Jul 222016
 
 July 22, 2016  Posted by at 8:26 am Finance Tagged with: , , , , , , , , ,  


Lewis Wickes Hine Night scene in Cumberland Glass Works, Bridgeton, NJ 1909

(There’s No) Money In The Mattress (Roberts)
Sub-Zero Government Bonds Turn the Hunt For Yield Upside Down (BBG)
US Sides With HSBC To Block Release Of Money Laundering Report (R.)
Are Wall Street Banks in Trouble? You’d Never Know from the Headlines (WSoP)
Denmark Faces ‘Out of Control’ Housing Market in Negative Spiral (BBG)
Fracklog in Biggest US Oil Field May All But Disappear (BBG)
China Continues To Produce More Steel Than The Rest Of The World Combined (BI)
China’s Vice FinMin: We’ve Got No Reason To Devalue The Yuan (CNBC)
Apple’s Q2 China Revenues Could Fall 20%: Baidu (CNBC)
Pension Funds Are Underwater – And Taking Us With Them (VW)
Once-Expanding EU Prepares To Contract For The First Time In Its History (G.)
Earth On Track For Hottest Year Ever As Warming Speeds Up (R.)
Fighting the Most Dangerous Animal in the World (Spiegel)

 

 

“Every time someone says, ‘There is a lot of cash on the sidelines,’ a tiny part of my soul dies.”

Scary graph.

(There’s No) Money In The Mattress (Roberts)

Here is a myth that just won’t seem to die: “Cash On The Sidelines.” This is the age old excuse why the current “bull market” rally is set to continue into the indefinite future. The ongoing belief is that at any moment investors are suddenly going to empty bank accounts and pour it into the markets. However, the reality is if they haven’t done it by now after 3-consecutive rounds of Q.E. in the U.S., a 200% advance in the markets, and now global Q.E., exactly what will that catalyst be? However, Clifford Asness summed up the problem with this myth the best and is worth repeating:

“Every time someone says, ‘There is a lot of cash on the sidelines,’ a tiny part of my soul dies. There are no sidelines. Those saying this seem to envision a seller of stocks moving her money to cash and awaiting a chance to return. But they always ignore that this seller sold to somebody, who presumably moved a precisely equal amount of cash off the sidelines. If you want to save those who say this, I can think of two ways. First, they really just mean that sentiment is negative but people are waiting to buy. If sentiment turns, it won’t move any cash off the sidelines because, again, that just can’t happen, but it can mean prices will rise because more people will be trying to get off the nonexistent sidelines than on.

Second, over the long term, there really are sidelines in the sense that new shares can be created or destroyed (net issuance), and that may well be a function of investor sentiment. But even though I’ve thrown people who use this phrase a lifeline, I believe that they really do think there are sidelines. There aren’t. Like any equilibrium concept (a powerful way of thinking that is amazingly underused), there can be a sideline for any subset of investors, but someone else has to be doing the opposite. Add us all up and there are no sidelines.”

Margin debt levels, negative cash balances, also suggest the same. Cash on the sidelines? Not really.

Read more …

And there are plenty plans to ‘do more’.

Sub-Zero Government Bonds Turn the Hunt For Yield Upside Down (BBG)

The erosion of yields on government debt is generally thought to push investors into riskier assets as they seek out higher returns. That’s true, argue Credit Suisse analysts in a new note, but only in the ‘first phase’ of a negative yield world. That is, when yields on government bonds with shorter-durations dip below zero, total returns on riskier assets such as junk-rated corporate debt do trump returns on German bunds. That tendency disappeared, however, as yields on longer-dated government debt also fell into negative territory — at least in Europe.

“The defining characteristic of Phase One is a strong outperformance of high-yielding credit assets versus low-yielding credit assets and government bonds, i.e. a strong hunt for yield trend. Nothing unusual so far,” write Credit Suisse’s William Porter and Chiraag Somaia. “However, more interestingly, Phase Two, still characterized by negative yields, actually sees an outperformance of government bonds versus both low- and high-yielding credit assets, i.e. any hunt for yield over the past 2.5 years as a whole has been an unsuccessful strategy.” The trend is shown in the below chart, where total returns on German government bonds have bested high-yield and investment-grade corporate debt.

“For now, we think ever-falling yields represent an overall risk aversion and/or verdict on economic policies that is not overly friendly to yieldier assets despite the obvious incentives they carry in this environment,” conclude the analysts. “So yield-hunting behavior is not always and everywhere wrong – this summer may treat it favorably – but any outperformance has subsequently been counter-trend in the past 2.5 years.”

Read more …

Quick! Find me a carpet to sweep this under!

US Sides With HSBC To Block Release Of Money Laundering Report (R.)

The U.S. government asked a federal appeals court on Thursday to block the release of a report detailing how HSBC is working to improve its money laundering controls after the British bank was fined $1.92 billion. In a brief filed with the 2nd U.S. Circuit Court of Appeals, the U.S. Department of Justice sought to overturn an order issued earlier this year by U.S. District Judge John Gleeson to make public a report by the bank’s outside monitor. “Public disclosure of the monitor’s report, even in redacted form, would hinder the monitor’s ability to supervise HSBC,” the government’s court filing said, adding that bank employees would be less likely to cooperate with the monitor if they knew their interactions could be released.

HSBC concurred with the court’s finding. “HSBC also argues that the Monitor’s report should remain confidential, as have the Monitor, the UK Financial Conduct Authority, the US Federal Reserve and other HSBC regulators,” HSBC said in a statement. “The effectiveness of the monitorship is dependent on confidentiality.” The filing comes a week after U.S. congressional investigators criticized senior officials at the Department of Justice for overruling internal recommendations to criminally prosecute HSBC for money-laundering violations. Instead, the government in 2012 fined HSBC and entered into a five-year deferred prosecution agreement that stipulated all charges would be dropped if the bank agreed to install an independent monitor to help improve compliance. In the 2012 settlement, HSBC admitted to violating U.S. sanctions laws and failing to stop Mexican and Colombian cartels from laundering hundreds of millions of dollars in drug proceeds through the bank.

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Martens & Martens. Strong.

Are Wall Street Banks in Trouble? You’d Never Know from the Headlines (WSoP)

On July 14, when America’s biggest bank by assets reported its second quarter earnings, this headline ran at the New York Times: “JPMorgan Chase Has Strong Quarter as Earnings Top Estimates.” CNBC, a unit of NBCUniversal, used the same criteria in its headlines to report the earnings of Citigroup, Bank of America and Morgan Stanley — putting a positive spin in the headline because the earnings had topped what analysts were expecting – rather than the far more meaningful, and traditional, measure of whether earnings had beaten the same quarter a year earlier. CNBC’s headlines read: Citigroup earnings handily top Wall Street expectations: CNBC-July 15, 2016 Bank of America earnings top expectations: CNBC-July 18, 2016 Morgan Stanley solidly beats earnings expectations: CNBC-July 20, 2016.

