risk was of “a major overshoot in prices and buildup in debt followed by a sharp correction with negative equity and an overhang of debt for many households”, adding: “Unfortunately, there are more precedents in UK for periods of a rapidly growing housing market to end in this way.”

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Very clear. Japan QE has killed Sony’s profits, and what more would you need to know?

The Markets Just Sounded the Death Knell For QE (Phoenix)

The Central Bank intervention fiasco continues to unravel before our eyes. Globally all Central Banks have kept an eye on the Bank of Japan, which announced the single largest QE program relative to its GDP in history. That one single QE program announced in April 2013 is equal to over 20% of Japan’s GDP. Japan experienced two brief quarters of improved economic activity, before things turned south again. Turns out that printing trillions of dollars to buy bonds doesn’t create growth. The latest example is Sony, the Japanese electronics giant which just announced a 70% COLLAPSE in its profit outlook. Sony’s CEO had stated previously that a weak Yen, caused by the Bank of Japan’s QE program was actually a “disadvantage.” We now have concrete proof as Sony’s profits outlook evaporates. This is the death knell of QE.

We now know for a fact that the Fed and other Central Banks are aware that QE doesn’t create jobs nor does it improve the broader economy. All that leaves is stocks… which have benefitted enormously from QE, with the S&P 500 rising to new record highs boosted by the Fed’s money printing. However, ultimately stocks react to profits. And as Sony has proven, QE hurts rather than helps profits. Indeed, Sony’s stock is down over 1.5% on the earnings outlook drop. And it’s essentially breakeven since the Bank of Japan announced its massive QE program. The writing is on the wall. QE is good for very little these days. If the Bank of Japan can spend over $1.4 TRILLION and corporate profits fall while stocks go nowhere, it’s the end of the line for Central Bank money printing.

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We already know the answer to that question, but why not see it again?

What $1.4 Trillion In QE Buys The US Economy (Zero Hedge)

Back in December of 2012, the Fed, after two and a half failed attempts to stimulate the economy (via QE1, QE2 and Operation Twist), announced Open-Ended QE of an indefinite injection of $85 billion per month (which it currently is tapering at a pace of $10 billion per month on the realization that it has soaked up virtually all high quality collateral). Since then the Fed’s balance sheet has grown from $2.9 trillion to $4.3 trillion: a direct injection of $1.4 trillion in liquidity into the stock market, if not so much the economy, which as Wall Street is suddenly busy telling us following the latest disappointing construction spending data (the same Wall Street which initially expected Q1 GDP to be 2.75%), probably contracted for the first time in three years!

There’s even better news: if the next quarter shows the US economy contracting again – and with the “beneficial” impact of Obamacare fading, global trade stuck in the doldrums, and US consumers tapped out with near record low savings this is a distinct possibility – the US will officially enter a recession. And this ignores the terrifying possibility of even more rain in the spring, not to mention the mortal threat of El Nino in the summer. Then the US is virtually assured an all out collapse into depression.

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Why am I not surprised to see this?

Freddie Mac Enters Trailer Park Loans Market (Bloomberg)

Want to buy a trailer park? Freddie Mac wants to give you a loan. The unit of the government-owned mortgage giant that funds apartment buildings is set to begin financing manufactured-housing communities, the company said in a statement today. The firm is broadening its reach in the multifamily segment of the housing market as it seeks to fulfill its mandate to provide affordable options for low-income families. The McLean, Virginia-based lender will work with established companies in the industry across the U.S., said David Brickman, the head of multifamily operations at Freddie Mac. “It’s rounding out our ability to touch the affordable housing space,” Brickman said today in a telephone interview. “Manufactured housing is a big piece of rural affordable housing.”

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., lamented the punitive rates charged to purchase factory-built homes in his 2009 annual letter to shareholders. Berkshire owns Clayton Homes Inc., a builder of the properties. Without funding from Fannie Mae and Freddie Mac, owners of the housing complexes are forced to pass on higher debt costs to the families they serve. Freddie Mac plans to package the debt into bonds with its more conventional apartment loans. The company issued $3.9 billion of commercial-mortgage bonds linked to multifamily properties during the first quarter. Sales of the debt reached $28 billion in 2013.

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Is it horror movie season again already? WTF?

US Banks Slide Back Towards Subprime Credit Standards (Bloomberg)

U.S. banks are easing credit standards in search of a safe and profitable middle ground after an era of reckless home lending gave way to the stiffest rules in decades, putting a damper on the housing recovery. Wells Fargo the biggest U.S. home lender, two weeks ago cut its minimum credit score for borrowers of Fannie Mae-and Freddie Mac-backed loans to 620 from 660. The step followed moves by smaller lenders, such as the U.S. unit of Canada’s Toronto-Dominion Bank, which lowered down payments to 3% without requiring mortgage insurance for some loans.

Banks ratcheted up borrowing requirements after the most severe housing crash since the Great Depression, preventing as many as 1.2 million loans from being made in 2012, according to an Urban Institute paper. Lenders rode a wave of refinancing until a spike in borrowing costs last year gutted demand, forcing the biggest banks to cut more than 25,000 mortgage jobs. Now they’re removing barriers to mortgages for some borrowers in hopes of reviving a shrinking market. “We threw the baby out with the bathwater because we had to,” said Rick Soukoulis, chief executive officer of San Jose, California-based lender Western Bancorp. “From there, you start to inch back. If you keep selling only what isn’t selling, you’re just dead.”

In March, credit standards were the loosest in at least two years, according to a Mortgage Bankers Association index. The measure, based on underwriting guidelines, rose to 114 from 100 when it started in 2012. The index would have been at about 800 in 2007, meaning credit was eight times looser that year, before standards were tightened. Home buyers with higher debt and lower FICO credit scores are now a growing minority among borrowers of loans backed by Fannie Mae and Freddie Mac, the government-owned mortgage giants. Almost 16% of the mortgages for home purchases in March went to borrowers with monthly debt obligations exceeding 43% of their pay, according to data compiled by Morgan Stanley. That’s up from 13.4% in mid-2012. Federal rules deployed in January expose lenders to liabilities if their mortgages without government backing require payments that, when combined with other debts, exceed 43% of the borrower’s income, without proof they can be repaid.

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IMF Warns Ukraine On Bailout If It Loses East (CNBC)

Ukraine, struggling with a stuttering economy as well as an escalating crisis with neighboring Russia, has had its $17 billion International Monetary Fund bailout signed off. But international lenders are already warning of threats to its funding. Christine Lagarde, IMF managing director, warned “further escalation of tensions with Russia and unrest in the east of the country pose a substantial risk to the economic outlook.” In a staff report on the aid program, published Thursday, the IMF added that a change to eastern Ukraine’s borders could force it to adjust its bailout.

“The unfolding developments in the east and tense relations with Russia could severely disrupt bilateral trade and depress investment confidence for a considerable period of time, thus worsening the economic outlook,” it said. “Should the central government lose effective control over the east, the program will need to be re-designed.” The detention of Russia’s military attaché to Kiev by Ukrainian police on Thursday morning highlighted concerns that the tensions gripping the country are unlikely to go away. The IMF predicts Ukraine’s economy to shrink by 5% at least this year. The country has been hidebound by corruption in business and politics. New anti-corruption laws are expected, but their effectiveness remains to be seen.

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The EU in all its blindness has little chance of seeing that wall coming.

Russia Sues EU Over ‘Third Energy Package’ (RT)

Russia has filed a lawsuit with the World Trade Organization (WTO) over the EU’s so-called ‘Third Energy Package,’ according to media reports. “This procedure is provided for in the rules of the Organization,” a source said, adding that “Russia sent a note to the EU Mission at the WTO and notified the WTO Secretariat thereof,” Itar-Tass news agency reported. A second news agency, Interfax, stated that a “source close to WTO” spoke of “the start [of a] court examination.” The agency said it obtained confirmation from the director of the Ministry of Economic Development’s department of trade negotiations, Maksim Medvedkov.

