Feb 222016
 
 February 22, 2016  Posted by at 9:54 am Finance Tagged with: , , , , , , , ,  


NPC People’s Drug Store, 11th & G streets, Washington DC 1920

NYSE Short Interest Nears Record – And We Know What Happened Last Time (ZH)
EU Chamber Urges China To Cut Excess Production (WSJ)
Biggest Banks’ Commodity Revenue Slid to Lowest in Over a Decade (BBG)
The Metals Crunch Is Forcing Miners To Reconsider Diversification (Economist)
The World’s Biggest Miner May Be About to Toast Its Oil Drillers (BBG)
New Market Storm Could Catch Eurozone Unprepared (Reuters)
Traders Would Rather Get Nothing in Bonds Than Buy Europe Stocks (BBG)
German Economy Takes a Blow From Weakening Global Demand (BBG)
Germany Isn’t Investing the Way It Used to and That’s a Problem (BBG)
China Yuan Bears Predict More Trouble Ahead (BBG)
Kyle Bass, A Sharpshooting Short-Seller (FT)
As US Shale Sinks, Pipeline Fight Sends Woes Downstream (Reuters)
Chinese Military Ambitions Fuel Asian Arms Race Amid Slowdown (WSJ)
Krugman and the Gang of 4 Need to Apologize (Bill Black)
Greek Attempt To Force Use Of Electronic Money Instead Of Cash Fails (ZH)
New Zealand Super Fund’s $200 Million Loss (NZ Herald)
Long Way To Go: 5th Anniversary of the Christchurch Earthquake (G.)
Macedonia, Serbia Close Borders To Afghan Refugees (AP)
Shadowing The Hellenic Coast Guard’s Refugee Rescues (CCTV)

We’re getting closer.

NYSE Short Interest Nears Record – And We Know What Happened Last Time (ZH)

In the last two months, NYSE Short Interest has risen 4.5%, back over 18 billion shares near the historical record highs of July 2008 (and up 7 of the last 9 months).

There are two very different perspectives on could take when looking at this data… Either a central bank intervenes, or a massive forced buy-in event occurs, and unleashes the mother of all short squeezes, sending the S&P500 to new all time highs, or .. Just as the record short interest in July 2008 correctly predicted the biggest financial crisis in history and all those shorts covered at a huge profit, so another historic market collapse is just around the corner. The correct answer will be revealed in the coming weeks or months… but we know what happened last time…

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Ask nicely. Prety pretty please. Look, China doesn’t want millions of unemployed workers. They’ll want to smear this out over years.

EU Chamber Urges China To Cut Excess Production (WSJ)

The European Union Chamber of Commerce in China urged Beijing to do more to tackle excess industrial production, saying that failed attempts to do so have created a flood of excess goods that threatens to destabilize the global economy. The call comes as Chinese manufacturers, hit by an economic slowdown, are sending products–from tires and steel to solar panels and chemicals–overseas that they can’t sell at home. The EU Chamber, which represents more than 1,600 members across China, said Monday that excess production is plaguing industrial sectors, such as steel, cement and chemicals, but is also spilling over into the consumer economy, including consumer electronics, pharmaceuticals and even food and apparel.

The usage rate for China’s steel in 2014 dropped to 71% from 80% in 2008, the EU Chamber estimated, based on China’s official data. Production increased to 813 million metric tons from 513 million tons during that time, the industry group said. Representatives from Europe’s steel industry, reeling from competition from cheap Chinese steel, last week took to the streets in Brussels to protest alleged unfair trade practices that they claim will worsen if the EU grants market-economy status to China later this year. Such a move would make it more difficult for Europe to impose steep tariffs on Chinese goods. London-based Caparo initiated bankruptcy proceedings in October for 16 of its 20 steel businesses, which employed 1,700 people. Tata Steel of India blamed overproduction in China when it said in January that it would cut 1,050 jobs from its U.K. operations, adding to cuts announced in October.

In a briefing Monday, the EU Chamber, which released a study on China’s industrial overcapacity, said China must act immediately to restructure its economy and overhaul state-owned companies that are pumping out excess goods. It must reduce negative impacts in China, such as job losses and bad debt, and fend off a crisis that could reverberate globally, the chamber said. Chinese leaders have prioritized party reform and anticorruption, but it is time to shift that focus to the economy, said Jörg Wuttke, president of the European Chamber. “The time spent on economic reforms is way down on the priority list.” said Mr. Wuttke.” We believe they have to act now, not wait.”

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Are they betting against their own clients yet?

Biggest Banks’ Commodity Revenue Slid to Lowest in Over a Decade (BBG)

Revenue from commodities at the largest investment banks sank to the weakest in more than a decade last year, laid low by a rout in prices for everything from metals to gas. Income at Goldman Sachs, Morgan Stanley and the 10 other top banks slid by a combined 18% to $4.6 billion, according to analytics firm Coalition. That was the worst performance since the London-based company began tracking the data 11 years ago, and a slump of about two-thirds from the banks’ moneymaking peak in 2008. Revenues are unlikely to return to the heights of $14.1 billion seen at the top of the market, according to George Kuznetsov at Coalition. “The competitive landscape is very different,” Kuznetsov said by phone.

“Financial institutions are now much more regulated. We have significantly less involvement of the banks in the physical commodities market, and banks do not take as much risk as they used to in 2008-09.” The Bloomberg Commodity Index, a measure of investor returns from 22 raw materials, slumped the most in seven years in 2015, led by a plunge in energy and metals. Banks including JPMorgan, Deutsche Bank and Barclays have also been scaling back commodities activity in the past three years amid rising regulatory scrutiny. Even as oil revenues improved last year on increased activity by corporate clients, U.S. curbs on proprietary trading meant banks couldn’t fully take advantage of a 35% plunge in crude by making speculative bets, unlike trading houses and big oil companies.

Last year was one of the best years of all time for trading oil and gas, BP Chief Financial Officer Brian Gilvary said this month. Trafigura’s oil-trading earnings surged to a record last fiscal year. A gauge of industrial-metals prices fell by 24% last year, the most since 2008. Income from energy markets also returned to normal levels after gains in 2014, according to Coalition. “A normalization of the U.S. power and gas markets and weakness in metals and investor products drove the overall decline,” the company said in a report released on Monday. Declining commodities revenues helped bring down the performance for banks’ overall fixed-income divisions, according to Coalition. The analytics company tracks commodities activities including power and gas, oil, metals, coal and agriculture.

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BHP Billiton looks to be in danger.

The Metals Crunch Is Forcing Miners To Reconsider Diversification (Economist)

At the pinnacle of the mining industry sit two Anglo-Australian companies, BHP Billiton and Rio Tinto, which are to iron ore what Saudi Arabia is to oil: the ones who call the shots. Their mines in Pilbara, Western Australia, are vast cash cows; with all-in costs below $30 a tonne, they still generate substantial profits even though prices have slumped from $192 a tonne in 2011 to about $44. They have increased iron-ore production despite slowing demand from China, driving higher-cost producers to the wall—an echo of the Saudis’ strategy in the oil market. But whereas Rio Tinto has doubled down on iron ore, BHP also invested in oil and gas—in which it has nothing like the same heft—at the height of the shale boom. Their differing strategies are a good test of the merits of diversification.

The China-led commodities supercycle encouraged mission creep. Many companies looked for more ways to play the China boom, and rising prices of all raw materials gave them an excuse to cling on to even those projects that were high-cost and low-quality. Now the industry is plagued with debts and oversupply. On February 16th Anglo American, a South African firm that was once the dominant force in mining, said it would sell $3 billion of assets to help pay down debt, eventually exiting the coal and iron-ore businesses that it had spent a fortune developing. That would leave it with a core business of just copper, diamonds and platinum. The day before, Freeport-McMoRan, the world’s largest listed copper producer, was forced to sell a $1 billion stake in an Arizonan copper mine to Sumitomo of Japan, to help cut debts racked up when it expanded into oil and gas.

With Carl Icahn, an American activist investor, agitating for a shake-up, analysts say its energy assets could follow—if there are any buyers. When BHP reports half-yearly results on February 23rd its misadventure in American oil and gas will be of particular concern because it has put the world’s biggest mining firm in the shadow of Rio for the first time. Since BHP merged with Billiton in 2001, its share price has outperformed Rio’s; it made an unsuccessful bid to merge with its rival in 2007. Yet in the past year its shares have done worse. Analysts expect that next week it will cut its annual dividend for the first time since 2001, thereby breaking a promise to raise the dividend year by year. Though Rio ended a similar “progressive dividend” policy this month, it did not cut the 2015 payout.

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And this is its last desperate call.

The World’s Biggest Miner May Be About to Toast Its Oil Drillers (BBG)

BHP Billiton’s shares began tracking oil prices more closely last year as they headed into the worst energy market downturn in a generation. It may not seem like it, but that could be good news for the world’s biggest miner. Unlike its rivals, BHP has a substantial petroleum unit, valued at about $25 billion by UBS. So while iron ore and most base metal prices are forecast to languish over the remainder of the decade as growth in China slows, the Melbourne-based company’s stock stands to benefit from a projected rebound in crude oil. BHP needs an edge. Its Sydney-traded shares sunk last month to the lowest since 2005 and it’s forecast to report a 86% drop in first-half earnings on Tuesday. On top of that, the producer’s ultimate liability for the deadly Samarco dam burst in Brazil late last year remains uncertain and it’s been warned by Standard & Poor’s that it may face a second credit rating downgrade this year.