This is hubris of the highest order. Publicly traded companies simply guide research analysts toward lowered expectations on their upcoming quarterly earnings so that the companies can surprise on the upside and get these kinds of misleading headlines in the all-to-willing New York media – which has a vested interest in making everything appear rosy in the Big Apple. (New York media is dependent on fat Wall Street profits to boost the price of their own publicly traded shares since ad revenue in New York is linked to the health of Wall Street.) One would never know by these headlines that big bank earnings were actually down year over year – and in some cases, down dramatically. JPMorgan Chase earned $6.2 billion in the second quarter of 2016 versus $6.29 billion in the second quarter of 2015.

The news was far worse at Citigroup, despite the rosy headline at CNBC. Citigroup’s second quarter profit fell 17.5% year over year, to $4 billion from $4.85 billion in the second quarter of 2015. Its revenues were the lowest in 14 years according to S&P Capital IQ. At Bank of America, profit fell to $4.23 billion from $5.3 billion in the second quarter of 2015, a sharp decline of 20%. Morgan Stanley reported a year over year decline of 8%, with profits in the second quarter of 2016 falling to $1.67 billion from $1.82 billion in the second quarter of 2015. Now news of jobs cuts is spilling out with the Wall Street Journal reporting that Bank of America will make “$5 billion in annual cost cuts by 2018 as part of its strategy to deal with persistently low interest rates that are eating away at lenders’ profitability.”

The New York Post is calling job cuts at Goldman Sachs the worst since the financial crisis in 2008. Fortune’s Stephen Gandel reported two days ago that Goldman had slashed a whopping “1,700 positions in the past three months.” Something else one won’t find in those smiley-face headlines is the fact that Wall Street is not only bleeding profits and jobs but it’s also bleeding equity capital – the only thing that separates the word “bank” from the word “bankruptcy.” While the Dow Jones Industrial Average and Standard and Poor’s 500 Indices may be setting new highs, the big Wall Street banks are decidedly not.

Over the past 52 weeks, Goldman is down from a share price of $214.61 to an open this morning of $162.55 – a decline of 24%. Bank of America is off 22% from its 52-week high, based on today’s open. Morgan Stanley and Citigroup are in decidedly worse shape with declines of 28% and 27%, respectively, from their 52 week highs versus their share price at the open of the New York Stock Exchange this morning. Add this all up and you’re talking about tens of billions of dollars in equity capital vaporizing.

Read more …

Denmark is in the same position as dozens of other countries: “..there’s a real risk that housing prices can see a dramatic fall, even though we’re not seeing a bubble in the classical definition of the term..”

Denmark Faces ‘Out of Control’ Housing Market in Negative Spiral (BBG)

Denmark’s biggest mortgage bank is warning there’s a risk the housing market may get “out of control,” especially around cities, as long-term negative interest rates make borrowers complacent. “To be concrete, there is a danger that Danes go blind to the risk of rates ever rising again,” Tore Stramer, chief analyst at Nykredit in Copenhagen, said in an e-mail. “That raises the risk of a major housing price decline, when rates at some point or other start to rise again.” Denmark’s central bank has had negative interest rates for the better part of four years. Thomas F. Borgen, CEO of Danske Bank, says his managers are operating under the assumption that rates won’t go positive until “at least” 2018, with Britain’s departure from the EU adding to the risk of an even longer period below zero.

With no other country on the planet having experienced negative rates longer than Denmark, the distortions the policy is wreaking may provide a preview of what other economies face should they go down a similar path. Danes can get short-term mortgages at negative interest rates, and pay less to borrow for 30 years than the U.S. government. Apartment prices in Denmark are now about 5% above their 2006 peak. Back then, the country’s bubble burst and apartment prices slumped about 30% through 2009. “It’s worth remembering that there’s a real risk that housing prices can see a dramatic fall, even though we’re not seeing a bubble in the classical definition of the term,” Stramer said. Denmark’s negative rates are a product of the central bank’s policy of defending the krone’s peg to the euro. Its main rate was minus 0.75% for most of last year, though the bank raised it by 10 basis points in January in an effort to normalize policy.

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Reality kicks in. What’s going to happen to the lenders who made it all possible?

Fracklog in Biggest US Oil Field May All But Disappear (BBG)

The number of dormant crude and natural gas wells in the U.S. stopped growing in the first quarter – and may all but disappear in the nation’s biggest oil field should prices hold steady. As of April 1, there were 4,230 wells left idle after being drilled, a figure little changed from January, according to an analysis by Bloomberg Intelligence. While some explorers have continued to grow their fracklog of drilled but not yet hydraulically fractured wells, others began tapping them in February as oil prices rose, the report showed.

Crude in the $40- to $50-a-barrel range may wipe out most of the fracklog in Texas’s Permian Basin and as much as 70% of the inventory in its Eagle Ford play by the end of 2017, according to Bloomberg Intelligence analyst Andrew Cosgrove. While bringing them online is the cheapest way of taking advantage of higher prices, the wave of new supply also threatens to kill the fragile recovery that oil and gas markets have seen so far this year. “We think that by the end of the third quarter, beginning of the fourth quarter, the bullish catalyst of falling U.S. production will be all but gone,” Cosgrove said in an interview Thursday. “You’ll start to see U.S. production flat lining.”

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It’s the same as oil producers. In China’s steel industry, a return to reality would mean too many jobs lost to bear.

China Continues To Produce More Steel Than The Rest Of The World Combined (BI)

For the fourth month in a row, China produced more steel than all other nations combined in June. According to data released by the WorldSteel Association on Wednesday, a group that accounts for approximately 85% of the world’s steel production, China produced 69.5 million of crude steel in June, dwarfing production in all other nations which came in at 66.5 million tonnes. At 136 million tonnes, total global output in June was unchanged from the levels of a year earlier.

While down 1.4% on the 70.5 million tonnes produced in May, Chinese crude steel production is now 1.7% higher than the levels of June 2015, fitting with the splurge in state-backed infrastructure investment seen in recent months. Despite the recent uplift in steel production, shown in the chart below supplied by WorldSteel, global steel production came in at 794.8 million tonnes in the first half of the year, down 1.9% on the same corresponding period in 2015.

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They fix it daily, but that’s not manipulation nor devaluation…. That’s just fixing.