Signed in 2007, the Third Energy Package outlines a set of rules regulating the European gas and electricity market. The European Commission insists the Third Energy Package was aimed at increasing competition on the energy market, allowing other players to join the sector and liberalizing energy prices. One of the core elements prohibits a single company from both owning and operating a gas pipeline and contains rules on third party access to the natural oil transportation grid. “These and other elements of the Third Energy Package, in the opinion of Russia, contradict the obligations of the EU in WTO on basic principles of non-discrimination and market access … the Third Energy Package creates serious obstacles to ensure a stable supply of Russian gas to the EU, including a threat to the construction of new transport infrastructure, for example, in the framework of the ‘South Stream,’” Medvedkov told Interfax.

Moscow broke ground on the South Stream project after securing agreements with intergovernmental agreements with all countries which the pipeline would pass through: Austria, Bulgaria, Hungary, Greece, Serbia, Slovenia, and Croatia. The Third Energy regulation mandates 50% of the pipeline can be operated by Russia’s Gazprom, but the other 50% must be operated by a third party, a condition Russian energy ministers do not accept, as Gazprom is the only company that has the right to export gas via pipeline.

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Ukraine’s Gas Debt To Russia Reaches $3.5 Billion (RT)

Ukraine’s gas debt to Russia has hit $3.5 billion, according to preliminary data released on Wednesday, a Gazprom official told reporters. The new data includes Ukraine’s Naftogaz order as of April 30 and those volumes that were already supplied this month, Sergey Kupriyanov stated. Ukraine’s energy minister, Yury Prodan, responded, stating that Ukraine does now agree with Russia’s gas debt estimate of US$3.5 billion, UNN news agency reported. Prodan added that Ukraine continues to insist on the price of $268.5 per 1,000 cubic meters for Russian gas.

Last week, Russian energy minister Aleksandr Novak said that Ukraine’s growing gas debt may lead to the failure of the country’s transit obligations and the reduction of gas supplies to southeastern Europe. The debt may force a situation where not enough gas will be pumped into Ukrainian underground storage facilities, which may create the risk of non-performance by Ukraine of its transit obligations and of an undersupply of gas to southeastern Europe, the minister stated. In December, Russia provided Ukraine with a $3 billion loan, which was part of a larger $15 billion aid package agreed the same month. Moscow also offered a 33% gas price discount that would have saved more than $7.5 billion.

In April, Russia’s President Vladimir Putin said that Russia cannot continue to prop up Ukraine’s faltering economy. “The Russian Federation doesn’t recognize the legitimacy of the authorities in Kiev, but it keeps providing economic support and subsidizing the economy of Ukraine with hundreds of millions and billions of dollars. This situation can’t last indefinitely,” Putin said. Ukraine has not paid for Russian gas since the beginning of 2013, and with all discounts withdrawn it is now charged $485 per 1,000 cubic meters of gas.

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According to the IMF …. What kind of source is that? Is the IMF independent?

How The Russian Economy Has Taken A Turn For The Worse (Guardian)

Russia’s economy was struggling even before the crisis in Ukraine, but things have now taken a turn for the worse, according to the International Monetary Fund. GDP fell in the first three months of 2014 and will fall again in the second quarter. According to the technical definition, that would amount to a recession. The news will come as little surprise to the European Bank for Reconstruction and Development, which counts Russia as its biggest client. The EBRD believes there will be little or no growth this year even assuming there is no further escalation in the crisis.

Russia has five big problems. The first is that its manufacturing sector is uncompetitive after being starved of investment. The second is that the lack of a thriving industrial base has made the economy even more dependent on its oil and gas sector. The third is that a combination of a struggling economy, the Ukraine crisis and endemic corruption has led to capital flight. Goldman Sachs has estimated that up to $50bn (£30bn) has left Russia since the start of 2014 and that the full year figure could be as high as $130bn.

The fourth problem is that, with cash leaving the country and little or no investment coming in, the value of the rouble has fallen sharply. That has forced the central bank to push up interest rates, further depressing growth. Finally, there’s the threat of sanctions. These are not having a direct impact but the threat of tougher action to come is weighing down on confidence. Analysts at Capital Economics say that a worsening of the crisis could lead to the Russian economy contracting by 5% in 2014.

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All QE does that. It’s in the design.

Draghi QE Plan Seen Helping Banks Not Business (Bloomberg)

Mario Draghi’s plan to spur growth by getting the European Central Bank to buy asset-backed securities and persuade lenders to sell more of the bonds is being met with skepticism by the region’s biggest money managers. The ECB’s president is considering broad-based asset purchases, known as quantitative easing, to ward off deflation. He’s also promoting the market for bonds backed by loans to small- and medium-sized enterprises in a bid to increase funding to the businesses that employ about 70% of the European Union’s private-sector workers.

Draghi is seeking to free up bank balance sheets by reviving Europe’s $2.1 trillion ABS market, which contracted 32% since 2009 as regulators cracked down on the debt blamed for deepening the financial crisis. With lenders’ profits being squeezed by tougher capital rules, money managers are concerned they’ll use the opportunity to boost earnings. “It would be nice for banks as they could fund very cheaply, but would they pass on the cheap funding to customers or will they keep the higher profit margin themselves?” said Frank Erik Meijer, head of ABS at Aegon Asset Management in The Hague, which oversees 250 billion euros ($347 billion) of assets. “I don’t see SMEs benefiting a lot because banks will probably try to keep the additional profit margin to increase their capital base.”

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But 288,000 jobs! Speed up the taper!

Yellen’s Fed Resigned to Diminished Growth Expectations (Bloomberg)

Federal Reserve Chair Janet Yellen and her colleagues have lowered their sights on how fast the economy needs to expand to meet their goal of cutting unemployment. No longer are they saying growth must accelerate from the 2% to 2.5% pace it has generally averaged since the recession ended. Instead, they are stressing the importance of preventing the expansion from faltering. Exhibit number one: the Fed chief herself. Yellen said on April 16 that a key question facing the central bank is what “may be pushing the recovery off track.” Contrast that with her comments on March 4, 2013, of the importance of seeing “a convincing pickup in growth.”

The central bank on April 30 pushed ahead with its plan to gradually wind down its asset-purchase program in spite of news earlier in the day that growth ground to a virtual halt in the first quarter. Saying the economy is rebounding, the Federal Open Market Committee voted unanimously to reduce its bond purchases by another $10 billion a month, to $45 billion. “Monetary policy has become very passive compared to where it was before,” said Neal Soss, chief economist at Credit Suisse Group AG in New York and a one-time assistant to former Fed Chairman Paul Volcker. Most FOMC participants forecast gross domestic product growth of 2.8% to 3% this year and 3% to 3.2% in 2015, according to projections released March 19.

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Yeah, sure.

New York Attorney General Eyes Exchanges In High Frequency Probe (Reuters)

The New York Attorney General’s office is seeking information from exchanges and alternative trading platforms about their relationships with high frequency trading firms, as part of its probe into allegedly unfair trading practices on Wall Street, according to sources familiar with the situation Attorney General Eric Schneiderman’s office is expected to send subpoenas within days to exchanges, one of the sources said on Thursday. Another source said major banks that operate dark pools, or platforms where trades take place out of sight of the rest of the market, have been sent letters asking for information.

The major U.S. exchange operators include IntercontinentalExchange Group, Nasdaq and BATS Global Markets. NYSE, a unit of ICE, has already been cooperating with the attorney general by sharing data, while BATS has also had conversations with the prosecutor, two of the sources said. Nasdaq Chief Executive Robert Greifeld said in an interview on April 24 that his company had not been subpoenaed. The expected move by Schneiderman’s office shows how investigations into the practices of high-frequency trading firms are broadening. The U.S. Securities and Exchange Commission, Commodity Futures Trading Commission and Federal Bureau of Investigation have also said they had several active probes into high-speed and automated trading.

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How Canada’s Flirtation with a China Oil Market Soured (Bloomberg)

Stephen Harper was in need of a new friend with a big appetite for oil. The Americans just weren’t cutting it. It was February 2012, three months since President Barack Obama had phoned the Canadian prime minister to say the Keystone XL pipeline designed to carry vast volumes of Canadian crude to American markets would be delayed. Now Harper found himself thousands of miles from Canada on the banks of the Pearl River promoting Plan B: a pipeline from Alberta’s landlocked oil sands to the Pacific Coast where it could be shipped in tankers to a place that would certainly have it – China. It was a country to which he had never warmed yet that served his current purposes.