An oil rebound could deliver a reboot with Schroders saying this month prices may rally almost two-thirds to as high as $50 a barrel in a few months. BHP has flagged it’s on the lookout for petroleum assets, and is likely to study adding more conventional assets, particularly in the Gulf of Mexico, if distressed competitors are forced to sell, according to Aberdeen Asset Management. BHP “follows oil a lot more closely than iron ore these days,” Michelle Lopez, a Sydney-based investment manager at Aberdeen, which holds BHP shares among the $428 billion of assets it manages globally, said by phone. “When you look at the forward curve, iron ore still looks like it’s going to be at these levels if not a bit lower, whereas there are expectations of a correction in the oil price.”

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Some people are still talking about a recovery. Get real.

New Market Storm Could Catch Eurozone Unprepared (Reuters)

Distracted by an unresolved migration crisis and negotiations on keeping Britain in the EU, euro zone leaders could be caught unprepared by a new storm on financial markets. Global market turmoil since the start of the year has helped set warning lights flashing in euro zone sovereign bond markets. In early February, the premium that investors charge to hold Portuguese, Spanish and Italian government debt rather than German bonds hit some of the highest levels since the euro zone crisis that peaked in 2011-2012. European bank shares have been badly hit by concerns over their high stock of non-performing loans, new regulatory burdens and a squeeze on profits due to sub-zero official interest rates. New EU banking regulations that force shareholders and bondholders to take first losses if a bank needs rescuing are further spooking the market, notably in Italy.

All this comes at a time when public resistance to further austerity measures has surged all over southern Europe, producing unstable results at the ballot box. Furthermore, the storm clouds are gathering above a tenuous and slow euro zone economic recovery – growth is officially forecast to reach 1.9% this year versus around 1.6% in 2015. Southern periphery countries all face budget problems that are fuelling political tension with Brussels. Inflation is also refusing to perk up despite the ECB’s bond-buying programme and negative interest rates, making it harder for heavily indebted euro zone countries to pay down debt. Yet euro zone governments transfixed by differences over sharing out refugees, managing Europe’s porous borders and accommodating British demands for concessions on EU membership terms have a huge amount on their hands already. One French government adviser said the EU had never faced such an accumulation of crises in the last 50 years.

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Yeah, sure: “We’re still looking for some confirmations for the economic growth outlook.”

Traders Would Rather Get Nothing in Bonds Than Buy Europe Stocks (BBG)

The cash reward for owning European stocks is about seven times larger than for bonds. Investors are ditching the equities anyway. Even with the Euro Stoxx 50 Index posting its biggest weekly rally since October, managers pulled $4.2 billion from European stock funds in the period ended Feb. 17, the most in more than a year, according to a Bank of America note citing EPFR Global. The withdrawals are coming even as corporate dividends exceed yields on fixed-income assets by the most ever. Investors who leaped into stocks during a similar bond-stock valuation gap just four months ago aren’t eager to do it again: an autumn equity rally quickly evaporated come December.

A Bank of America fund-manager survey this month showed cash allocations rose to a 14-year high and expectations for global growth are the worst since 2011. If anything, the valuation discrepancy between stocks and bonds is likely to get wider, said Simon Wiersma of ING. “The gap between bond and dividend yields will continue expanding,” said Wiersma, an investment manager in Amsterdam. “Investors fear economic growth figures. We’re still looking for some confirmations for the economic growth outlook.” Dividend estimates for sectors like energy and utilities may still be too high for 2016, Wiersma says. Electricite de France and Centrica lowered their payouts last week, and Germany’s RWE suspended its for the first time in at least half a century.

Traders are betting on cuts at oil producer Repsol, which offers Spain’s highest dividend yield. With President Mario Draghi signaling in January that more ECB stimulus may be on its way, traders have been flocking to the debt market. The average yield for securities on the Bloomberg Eurozone Sovereign Bond Index fell to about 0.6%, and more than $2.2 trillion – or one-third of the bonds – offer negative yields. Shorter-maturity debt for nations including Germany, France, Spain and Belgium have touched record, sub-zero levels this month.

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And Germany makes sure to transfer that blow to the rest of the eurozone.

German Economy Takes a Blow From Weakening Global Demand (BBG)

The German economy took a hit this month from weak global demand, with a manufacturing gauge dropping to a 15-month low. Markit Economics said its factory Purchasing Managers Index fell to 50.2, barely above the key 50 level, from 52.3 in January. A services gauge improved slightly, but a composite measure declined to the lowest since July. “The German economy appears to be in the midst of a slowdown,” said Oliver Kolodseike, an economist at Markit. Manufacturing is “near stagnation,” he said. While Germany weathered global headwinds through 2015, maintaining its pace of expansion in the fourth quarter, business confidence has weakened recently.

China’s slowdown is weighing on exports while the equity selloff this year threatens a fragile recovery in the euro area, the country’s largest trading partner. The OECD cut its global growth forecast last week and said both Germany and the euro region will expand less this year than previously estimated. Markit said the slowdown in German output led to increased caution on hiring, with the rate of job creation at the weakest in almost a year. France’s composite Purchasing Managers Index slipped to 49.8 from 50.2 in January. In the 19-nation euro area, both the factory and services measures probably declined this month, according to surveys of economists. Markit will publish those numbers at 9 a.m. London time.

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Germany’s surpluses keep on bleeding its neighbors dry. That is the problem.

Germany Isn’t Investing the Way It Used to and That’s a Problem (BBG)

All the pieces appear to be in place for a surge in corporate investment in Germany – except one critical element. While low borrowing costs, robust domestic consumption and capacity strains mean companies should be itching to spend, the confidence to do so is lacking. Market turmoil, signs of a weaker global demand and Germany’s own aging population are giving bosses plenty of reason to hold back, leaving capital spending as a share of output clinging stubbornly to a five-year low. That matters both for Germany, where the IMF says more capital spending is needed to ensure future growth, and the 19-nation euro area. The strength of the region’s largest economy could be key to whether the currency bloc’s fragile recovery can be sustained.

“Every year since 2013, most pundits including ourselves have been predicting that this is going to be the year that investment really picks up in earnest,” said Timo Klein, an economist at IHS Global Insight in Frankfurt. “But every year something unfolds that clouds the picture, from Ukraine to China, and investment is postponed again. The long-term consequence of this is a reduction in growth potential.” A report on Tuesday will shed more light on the role of investment in Germany’s economic expansion in the fourth quarter. Preliminary data showed gross domestic product rose 0.3%, matching the pace of the previous three months, with government and consumer spending leading the way.

While that’s unspectacular, France and Italy fared worse. The euro zone’s second and third-largest economies cooled, with the latter barely growing, increasing the burden on Germany to be the region’s engine. Yet investment as a share of German GDP fell to less than 20% last year from about 23% at the turn of the century, a Bundesbank study in January showed. Private investment slid to 11.5% from 13.4%, according to Eurostat. In its February bulletin, the Bundesbank said investment should increase because of an “above-average level of capacity utilization.” However, it also said a “key prerequisite” is that external demand picks up.

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One safe bet.

China Yuan Bears Predict More Trouble Ahead (BBG)

Before China’s devaluation in August roiled global markets and spurred some of the hedge fund industry’s biggest names to bet against the yuan, a small cohort of researchers saw the whole thing coming. Now, some of those same forecasters are warning that there’s more turmoil in store – and it’s not just China they’re worried about. Asianomics’s Jim Walker, who predicted the yuan’s four-year advance would end a month before the currency peaked in January 2014, is forecasting a U.S. recession and says 10-year Treasury yields will plunge to all-time lows. Raoul Pal, publisher of the Global Macro Investor report and a yuan bear since 2012, says European bank shares will tumble by half. John Mauldin of Millennium Wave Advisors, who has argued since 2011 that the Chinese currency should weaken, sees the risk of heightened geopolitical instability in the Middle East as lower crude prices strain the budgets of oil-rich countries.

While all three forecasters see scope for further declines in the yuan, they’re also emphasizing risks outside the Chinese economy as the outlook for world growth dims and commodities trade near the lowest levels in more than 15 years. Their bearish stance has gained traction in global markets this year, with share prices from New York to Riyadh and Sydney sliding as investors shifted into gold and sovereign bonds. “There’s a storm of troubles coming,” Pal, a former hedge-fund manager at GLG Partners whose clients now include pension plans and sovereign wealth funds, said in a phone interview from the Cayman Islands. “The risk of a very bad outcome in 2016 and 2017 remains the highest probability.”

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“What we are witnessing is the resetting of the largest macro imbalance the world has ever seen..”

Kyle Bass, A Sharpshooting Short-Seller (FT)

I’ve been to Beijing twice, I don’t care to go back,” Kyle Bass says. “I’m OK with that.” The subprime-shorting, sniper rifle-shooting, spearfishing hedge fund manager from Dallas, Texas, does not fear the ire of the Chinese authorities. He has a decade-long record of putting his mouth where his money is, and if his latest apocalyptic call — that the Communist government does not have the resources to prevent a banking crisis and a vicious currency devaluation — puts him at the centre of the angriest debate in financial markets, well, that is just fine by him. “Anyone who is invested in China, whether you are a pension fund or sovereign wealth fund or a large US or European institution — you better be thinking about this, and not with the reverence that people give to China,” he says.