China’s Vice FinMin: We’ve Got No Reason To Devalue The Yuan (CNBC)

China has no reason to devalue the yuan, as economic fundamentals remained strong, with growth at 6.7% in the first half, the country’s Vice Finance Minister Zhu Guangyao told CNBC. Zhu’s comments came shortly before Republican presidential candidate Donald Trump lambasted China again, this time for what he said was “devastating currency manipulation. [..] “The yuan has been trading around five-year lows recently, as concerns over the state of the economy fueled capital outflows. Investors have also expressed concerns over the level of debt built up in the economy. China suffered almost $700 billion worth of capital flight in 2015. The surge in outflows late in 2015 sparked market concerns that China’s foreign reserves weren’t sufficient to stabilize the currency by buying yuan over the long term.

Meanwhile, the greenback has strengthened against most major currencies as investors reacted to negative interest rates in Japan and Europe, as well as the possibility the Federal Reserve would continue on its rate-hiking path. On Friday the dollar/yuan traded at 6.6683 on-shore and 6.6754 off-shore. China fixes its currency against the dollar every day. In August, China shifted the market mechanism for setting the daily fix, saying it would set the spot rate based on the previous day’s close, theoretically allowing market forces to play a greater role in its direction. That resulted in an effective 2% devaluation in the currency, a move that sparked fears of a “currency war” to make Chinese exports more competitive.

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What’s that going to do to the share price?

Apple’s Q2 China Revenues Could Fall 20%: Baidu (CNBC)

Apple’s revenues in China could be down 20% in China in its quarterly earnings report, according to research by Baidu, the so-called “Chinese Google.” As part of its online suite of products Baidu offers mapping software and a search platform. It has about a 70 to 80% market share in search in China and logs billions of location requests on Baidu Maps. Using this so called “big data” from the use of its map and search products, which is all anonymized, Baidu said it could predict employment and consumer trends and their impact on a company’s revenues. It used these tools on Apple’s retail sales in China, selecting a list of flagship Apple stores in mainland China and the counting the volume of map queries of all the stores.

Baidu found that in the last quarter of 2015, map query volumes were up 15.4% year-on-year, which corresponded with a 14% rise in Apple’s China revenue in that same period. But in the first quarter of 2016, map queries declined 24.5% year-on-year, which was parallel with a 26% decline in Apple’s China revenue. “The impressively strong correlation indicates that map query data provides possibilities for us to ‘nowcast’ the company’s revenues and reveal the future trends. Based on our analysis of latest data, we project that the Apple’s revenue in China of second quarter of 2016 may be down around 20% on a year-over-year basis,” Baidu concluded. The “second-quarter” that Baidu references is Apple’s fiscal third-quarter and will be announced on July 26.

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Pensions. A word your children will know only from history books.

Pension Funds Are Underwater – And Taking Us With Them (VW)

The California Public Employees’ Retirement System (CalPERS) has announced its worst performance in seven years. Its meager rate of return for the fiscal year ending June 30 just managed to squeak by .6%, not even beating our current meager rate of inflation. After two successive years of tepid returns, long-term fund averages have sunk far below the critical 7.5% benchmark. It’s bad news for California taxpayers, because if returns don’t soon show a long-term average of 7.5%, they’ll be the ones who will have to make up the difference. Ted Eliopoulos, the fund’s chief investment officer, admits the massive pension fund’s long-term returns are well below anticipated levels, telling the Los Angeles Times, “We’re moving into a much more challenging, low-return environment.”

Yeah. Average returns are now barely over seven% for a twenty-year period, and returns over ten and fifteen years now average less than 6%. These changes are not just a blip on the investment horizon, as we assume bond yields and stock dividends will improve. According to the Milliman pension consulting firm, many public pension funds have had to adjust their expectations to accommodate lower returns overall. CalPERS needs to adjust its own expectations accordingly, even though doing so would drive up costs for state and local government agencies covered by the big pension firm. “We quite clearly have a lower return expectation than we had just two years ago,” Eliopoulos said. “That will be reflected in our next cycle. We are cognizant that this is a challenging environment for institutional investors.”

Thus, while the Times reports this dismal turn of events as a new development, it’s apparent Eliopoulos and CalPERS have been struggling for a while. What’s more, financial observers have been voicing concerns about pension fund depletion for at least as long as bond yields and stock dividends have been anemic. [..] The bad news is: If you’re a California public employee, you’re going to take a hit. But even if you’re not a public employee, but merely a California taxpayer, you’ll also take a hit. In addition, while private employee pension funds don’t pose the same financial risk to non-participants, their members run a similar risk; after all, they’re toiling in the same universe of stocks and bonds.

Read more …

The Guardian gets the headline right, but shows no understanding of what it means.

Once-Expanding EU Prepares To Contract For The First Time In Its History (G.)

Johannes Hahn’s job title sounds a little incongruous these days: he’s the EU commissioner for European neighbourhood policy and enlargement negotiations. The job title was created in the late 1990s during a period of optimism and expansion. But now, thanks to the will of 52% of British voters, the EU looks set to contract rather than enlarge for the first time in its history. There are still six candidate countries for EU membership, in the process of making formal applications to join the bloc, as well as a number of other countries with various levels of association. But with many in the EU wary and sceptical of further expansion, the only enlargement negotiations going on at the moment are about managing the expectations of countries that want to join.

Hahn was in Kiev last week, meeting Ukrainian government officials and chairing ministerial meetings of the EU’s Eastern Partnership, a programme linking the EU with six former Soviet countries, which was launched as a response to the Russian war with Georgia in 2008 and was implicitly meant as the first step towards EU membership for the nations. “Don’t believe that the unfortunate decision of Brexit will have any influence on our relationship – quite the opposite,” he told a meeting of the group’s foreign ministers.

But in reality, the initial Eastern Partnership plans are in tatters, as both enlargement fatigue inside the EU and a stick-carrot combination from Russia has pushed a number of the countries away from wanting further integration with the EU. Two of them, Belarus and Armenia, have joined Russia’s Eurasian Economic Union, an explicit challenge to the EU, while nobody seriously speaks about Ukraine or Georgia as members any more.

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Surprise? What surprise?

Earth On Track For Hottest Year Ever As Warming Speeds Up (R.)

The earth is on track for its hottest year on record and warming at a faster rate than expected, the World Meteorological Organization (WMO) said on Thursday. Temperatures recorded mainly in the northern hemisphere in the first six months of the year, coupled with an early and fast Arctic sea ice melt and “new highs” in heat-trapping carbon dioxide levels, point to quickening climate change, it said. June marked the 14th straight month of record heat, the United Nations agency said. It called for speedy implementation of a global pact reached in Paris last December to limit climate change by shifting from fossil fuels to green energy by 2100.