Harper stood before a business audience in a luxury hotel banquet hall in Guangzhou, capital of China’s most populous province, putting on his best pro-China face while touting his nation’s virtues. “Canada is not just a great trading nation; we are an emerging energy superpower,” he said surrounded by a phalanx of red Chinese and Canadian flags. Oil was top of mind. He noted that a single country – the U.S. – took 99% of Canada’s exports, a situation he described as contrary to Canada’s commercial interests. “You know,” he said, “we want to sell our energy to people who want to buy our energy. It’s that simple.” The Chinese and Canadians in attendance had long waited for Harper to embrace the Chinese economic juggernaut. They held him up for half-an-hour posing for pictures.

As he finally took his seat for a group photo with the organizers, he turned to Peter Harder, a former deputy minister of foreign affairs and president of the Canada China Business Council. “Do you think the Americans were listening?” he asked. That Harper now found himself in the People’s Republic hawking Alberta’s oil spoke to the depth of his frustration with Obama. His view, according to people close to Harper who knew his thinking but aren’t authorized to speak, was that sensible Americans would understand the folly of allowing Canada’s massive oil sands reserves, estimated at 168 billion recoverable barrels, to be sucked up by China, a rising economic and political rival. Yet if the Americans – most particularly a president inclined to indulge his green base at Canada’s expense – didn’t pay heed, then Harper had primed the pump to do business with the Chinese.

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Free market competition.

Japan Prepares to Enter the Arms Market (Bloomberg)

Keenly aware of the trouble that came with ambitious generals and an expanding munitions industry, the Japanese government has long banned most weapons exports. That policy helped buttress Japan’s pacifism, but it also hindered the growth of the country’s defense industry. Because it couldn’t sell parts overseas, Japanese defense companies missed out on chances to develop tanks, fighter jets, and other weaponry with the U.S. The ban “has resulted in an isolated Japanese defense industry that produces very small quantities at very high cost,” says Lance Gatling, president of Nexial Research, a defense consulting company in Tokyo.

Japan’s Asian neighbors have taken advantage of its absence from the export scene. South Korea exported $3.4 billion worth of arms in 2013, up from $1.2 billion in 2010. China last year passed France and Britain to become the world’s fourth-largest arms exporter, behind only the U.S., Russia, and Germany, according to the Stockholm International Peace Research Institute. In April, the government of Japan’s conservative prime minister, Shinzo Abe, lifted a ban from the 1970s that restricted arms exports. The country’s contentious relations with China, which claims Japanese-controlled islands in the East China Sea, made getting rid of the ban politically much easier for Abe, even though a recent poll suggests most Japanese citizens don’t support loosening export restrictions. The old policy “was too strict,” says Tsuneo Watanabe, director of policy research and senior fellow at the Tokyo Foundation. “The voice of pacifism is getting lower because of tensions with China”.

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Oh yeah buddy.

Economics Is Too Important To Leave To The Experts (Guardian)

You wouldn’t have guessed it, given the fanfare surrounding the 0.8% growth figure for the first quarter of 2014, but people in the United Kingdom have been living through a period worse than Japan’s infamous “lost decade” of the 1990s. During that time, Japan’s per capita GDP grew at 1% per year. This means that in 2000, Japan’s per capita GDP was 10.5% higher than in 1990. In the UK, per capita GDP at the end of 2013 was 6.6% lower than that in 2007. This means that, unless the UK economy miraculously grows at around 5% a year for the next four years (factoring in population growth rate of around 0.7% a year), it is going to have a decade that is even more “lost” than Japan’s 1990s.

The costs of the 2008 crisis in terms of human welfare have been even greater than the growth figures suggest. Unemployment is still nearly 7%, or at 2.24 million, depriving people of dignity and putting them under huge stress. Real wages have had some of the biggest falls in the OECD bloc of 34 countries and have a long way to go before they can recover to pre-crisis levels. Steep cuts in welfare spending have hit many of the poorest hard. Increasing job insecurity, symbolised by the rise of zero-hours contracts, has been making workers’ lives more stressful. The spread of food banks, the popularity of “poverty recipes” in cookery, and the advance of German discount supermarket chains, such as Aldi and Lidl, are the more visible manifestations of this pressure on the living standards of citizens.

What is more, even this sorry achievement has been made on the reversion to the economic model whose bankruptcy was laid bare by the 2008 crisis. That model was predicated on the deregulated financial system fuelling unsustainable growth by creating asset bubbles, one of the highest household debts in the world (as a proportion of GDP), and a large current account deficit. How has this mess been created? The mismanagement of the crisis by the coalition government means it has to bear significant blame, but the main cause lies in the nature of the economic model that the UK has pursued for three decades.

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Demise of the Trickle-Down Delusion (Barry Ritholtz)

Any reader of this site has likely heard about the book currently setting the world of economics aflame. “Capital in the Twenty-First Century” was written by a French economist named Thomas Piketty. It is on the New York Times best-seller list and is currently sold out, with its publisher scrambling to print more copies. [..] The data-driven demolition of trickle-down economics has the Ayn Rand crowd panicked. But what I find so fascinating about this debate (having not yet read the book, though I plan to) is the inability of the economic right wing to respond. Thus far they have been rendered impotent, unable to construct an intelligent counterargument. The strongest response so far — and I am not making this up — has been to give the book a single-star rating on’s website.

Alexander Kaufman at the Huffington Post collected some of the more amusing one-star reviews. There wasn’t a single verified purchaser of the book on the entire, absurd list. Which raises a question about John Stuart Mill’s notion of the marketplace of ideas: Is the debate driven by the quality of ideas, or by the marketing, branding and PR behind it? Ralph Waldo Emerson wrote “Build a better mouse trap and the world will beat a path to your door.” All tech entrepreneurs quickly learn that this isn’t true. The better mouse trap is merely the first step, which might get you some venture-capital funding if you have a good pitch book and a winning personality. Regardless of your views on Piketty’s thesis, it raises an interesting epistemological question: Was Mill wrong?

How could the “worse” idea win in the market place? If you believe trickle-down economics is a fraud, how did it dominate the world of economics for so many decades? If you think Piketty’s work is just so much nonsensical Marxism, why has it received so much acclaim from the economics profession and public alike? Perhaps Mill’s marketplace of ideas suffers the same flaw as the efficient-market theory, or the idea that prices reflect all information and investors can’t beat the market over time. A decade ago, I called it “The kinda-eventually-sorta-mostly-almost Efficient Market Theory.” Markets are filled with all sorts of inefficiencies and friction. They eventually get it more or less correct, but along the way, they can deviate from the true path of efficiency. We just need to wait a decade or three for that efficiency to sort itself out.

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How And When The Bubble Finally Bursts (Jeremy Grantham)

There has been much discussion in the past year(s) whether the Fed has inflated (the final) bubble. Sadly, most of it has been misguided. To get some “guided” analysis of what is easily the most important market topic of the day, we go to GMO’s Jeremy Grantham and his latest quarterly letter covering just this: “Looking for Bubbles.” First the background:

What is a bubble? Seventeen years ago in 1997, when GMO was already fighting what was to become the biggest equity bubble in U.S. history, we realized that we needed to define bubbles. By mid-1997 the price earnings ratio on the S&P 500 was drawing level to the peaks of 1929 and 1965 – around 21 times earnings – and we had the difficult task of trying to persuade institutional investors that times were pretty dangerous. We wanted to prove that most bubbles had ended badly. In 1997, the data we had seemed to show that all bubbles, major bubbles anyway, had ended very badly: all 28 major bubbles we identified had eventually retreated all the way back to the original trend that had existed prior to each bubble, a very tough standard indeed.

Then, the bullish case, or in other words, what is the maximum the S&P can stretch further, before it all comes crashing down:

So now, to get to the nub, what about today? Well, statistically, Exhibit 3 reveals that we are far off the pace still on both of the two most reliable indicators of value: Tobin’s Q (price to replacement cost) and Shiller P/E (current price to the last 10 years of inflation-adjusted earnings). Both were only about a 1.4-sigma event at the end of March. (This is admittedly because the hurdle has been increased by the recent remarkable Greenspan bubbles of 2000 and a generally overpriced last 16 years.) To get to 2-sigma in our current congenitally overstimulated world would take a move in the S&P 500 to 2,250. And you can guess the next question we should look at: how likely is such a level this time? And this in turn brings me once again to take a look at the driving force behind the recent clutch of bubbles: the Greenspan Put, perhaps better described these days as the “Greenspan-Bernanke-Yellen Put,” because they have all three rowed the same boat so happily and enthusiastically for so many years.