“Everyone has this embedded belief that China can pull off the ‘triple lindy’ every time they want to do it,” says the former springboard diver, “but our view is they are going to have to have a reset.” Mr Bass is hardly the only hedge fund manager betting on a renminbi devaluation; when Beijing wanted to send a shot across speculators bows last month, it was George Soros who was singled out on the front of the People’s Daily, a government mouthpiece. Yet, thanks to a 12-page dissection of China’s banks, shadow banks and central bank reserves sent to investors in his $1.7bn hedge fund Hayman Capital last week, it is Mr Bass who has given the most strident, forensic and colourful voice to those who suspect China will be forced to revalue the currency sharply lower. “What we are witnessing is the resetting of the largest macro imbalance the world has ever seen,” he wrote.

Banking system losses could be four times as big as those on subprime mortgages in the US during the financial crisis, and the central bank does not have the reserves to plug the hole and defend its currency. “China’s back is completely up against the wall today” and the country is “on the precipice of a large devaluation”. Economists and Beijing have challenged the alarming analysis; Zhou Xiaochuan, the People’s Bank of China governor, gave a rare interview to insist capital outflows were evidence of economic rebalancing rather than capital flight. This is all of a piece with previous declarations by Mr Bass. Since the Great Recession he has predicted sovereign debt crises in Ireland, Greece, Portugal, Spain, the UK, Switzerland and France.

He has compared the Japanese economy to a “Ponzi scheme”. Armageddon does not always come — he admits he was wrong on Switzerland and the UK; and Japan is notably still standing, though a devaluation of the yen meant his bet eventually made money overall there. Hayman’s returns since the financial crisis have been modest by the standards of the greatest hedge fund investors and 2015 was, by his own admission, one of his worst. But enough of Mr Bass’s predictions have come true to justify taking him seriously. One manager of a fund of hedge funds says investing with Mr Bass is like funding a “think-tank” on how to navigate the global economy.

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Creative bankruptcies.

As US Shale Sinks, Pipeline Fight Sends Woes Downstream (Reuters)

Within weeks, two low-profile legal disputes may determine whether an unprecedented wave of bankruptcies expected to hit U.S. oil and gas producers this year will imperil the $500 billion pipeline sector as well. In the two court fights, U.S. energy producers are trying to use Chapter 11 bankruptcy protection to shed long-term contracts with the pipeline operators that gather and process shale gas before it is delivered to consumer markets. The attempts to shed the contracts by Sabine Oil & Gas and Quicksilver Resources are viewed by executives and lawyers as a litmus test for deals worth billions of dollars annually for the so-called midstream sector. Pipeline operators have argued the contracts are secure, but restructuring experts say that if the two producers manage to tear up or renegotiate their deals, others will follow.

That could add a new element of risk for already hard-hit investors in midstream companies, which have plowed up to $30 billion a year into infrastructure to serve the U.S. fracking boom. “It’s a hellacious problem,” said Hugh Ray, a bankruptcy lawyer with McKool Smith in Houston. “It will end with even more bankruptcies.” A judge on New York’s influential bankruptcy court said on Feb. 2 she was inclined to allow Houston-based Sabine to end its pipeline contract, which guaranteed it would ship a minimum volume of gas through a system built by a Cheniere Energy subsidiary until 2024. Sabine’s lawyers argued they could save $35 million by ending the Cheniere contract, and then save millions more by building an entirely new system. Fort Worth, Texas-based Quicksilver’s request to shed a contract with another midstream operator, Crestwood Equity Partners, is set for Feb. 26.

[..] So far, relatively few oil and gas producers have entered bankruptcy, and most were smaller firms. But with oil prices down 70% since mid-2014 and natural gas prices in a prolonged slump, up to a third of them are at risk of bankruptcy this year, consultancy Deloitte said in a Feb. 16 report. Midstream operators have been considered relatively secure as investors and analysts focus on risks to the hundreds of billions of dollars in equity and debt of firms most directly exposed to commodity prices. That’s because firms such as Enterprise Products, Kinder Morgan and Plains All American relied upon multi-year contracts – the kind targeted in the two bankruptcies – that guarantee pipeline operators fixed fees to transport minimum volumes of oil or gas.

Now, with U.S. oil output shrinking and gas production stalling, many of the cash-strapped producers entering bankruptcy will be seeking to rid themselves of pricey agreements, particularly those with so-called minimum volume commitments that require paying for space even if it is not used. “They will be probably among the first things thrown out,” said Michael Grande, director for U.S. midstream energy and infrastructure at Moody’s.

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Volatility writ large.

Chinese Military Ambitions Fuel Asian Arms Race Amid Slowdown (WSJ)

The rapid rise in Chinese military spending and a greater assertiveness in its territorial claims is fueling an arms race in the Asia-Pacific region even though many of the countries involved have been hit by an economic slowdown, new research reports suggest. Of the 10 biggest importers of defense equipment in the past five years, six countries were in the Asia-Pacific region, the Stockholm International Peace Research Institute, or SIPRI, said in an annual report on arms transfers. India was the largest buyer of foreign equipment, with China in third position after Saudi Arabia, the think tank said. Although a country’s spending power is often tied to its economic strength, buyers in the Asia-Pacific region aren’t slashing military budgets even as their economies have come under strain from falling commodity prices and lower growth in China.

“The slight moderation in economic activity had little effect on regional military spending in 2015,” the International Institute for Strategic Studies, or IISS, said in a new report. China, Japan, South Korea, and Indonesia last year were among the countries to announce plans for higher military spending, the IISS said. Lower economic output has driven up Asian military spending as a percentage of GDP to 1.48%, the London-based research organization said, its highest level since at least 2010. China leads the way, accounting for 41% of the region’s military spending, well ahead of No. 2 India at 13.5% and Japan with 11.5%.

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William K. Black: always a pleasure.

Krugman and the Gang of 4 Need to Apologize (Bill Black)

If you depend for your news on the New York Times you have been subjected to a drumbeat of article attacking Bernie Sanders – and the conclusion of everyone “serious” that his economics are daft. In particular, you would “know” that four prior Chairs of the President’s Council of Economic Advisers (CEA) (the Gang of 4) have signed an open letter to Bernie that delivered a death blow to his proposals. Further, you would know that anyone who dared to disagree with these four illustrious economists was so deranged that he or she was acting like a Republican in denial of global climate change. The open letter set its sights on a far less famous economist, Gerald Friedman, of U. Mass at Amherst. It unleashed a personalized dismissal of his competence and integrity.

Four of the Nation’s top economists against one non-famous economists – at a school that studies heterodox economics. That sounds like a fight that the referee should stop in the first round before Friedman is pummeled to death. But why did Paul Krugman need to “tag in” to try to save the Gang of 4 from being routed? Krugman proclaimed that the Gang of 4 had crushed Friedman in a TKO. Tellingly, Krugman claimed that anyone who disagreed with the Gang of 4 must be beyond the pale (like Friedman and Bernie). Indeed, Krugman was so eager to fend off any analysis of the Group of 4’s attacks that he competed with himself rhetorically as to what inner circle of Hell any supporter of Friedman should be consigned. In the 10:44 a.m. variant, Krugman dismissed Bernie as “not ready for prime time” and decreed that it was illegitimate to critique the Gang of 4’s critique.

In Sanders’s case, I don’t think it’s ideology as much as being not ready for prime time — and also of not being willing to face up to the reality that the kind of drastic changes he’s proposing, no matter how desirable, would produce a lot of losers as well as winners. And if your response to these concerns is that they’re all corrupt, all looking for jobs with Hillary, you are very much part of the problem.

The implicit message is that four famous economists had to be correct, therefore anyone who disagreed with them must be a conspiracy theorist who is “very much part of the problem.” Paul doesn’t explain what “the problem” is, but he sure makes it sound awful. Logically, “the problem” has to be progressives supporting Bernie. Two hours later, Paul decided that his poisoned pen had not been toxic enough, he now denounced Sanders as a traitor to the progressives who was on his way “to making Donald Trump president.” To point out the problems in the Gang of 4’s attack on Friedman was to treat them “as right-wing enemies.”

Why was Krugman so fervid in its efforts to smear Friedman and prevent any critique of the Gang of 4’s smear that he revised his article within two hours and amped up his rhetoric to a shrill cry of pain? Well, the second piece admits that Gang of 4’s smear of Friedman “didn’t get into specifics” and that progressives were already rising in disgust at Paul’s arrogance and eagerness to sign onto a smear that claimed “rigor” but actually “didn’t get into specifics” while denouncing a scholar. Paul, falsely, portrayed Friedman as a Bernie supporter. Like Krugman, Friedman is actually a Hillary supporter.

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Greece is a cash country. For one thing, there are still capital controls. People cannot get more than $420 a week or so out of their ATM. That is very limiting in many ways.