“What we’ve seen so far for the first six months of 2016 is really quite alarming,” David Carlson, director of the WMO’s Climate Research Program, told a news briefing. “This year suggests that the planet can warm up faster than we expected in a much shorter time… We don’t have as much time as we thought.” The average temperature in the first six months of 2016 was 1.3° Celsius (2.4° Fahrenheit) warmer than the pre-industrial era of the late 19th Century, according to space agency NASA. [..] “There’s almost no plausible scenario at this point that is going to get us anything other than an extraordinary year in terms of ice (melt), CO2, temperature – all the things that we track,” Carlson said. “If we got this much surprise this year, how many more surprises are ahead of us?”

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Hard to gauge what’s going to happen with this.

Fighting the Most Dangerous Animal in the World (Spiegel)

[..] Aedes aegypti presents a threat to some 4 billion people across the globe. The world long approached the Aedes agypti plague as though it were a storm that would soon blow over, but it has now become a fixture in large cities in the tropics. If nothing is done, experts say, more and more people will die as a result. And it has also become clear that some of the tropical diseases carried by this insect are coming to Europe. Partly, that is the result of rising temperatures on the European continent. In the southwestern German city of Freiburg, for example, scientists have determined that a population of Aedes mosquitoes survived the German winter for the first time. It used to be that only those who traveled to the tropics were at risk of becoming infected with tropical illnesses.

But now, many in Europe must face the prospect of the tropics coming to them. It was images from Brazil that sent a jolt of fear around the world at the beginning of this year. Across the country, babies were suddenly being born with heads that were misshapen and too small. When indications mounted that this curious increase in cases of so-called microcephaly was connected to the Zika epidemic that had stormed across Brazil in the previous months, the WHO declared an international emergency. Brazil mobilized 220,000 soldiers for the battle, sending them through bathrooms, yards and garages to eliminate standing water where female Aedes mosquitoes lay their eggs. But the campaign did little to reduce the threat. In the first four months of this year, officials registered 100,000 additional cases thought to be Zika.

In addition, almost a million people were infected with dengue fever, more than ever before in such a short span of time. There is no vaccine against the Zika virus and there is no medicine that can prevent people from becoming infected. In March, medical researchers said that Zika can also be transmitted via sexual intercourse and, as if that weren’t enough, 151 health experts wrote an open letter in May demanding that the Olympic Games – set to kick off in Rio in two weeks – be postponed or moved. Taking the risk of holding the games as planned, they said, would be irresponsible. The city is expecting a half-million visitors. If only a tiny fraction of them become infected by the virus, these games – intended to crown Brazil’s climb to economic power status – could mark the beginnings of a catastrophe.

Read more …

Apr 012015
 
 April 1, 2015  Posted by at 12:29 pm Finance Tagged with: , , , , , , , , , , ,  


NPC Pennsylvania Avenue storefront view, Washington DC 1921

Americans Just Aren’t Spending (CNN)
The Glory Days of Private Equity Are Over (WSJ)
Japan’s Newest Export: Deflation (Pesek)
The Oil Price Slump Is Fuelling Financial Instability Globally (Satyajit Das)
‘A Lot More Easing’ Coming From China Central Bank (CNBC)
Iceland Looks At Ending Boom And Bust With Radical Money Plan (AFP)
Tsipras Vows To Stop Greek ‘Bleeding’ As Creditors Frustrate Athens (Telegraph)
Merkel Faces Rebellion As Senior Official Resigns Over Greek Bail-Out (DT)
Greek Prime Minister Vows No Capitulation To Creditors (Independent)
Greece Fails To Reach Initial Deal On Reforms With Lenders (Reuters)
Japanese Hoarding $300 Billion Under Mattresses (CNBC)
‘Wealth Creators’ Are Robbing Our Most Productive People (Monbiot)
Is It Time For ‘Shadow Bank’ Stress Tests? (CNBC)
The Way Out (Jim Kunstler)
Ukraine Interior Ministry ‘Uncooperative And Obstructive’ In Maidan Probe (RT)
License to Kill (Dmitry Orlov)

Deflation.

Americans Just Aren’t Spending (CNN)

Consumer spending is often called an engine of the United States economy. That engine may be about to blow a gasket. Consumers are sitting on their wallets. The government reported Monday that personal consumption expenditures – aka consumer spending – rose just 0.1% in February. That follows two months of declines of 0.2%. It comes at a time when people actually do have a little bit more money to spend. In the same report, the government said disposable personal incomes rose 0.4% in February, after rising 0.5% in January and 0.3% in December. So what are consumers doing? Despite some headlines to the contrary, it appears that Americans are showing signs of fiscal responsibility. They are saving more. Mind you, they still may not be saving enough for things like retirement, a new house, or their kids’ college education.

But the savings rate rose to 5.8% in February – the highest level since late 2012. This is a bit of a surprise. Many economists were predicting that consumers would spend all that money they were saving from cheaper gas prices as if it were a tax refund check courtesy of OPEC. But oil prices may have now stabilized. As such, economists at Barclays wrote Monday that “the boost from energy prices is fading.” They suggested that the awful winter weather could be one reason for soft consumer spending in February. And Barclays is predicting that spending will rebound in the second quarter and the savings rate will fall. Still, sluggish consumer spending could mean that the economy will report very little in the way of growth for the first quarter — despite the continued strength of the labor market.

The economy has been adding jobs at an impressive clip for the past year. And the unemployment rate has fallen. But even though personal incomes are rising, wages have not risen that much to make consumers feel as if they are rolling in the dough. That’s because the personal income figure takes into account increases in other items such as interest and dividend payments on investments as well as Social Security, Medicare and other government safety net distributions. So wages have to pick up more dramatically, or consumers may not be willing to spend more. And that’s a proverbial Catch-22 for the economy. Saving more is great for the long-term. But spending is what’s needed to get the economy roaring again in the short run.

Read more …

No markets left.

The Glory Days of Private Equity Are Over (WSJ)

Private equity is done. Stick a fork in it. With Kraft singles and Heinz ketchup as toppings, there are many signs that private equity has peaked as an asset class. Sure, private equity is pervasive, which is one of its problems. According to Dow Jones LP Source, 765 funds raised $266 billion in 2014, up 11.7% over 2013. Ever since David Swensen, the investment manager of the Yale University endowment, almost 30 years ago began successfully allocating outsize portions of the portfolio to “alternate” assets, especially private equity, the so-called Swensen model has been widely duplicated. Last week the Stanford endowment named Swensen-disciple Robert Wallace as CEO. There is a lot of capital chasing similar deals.

When it comes down to it, private equity is pretty simple. You buy a company, putting up some cash and borrowing the rest, sometimes from banks but often via exotic instruments that Wall Street is happy to sell. Then you manage the company for cash flow, making sure you can make interest payments with enough left over for fees and investor dividends. With enough cash flow, you either take the company public or sell it to someone else. And how do you generate cash flow? You can expand the company, but more likely you slash costs, close divisions, cut staff, curtail marketing, eliminate research and development and more. In other words, cutting to the bone.