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Sombody shoot Australia!

UNESCO Slams Barrier Reef Dumping Plans (RT)

UNESCO has condemned the Australian government’s approval of dumping dredged sand and mud in the waters of the Great Barrier Reef. The UN body warned that if the plan is not revised, the Reef’s World Heritage status could be downgraded. The decision to allow three million cubic meters of dredge waste to be disposed of in the Barrier Reef was made in January by an Australian government agency overseeing the area. The waste comes from the earlier approved expansion of the country’s port of Abbot Point – to make way for extensive coal shipments.

In its first comment on the issue, the United Nations Educational, Scientific and Cultural Organization (UNESCO) expressed “concern” and “regret” at the decision, which it believes was premature. It was taken before a thorough analysis of the impact it might have on the World Heritage site. “Indeed, this was approved, despite an indication that less impacting disposal alternatives may exist,’’ UNESCO said on Thursday in a draft report on the reef’s World Heritage status to the World Heritage Committee. The body has urged the government to reconsider the dumping plan and in case it proves to be the least damaging option, submit evidence proving the point. UNESCO has on the whole noted “serious decline in the condition of the Great Barrier Reef, including in coral recruitment and reef-building across extensive parts of the property.”

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I can’t wait for the first sinkhole to swallow a bunch of oil companies. It would work even better if an entire town disappears, because the whole land casino would be gone in a heartbeat, but I’d never want that for the people in the town.

Fracking-Linked Earthquakes Likely To Worsen (RT)

Ongoing hydraulic fracking operations will only exacerbate seismic activity, leading to heightened earthquakes in areas where wastewater is injected deep underground, according to new research. To unleash natural gas, hydraulic fracturing – or fracking – requires large volumes of water, sand, and chemicals to be pumped underground. Scientists attending the Seismological Society of America (SSA) annual meeting said Thursday that this storage of wastewater in wells deep below the earth’s surface, in addition to fracking’s other processes, is changing the stress on existing faults, which could mean more frequent and larger quakes in the future.

Researchers previously believed quakes that resulted from fracking could not exceed a magnitude of 5.0, though stronger seismic events were recorded in 2011 around two heavily drilled areas in Colorado and Oklahoma. “This demonstrates there is a significant hazard,” said Justin Rubinstein, a research geophysicist at the US Geological Survey (USGS), according to TIME magazine. “We need to address ongoing seismicity.” Not all of the more than 30,000 fracking disposal wells are linked to quakes, but an accumulating body of evidence associates an uptick in seismic activity to fracking developments amid the current domestic energy boom. The amount of toxic wastewater injected into the ground seems to provide some clarity as to what causes the earthquakes. A single fracking operation uses two to five million gallons of water, according to reports, but much more wastewater ends up in a disposal well.

“There are so many injection operations throughout much of the US now that even though a small fraction might induce quakes, those quakes have contributed dramatically to the seismic hazard, especially east of the Rockies,” said Arthur McGarr, a USGS scientist. The USGS researchers spoke with reporters via conference call on Thursday. Scientists believe the cumulative effect of these operations could result in larger quakes becoming more common over time. “I think ultimately, as fluids propagate and cover a larger space, the likelihood that it could find a larger fault and generate larger seismic events goes up,” Gail Atkinson, professor of earth sciences at Western University in Ontario, Canada, said at the SSA meeting.

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Apr 282014
 April 28, 2014  Posted by at 6:19 pm Finance Tagged with: , , ,  4 Responses »

Russell Lee Love Shack, South Side Chicago April 1941

I’m not going to argue here that a market collapse would be a positive thing no matter what, because the implications of a true collapse would be so deep and widespread that they’re too hard for anyone to oversee. But having said that, truth finding and price discovery are crucial for a functioning economy, and there is not a shred of truth left in the markets nor is it possible to discover anything about any price as a free market would have set it. And that means there’s no trust or confidence left in markets, there’s only a shaky trust in authorities propping them up. Neither of which can last forever.

What are stocks truly worth, what is a fair prices for a home, or a plot of land, an hour’s work, or a year’s crop? Is it what they were valued at in 2006, pre-crash, or in 2010, post-crash, or today in 2014? We can’t really answer that question (which is bad enough), but we can surmise that valuations have been distorted to an extensive degree by all sorts of government measures to stimulate economies and by central banks inserting freshly not-even-minted amounts of what some insist is money and others insist absolutely isn’t, into essentially broke banks, pretending they expect it to trickle down.

And that’s not all. The biggest banks in Japan, the US and Europe (and don’t get me started on China) have been declared “systemic” or too-big-to-fail, a status which absolves them from having to expose their debts to daylight. That means the shares in these banks are of necessity overvalued, and potentially by a lot, because if there were no such losses fermenting away in their vaults, they would be very eager to prove they have no foul smelling debt, since that would greatly boost their – perceived – trustworthiness. We know, therefore, that those bad debts, gambling losses, still exist, in all likelihood a lot of them, and all over the place. We’re talking many trillions of dollars.

And that’s not all either. Since stimulus measures on the one side and the refusal to uncover debts on the other have propped up asset prices to the extent they have, it’s not just the banks’ assets, but everybody else’s assets that are overvalued too. Yes, that includes yours. Not only the shares you may own in a bank or some other company, but also your home, and potentially even your job, it’s all overvalued. In other words, the perceived value of your assets is as distorted by government interference, executed with credit that uses your children’s labor as collateral, as a too-big-to-fail bank’s assets are.

The obvious reaction to realizing that your assets are overvalued, and possibly by a lot, is to think: let them keep going as they are, or I would risk losing my investments, the home my kids grow up in, and maybe my job. However, while running an economy on credit can be useful up to a point, when that credit becomes really zombie money, everyone starts paying a price, and the more there is of it, the higher that price becomes. The difference between credit and zombie money, as thin as the line between them may seem at times, is actually quite easy to discern: the former, if limited to productive purposes, allows for price discovery, while the latter makes it impossible.

Perverted markets give birth to perverted asset valuations. So who wants perversion? Well, the people who own the assets. People like Jamie Dimon, and you. Those who don’t like them – or shouldn’t if they were aware of what’s going on – are the young who can’t get a decent paying job, who can’t find a home to buy or even rent, who have a fortune in student debt hanging around their necks, and who therefore can’t start a family. Plus of course the weak, the needy and the old who rely on fixed income.

Governments and central banks shouldn’t interfere in markets in ways that make it impossible to know what anything is really worth. They should let banks that have too many debts go bankrupt and be restructured; that’s actually a very fine task for a government: to make sure that things are handled fairly, and with no negative impact on their people. But what we see is that this picture has been put upside down: governments seek to make sure that there’s no negative impact on their banks, and use their people’s present and future wealth to achieve that.

But why protect banks? What’s so important about them? Is it that they hold people’s money? That’s easy to get out first in case of a default, before anything else, and to guarantee. Granted, that might also lead to some price distortion, but not anywhere near what we see now. The secret ingredient here is of course that banks create credit/money every time they write a loan, but there’s no real reason why banks should do that, not governments, that set-up has no benefits for society, only for bankers and their shareholders.

I can write and think and philosophize about this for a very long time, and I do find it interesting, but eventually I always wind up at the same point, and that does sort of take the fun out. That is, the road we’re on now is not infinite, and there’s a cliff at the end of it. It always leads back to the value of real things that real people have produced with real work, and the fact that in today’s economy, that sounds almost like a – perhaps cruel – joke. The value of what you and I can produce with our own hands, guided by our own brains, is diminished to a huge extent by the zombie money that can place higher values on things that are achieved by flicking a switch, stroking a keyboard, or just let machines to the whole thing.

It’s one thing to make our work lighter, easier, or enhance our productivity. It’s another to replace it with something else altogether. And then pump central bank zombie money into raising the value of what has just replaced us. Even if we would all have access to all new technologies, you would have to seriously question their value, but once there’s only a select group that has that access, and on top of that it’s got access to public coffers, the only way for society itself is down. And the only way to restore a society’s core values, not as they are perceived today but as they truly are, is to cleanse the economy and the financial system of what distorts and perverts the ability to assess asset values. Which happens to be our own government and central bank’s interference in the financial system.