Greek Attempt To Force Use Of Electronic Money Instead Of Cash Fails (ZH)

While the “developed world” is only now starting its aggressive push to slowly at first, then very fast ban the use of physical cash as the key gating factor to the global adoption of NIRP (by first eliminating high-denomination bills because they “aid terrorism and spread criminality”) one country has long been doing everything in its power to ween its population away from tax-evasive cash as a medium of payment, and into digital transactions: Greece. The problem, however, is that it has failed. According to Kathimerini, “Greek businesses are not ready for the expansion of plastic money through the compulsory use of credit and debit cards for everyday transactions.” Unlike in the rest of the world where “the stick” approach will likely to be used, in Greece the government has been more gentle by adopting a “carrot” strategy (for now) when it comes to migrating from cash to digital.

The government has told taxpayers that they will have to spend up to a certain amount of their incomes via bank and card transactions in order to qualify for an annual tax-free exemption. This appears to not be a sufficient incentive however, as a large proportion of stores still don’t have the card terminals, or PoS (Points of Sale), required for card payments, while plastic is accepted by very few doctors, plumbers, electricians, lawyers and others who tend to account for the lion’s share of tax evasion recorded in the country. Almost as if the local population realizes that what the government is trying to do is to limit at first, then ultimately ban all cash transactions in the twice recently defaulted nation as well. It also realizes that an annual tax-free exemption means still paying taxes; taxes which could be avoided if one only transacted with cash.

For the government this is bad news, as the lack of tracking of every transaction means that the local population will pay far less taxes: a recent study by the Foundation for Economic and Industrial Research (IOBE) showed that increasing the use of cards for everyday transactions could increase state revenues by anything between 700 million and 1.6 billion euros per year, and that the market’s poor preparation means that the tax burden has been passed on to lawful taxpayers. As a reminder, in Greece, the term “lawful taxpayers” is not quite the same as in most other countries. What is more surprising is that according to data seen by Kathimerini, PoS terminals in Greece amount to just 220,000, and that despite the fact these were effectively forced on enterprises with the imposition of the capital controls, an estimated half of all businesses do not have card terminals. Almost as if the Greeks would rather maintain capital controls than be forced into a digital currency by their Brussels overlords.

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Some things are just plain weird. They invest $150 million in Espirito Santo in July -when everyone already knew something was fishy, but that’s not even the gist-, and then lose it all one month later?! That’s not fish I’m smelling, it’s a rat.

New Zealand Super Fund’s $200 Million Loss (NZ Herald)

Almost $200 million of taxpayer money invested through the Kiwi Superannuation Fund has been lost after a Portuguese bank where the money was invested, supposedly as a “risk free” loan, collapsed. The Super Fund, set up with public money to cover partly the retirement costs of baby boomers, has revealed it had been caught up in last year’s collapse of Banco Espirito Santo (BES) and a US$150m (NZ$198m) investment made in July had been completely wiped out. The investment was a contribution to a Goldman Sachs-organised loan to the Portuguese bank, but only weeks after the money was injected it imploded, with president and founder Ricardo Salgado arrested as part of a criminal investigation into tax evasion.

After disclosing billions of Euros in losses, and facing a run on funds by depositors, the bank collapsed in a heap and was broken up in August. Goldman Sachs, described by Rolling Stone as “the great vampire squid” for their sharp business practices in the run-up to the global financial crisis, today said it would “pursue all appropriate legal remedies without delay” in an attempt to recover the loans to BES. The company also announced that, alongside the Super Fund, they were suing the Central Bank of Portugal over their loans being excluded from the bailout of BES. Despite this legal action, Super Fund chief executive Adrian Orr conceded today the entire investment had been written off as a “conservative” precaution. Finance Minister Bill English, the minister responsible for the Super Fund declined to comment on the spectacular loss, but Green Party MP Russel Norman said Mr English should be demanding answers.

“They have to give some sort of explanation as to why they gambled US$150m in this case, and why it’s come unstuck,” he said. The episode also illustrated what the NZSF should try to avoid, Mr Norman said. “For a fund operating on behalf of the NZ taxpayer, taking these high-risk investments is probably not appropriate,” he said. Mr Orr denied the investment was high-risk and said the NZSF had been covered in the event of BES defaulting. “It was risk-free with insurance,” he said. However, an unusual retrospective rule change in Portugal had resulted in the insurance being voided. Orr added the Super Fund had withdrawn lending to banks in Portugal until the result was overturned. The Fund said the loss amounted to only 0.7% of the firm’s total pool of $27b in assets.

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“Christchurch, home to 366,000 people, who are still shaken daily by thousands of aftershocks..” (Nicole and I were there at the first anniversary)

Long Way To Go: 5th Anniversary of the Christchurch Earthquake (G.)

It was as the clock struck 12.51pm that the last of the 185 names were read out. Then, the 1,000 people who had gathered in the city’s botanic gardens to mark the anniversary of the 2011 Christchurch earthquake fell silent for a minute to remember the moment, five years ago, that the 6.3-magnitude quake struck. Earlier, posies of flowers had been laid in road cones and taped to the safety fences that still litter the city centre half a decade after the disaster turned it largely to rubble.Once the memorial ceremony had finished, talk turned – as it usually does – to the rebuilding of this once-rich, agricultural hub – and what the new Christchurch will look like when it finally rises from the ashes. “There is still some way to go until Christchurch is truly reborn,” said the governor-general, Jerry Mateparae.

His is a sentiment widely shared in Christchurch, home to 366,000 people, who are still shaken daily by thousands of aftershocks – including a significant 5.9 rumble on Valentines day this year and a 5.0-magnitude quake that hit in nearby Blenheim on the anniversary itself. Despite years of clean-up and a recent boom in construction, Christchurch is still in a state of flux, with hundreds of people waiting for insurance payouts and widespread concern about the pace of the rebuild, especially in the heart of the city. The health of Christchurch residents has also fared poorly since the quake. Suicide and domestic violent rates have risen sharply – as has illegal drug use and the spread of sexually transmitted diseases.

Mental health problems are a persistent concern – particularly widespread are incidences of depression, anxiety and post traumatic stress disorder. Waiting lists for state-funded counselling in Christchurch are long, and last week it was reported the government would significantly cut funding to community mental health providers – from $1.6m in 2015 to $200,000 this year. Yet in tandem with the trauma of the quake’s aftermath has come a remarkable flourishing of the creative arts in the garden city. Rachael Welfare, operations director for Gap Filler, a charitable organisation filling the “gaps” of Christchurch with pop-up creative projects, said: “Before the quake, people thought of Christchurch as quite conservative, but now the opportunities have given people a blank canvas, if nothing else, and people are very open-minded about what the spaces could be.”

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Who told them to do this and say damn the Geneva conventions?

Macedonia, Serbia Close Borders To Afghan Refugees (AP)

Former Yugoslav Republic of Macedonia (FYROM) closed its border to Afghan migrants early Sunday, Greek police said, slowing the admission of refugees to a trickle and leaving a growing bottleneck of people stuck at their shared border. A FYROM police spokeswoman denied there was any new prohibition regarding Afghans, blaming the problem on Serbia, the next nation along the Balkans migration route into Western Europe. By early afternoon, about 1,000 migrants were waiting at the Greek border camp in Idomeni – and at a gas station only 17 kilometers (11 miles) away, 80 buses with 4,000 more migrants were waiting to take them to the border. Greek police said FYROM refused to let Afghans through because Serbia made the same decision and officials feared the migrants would get stuck in FYROM.

“The authorities of the Former Yugoslav Republic of Macedonia informed us that, beginning at dawn Sunday, they no longer accept Afghan refugees because the same problem exists at their border with Serbia,” Petros Tanos, spokesman for Greek police’s Central Macedonia division, told The Associated Press. Despite the reports, about 500 migrants of all nationalities made the trek on foot from the gas station to the border Sunday. “I can no longer wait,” said 17-year-old Ali Nowroz, one of the trekkers from the Afghan city of Jaghori Zeba. “We have spent three nights in the cold, we are hungry. They told me that the borders have been closed to us. However, when I started from Afghanistan I knew borders were open for us. I am going to the Idomeni border crossing to find out and ask why they have closed it.”

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Every single day. Numbers are rising as borders are closing. Greece can’t be far away from becoming a failed state

Shadowing The Hellenic Coast Guard’s Refugee Rescues (CCTV)

As Europe tries to deal with the biggest refugee crisis since World War II, improving weather means the pace of migrants and refugees reaching Greece from Turkey will pick up again. On Feb 15., over 4,500 people were rescued across the Aegean Sea in Greece. Since last year, the Hellenic Coast Guard has rescued almost 150,000. CCTV’s Filio Kontrafouri went on patrol with the Hellenic Coast Guard off the Greek island of Lesvos and witnessed what happens after those dinghies, usually loaded with women and children, enter the Greek waters. “For us, all these people are like they are condemned to death,” said Sub-lieutenant Kyriakos Papadopoulos of the Hellenic Coast Guard. “You’ll see when we get to that boat, about which some other colleagues in the area have informed us, even with everyone on board, there is panic. People could move from one side to the other, these boats are not suitable for travel at sea, their life jackets are not suitable and at any moment their life is in danger.”