The Swenson model has worked for the past three decades. But it’s a bull-market investment vehicle whose time is done. Here are the main reasons private equity has peaked—the first four are reasonably obvious, but the last one is the killer. First, interest rates are going up. As they say on “Game of Thrones,” winter is coming. The Federal Reserve will no longer be “patient” on raising rates. This year? Next year? It doesn’t matter. Rising interest rates mean private equity will see higher costs of capital, wreaking havoc on Excel spreadsheets justifying future returns. Second, banks are slowing lending for leveraged deals. Since 2013, regulators have been discouraging leverage above six times earnings before interest, taxes, depreciation and amortization, or Ebitda, a measure of cash flow. Leveraged loans are the lifeblood of private equity; limits are already crimping the ability to do deals.

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What’d I say?

Japan’s Newest Export: Deflation (Pesek)

In 2006, seven years before he became Bank of Japan governor, a testy Haruhiko Kuroda told me he thought China was raising its own living standards at the expense of its Asian neighbors. “The relationship between exchange rates and poverty reduction is not so direct, but a more flexible Chinese exchange rate would benefit Asia,” Kuroda, who at the time was head of the Asian Development Bank, told me in his office overlooking the Manila skyline. “It would make a difference.” Today, those remarks demand to be read with a sense of irony. As Japan’s leading central banker for the past two years, Kuroda has relentlessly weakened the yen, which means he is now responsible for precisely the same regional dynamic he once lamented.

None of this is to suggest Kuroda is up to anything sinister. His mandate, after all, is to produce 2% inflation for Japan, and thus pull its $4.9 trillion economy out of a two-decade deflationary spiral. But it’s impossible to deny that the yen’s weak exchange rate is indirectly exporting deflation to the region. Taiwan’s export-dependent economy is feeling the strain, and Singapore might be next. But South Korea has been hit particularly hard. The country’s 4.7% plunge in industrial output in February is the latest sign that deflation is on its doorstep. The country’s consumer prices also rose by only 0.5% last month (the slowest pace since 1999), and its exports were down 3.4%.

Korean manufacturers have responded to the yen’s 20% drop in value by trying to keep the prices of their own products down. In practice, that’s meant executives with excess cash on their balance sheets have avoided making investments or giving workers a raise. The resulting wage suppression, however, is having negative consequences of its own, by hampering domestic consumption. (It doesn’t help that Korean households are sitting on record debt, equivalent to about 70% of GDP)

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“..Emerging markets have about 75% of their $2.6trn debt denominated in dollars. A similar proportion of their $3.1trn bank borrowings is dollar-denominated.”

The Oil Price Slump Is Fuelling Financial Instability Globally (Satyajit Das)

Financial markets have generally assumed lower oil prices are good for asset prices, resulting from the positive effect on growth and lower inflation which extends the period of low interest rates. In reality, the large movement in oil prices has the potential to create significant financial instability, especially in debt markets. Heavily indebted energy companies and sovereign or near-sovereign borrowers with large oil exposures face increased risk of financial distress. The boom in borrowings by energy businesses, especially shale gas and oil producers, has created a dangerous debt overhang. Energy companies now make up around 15% of the Barclays US Corporate High-Yield Bond Index, up more than 300% from 2005. Since 2010, energy producers have raised $550bn of funds.

In 2014, more than 40% of new non-investment grade syndicated loans were to the oil and gas sector. During the boom, non-investment grade bond issues and loans for the oil industry were underpinned by high oil prices and the search for yield. Now low oil prices have reduced revenues sharply, making it difficult to service debt. The industry’s weak financial structure and business model compounds the problem. A significant proportion of the industry is highly levered with borrowings that are greater than three times gross operating profits. Many firms were cash flow negative even when prices were high, usually debt-funded to maintain production. If the firms have difficulty meeting existing commitments, then the decrease in available funding and higher costs will create a toxic negative spiral.

Sovereign and near-sovereign borrowers in oil-dependent countries are similarly vulnerable. Energy companies, such as Brazil’s Petrobras, Mexico’s Pemex and Russia’s Gazprom are among the largest issuers of emerging market debt. Since 2009, they borrowed about $140bn in bond markets. Petrobras has around $170bn in debt, one of the most indebted companies in the world. Many oil-dependent economies also face additional problems from a growing currency mismatch. Many producers borrow in dollars. Falling oil revenues as a result of lower prices reduce the dollar cash flow available to service the debt. Weak oil prices also drive weakness in the value of the domestic currency of oil producers, while higher dollar interest rates compound the mismatch.

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QE Peking Duck.

‘A Lot More Easing’ Coming From China Central Bank (CNBC)

China’s most recent effort to prop up its softening real estate market is not enough, analysts say, noting that a series of interest rate cuts from the central bank is the best remedy. “I’m virtually certain we’ll see further interest rate cuts and a lot more easing, probably bank reserve requirement ratio (RRR) cuts, in the coming months,” Macquarie’s Sam Le Cornu told CNBC. “I think people are underestimating the degree of liquidity that will be put into the market and the number of interest rate cuts.” Chinese homebuyers were given a break on Monday after authorities lowered the threshold of down payments on mortgages for second homes to 40% from 60% and waived the business tax on the resale of property after two years. The measures follow Beijing’s effort to spur the economy by cutting interest rates twice since November and lowering the reserve requirements of major banks.

But that isn’t enough for many investors who continue to call for further easing. “[China still needs] further across-board monetary policy easing,” Nomura’s China economics team said in a note on Monday. It expects “more policy easing, with three more interest rate cuts and three more reserve requirement ratio cuts over the remainder of 2015.” However, Nomura believes that Mondays’ move will “see the pace of property market correction stabilizing in the second half of the year.” Monday’s move comes amid growing concerns over slowing economic growth. China set its 2015 growth target “at around 7%” in early March – it’s lowest target in 11 years – after posting its slowest annual growth rate in 24 years in 2014. The housing sector accounts for around 15% of China’s economy, and recent housing data suggests that growth continues to slow.

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No moar.

Iceland Looks At Ending Boom And Bust With Radical Money Plan (AFP)

Iceland’s government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled “A better monetary system for Iceland”. “The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy,” Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

According to a study by four central bankers, the country has had “over 20 instances of financial crises of different types” since 1875, with “six serious multiple financial crisis episodes occurring every 15 years on average”. Mr Sigurjonsson said the problem each time arose from ballooning credit during a strong economic cycle. He argued the central bank was unable to contain the credit boom, allowing inflation to rise and sparking exaggerated risk-taking and speculation, the threat of bank collapse and costly state interventions. In Iceland, as in other modern market economies, the central bank controls the creation of banknotes and coins but not the creation of all money, which occurs as soon as a commercial bank offers a line of credit. The central bank can only try to influence the money supply with its monetary policy tools.