A collapse of the markets is going to come no matter what. They won’t be able to live forever on a diet of bad debt propped up by central bank zombie money, laid out on a bed of bad faith. And when it happens, sure, it’s going to hurt you, and probably a lot. But then, the sooner it happens, the less it will hurt your children. Isn’t that worth trying to understand why a market collape would be a good thing?

As long as you don’t recognize the influence of velocity of money on inflation, you’re, like Abe, lost in the woods.

Abenomics Doomsday Machine Crushes Japan’s Middle Class (TPit)

The wonders of Prime Minister Shinzo Abe’s economic religion, touted with blinding exuberance around the world, are coming home to roost. And they’re whacking the hapless Japanese middle clareligion of Japanese Prime Minister Shinzo Abe and his ilk whose “bold” and “courageous” actions have been touted with blinding exuberance around the world, are coming home to roost. And they’re whacking the hapless Japanese middle class from all sides. Japan has two inflation measures: the nationwide index and an advance index for the 23 wards of Tokyo. The nationwide index, released today, was compiled based on prices in March, just before the April 1 consumption-tax hike from 5% to 8%.

And it bit into Japanese wallets: the “all-items index” rose 1.6% from a year ago, with services up 0.7% and goods up a stiff 2.6%. But the Tokyo index covers prices in the current month. It’s an indicator of things to come nationwide, as the consumption-tax hike began infiltrating prices in April. It wasn’t pretty. Businesses have been reluctant to add the additional three percentage points to prices of services and have been eating part of it. Service prices, such as haircuts, rose “only” 1.6% in April year over year. But the all-items index, which includes goods and services, rose 2.9%, the all items less imputed rent index 3.7%, and the goods index a red-hot 4.7%.

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“All of this must seem counterintuitive to foreign audiences”, says he. Is it perhaps counterintuitive to Americans that it doesn’t?

The American Dream Is Now Just That For Its Middle Class: A Dream (Observer)

While a majority of Americans tenaciously continue to hold dear to the American Dream – that long-standing American ideal that if you work hard anything is possible – more and more people are reporting that the opportunity for social advancement feels increasingly out of reach for them and their children. Indeed, it is hard to think of a more disquieting trend in American society than the fact that those in their 20s and 30s are less likely to have a high school diploma than those between the ages of 55 and 64. All of this must seem counterintuitive to foreign audiences. The US swaggers along on the world stage with a certainty and sense of moral purpose that no other country can match.

Blessed with practically limitless national resources, a dynamic and diverse population, a relatively stable political system and innovative technological capabilities that other nations can only dream of, how can so many Americans be falling behind – and how can the nation’s leaders allow it to happen? The answer is disconcertingly simple: we chose this path. Granted, no one actively set out to attack the middle class in America. There wasn’t some evil plan hatched behind closed doors to wreak socio-economic havoc. But the decline of the American middle class, the ostentatious wealth of the so-called 1% and the crushing economic anxiety of the growing number of poor Americans have happened in plain sight.

It is the direct result of a political system that has for more than four decades abdicated its responsibilities – and tilted the economic scales toward the most affluent and well-connected in American society. The idea that government has an obligation to create jobs, grow the economy, construct a social safety net or even put the interests of the most vulnerable in society above the most successful has gone the way of transistor radios, fax machines and VCRs. Today, America is paying the price for that indifference to this slow-motion economic collapse.

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Wherever there’s a penny to be made …

Speculators Short Small Caps Most Since 2004 Russell Drop (Bloomberg)

Money managers are turning on stocks that have delivered the best returns during the bull market: small caps. Large speculators such as hedge funds are betting $2.8 billion this month that the Russell 2000 Index will fall. That’s the most since 2012 and the highest versus average levels since 2004, according to data compiled by Bloomberg and Bank of America Corp. The about-face from a year of bullish wagers coincides with lackluster performance. The gauge of the smallest companies stands 7.1% below its 2014 high, trailing the recovery that has put the Standard & Poor’s 500 Index within 1.5% of a record.

Companies from KapStone Paper & Packaging Corp. to Cardtronics Inc. have climbed 20 times more than the S&P 500 since March 2009 amid faster sales and earnings growth. That’s also made them expensive. Valuations in the Russell 2000 rose above levels from the 1990s technology bubble. While small-cap shares are usually the first to benefit when economic growth picks up, the selloff reflects a loss of faith by professional investors in the five-year equity rally. “Small-cap stocks are the most expensive I’ve ever seen them, and I’ve been doing this for 20 years,” Eric Cinnamond, manager of the $724 million Aston/River Road Independent Value Fund, said in an interview from Louisville, Kentucky. “There’s a lot of junk in the Russell 2000. If you’re a hedge fund, you’re seeing people starting to sell things like Netflix and Facebook and the biotechs, and a nice way to sell risk is to sell the Russell 2000.”

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Perverted markets give birth to perverted valuations.

Treasuries Irresistible to America’s Banks Awash in Record Cash (Bloomberg)

America’s banks are regaining their appetite for U.S. government debt. After culling Treasuries and bonds issued by federal agencies last year for the first time since 2007, commercial lenders such as Bank of America have boosted their holdings every month this year, Federal Reserve data compiled by Bloomberg show. Banks now own $1.85 trillion of the debt, within 2% of the record amount held at the end of 2012. With a lackluster job recovery and higher mortgage rates damping loan growth, banks are tapping record deposits to plow more money into government debt as regulations designed to limit risk-taking take effect.

The demand helps explain why Treasuries are rising from the deepest losses since 2009, confounding forecasters who foresaw declines as a strengthening U.S. economy prompted the Fed to cut back its own bond buying. “The economic situation is still not fully bared out and they have to do something with their cash,” Jeffery Elswick, director of fixed-income at Frost Investment Advisors, which oversees about $5 billion in debt securities, said. “Banks have been big buyers of Treasuries. They need safe assets.” Treasuries have returned 2.2% this year, rebounding from a 3.4% loss in 2013. The longest-dated government debt has rallied the most, with 30-year bonds surging 10.8% in the best start to a year since at least 1988, index data compiled by Bank of America Merrill Lynch show.

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Canada’s the land of frozen milk and honey.

The Canadian Housing Bubble Puts Even The US To Shame (Zero Hedge)

Since the bursting of the first US housing bubble in 2007, one of the primary explicit goals of the Fed has been to reflate the very same housing bubble (whose pop, together with the credit bubble, nearly wiped out the western financial system) as housing, far more than stocks, is instrumental to the “wealth effect” of the broader population (as opposed to just the 1%). Sadly for the Fed, instead of recovering previous highs, median housing prices (not to be confused with the ultraluxury high end where prices have never been higher) have stagnated and are now in the downward phase of the fourth consecutive dead cat bounce, curiously matching a like amount of Fed monetary injection episodes.

But while the Fed has clearly had a problem with reflating the broader housing bubble, one which would impact the middle class instead of just those who are already wealthier than ever before thanks to the Russel 200,000, one place which not only never suffered a housing bubble pop in the 2006-2008 years, but never looked back as it continued its diagonal ‘bottom left to top right’ trajectory is Canada. As the chart below shows, the Canadian housing bubble has put all attempts at listening to Krugman and reflating yet another bubble to shame.

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Junk, zombie, and then nothing.

Biggest Credit Bubble in History Runs Out Of Time (TPit)

It has been a feeding frenzy for junk debt. Yield-desperate investors, driven to near insanity by the Fed’s strenuous interest-rate repression, are holding their noses and closing their eyes, and they’re bending down deep into the barrel and scrape up even the crappiest and riskiest paper just to get that little extra yield. Last year, highly leveraged companies issued $1.1 trillion in junk-rated loans. It’s a white-hot market. Leveraged-loan mutual funds – dolled up in conservative-sounding names and nice charts to seduce retail investors – gorge on these loans. They saw 95 weeks in a row of inflows, week after week, without fail, adding over $70 billion to their heft, as Bloomberg reported, and only the sky seemed to be the limit. But suddenly, that endless flow of money reversed. “It’s going to be a disaster on the way out,” Mirko Mikelic, who helps manage $7 billion in assets at ClearArc Capital, told Bloomberg. “On the way in, there’s insatiable demand….”