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Feb 012016
 
 February 1, 2016  Posted by at 9:50 am Finance Tagged with: , , , , , , , , ,  


Matson Aircraft refueling at Semakh, British Mandate Palestine 1931

China Manufacturing Shrinks At Fastest Rate For Over 3 Years (Reuters)
Mid-Tier Chinese Banks Piling Up Trillions Of Dollars In Shadow Loans (Reuters)
US Hedge Funds Mount New Attacks on China’s Yuan (WSJ)
China’s Steel Sector Hit By Growing Losses (FT)
Athens And Rome Expose Europe’s Greatest Faultlines (Münchau)
Euro-Area Factories Cut Prices as Deflation Risks Loom Large (BBG)
Nigeria Asks For $3.5 Billion In Global Emergency Loans (FT)
Why Miners Have it Worse Than Oil Producers (BBG)
Saudis Told To Embrace Austerity As Debt Defaults Loom (Tel.)
1 Million Investors Lose $7.6 Billion In China Online Ponzi Scheme (Reuters)
The West Is Reduced To Looting Itself (Paul Craig Roberts)
US, UK-Backed Saudi War & Blockade Cause Mass Starvation In Yemen (Salon)
Europe Chokes Flow of Refugees to Buy Time for a Solution (WSJ)
German Police ‘Should Shoot At Migrants’, Populist Politician Says (BBC)
UK Labour MP Compares Cologne Attacks To Birmingham Night Out (Tel.)
The EU Must Reassert Humane Control Over Chaos Around The Mediterranean (UN)

No kidding: “It is quite concerning that the significant monetary and fiscal stimulus in 2015 has only managed to slow the rate of decline in China’s industrial activity..”

China Manufacturing Shrinks At Fastest Rate For Over 3 Years (Reuters)

Activity in China’s manufacturing sector contracted at its fastest pace in almost three-and-a-half years in January, missing market expectations, an official survey showed on Monday. The official purchasing managers’ index (PMI) stood at 49.4 in January, compared with the previous month’s reading of 49.7 and below the 50-point mark that separates growth from contraction on a monthly basis. It is the weakest index reading since August 2012. Analysts polled by Reuters predicted a reading of 49.6. The PMI marks the sixth consecutive month of factory activity contraction, underlining a weak start for the year for a manufacturing complex under severe pressure from falling prices and overcapacity in key sectors including steel and energy.

The price of oil fell on the disappointing data, which was compounded by weak export figures from South Korea. Brent crude was trading at $35.54 per barrel at 02.00 GMT, down 45 cents, or 1.25%, from the last close. China’s stock markets also fell in morning trading, although the Nikkei in Japan and the ASX/S&P 200 in Australia both swatted away the gloom to remain in positive territory. Zhou Hao, an economist at Commerzbank, said: “The electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors.” “In the meantime, China has started an aggressive capacity reduction in many sectors, which could add downward pressure on the bulk commodity prices over time.”

Meanwhile, the official non-manufacturing PMI fell to 53.5 from December’s 54.4, according to the National Bureau of Statistics (NBS). The services index remained in expansionary territory highlighting continuing strength that has helped China weather the sharp slowdown in manufacturing. With manufacturing decelerating quickly, services have been a crucial source of growth and jobs for China over the past year, and analysts have been watching closely to see if the sector can maintain momentum in 2016. Angus Nicholson of IG in Melbourne said: “It is quite concerning that the significant monetary and fiscal stimulus in 2015 has only managed to slow the rate of decline in China’s industrial activity. “The first quarter of activity is always the weakest in China due to the seasonal disruption of Chinese new year, and there is the possibility of global markets reacting very negatively when the quarterly data starts filtering out in March and April.”

The China slowdown was underlined on Monday by figures showing that South Korea’s exports suffered their worst downturn in January since the depths of the global financial crisis in 2009. The trade ministry in Seoul said sluggish demand from China helped exports to fall to a worse-than-expected 18.5% from a year earlier, extending December’s slump of 14.1% and marking the 13th straight month of declines. Shipments to China, South Korea’s largest market, tumbled 21.5% on-year in January in their biggest drop since May 2009, and the trade ministry said export conditions were worsening.

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There’s still not nearly enough scrutiny of the shadow banks. But that is where the real problems will be.

Mid-Tier Chinese Banks Piling Up Trillions Of Dollars In Shadow Loans (Reuters)

Mid-tier Chinese banks are increasingly using complex instruments to make new loans and restructure existing loans that are then shown as low-risk investments on their balance sheets, masking the scale and risks of their lending to China’s slowing economy. The size of this ‘shadow loan’ book rose by a third in the first half of 2015 to an estimated $1.8 trillion, equivalent to 16.5% of all commercial loans in China, a UBS analysis shows. For smaller banks, the rate is much faster. This growing practice, which involves financial structures known as Directional Asset Management Plans (DAMPs) or Trust Beneficiary Rights (TBRs), comes at a time when some mid-tier lenders, under pressure from China’s slowest economic growth in 25 years, are already delaying the recognition of bad loans.

“These are now the fastest growing assets on the balance sheets of most listed banks, excluding the Big Five, not just in percentage terms but absolute terms,” said UBS financial institutions analyst Jason Bedford, a former bank auditor in China who focuses on the issue. “The concern is that the lack of transparency and mis-categorization of credit assets potentially hide considerable non-performing loans.” To provide a buffer against tough times, banks are required to set aside capital against their credit assets – the riskier the asset, the more capital must be set aside, earning them nothing. Loans typically carry a 100% risk weighting, but these investment products often carry a quarter of that, so banks can keep less money in reserve and lend more.

Banks must also make provision of at least 2.5% for their loan books as a prudent estimate of potential defaults, while provisions for these products ranged between just 0.02 and 0.35% of the capital value at the main Chinese banks at the end of June, Moody’s Investors Service said in a note last month. At China’s mid-tier lender Industrial Bank Co, for example, the volume of investment receivables doubled over the first nine months of 2015 to 1.76 trillion yuan ($267 billion). This is equivalent to its entire loan book – and to the total assets in the Philippine banking system, filings showed. Investment receivables may include such benign assets as government bonds, but increasingly they include TBRs and DAMPs at mid-tier lenders.

At Evergrowing Bank, investment receivables reached 397 billion yuan in September, surpassing its loan book of 290 billion yuan. The bank said last year practically all of its investment receivables were DAMPs and TBRs. China Zheshang Bank, another smaller lender, also saw its investment receivables double over the same period, the bank’s prospectus to sell shares in Hong Kong shows. Zhang Changgong, the bank’s deputy governor, said banks were increasingly becoming return-seeking asset managers, not mere lenders. “In the past banks (made loans and) held assets. Now banks manage assets,” he said.

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It’s game on. “When you talk about orders of magnitude, this is much larger than the subprime crisis..”

US Hedge Funds Mount New Attacks on China’s Yuan (WSJ)

Some of the biggest names in the hedge-fund industry are piling up bets against China’s currency, setting up a showdown between Wall Street and the leaders of the world’s second-largest economy. Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar. It is the biggest concentrated wager that the Dallas-based firm has made since its profitable bet years ago against the U.S. housing market. About 85% of Hayman Capital’s portfolio is now invested in trades that are expected to pay off if the yuan and Hong Kong dollar depreciate over the next three years—a bet with billions of dollars on the line, including borrowed money.

“When you talk about orders of magnitude, this is much larger than the subprime crisis,” said Mr. Bass, who believes the yuan could fall as much as 40% in that period. Billionaire trader Stanley Druckenmiller and hedge-fund manager David Tepper have staked out positions of their own against the currency, also known as the renminbi, according to people familiar with the matter. David Einhorn’s Greenlight Capital Inc. holds options on the yuan depreciating. The funds’ bets come at a time of enormous sensitivity for China’s leaders. The government is struggling on multiple fronts to manage a soft landing for the economy, deal with a heavily indebted banking system and navigate the transition to consumer-led growth.

Expectations for a weaker yuan have led to an exodus of capital by Chinese residents and foreign investors. Though it still boasts the largest holding of foreign reserves at $3.3 trillion, China has experienced huge outflows in recent months. Hedge funds are gambling that China will let its currency weaken further in a bid to halt a flood of money leaving the country and jump-start economic growth. The effort is a lot riskier, though, than taking on a currency whose value is set by the market. China’s state-run economy gives the government a number of levers to pull and tremendous resources at its disposal. Earlier this year, state institutions bought up so much yuan in the Hong Kong market where foreigners place most of their bets that overnight borrowing costs shot up to 66%, making it difficult to finance short positions and sending the yuan up sharply.

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Just the beginning. They don’t dare close too many mills and make large numbers of people unemployed. But they have, in my guess, at least 50% overcapacity.

China’s Steel Sector Hit By Growing Losses (FT)

A sharp reversal in China’s steel industry has led to more than half of major producers reporting losses last year. Member companies of the China Iron and Steel Association suffered a combined loss of Rmb64.5bn ($9.8bn), compared with profits of Rmb22.6bn in 2014. The country’s steel industry, which accounts for more than half of global production, contracted for the first time last year, with raw steel production dropping 2.3% — the first fall since 1981. Steel demand is wilting as construction and heavy industry stutter, a slowdown highlighted on Monday when China’s official manufacturing purchasing managers’ index for January fell to 49.4, from 49.7 in December. PMI readings below 50 indicate a fall-off in activity.