Under the so-called Sovereign Money proposal, the country’s central bank would become the only creator of money. “Crucially, the power to create money is kept separate from the power to decide how that new money is used,” Mr Sigurjonsson wrote in the proposal. “As with the state budget, the parliament will debate the government’s proposal for allocation of new money,” he wrote. Banks would continue to manage accounts and payments, and would serve as intermediaries between savers and lenders. Mr Sigurjonsson, a businessman and economist, was one of the masterminds behind Iceland’s household debt relief programme launched in May 2014 and aimed at helping the many Icelanders whose finances were strangled by inflation-indexed mortgages signed before the 2008 financial crisis.

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My man.

Tsipras Vows To Stop Greek ‘Bleeding’ As Creditors Frustrate Athens (Telegraph)

Greece’s prime minister has vowed not capitulate to the country’s eurozone creditors, reviving controversial calls for debt relief as his government battles to unlock bail-out cash. Addressing his parliament on Monday evening, Alexis Tsipras said he would seek an “honest compromise” with Greece’s international paymasters, but warned he would not submit “unconditionally” to demands for further austerity on his stricken economy. Mr Tsipras, who spoke after a frustrating day of progress between his government and officials from the Brussels Group, insisted he would stop “the Greek people’s bleeding” as he ruled out measures such as hiking VAT. The Leftist premier also repeated his claims for Second World War reparations from Germany, and insisted on debt relief from Greece’s lenders.

Greek pleas for a bond-swap or outright haircut on its debt mountain have subsided following a February 20 agreement to extend its bail-out by four months. But Mr Tsipras said he would now pursue a claim for debt forgiveness in order to maintain the sustainability of the country’s finances. Greece is racing to get the seal of approval on a bail-out extension, before financial deadlines in April, six weeks after its Leftist government agreed an eleventh hour deal with European creditors. Despite reports Athens would submit a final comprehensive list of proposals to finance ministers on Monday, work on completing the revenue-raising measures has yet to be completed, according to European officials. Speaking in Helsinki alongside her Finnish counterpart on Monday, German Chancellor Angela Merkel cautioned any final Greek blueprint had to “add up”.

“We will await the outcome of these discussions, but in the end the broad framework has to add up,” said Ms Merkel. Circulated drafts of the reforms included cutting early retirement, raising €350m from clamping town on VAT fraud, and €250m from stamping out oil, alcohol and tobacco smuggling. But the measures are likely to fall short of creditor demands. Dissatisfied eurozone officials warned the government would still need cut pensions and wages to receive the €7.2bn it needs to stay afloat. The government’s current public sector wage and pension bill amounts to €1.2bn a month, an outlay which Athens will struggle to meet in April without a fresh injection of cash. The fledgling Greek premier also faces a domestic battle to retain the support of Syriza’s Left Platform, who oppose measures such as a property tax and the continued privatisation of the country’s ports, airports and power grids.

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You tell ’em girl.

Merkel Faces Rebellion As Senior Official Resigns Over Greek Bail-Out (DT)

Political tensions in Europe’s largest creditor nation were laid bare after a senior ally of Angela Merkel’s ruling party stepped down in protest at his government’s support for a Greek bail-out. Peter Gauweiler, deputy chairman of the Christian Social Union – the Bavarian sister party of the ruling CDU – said Greece was a “bankrupt state” and he could not serve as a member of parliament as long as his “dissenting vote against an extension of the current and completely ineffective program” was ignored. Mr Gauweiler, a fierce critic of financial support for the eurozone’s indebted countries, was appointed vice-chairman of the CSU in November 2013 in a move to appease the growing eurosceptic elements within his party.

“I have been publicly pressured to vote in the Bundestag for the exact opposite, on the grounds that I am a vice-president,” said Mr Gauweiler in a statement on his website. “This is incompatible with my interpretation of the duty of a legislator.” Leader of the CSU Horst Seehofer also came in for heavy criticism from Mr Gauweiler, who has lodged legal complaints with the German Constitutional Court against the ECB’s attempts to establish financial backstops and its purchases of government bonds. Mr Gauweiler was also one of the 28 members of Ms Merkel’s coalition to vote in opposition to Greece’s bail-out extension in February. The rapid rise of the Alternative for Germany party (AfD) who seek to force Greece out of the monetary union, has put pressure on Ms Merkel’s ruling coalition.

Her conservative Christian Democrat party suffered its worst election result since the Second World War last month, at the hands of the eurosceptics. The AfD have already made overtures towards Mr Gauweiler, extending an invitation for him to join their ranks on Tuesday. The new Greek government is currently appealing for debt relief and the unlocking of a fresh round of bail-out money as it seeks to avert bankruptcy. Speaking in Helskini on Monday, Ms Merkel warned Athens plans for reforming the economy must “add up”.

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“The European authorities want to show who is boss; This is a government they didn’t want. And they really don’t want this government to succeed.”

Greek Prime Minister Vows No Capitulation To Creditors (Independent)

Germany turned the screws on Greece again yesterday, as officials insisted Athens has still not provided a satisfactory programme of economic reforms to its single currency partners. However, in a defiant speech, the anti-austerity Greek prime minister, Alexis Tsipras, warned that his government would not “capitulate” and would keep on pushing for a “fair compromise” with its creditors. Greece’s fellow eurozone member states, including Germany, must approve the release of the remaining €7.2bn in bailout funds the country is expecting. Without the cash, Greece could run of money to pay its civil servants by the end of next month and might be unable to meet a €450m loan repayment to the International Monetary Fund which is due on 9 April.

Greece has prepared a list of proposed economic reforms, but sources in Berlin said yesterday that it was not good enough to unlock the vital funding. “We need to wait for the Greek side to present us with a comprehensive list of reform measures which is suitable for discussion with the institutions and then later in the Eurogroup,” said Martin Jaeger, a spokesman for the German finance ministry. Chancellor Angela Merkel, on a visit to Helsinki, also implied Athens was still falling short. “The question is, can and will Greece fulfil the expectations that we all have?” she asked. According to Greek sources, Athens’s plan, which is projected to raise some €3.7bn this year, includes a crackdown on tax evasion through thorough audits of offshore bank transfers.

Other proposed revenue raisers are a value-added tax on the lottery, the auction of television broadcast licences and a smuggling crackdown. But, in an indication that Mr Tsipras intends to partly reverse the previous administration’s privatisation programme, the plan also targets only €1.5bn of revenues from state asset sales, down from €2.2bn in the previous budget. And in a speech to the Athens parliament last night, Mr Tsipras insisted, once again, that Greece’s large national debt needs to be restructured – anathema to Greece’s eurozone sovereign creditors. Mark Weisbrot of the Centre for Economic and Policy Research think-tank yesterday accused Brussels and Berlin of deliberately trying to undermine the Greek economy in order to force concessions from Athens. “The European authorities want to show who is boss,” he said. “This is a government they didn’t want. And they really don’t want this government to succeed.”