Private equity firms have been ruthlessly taking advantage of that “insatiable demand.” And they have a special self-serving trick up their sleeve: Their junk-rated overleveraged portfolio companies issue new loans, but instead of using the funds for expansion projects or other productive uses, they hand them out through the back door as special dividends. It’s one of the simplest ways PE firms use to strip cash out of their portfolio companies. It loads even more debt on the already highly leveraged portfolio company without adding productive capacity. And those who end up holding this debt – for example, the mutual fund in your portfolio – have a good chance of losing it all. “It’s kind of like an epidemic,” explained Martin Fridson, a money manager at Lehmann, Livian, Fridson Advisors LLC, in an interview with Bloomberg. “Once an investment banker sees that, he’s going to go to his clients and say, ‘Here’s a window of opportunity, you can take a dividend and get away with it.’”

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Letters of credit run the economy. Run them out of town and you have a very big problem.

The Scarlet Absence Of A Letter Of Credit (Mark St.Cyr)

If there’s one thing we all know about banks and bankers: they love to tell tales in public of how much they value their customers. However, what you’ll never hear them profess in private: is how much they trust them. Although one may think that’s unseemly, believe it or not there is another entity banks hold at an even lower tier. Other banks. One of the known facts people remember about the melt down in 2008 (as opposed to general public) was when the banks no longer trusted each other, and what they earlier claimed was “collateral” wasn’t actually worth what it was stated to be.

Credit default spreads (CDS) were supposedly the insurance to negate valuation concerns. But when the banks felt CDS weren’t worth the paper they were written on, not only did they operate in a fashion reminiscent of cutting their noses off to spite their faces, but rather they began cutting visible ties (and/or appendages) to other banks. The blinding issue with all that took place during that period is the speed in which it all took place. Once it seemed one bank (regardless of size) was not going to be able to make good on a promise of clearing, near overnight the banks regarded any and all collateral at a discount.

This fed on itself to where even once valued pristine collateral such as hard materials let alone paper began to be not only discounted, but prices slashed at such discounts that would make a blue light special at K-Mart™ blush. So when I read the following article on Zero Hedge™: How China’s Commodity-Financing Bubble Becomes Globally Contagious. My blood ran cold. The implications of this development and the consequences it portends just might make it the proverbial “canary in a coal mine.” The underlying issue that makes this far more dangerous or different from times past is three-fold.

First: The idea of the need to send a perishable product overseas to another country that operates in a differing court system without the only document that gives one a chance of a “guarantee of payment” is not something to be taken lightly. As a matter of fact, it should be looked upon as a move of desperation. Second: If that commodity is both a readily needed or used product, the immediate resale by the receiving party (especially if they themselves are in trouble) may sell it off at a steep discount. And yes, I’m implying less than what they are being billed for.

For if the receiving party needs cash, and you don’t have anything backing payment, i.e., Letter of credit (LOC.), than it’s free money to do with as they please until you can get them into court – if you can at all. Why would one pay full price (or even think they should) when pennies on the dollar will now be the opening settlement offer in any negotiations? Third: The commodity itself is well-known, and has been publicly reported as being used as a collateral for cash strapped real estate developers in China. This last point is probably the most troubling of them all, and where the real issues might come about.

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Yeah, sure.

EU Stress Test Features Bond Rout, Eastern Europe Shock (Bloomberg)

The strength of Europe’s banking system is about to be tested against a fictional doomsday scenario that includes a global bond rout and a currency crisis in central and eastern Europe. The three-year outlook features “the most pertinent threats” to the stability of European Union banks and their potential impact on entire balance sheets, according to a draft European Banking Authority statement seen by Bloomberg News. The EBA is due to release the details tomorrow in coordination with the European Central Bank.

As the ECB prepares to take over supervision of about 130 euro-area lenders from BNP Paribas to National Bank of Greece starting in November, policy makers have chosen to reflect real-world developments like the tensions over Ukraine in a bid for more credibility in the toughest stress tests to date. Similar exercises in 2010 and 2011 were criticized for failing to uncover weaknesses at banks that later failed. “The negative impact of the shocks, which include also stress in the commercial real estate sector, as well as a foreign exchange shock in central and eastern Europe, is substantially global,” the draft statement said. “For most advanced economies, including Japan and the U.S., the scenario results in a negative response of GDP ranging between 5%-6% in cumulative terms compared to the baseline.”

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Again: Yeah, sure.

US Prosecutors Take Forex Probe To London (FT)

US criminal prosecutors have flown to London to question individuals as part of their probe into the alleged rigging of foreign exchange rates in a sign that the stakes are getting higher for the traders involved in the sprawling probe. The Department of Justice, in its first significant move since announcing in October that it would investigate alleged manipulation of the $5.3tn forex market, invited several UK-based currency traders “on the periphery” of the investigation to attend voluntary interviews in London rather than the US, according to three people familiar with the department’s tactics. The UK financial regulator also requested attending the interviews. The first wave of interviews took place in London at the beginning of the year but more are planned, the people said.

But in a move that underscores the complexity of co-ordinated international probes with both regulatory and criminal elements, the UK’s Financial Conduct Authority told the traders that for the FCA’s purposes, the proceedings would be under so-called compelled conditions, one of the people said. The FCA has powers to compel people to answer questions with no right to silence, while the US constitution includes a protection against self-incrimination. Evidence gathered by the FCA under compelled conditions then becomes problematic for US authorities to use. Material gleaned from FCA-compelled interviews cannot be used directly by UK criminal authorities either, unless individuals lied to the regulator during questioning.

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Let’s see the true losses.

Fannie-Freddie Fate Hangs on Senate Action This Week (Bloomberg)

A U.S. Senate plan for Fannie Mae and Freddie Mac, the most thorough yet for winding down the two mortgage financiers, faces a first test this week with its authors making last-minute changes to gather more support. The 22 members of the Senate Banking Committee will decide as early as tomorrow if the bill, the culmination of more than a year of delicate negotiations among Democrats and Republicans, gains momentum or fizzles. The legislation would replace the companies over five years with federal insurance for mortgage bonds that would kick in only after private investors were wiped out. Current shareholders of Fannie Mae and Freddie Mac would be in line behind the U.S. in getting any compensation from the wind-down.

To keep the bill from stalling, committee leaders are trying to win over at least a few of the half-dozen Democrats on the panel who haven’t publicly embraced it. They have proposed changes including ones that would prevent big banks from monopolizing the mortgage business and add stronger protections for lending in disadvantaged communities. An impasse would leave the two companies operating indefinitely under federal control without resolving the status of their privately owned shares. “This might be the only real chance this decade we have to achieve reform,” U.S. Housing and Urban Development Secretary Shaun Donovan said during a speech in New York last week. “Let’s not waste it.”

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Liars, Damned Liars, and Spanish Banks (TPit)

As Spain takes yet another giant step towards full recovery, its creditors and investors can rest assured that they’re backing the right horse, and Spanish businesses and families might finally begin getting the credit they need to get back on their feet. Well, at least that’s the official story. On the QT and off the record, it’s a bare-faced lie, a cynical deception masking a much bleaker reality — one consisting of the following four features:

1) A Deepening Credit Drought. Despite the quite literally countless billions of euros that have been ploughed into Spain’s financial sector, businesses are still not getting the credit they need. In fact, during 2013 total bank credit in Spain plunged more than 7%. What’s more, it’s a trend that continues to deepen, leaving in its wake a vast trail of defunct not-quite-too-big-to-fail businesses.

2) Total Dependence on Life-Support. To date, Spanish banks have received a total “official” bailout of more than €100 billion in transfers, guarantees, and credit lines – more than double the 40-or so billion-euro figure that is usually cited by authorities. Roughly two-thirds of that money has come from public accounts while the other third comes from Spain’s Deposit Guarantee Fund – that is, money that is ostensibly meant to protect customer deposits, not the banks that “hold” them.

According to more extreme estimates, the total bailout figure could be well in excess of €200 billion (roughly 20% of GDP). To cut a long story short, the banks have received anywhere between 100 and 220 billion euros in capital injections, asset swaps and government guarantees over the last few years. And thanks to the wonders of financial engineering, they can now declare a supposed €7 billion profit without making a single mention of ever returning the tens of billions of euros they “borrowed” from the public coffers in 2013.