Li-Gang Liu, China chief economist at ANZ, said the reading suggested “the contraction in the manufacturing sector became more entrenched”. Mr Liu noted that year-on-year steel output fell 12% in both December and early January. The National Bureau of Statistics attributed the steeper than expected fall on the government’s campaign to reduce industrial overcapacity, especially in the steel and coal sectors, as well as a spillover effect from the lunar new year holiday. The holiday begins on February 7 and firms often suspend activity weeks in advance. China’s economic slowdown hit domestic steel demand hard in 2015, with steel-intensive industries, including the once-resilient property sector, unwilling to launch new projects in the face of overhanging inventories.

CISA, blaming industry losses on plummeting domestic prices, said its price index fell more than 30% over the course of 2015. Mill closures remain unlikely despite the losses, however, in part due to fears that the subsequent mass job losses could lead to social instability. The closure of so-called zombie companies alone could mean 400,000 lay-offs, according to a recent speech by Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute. Faced with these issues, ramping up export volume remains the industry’s chosen palliative for overcapacity. China’s steel exports grew more than 20 per cent in 2015 to 112m tonnes. The flood of Chinese steel is stoking trade protectionism as companies in other parts of the world struggle to compete with Chinese prices. In 2015, 37 cases were filed against Chinese steel producers, most on anti-dumping grounds.

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Sure it’s not really Brussels where the deepest faultlines are?

Athens And Rome Expose Europe’s Greatest Faultlines (Münchau)

How should we think about systemic risk in Europe today? The EU has been moderately successful at crisis management. But the ability to muddle through is reaching its limits when, as now, several crises intersect at once. You can see the problem most clearly in Greece — a country battling both an economic meltdown and a refugee crisis — with not much help from the rest of the EU. Last week when the European Commission issued a report criticising Athens over its failure to control its borders, Macedonia took the unilateral decision to close its southern crossing with Greece — leaving thousands of refugees in transit on the Greek side of the border. In Athens, meanwhile, parliament discussed pension reform, forced upon the country by their creditors as a quid pro quo for continued financial life support.

Greece may be the starkest example, but it is not the only country facing overlapping crises. It is not even the most important one facing this dilemma. That would be Italy. While Rome’s problems are different from those of Greece, the country’s long-term sustainability in the eurozone is just as uncertain, unless you believe that its economic performance will miraculously improve when there is no reason why it should. Italy was overwhelmed by the increase of refugees from north Africa last year. On top of that it faces unresolved economic problems — no productivity growth for 15 years; a large stock of public sector debt that leaves the government with virtually no fiscal room for manoeuvre; and a banking system with €200bn in non-performing loans, plus another €150bn of debt classified as troubled.

Then consider that its three main opposition parties have, at one time or another, all questioned the country’s membership of the eurozone. Even if none of them look like coming to power in the near future, it is clear that Italy only has a limited amount of time to fix its multiple problems. The struggle to repair the banking system is a good example of just how big the task is. Last week, the Italian government and the European Commission agreed a convoluted scheme to relieve the Italian banking system of some of these toxic assets. It uses all the dirty tricks of modern finance, including the infamous credit default swap, a financial product that mimics insurance against default on a bond, which was particularly popular during the pre-2007 credit bubble. These instruments allow investors to hedge against default risk. But more often than not, their true purpose is to conceal information, to fool investors, or to circumvent regulatory restrictions.

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Which of course deepens the deflation. Ergo: more price cuts on the way. Rock and an impossible place.

Euro-Area Factories Cut Prices as Deflation Risks Loom Large (BBG)

Factories in the euro area slashed prices of goods by the most in a year in January, highlighting the deflationary risks that’s keeping alarm bells ringing at the ECB. In its monthly manufacturing report, Markit Economics said price pressures “remained on the downside” and output charges fell for a fifth month. In addition, all countries in its survey reported declines, the first time that’s happened in 11 months. President Mario Draghi said the ECB’s stimulus policies will be reviewed in March as the region’s inflation rate may drop below zero again because of oil’s slump. Price growth has been slower than the central bank’s goal of just under 2% for almost three years. “The euro zone’s manufacturing economy missed a beat at the start of the year,” said Chris Williamson at Markit.

“If the slowdown in business activity wasn’t enough to worry policy makers, prices charged by producers fell at the fastest rate for a year to spur further concern about deflation becoming ingrained.” Inflation in the 19-country region accelerated to 0.4% in January, according to data last week, with the core rate rising to 1%. Still, that may only be a temporary reprieve. Markit’s headline Purchasing Managers’ Index fell to 52.3 from 53.2, matching an initial estimate published last month. Among the region’s largest countries, growth slowed in Germany and Italy, stagnated in France and accelerated in Spain. Markit said its survey signals annual manufacturing output growth of just 1.5% at the start of the year. “The data are likely to add to pressure on the ECB to expand the central bank’s stimulus programme as soon as March,” Williamson said.

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Watch the dominoes go.

Nigeria Asks For $3.5 Billion In Global Emergency Loans (FT)

Nigeria has asked the World Bank and African Development Bank for $3.5 billion in emergency loans to fill a growing gap in its budget in the latest sign of the economic damage being wrought on oil-rich nations by tumbling crude prices. The request from the eight-month-old government of President Muhammadu Buhari is intended to help fund a $15 billion deficit in a budget heavy on public spending as the west African country attempts to stimulate a slowing economy and offset the impact of slumping oil revenues. It comes as concerns grow over the impact of low oil prices on petroleum exporting economies in the developing world. Azerbaijan, which last month imposed capital controls to try and halt a slide in its currency, is in discussions with the World Bank and the IMF about emergency assistance.

Nigeria’s economy is Africa’s largest and has been hit hard by the fall in crude prices — oil revenues are expected to fall from 70% of income to just a third this year. Finance minister Kemi Adeosun told the Financial Times recently that she was planning Nigeria’s first return to bond markets since 2013. But Nigeria’s likely borrowing costs have been rising alongside its budget deficit. A projected deficit of $11bn, or 2.2% of gross domestic product, had already risen to $15bn, or 3%, as a result of the recent turmoil in oil markets. The $2.5bn loan from the World Bank and a parallel $1bn loan from the ADB, which would enjoy below-market rates, must still be approved by both banks’ boards.

Under World Bank rules its loan would be subject to an IMF endorsement of the government’s economic policies and bank officials say they would have to be confident the Nigerian government was undertaking significant structural reforms. But both loans would carry far fewer conditions than one from the IMF, which does not believe Nigeria needs a fully fledged international bailout at this point.

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Can we call it a draw for now? Bit early to call, we’re just getting off the starting line.

Why Miners Have it Worse Than Oil Producers (BBG)

“Things’ll go your way, if you hold on for one more day,” vocal group Wilson Phillips once crooned. Mining companies seem to have taken those lyrics to heart, opting to maintain production as long as their cash reserves allow and in effect delay a long-awaited resolution in the supply and demand balance of dry commodities, according to a new note from Goldman Sachs. The nature of the metals and mining business—legal considerations combined with an ability to store excess supply for the long-haul—means the industry faces a longer shakeout than in the energy sector. “Many of the [mining] structures are no longer assets but rather liabilities due to environmental regulations,” write Goldman analysts led by Head of Commodities Research Jeffrey Currie.

“This suggests that, in order to delay the environmental costs of mine rehabilitation, the penalties associated with employee layoff and non-performance of commercial obligations, owners will operate the facilities until they run out of cash and are obliged to suspend operations.” The trend is particularly true of U.S. coal miners, according to the analysts, and underscored by recent failed auctions of mining assets. “[Last] week we saw Alpha Natural Resources cancel an auction of 35 coal mines at the last minute due to a lack of interest, illustrating the fact that some mining assets burdened with outstanding liabilities and negative margins are left without any residual value,” Goldman notes.

Fundamental differences between metals and energy businesses have resulted in lower volatility for prices of gold, aluminium and similar dry commodities compared to energy-related products such as natural gas, electricity, and crude, the Goldman analysts say. “Theoretically, once an energy market breaches storage capacity, prices need to collapse below cash costs to immediately re-balance supply with demand. In practice, however, operational stress in energy is a local, not global concept as breaching storage capacity happens most likely in landlocked locations, but it does whittle away at the global supply overhang,” the analysts write. “In contrast, metals can be ‘piled high’ in low-cost locations almost anywhere in the world with far greater density, i.e. dollar per square foot, than energy.”

To illustrate the point, Goldman calculates that $1 billion worth of gold would, at current spot prices, fit into a generously-sized bedroom closet, while $1 billion worth of oil would take up 17 very large crude carriers, each with a capacity of more than a quarter of a million deadweight metric tons. With an estimated 12 months of cash reserves left for some U.S. coal miners, financial stress needs to deepen before the supply-demand balance even begins to resolve itself.

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Saudi leaders have the same problem as the Chinese: they’re afraid of their people.

Saudis Told To Embrace Austerity As Debt Defaults Loom (Tel.)

Saudi Arabia faces years of tough austerity as the worst oil price crash in the modern history forces the kingdom to make radical cuts to government largesse, the IMF has warned. The world’s largest producer of crude oil will need to “transform” its economy away from oil revenues, which make up more than 80pc of the government’s wealth, according to Masood Ahmed, head of the Middle East department at the IMF. The Saudi monarchy has already been forced to unveil the largest programme of government austerity in decades as oil prices have collapsed by more than 70pc in 18 months. “This will have to be part of a multi-year adjustment process,” Mr Ahmed told The Telegraph. He urged the kingdom to reform its generous system of oil subsidies and introduce a host of new taxes, including consumption levies such as VAT.