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Someone up there doesn’t like you.

Greece Fails To Reach Initial Deal On Reforms With Lenders (Reuters)

Greece failed to reach an initial deal with the EU and the IMF to unlock aid after the creditors dismissed a package of reforms from Athens as ideas rather than a concrete plan, officials said on Tuesday. The lack of a deal further raises pressure on Athens, which faces the prospect of running out of money in a few weeks unless it can convince lenders to dole out more financial help. Athens put a brave face on the failure to reach an agreement with the “Brussels Group” of representatives from the EU and the IMF, saying it remained keen for a deal on the basis of its long-held demand that the measures it is asked to implement do not hurt economic growth. Lenders will intensify efforts to collect data in Athens, it said. One source close to the talks said the halt in negotiations was not a sign of a rupture but an indication of slow-moving progress in the discussions.

Mistrust and acrimony have characterized much of Greece’s talks with lenders since Prime Minister Alexis Tsipras stormed to power in January pledging to end austerity and a bailout program that has kept Greece afloat for over four years. Greece and its European partners have sought to show publicly that relations have improved in recent weeks after Tsipras held a series of talks with EU leaders, but both sides remain far apart on issues ranging from pension reform to debt relief. At issue now is a list of reforms that Greece presented to the Brussels Group representatives last week, in an effort to show lenders that it is committed to living up to pledges of financial discipline and is worthy of aid. But euro zone officials panned the list as inadequate. One EU official said the lenders had yet to receive the list they had been waiting for.

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They’re small ones too.

Japanese Hoarding $300 Billion Under Mattresses (CNBC)

The Japanese are hoarding over $300 billion under their mattresses and that cash will likely stay there unless a crisis of epic proportions sparks capital flight, analyst say. “The money has been sitting there so long, it’s difficult to pin down what will prompt people to spend the cash,” Mizuho Securities’ chief market economist Yasunori Ueno told CNBC by phone. The notion came to public attention last year when Finance Minister Taro Aso scolded the Japanese for sitting on 880 trillion yen ($7.33 trillion) in cash, which was widely reported by the local press as being ‘kept under mattresses’. “It’s ridiculous – the money should be deposited at financial institutions so the banks can fund promising industries,” said Aso, according to a Sankei newspaper report.

But that figure was based on household cash deposits at Japanese banks, rather than hidden under mattresses, Ueno said. As per his calculations in a note dated March 25, households are probably hoarding around 36 trillion yen ($301 billion) of cash. “It’s like an iceberg – it just won’t melt,” said Dai-ichi Life Research Institute (DLRI) chief economist Hideo Kumano. “It will just sit there, immobile and frozen in time.” In many countries hoarding cash at home is synonymous with the underground economy, but the reasons in Japan are more mundane. “Under deflation, cash is king,” said DLRI’s Kumano, although he added that an unknown portion of the cash is probably just being hidden from the taxman.

At any rate, putting cash in the bank doesn’t mean it will earn any interest. Deposit accounts do not pay any interest in Japan. Even a ten-year savings account will only pay interest of between 0.10% and 0.150%, or one dollar on every 10,000 dollars in the bank, according to Mizuho Bank’s website. “Why bother going to the bank to deposit your money when it earns no interest? You may as well save yourself the effort of taking the trip down to the bank,” said Kumano.

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Up vs down.

‘Wealth Creators’ Are Robbing Our Most Productive People (Monbiot)

There is an inverse relationship between utility and reward. The most lucrative, prestigious jobs tend to cause the greatest harm. The most useful workers tend to be paid least and treated worst. I was reminded of this while listening last week to a care worker describing her job. Carole’s company gives her a rota of, er, three half-hour visits an hour. It takes no account of the time required to travel between jobs, and doesn’t pay her for it either, which means she makes less than the minimum wage. During the few minutes she spends with a client, she may have to get them out of bed, help them on the toilet, wash them, dress them, make breakfast and give them their medicines. If she ever gets a break, she told the BBC radio programme You and Yours, she spends it with her clients. For some, she is the only person they see all day.

Is there more difficult or worthwhile employment? Yet she is paid in criticism and insults as well as pennies. She is shouted at by family members for being late and not spending enough time with each client, then upbraided by the company because of the complaints it receives. Her profession is assailed in the media as the problems created by the corporate model are blamed on the workers. “I love going to people; I love helping them, but the constant criticism is depressing,” she says. “It’s like always being in the wrong.” Her experience is unexceptional. A report by the Resolution Foundation reveals that two-thirds of frontline care workers receive less than the living wage. Ten%, like Carole, are illegally paid less than the minimum wage. This abuse is not confined to the UK: in the US, 27% of care workers who make home visits are paid less than the legal minimum.

Let’s imagine the lives of those who own or run the company. We have to imagine it because, for good reasons, neither the care worker’s real name nor the company she works for were revealed. The more costs and corners they cut, the more profitable their business will be. In other words, the less they care, the better they will do. The perfect chief executive, from the point of view of shareholders, is a fully fledged sociopath. Such people will soon become very rich. They will be praised by the government as wealth creators. If they donate enough money to party funds, they have a high chance of becoming peers of the realm. Gushing profiles in the press will commend their entrepreneurial chutzpah and flair.

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“..the sector is viewed as likely to be larger than the supervised banking industry..”

Is It Time For ‘Shadow Bank’ Stress Tests? (CNBC)

A leading member of Germany’s Bundesbank has backed U.S. calls for “shadow banking”, the unregulated sector that provides credit on a global scale, to be subject to stress-testing. “Stress testing, as has been suggested, may be a good idea,” Andreas Dombret, a member of the Bundesbank’s executive board responsible for banking supervision, told CNBC on Tuesday. “But if we were to go by this route, it should be directed to the link between the shadow banking sector and the banks. So it is not about introducing regulation, if there is no systemic link between this sector and the banks. That is what we really have to care about.”

Dombret was commenting after Fed Vice Chairman Stanley Fischer suggested tougher rules for shadow banking on Monday, as well as stress tests to assess the risk the sector could pose to global finance in the event of a slump. Shadow banking is huge on a global scale, handled $75 trillion in funds in 2013, up $5 trillion on the start of the year, according to the Financial Stability Board. In some countries, such as the U.S., the sector is viewed as likely to be larger than the supervised banking industry. Stress tests for conventional banking activities were adopted by the U.S. and Europe after the 2007-08 financial crisis to gauge big banks’ ability to manage risk and plan for a potential economic shock.