3) Bad Bank, Really Bad Bank. Much of the so-called “cleansing” of Spain’s financial sector has involved lifting radioactive debt off the accounts of all of Spain’s banks – including the “good” ones – and burying it under the floorboards of Spain’s “bad bank”, the publicly owned Fund for Orderly Bank Restructuring (FROB). To begin with, taxpayers were sold the idea that they were going to make money from the “bad bank”. It turned out to be another lie and two years on, the FROB is bleeding money like a stuck piggy bank (€37 billion at last count). Indeed, as Mike “Mish” Shedlock recently reported on his blog, so grave is the situation that the Spanish government is even considering setting up a new “bad bank” for the sake of burying the overflowing toxic debt in its current “bad bank”.

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A 3-part series from the Observer that leaves little to the rosy imagination.

In Andalucía, The Poor And Jobless Have Little Faith In A Better Mañana (Observer)

As a destination it conjures images of beaches, whitewashed villas and endless olive groves. The sun shines as brightly as ever in Andalucía, but behind the brochure image lie poverty, soup kitchens and a growing sense of desperation. According to new data produced by Eurostat, the EU’s central statistics agency, the five worst unemployment black spots are all in Spain, and the blackest of them all is Andalucía, where one in three people are out of work. Back in 2007, Spain was building more homes than Germany, France and the UK combined, the majority of them on or near the coast.

When the property bubble burst in Andalucía – which stretches from the city of Almería in the east all the way to the Portuguese border and has a population of more than eight million – it was like a cluster bomb exploding: few escaped unscathed. Despite the seven million tourists who visit Andalucía every year – soaking up the sun on the Costa del Sol or culture and history in Seville, Granada or Córdoba – the combined effects of the end of the boom and a moribund national economy have hit the region hard. The extent of the jobs crisis is not as obvious here as it is in Madrid or Barcelona.

There are the beggars and assorted hawkers who have appeared in every Spanish town in recent years, but there are fewer people sleeping in doorways and the vestibules of banks. Many of the ancient city centres seem prosperous. The bars of Málaga are buzzing and the trade is mostly locals, not tourists. Yet last year the Catholic charity Caritas spent €2.6m on food for vulnerable families in Málaga alone, up nearly a quarter on the previous year, and the regional government has begun distributing breakfast and afternoon snacks to 50,000 schoolchildren.

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Spain’s Borrowing Costs Are Down, But Unemployment Rate Isn’t (Observer)

Unemployment is at crisis levels, but there are signs that Spain is turning a corner. After four torrid years characterised by soaring numbers without work and a crumbling banking system, demand for Spanish debt is suddenly buoyant. Last week Madrid borrowed €5.6bn on the international markets and the tranche that was lent for 10 years cost little more than 3%. This is less than half the cost of its borrowing at the height of the eurozone crisis – when international investors were shunning Spanish government bonds and yields soared over 7.5% – and only a fraction more than the 2.6% the UK pays on its debts.

Then there are the figures showing loan rates to small- and medium-sized businesses have fallen sharply. Lower loan rates could be connected to the improved situation in Spain’s banks, some of which reported last week that the number of distressed loans on their balance sheets had shrunk, especially mortgages on commercial property. Investors, toying with putting money into the country, are more confident that promised structural reforms are filtering into the real economy. Ratings agencies note Bank of Spain’s forecast for growth in the first quarter of this year – a solid 0.4%. Annual growth should top 1%. They are also confident the country can slowly close its large output gap, which will translate into falling unemployment and rising productivity.

And yet Mariano Rajoy’s administration, for all its vigour and business-friendly policies, is cited as one of the main reasons the European Central Bank (ECB) is expected to begin quantitative easing – in effect printing money – possibly within months. Like France and Italy, Spain is suffering from austerity. Combined with a vigorous campaign of wage cuts, this has reduced demand. While exports have become more competitive, workers have little spare cash to spend in the nation’s shops. Wages are expected to rise a little, but with plentiful labour and inflation at 0.5%, why would employers need to bargain?

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Foreign Buyers Delight In The Glut Of Spain’s Cheap Costa Properties (Observer)

Although hundreds of Spanish families are still being evicted every day for defaulting on their mortgages, foreign buyers have returned in force to the country’s depressed property market. New data from the Bank of Spain last week showed that foreign purchases in 2013 exceeded €6bn (£5bn) for the first time since 2004. According to Knight Frank’s Global Property Search, online searches for properties in Spain increased by 29% over the first three months of 2014 compared with the same period in 2013. More than a fifth of all Spanish residential sales – 55,187 transactions – were to foreign buyers.

“Foreigners are the only dynamic segment of the market today,” says Mark Stucklin of Spanish Property Insight. “These are people buying on the coast and in cities like Barcelona.” And it is not just private buyers, he says: institutional investors are also in the market. “The likes of Goldman Sachs, JP Morgan, Blackstone, George Soros and Bill Gates are all getting into Spanish real estate.” Some institutional investors are buying in bulk from Sareb, the so-called “bad bank” that has acquired thousands of unsold properties from failed Spanish banks and building societies. The bank controls about 200,000 property assets – homes and developments – and it is selling houses at a rate of 60 a day. Sareb is now implementing a new strategy for marketing and selling the €50bn in real estate under its control, which could create yet further opportunities for international investors, says Stucklin.

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“HSH Nordbank reported €9 billion of bad shipping debt, or about 43% of its loans to the industry … ”

German Shipping Swamped in Debt Underscores Bank Risk (Bloomberg)

As it tries to clean up the region’s banks, the ECB is taking a closer look at whether they need more capital to absorb possible losses on loans like Robrahn’s. Shipping loans are among the riskiest assets on banks’ balance sheets and among those most prone to misstatement, an ECB spokeswoman said. German lenders including Hamburg-based HSH Nordbank, Commerzbank and Norddeutsche Landesbank Girozentrale controlled about one-third of the $475 billion global ship-finance market at the end of 2012, according to Swen Metzler, an analyst at Moody’s Investors Service in Frankfurt.

The three lenders set aside more than €3.6 billion in provisions for bad shipping debt in the past three years after dozens of firms in Germany’s 1,543-container-ship market, the world’s biggest, were hurt as overcapacity and an economic slump pushed down cargo prices the most since the 1970s. [..] The ECB, which began auditing 128 banks in February and takes over as Europe-wide regulator in November, is investigating whether executives are fully reporting the riskiest loans and whether ships such as Robrahn’s Anna Sirkka, a 135-meter container vessel built in 2006, are still valuable enough to use as collateral.

“German shipping banks’ two biggest concerns at the moment are whether they get their money back and whether they need to boost capital to support their risk exposure,” Lars Heymann, partner at a unit of auditing and consulting firm PKF Fasselt Schlage, whose clients include shipping companies, said in an interview at his office in Hamburg. HSH Nordbank reported €9 billion of bad shipping debt, or about 43% of its loans to the industry, in fourth-quarter earnings published April 10. Nonperforming shipping loans at Commerzbank, Germany’s second-biggest bank, amounted to about €3.9 billion at the end of 2013, or 27% of its lending to the maritime industry, according to the company.

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US Failing To Push Economic Sanctions Against Russia Through EU Allies (RT)

The new round of sanctions against Russia, which the EU and the US plan to unveil Monday, will not target the Russian economy. Washington said it won’t use economic sanctions without the EU also signing up to them. G7 members agreed Friday to roll out a third round of anti-Russian sanctions over the Ukrainian crisis. But those would be an extension of the previous two rounds of sanctions, which targeted 33 individuals in Russia and Ukraine and a Russian bank, which the Western government deemed responsible for the crisis in Ukraine or close enough to President Vladimir Putin to have leverage on him.

“What we will hear about in the coming days, what we will agree … is an expansion of existing sanctions, measures against individuals or entities in Russia,” UK Foreign Secretary William Hague told Sky News on Sunday. The new round will slap travel bans and asset freezes on 15 more people, according to numerous insider reports. But it’s unlikely that they would have any greater effect on Russian policies than the sanctions already in effect. If anything, so far sanctions against the officials have only resulted in mocking calls from Russian MPs, politicians and ordinary citizens to add their names on the blacklists.