“There will have to be a major transformation of the Saudi economy. It is necessary and it is going to be difficult, but it is a challenge which I think the authorities have clearly laid out”, said Mr Ahmed. The warning comes as the world’s weakest oil producing nations could buckle under the pressure of the price rout. IMF officials have been in Azerbaijan this week amid fears Baku will need a $4bn international rescue package to stave off a debt default. During the world’s last major oil price crash in 1986, 17 out of 25 of the developing world’s major oil producers defaulted on their debts, according to research from Oxford Economics. Debt mountains in producer nations ballooned by 40pc of GDP on average.

“The 1980s precedents are alarming; producers that avoided sovereign defaults were the exception rather than the rule”, said Gabriel Sterne at Oxford Economics. Azerbaijan was forced to abandon its foreign exchange peg with the dollar in December, after speculators caused the currency to crash. The Saudis have been burning through their reserves at a record pace to protect the riyal’s fixed value against a soaring dollar, and should continue to preserve the peg at all costs, said the IMF. Mr Ahmed said it was “neither necessary nor appropriate” for Riyadh to move to a floating exchange rate, forcing it to undertake record levels of expenditure cuts instead.

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$7.6 billion in a year and a half. Eat your heart out, Bernie.

1 Million Investors Lose $7.6 Billion In China Online Ponzi Scheme (Reuters)

Chinese police have arrested 21 people involved in the operation of peer-to-peer lender Ezubao, the official Xinhua news agency said on Monday, over an online scam it said took in some 50 billion yuan ($7.6 bn) from about 900,000 investors. Ezubao was a Ponzi scheme, the Xinhua report said, and more than 95% of the projects on the online financing platform were fake. Among those arrested were Ding Ning, the chairman of Yucheng Group, which launched Ezubao in July 2014. It was not possible to reach Ezubao officials for comment and it was not clear if Ding had legal representation.

Ezubao’s website has been shut down and it appeared Yucheng Group’s Beijing office had been closed when Reuters reporters visited before Monday’s Xinhua report. Chinese police said they had sealed, frozen and seized the assets of Ezubao and its linked companies as part of investigations into China’s largest P2P online platform by lending figures. The Ezubao case has underscored the risks created by China’s fast-growing $2.6 trillion wealth management product industry. Many products are sold through loosely regulated channels, including online financial investment platforms and privately run exchanges.

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“The combination of propaganda, financial power, stupidity and bribes means that there is no hope for European peoples.”

The West Is Reduced To Looting Itself (Paul Craig Roberts)

I, Michael Hudson, John Perkins, and a few others have reported the multi-pronged looting of peoples by Western economic institutions, principally the big New York Banks with the aid of the International Monetary Fund (IMF). Third World countries were and are looted by being inticed into development plans for electrification or some such purpose. The gullible and trusting governments are told that they can make their countries rich by taking out foreign loans to implement a Western-presented development plan, with the result being sufficient tax revenues from economic development to service the foreign loan. Seldom, if ever, does this happen. What happens is that the plan results in the country becoming indebted to the limit and beyond of its foreign currency earnings.

When the country is unable to service the development loan, the creditors send the IMF to tell the indebted government that the IMF will protect the government’s credit rating by lending it the money to pay its bank creditors. However, the conditions are that the government take necessary austerity measures so that the government can repay the IMF. These measures are to curtail public services and the government sector, reduce public pensions, and sell national resources to foreigners. The money saved by reduced social benefits and raised by selling off the country’s assets to foreigners serves to repay the IMF. This is the way the West has historically looted Third World countries. If a country’s president is reluctant to enter into such a deal, he is simply paid bribes, as the Greek governments were, to go along with the looting of the country the president pretends to represent.

When this method of looting became exhausted, the West bought up agricultural lands and pushed a policy on Third World countries of abandoning food self-sufficiency and producing one or two crops for export earnings. This policy makes Third World populations dependent on food imports from the West. Typically the export earnings are drained off by corrupt governments or by foreign purchasers who pay little while the foreigners selling food charge much. Thus, self-sufficiency is transformed into indebtedness. With the entire Third World now exploited to the limits possible, the West has turned to looting its own. Ireland has been looted, and the looting of Greece and Portugal is so severe that it has forced large numbers of young women into prostitution. But this doesn’t bother the Western conscience.

Previously, when a sovereign country found itself with more debt than could be serviced, creditors had to write down the debt to an amount that the country could service. In the 21st century, as I relate in my book, The Failure of Laissez Faire Capitalism, this traditional rule was abandoned. The new rule is that the people of a country, even a country whose top offiials accepted bribes in order to indebt the country to foreigners, must have their pensions, employment, and social services slashed and valuable national resources such as municipal water systems, ports, the national lottery, and protected national lands, such as the protected Greek islands, sold to foreigners, who have the freedom to raise water prices, deny the Greek government the revenues from the national lottery, and sell the protected national heritage of Greece to real estate developers.

What has happened to Greece and Portugal is underway in Spain and Italy. The peoples are powerless because their governments do not represent them. Not only are their governments receiving bribes, the members of the governments are brainwashed that their countries must be in the European Union. Otherwise, they are bypassed by history. The oppressed and suffering peoples themselves are brainwashed in the same way. For example, in Greece the government elected to prevent the looting of Greece was powerless, because the Greek people are brainwashed that no matter the cost to them, they must be in the EU. The combination of propaganda, financial power, stupidity and bribes means that there is no hope for European peoples.

Read more …

Humanity? Morals? Not us.

US, UK-Backed Saudi War & Blockade Cause Mass Starvation In Yemen (Salon)

Mass starvation is ongoing in Yemen, the United Nations warns, calling it a “forgotten crisis.” The poorest country in the Middle East may be on the brink of famine, while it faces bombing and a blockade from a Saudi-led coalition, backed by the U.S. and the U.K. Approximately 14.4 million Yemenis — more than half of the population of the country — are food insecure, according to a new report by the Food and Agriculture Organization of the United Nations, also known as the FAO. The U.N. estimates there are 25 million people in Yemen. This means at least 58% of the population is food insecure. Hunger is growing. In the seven months since June 2015, the number of food insecure Yemenis has grown by 12%. Since late 2014, the number has grown by 36%. “The numbers are staggering,” remarked Etienne Peterschmitt, FAO deputy representative and emergency response team leader in Yemen.

Peterschmitt called the mass starvation “a forgotten crisis, with millions of people in urgent need across the country.” The FAO says “ongoing conflict and import restrictions have reduced the availability of essential foods and sent prices soaring.” What the FAO does not mention in its report, however, is that these import restrictions are a result of the Saudi blockade on Yemen. Since the war broke out in March, with the backing of the U.S. and U.K., Saudi Arabia has imposed a naval, land and air blockade on Yemen — which imports more than 90% of its staple foods. Because of the Saudi-led blockade and war, for more than six months, humanitarian organizations have warned that 80% of the Yemeni population, 21 million people, desperately need food, water, medical supplies and fuel.

The U.N. has insisted for over half a year that Yemenis are enduring a “humanitarian catastrophe.” Salon sent the FAO multiple requests for comment, inquiring as to why the agency did not directly acknowledge the Saudi blockade, yet did not receive a response. The U.S. media and government have devoted very little attention to the Saudi blockade, and the U.N. has not mentioned it much in its reports on Yemen. Journalist Sharif Abdel Kouddous has warned that “Yemen is now the world’s worst humanitarian crisis.” [..] The Obama administration has sold more than $100 billion in weapons to the Saudi absolute monarchy in the past five years. The Saudi military has dropped U.S.-made cluster munitions, which are banned in 118 countries, on civilian neighborhoods in Yemen, in what Human Rights Watch called “outrageous” and a “war crime.”

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The unholy union on its last legs.

Europe Chokes Flow of Refugees to Buy Time for a Solution (WSJ)

Europe is bottling up migrants at the foot of the Balkans as its other plans for stemming the migration crisis flounder. EU member states have sent border guards, police vehicles and fingerprinting machines to Macedonia, which isn’t a member of the bloc. The goal: to squeeze the river of people still streaming north from Greece toward Germany into a trickle, turning away all but those from war-torn countries such as Syria and Iraq. The mounting restrictions are buying German Chancellor Angela Merkel time as she asks voters for patience and lobbies fellow EU leaders to implement what she promises will be a comprehensive solution to the migration crisis.

Ms. Merkel wants Turkey to dismantle smuggling networks that bring migrants across the Aegean Sea to Greece, and she wants Greece to set up large registration camps that would allow recognized refugees to be settled across the EU. But with the chancellor’s approach making little headway, many European policy makers say they have only until March to reduce the numbers from the Middle East, South Asia and Africa who are arriving in the Continent’s core, mainly Germany. Soon, spring weather on the Aegean is expected to accelerate the arrivals, just as Ms. Merkel’s conservatives face state elections in which an anti-immigration party is poised for unprecedented gains. Within Ms. Merkel’s ruling coalition, demands to shut Germany’s own border are multiplying. Support for her open-door policy is waning abroad too. Even her ally Austria has announced an annual cap on asylum places.