On Tuesday, Dombret, who has worked for major international banks like Deutsche and JPMorgan, said there might be a need to regulate shadowing banking, if it proved to be a “systemic risk” to the financial sector. “We need to monitor very closely what is happening in this sector, and the relationship between these so-called shadow banks—I would rather call them ‘non-bank’ banks—and the banking sector, and should there be a systemic risk, and should there be a close link, we may even have to go beyond monitoring and we have to go towards may be also regulation.”

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“I don’t think we’ll go there via rational political discourse..”

The Way Out (Jim Kunstler)

The truth is, when you rig a money system with price interventions, distortions, and perversions, they will eventually express themselves in ways destructive to the system. In the present case of world-wide QE and central bank monkey business, these rackets are expressing themselves, finally, in wobbling currencies. In many nations, people are deeply unsure of what their money is worth, and how much it might be worth a month from now. This includes the USA, except for the moment our money is said to be magically appreciating in value compared to everyone else’s. Aren’t we special?

Get this: nothing is more hazardous than undermining people’s trust in their money. All of this financial perfidy conceals the basic fact that the human race has reached the limits of techno-industrialism. There are too many people and not enough basic resources to grow more of them — oil, fishes, soil, ores, fertilizers — and there is no steady-state “solution” to keep that economy going. In other words, it must either grow or contract, and it can’t really grow anymore (despite the exertions of government statisticians), so the authorities are trying to provide a monetary illusion of growth, when instead we’re in contraction.

Yes, contraction. The way out is to get with the program, shed the dead-weight and go where reality wants to take you. In the USA that means do everything possible to quit supporting giant failing systems — Big Box shopping, mass motoring, GMO agribiz, TBTF banks — and get behind local Main Street integrated economies, walkable towns, regular railroads, smaller and more numerous farms, local medical clinic health care, artistry in public works, and community caretaking of the unfit. All this surely implies a reduced role for the national government, and maybe the states, too. You could call it a lower standard of living, or just a different way to live.

I don’t think we’ll go there via rational political discourse. The current instabilities around the world are so sinister that they are liable to lead to even more strenuous efforts at the top to pretend that everything’s working, and even war is one way to pretend you’re okay (and the “other guy” isn’t). Of course, war has already broken out, in the MidEast and Ukraine, and it has everything to do with the sequential failure of nations, in one way or another, to overcome the limits of techno-industrialism. America will be dragged kicking and screaming to the realization of what it needs to do. The 2016 election will be the convulsion point.

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And for good reasons too.

Ukraine Interior Ministry ‘Uncooperative And Obstructive’ In Maidan Probe (RT)

The investigation into Maidan violence during Ukraine’s coup didn’t satisfy the requirements of the European Convention on Human Rights, says a report from the European Council, adding that Ukraine’s Interior Ministry was “uncooperative and obstructive.” The report specifically concentrated on the investigation of violent acts during the three months of Maidan demonstrations: Violent dispersal of the protest by Berkut riot police on November 30, 2013, clashes on January 22, 2014, which resulted in the first deaths of protesters, and February 18-21, 2014, the deadliest days of the Kiev protests. Before the February 2014 coup, “there was no genuine attempt to pursue investigations,” said a document by the International Advisory Panel.

The panel was established by the Council of Europe to review investigations into the violent incidents during the Maidan demonstrations. “The lack of genuine investigations during the three months of the demonstrations inevitably meant that the investigations did not begin promptly and this constituted, of itself, a substantial challenge for the investigations, which took place thereafter and on which the Panel’s review has principally focused,” the report stated. The panel added that “the appointment post-Maidan of certain officials to senior positions in the MoI [Ukraine Interior Ministry] contributed to the lack of appearance of independence.” It also “served to undermine public confidence in the readiness of the MoI to investigate the crimes committed during Maidan.”

The EU experts call the number of investigations performed by the Prosecutor General’s Office (PGO) on Maidan violence “wholly inadequate.” “The Panel did not consider the allocation of investigative work between the PGO, on the one hand, and the Kyiv [Kiev] City Prosecutor’s Office and the MoI, on the other, to be coherent or efficient,” says the report. “Nor did the Panel find the PGO’s supervision of the investigative work of the Kyiv [Kiev] City Prosecutor’s Office to have been effective.” Cooperation by Ukraine’s Interior Ministry “was crucial to the effectiveness of the PGO investigations,” according to the document.

“There are strong grounds to believe that the MoI attitude to the PGO has been uncooperative and, in certain respects, obstructive,” says the report, adding that the “Prosecutor General’s Office didn’t take all the necessary steps to ensure effective co-operation” by the Interior Ministry in the investigations. They also found there were facts of “the grant of amnesties or pardons to law enforcement officers in relation to unlawful killings or acts of ill-treatment” of protesters during the Maidan protests. This “would be incompatible with Ukraine’s obligations under Articles 2 and 3 of the Convention,” said the document. “The serious investigative deficiencies identified in this Report have undermined the authorities’ ability to establish the circumstances of the Maidan-related crimes and to identify those responsible.”

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” ..non-symbolic non-gestures of a preventive nature are sure to follow..”

License to Kill (Dmitry Orlov)

With the strategy of destroying in order to create no longer viable, but with the blind ambition to still try to prevail everywhere in the world somehow still part of the political culture, all that remains is murder. The main tool of foreign policy becomes political assassination: be it Saddam Hussein, or Muammar Qaddafi, or Slobodan Milosevic, or Osama bin Laden, or any number of lesser targets, the idea is to simply kill them.

While aiming for the head of an organization is a favorite technique, the general populace gets is share of murder too. How many funerals and wedding parties have been taken out by drone strikes? I don’t know that anyone in the US really knows, but I am sure that those whose relatives were killed do remember, and will remember for the next few centuries at least. This tactic is generally not conducive to creating a durable peace, but it is a good tactic for perpetuating and escalating conflict. But that’s now an acceptable goal, because it creates the rationale for increased military spending, making it possible to breed more chaos.

Recently a retired US general went on television to declare that what’s needed to turn around the situation in the Ukraine is to simply start killing Russians. The Russians listened to that, marveled at his idiocy, and then went ahead and opened a criminal case against him. Now this general will be unable to travel to an ever-increasing number of countries around the world for fear of getting arrested and deported to Russia to stand trial.

This is largely a symbolic gesture, but non-symbolic non-gestures of a preventive nature are sure to follow. You see, my fellow space travelers, murder happens to be illegal. In most jurisdictions, inciting others to murder also happens to be illegal. Americans have granted themselves the license to kill without checking to see whether perhaps they might be exceeding their authority. We should expect, then, that as their power trickles away, their license to kill will be revoked, and they find themselves reclassified from global hegemons to mere murderers.

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