Imposing sanctions on some sectors of the Russian economy, which could actually hurt the country, remains an elusive goal for Washington. At the same time America, whose economic ties with Russia are mediocre at best compared to Europe’s, is unwilling to act alone. Otherwise, it would appear that there is conflict between Russia and the US, not Russia and the world, a narrative that Washington is struggling to promote.

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Living Behind The CNN Curtain (Max Keiser)

Good Bye, Lenin! is a 2003 German tragicomedy film. Directed by Wolfgang Becker, it captures the confusion inhabitants of East Germany (the GDR) had after the Berlin Wall came down and the West suddenly flooded in. What the East Berliners didn’t appreciate, to comic effect, was how incredibly behind the times they had become. Consumer culture and technology had leaped dramatically during the preceding Cold War years in ways that were unimaginable. I am reminded of this film whenever I hear Secretary of State John Kerry or presumptive Presidential candidate Hillary Clinton speak.

Their words appear to come from a time warp from a previous era before the US middle class fell behind Canada’s when measured in terms of standard of living; before America’s press freedom dropped to 46 on the Reporters Without Borders league table, and before the America’s prison population skyrocketed to over 2 million to swell the profits of private prison operators like Corrections Corp. of America. What those living behind what I call the ‘CNN Curtain’ in America, a population that represents 5% of the world’s population miss, is that the other 95% has been busy these past 15 years (post China entering the World Trade Organization) inventing a post-America future.

Many think that the past 15 years has been notable for an uptick in globalization but I would posit that the modern growth of financialization is more important; and the commensurate gapping of wealth and income that we’ve seen – resulting in the most extreme concentration of wealth amongst the new robber barons of Wall St. and the City of London in history. In many ways, since China joined the WTO, we’ve witnessed a de-globalization in terms of a breakaway from the dominant ideology of the 20th century that drove American soft power and global hegemony. Instead of a unipolar world, we’ve seen a fracturing and a move away from the ‘freedom and democracy’ meme emanating from Washington D.C. and the rise of the so-called BRIC nations of the East and ‘Global South’ who see the world quite differently and have the resources and capital to shape their own destinies.

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US Nuke Sites Still Controlled By Antique Computers With Floppy Disks (BI)

A major cheating scandal amongst Air Force nuclear missile launch officers has brought increased scrutiny on the U.S. nuclear arsenal, and an upcoming report from CBS “60 Minutes” gives a rare look inside the day-to-day military job plagued with low morale and weak management. In a report to air on Sunday, CBS Correspondent Lesley Stahl traveled to a missile field near an Air Force base in Cheyenne, Wyo., revealing a nondescript site — the silo is below ground — that looks like a fenced-in lot surrounded by farms.

But inside, she found technology still being used that was built in the 1960s, to include analog telephone systems that missileers complain makes communication difficult, and decades-old computer systems using floppy disks, which an Air Force general regards as good for security, as it is not connected to the internet. When asked of why she was given access to such a secure facility on CBS “This Morning,” Stahl speculated that the Air Force “wanted to assure people that while there was cheating, they’re dealing with it, and basically, the system is safe. And anytime they find it isn’t, they’re gonna pounce on it.”

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How many trillions does the Vatican control? The world’s first multinational had first pickings wherever they came.

John Paul II Canonization Sponsored By Banks, Oil Giant (CNBC)

He has railed against the “tyranny” of global capitalism and the “idolatry of money” but even Pope Francis needs a little corporate coin sometimes – as proven by the list of sponsors for Sunday’s canonizations. An oil and gas giant, several banks and Switzerland-based food megacorp Nestle are among more than a dozen financial backers of the Rome event. Hundreds of thousands of people are due to come to the Eternal City to see Pope John Paul II, who reigned from 1978 to 2005, and Pope John XXIII, who was pontiff from 1958 to 1963, canonized as saints. The list of sponsors is dominated by Italian corporations, including energy firms Eni and Enel, banking company Intesa SanPaolo and railway network Ferrovie Italiane.

It’s perhaps an unlikely roll call of names to be associated with a Vatican event, six months after Pope Francis launched an attack on the global economic system as part of his call for a greater focus on the needs of the world’s poor. The Catholic Church sits upon enormous assets – the Vatican Bank manages $8 billion worth of worldwide investments as well as 33,000 accounts for clergy and parishes – but its governing body, the Holy See, made a loss of $18.4 million in 2011. The presence of corporate sponsors might instead be explained by Rome’s perilous financial position. It faces a budget deficit of $1.17 billion and in February was turned down for a massive central government bailout to help it pay city employees and buy fuel for buses.

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Who’s surprised?

Developing World Exploitation Being Funded By Australian Banks (Guardian)

Australia’s biggest banking institutions have provided financial support to companies involved in illegal logging, forced evictions and child labour, according to a new report from Oxfam Australia. A new report released on Monday says ANZ, Westpac, National Australia Bank and the Commonwealth Bank have invested in a range of countries across the Asia Pacific that had been involved in land grabs that left locals homeless. “From PNG and Cambodia to Indonesia and Brazil, our banks have backed companies accused of forcing people from their land,” said Oxfam Australia’s chief executive, Dr Helen Szoke. “This involvement has also resulted in billions of dollars of exposure for everyday Australians who have their money in accounts with these banks, or who own bank shares directly or through their superannuation funds.”

According to the report, ANZ Bank provided financial support for a sugar plantation involving child labour and forced evictions, and Westpac is supporting a timber company logging rainforest in Papua New Guinea. NAB funds a palm oil company, Wilmar, which has been linked to land grabs in Indonesia and Malaysia, and the Commonwealth Bank has invested in an agricultural business which operates a Brazilian sugar mill that is accused of evicting indigenous communities from their land. “The banks need to say which companies they’re investing in, and where those companies have pushed people off the land, to work with those companies to change their practices and provide compensation to communities,” Szoke said.

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Giant Chinese 3D Printer Builds 10 Houses In Just 1 Day (RT)

A private company located in eastern China has printed ten full-size houses using a huge 3D printer in the space of a day. The process utilizes quick-drying cement, but the creators are being careful not to reveal the secrets of the technology. China’s WinSun company, used a system of four 10 meter wide by 6.6 meter high printers with multi-directional sprays to create the houses. Cement and construction waste was used to build the walls layer-by-layer, state news agency Xinhua reported.

“To obtain natural stone, we have to employ miners, dig up blocks of stone and saw them into pieces. This badly damages the environment,” stated Ma Yihe, the inventor of the printers. Yihe has been designing 3D printers for 12 years and believes his process to be both environmentally friendly and cost-effective. “But with the 3D printing, we recycle mine tailings into usable materials. And we can print buildings with any digital design our customers bring us. It’s fast and cheap,” Yihe said.

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Zeitgeist. Bob Prechter says you can see a society’s mood in dress length and movie themes.

How Disaster Movies Took Over Cinema (Guardian)

“There was extensive polling in the United States in the 1950s and 1960s,” says Kramer, “and people really believed that the end was nigh. There was a very widespread awareness of how much damage nuclear weaponry could do, and people truly expected that nuclear armageddon would happen soon. Another concern was the state of the environment. In polls that were taken in 1965, it didn’t register. But by 1970, a good percentage of the population felt that humanity was treating the planet so destructively that it threatened our existence. The Poseidon Adventure and Jaws tapped into those anxieties, but from Star Wars onwards they became an important reference point.”
Today, those concerns are more important than ever. The global-disaster movie (the mega-disaster movie? the disaster movie-plus?) has become so commonplace recently that we’re now expected to take the most horrific scenarios for granted. Just last year, a delightful children’s cartoon, The Croods, showed dozens of species being wiped out by shifting tectonic plates. Two bloke-ish comedies, This Is the End and The World’s End, invited us to chuckle as the human race was all but eradicated. Two family-friendly blockbusters obliterated London (thanks, GI Joe: Retaliation and Star Trek Into Darkness), and two monster movies (Pacific Rim and World War Z), obliterated pretty much everywhere else.

And it’s not just mainstream movies that are in a genocidal mood. “It’s intriguing that arthouse cinema has got in on the act,” says Sanders. “Lars von Trier’s Melancholia and Jeff Nichols’ Take Shelter suggest that oblivion is just around the corner, and if the philosophising minds of von Trier and Nichols are interested, then perhaps it’s time to make an apocalypse-proof shelter.”

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