Mounting political pressure around Europe to cut the numbers arriving, coupled with security fears about potential terrorists using the migrant trail, is leading to measures that could effectively redraw Europe’s border at the Balkans. In Macedonia, a small, impoverished ex-Yugoslav republic, officials warn that European governments are discussing a Plan B that would have the Macedonian-Greek border sealed off entirely, with the help of EU and Balkan countries further north. “We aren’t three months away, but weeks” from cutting off Greece, Macedonian Foreign Minister Nikola Poposki said in an interview. “Actually, this is the second-worst option, because the worst option isn’t doing anything, and then each of the [EU] member states would be sealing off its own borders,” he said.

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“The last German politician under whom refugees were shot at was Erich Honecker..”

German Police ‘Should Shoot At Migrants’, Populist Politician Says (BBC)

German police should “if necessary” shoot at migrants seeking to enter the country illegally, the leader of a right-wing populist party has said. Frauke Petry, head of the eurosceptic Alternativ fuer Deutschland (AfD) party, told a regional newspaper: “I don’t want this either. But the use of armed force is there as a last resort.” Her comments were condemned by leftwing parties and by the German police union. More than 1.1 million migrants arrived in Germany last year. Also on Saturday, German Chancellor Angela Merkel said most migrants from Syria and Iraq would go home once the wars in their countries had ended. She told a conference of her centre-right CDU party that tougher measures adopted last week should reduce the influx of migrants, but a European solution was still needed.

Police must stop migrants crossing illegally from Austria, Ms Petry told the Mannheimer Morgen newspaper (in German), and “if necessary” use firearms. “That is what the law says,” she added. A prominent member of the centre-left Social Democrats, Thomas Oppermann, said: “The last German politician under whom refugees were shot at was Erich Honecker” – the leader of Communist East Germany. Germany’s police union, the Gewerkschaft der Polizei, said (in German) officers would never shoot at migrants. It said Ms Petry’s comments revealed a radical and inhumane mentality. The number of attacks on refugee accommodation in Germany rose to 1,005 last year – five times more than in 2014.

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Not PC. “They” are the enemy, not “We”.

UK Labour MP Compares Cologne Attacks To Birmingham Night Out (Tel.)

The Labour MP Jess Phillips is facing calls to resign after comparing the organised sexual assaults committed by gangs of migrants in Cologne to the regular harassment of women on the streets of Birmingham. The city’s residents and business owners have hit back, saying her comments were “irresponsible, highly inaccurate and misleading”. Ms Phillips, the MP for Birmingham Yardley, suggested this week that the recent attacks in Germany are no different to the situation women find themselves in the centre of Birmingham. Her remarks have incensed locals who have called on her to resign from her post and “identify the error of her ways in what she said”. Mike Olley, manager of the West Side business improvement district, said that Birmingham’s Broad Street is “not like the Wild West”.

Speaking on BBC Radio 4’s Today programme, he said that sexual harassment is “not an institutionalised part of what goes on there” On New Year’s Eve in Cologne, Germany, dozens of women found themselves trapped in a crowd of around 1,000 men, who groped them, tore off their underwear, and shouted lewd insults. German authorities have since said that almost all of the New Year’s Eve sex attackers have a “migrant background”. Superintendent Andy Parsons, Police Commander for Central Birmingham, said that Ms Phillips’ comments “aren’t born out certainly in terms of crime statistics”. He added: “But I also appreciate it’s not just about statistics. I’ve got recent experience myself policing New Year on Broad Street, it was extremely busy and the atmosphere was one of celebration rather than one of sexual overtones.

“In a night time economy …there will be activity that is alcohol fuelled – but is it fair to compare it to incidents in Cologne on New Year? I don’t think it is.” However, some acknowledged that sexual harassment is a problem in the city. Michael Mclean, chairman of Broad Street Pub Watch said that sexual harassment is “something that we see and if I turned round and said that we didn’t, I’d be lying”. He went on: “Does it happen? Yes it does. Is it true what people are saying relating it to the cologne sex attacks? Absolutely not. The correlation between the two is a massive over exaggeration.”

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Sutherland has consistently been that lonely civilized voice.

The EU Must Reassert Humane Control Over Chaos Around The Mediterranean (UN)

by Peter Sutherland, UN’s special representative for migration

The European refugee debate reached a new nadir with a proposal to expel Greece from the Schengen zone and effectively transform it into an open-air holding pen for countless thousands of asylum seekers. The idea is not only inhumane and a gross violation of basic European principles; it also would prove vastly more costly than the alternative – a truly common EU policy that quells the chaos of the past year. Six countries have already reimposed border controls, and the European commission is preparing to allow them, and presumably others, to do the same for two years. The financial price of this alone is enormous – in the order of at least €40bn (including costs to fortify borders and those incurred by travellers and shippers). It would be much less expensive, financially and politically, to establish a common EU border and coastguard, and a functioning EU asylum agency.

This has proved to be, effectively, a zero-sum game. The rush by member states last year to seal their own perimeters left them unable to help shore up the EU’s external borders. They failed to send Greece the personnel and ships it had been promised. As such, the need for national border controls has become a self-fulfilling prophecy. A selfish, unilateral approach to borders constitutes a repeat of the tragedy of 2015, when EU member states individually spent about €40bn to address the crisis after it had reached European shores. In early 2015, the UN asked for a small fraction of that to feed, house and school the four million refugees in Turkey, Jordan, and Lebanon, but the international community and Europe failed to deliver (and many EU members still haven’t paid their share).

Unable to feed and educate their children, thousands of refugees ceded their savings to smugglers for a chance to reach Europe – precisely what you and I would have done had we been in their place. Europe cannot afford another such failure. The EU, working with the international community, must reassert humane control over the chaos around the Mediterranean. This entails immediate action on three fronts: first, raising the necessary tens of billions to allow refugees in frontline countries to live, work, and go to school there; states and the private sector must also help to create jobs both for refugees and natives through investments in the region and free-trade regimes.

Second, EU members must agree to accept several hundred thousand refugees directly from the region via safe, secure pathways and to match them to communities in Europe able to host them; failing to do this will alienate the frontline countries that bear most of the burden. Third, EU states must focus on creating a common-border regime, coastguard and asylum agency rather than return to the era of the Berlin Wall. The EU is hurtling towards disintegration, not due to some insurmountable challenge or outside force. It is instead succumbing to a self-induced panic that has paralysed its common sense. It is time to end the nightmare.

Read more …

Dec 082015
 
 December 8, 2015  Posted by at 7:17 pm Finance Tagged with: , , , , , , , ,  


Poached baby gorilla, Virunga Park

Anglo American, a British company, and one of the world’s biggest miners, and a ‘producer’ (actually just a miner, how did those two terms ever get mixed up?!) of platinum (world no. 1), diamonds, copper, nickel, iron ore and coal, said today it would scrap dividends AND fire 85,000 of it 135,000 global workforce (that’s 63%!).

Anglo is just the first in a long litany line we’ll see going forward. Commodities ‘producers’ are being completely wiped out, hammered, killed, murdered. They’ve been able to hedge their downside risks so far, but now find they can’t even afford the price of the hedges (insurance) anymore. And then there’s all the banks and funds that financed them.

And they’ve all been gearing up for production increases too, with grandiose plans and -leveraged- investments aiming for infinity and beyond. You know, it’s the business model. 2016 will be a year for the record books.

Just check this Bloomberg graph for copper supply and demand as an example. How ugly would you like it today?

And what’s true for copper goes for the whole range of raw materials. Because China went from double-digit growth to shrinking imports and exports in pretty much no time flat. And China was all they had left.

Iron ore is dropping below $40, and that’s about the break-even point. Of course, oil has done that quite a while ago already. It’s just that we like to think oil’s some kind of stand-alone freak incident. It is not. With oil today plunging below $37 (down some 15% since the OPEC meeting last week), it doesn’t matter anymore how much more efficient shale companies can get.

They’re toast. They’re done. And with them are their lenders. Who have hedged their bets too, obviously, but hedging has a price. Or else you could throw money at any losing enterprise.

But there’s another side to this, one that not a soul talks about, and it has Washington, London and Brussels very worried. Here goes:

These large mining -including oil- corporations most often operate in regions in the world that are remote and located in countries with at best questionable governments (the corporations like it like that, it’s how they know who to bribe to be able to rape and pillage).

The corporations de facto form a large part of the US/UK/EU political/military control system of these areas. They work in tandem with the CIA, MI5, the US and UK military, to keep the areas ‘friendly’ to western industries and regime.

This has caused unimaginable misery across the globe, in for instance (a good example) the Congo, one of the world’s richest regions when it comes to minerals ‘we’ want, but one of the poorest areas on the planet. No coincidence there.

Untold millions have died as a result. ‘We’ have done a lot more damage there than we are presently doing in Syria, if you can imagine. And many more millions are forced to live out their lives in miserable circumstances on top of the world’s richest riches. But that will now change.

Thing is, with the major miners going belly up, ‘our’ control of these places will also fade. Because it’s all been about money all along, and the US won’t be able to afford the -political and military- control of these places if there are no profits to be made.

They’ll be sinkholes for military budgets, and those will be stretched already ‘protecting’ other places. The demise of commodities is a harbinger of a dramatically changing US position in the world. Washington will be forced to focus on protecting it own soil, and move away from expansionist policies.

Because it can’t afford those without the grotesque profits its corporations have squeezed out of the populations in these ‘forgotten’ lands. That’s going to change global politics a lot.

And it’s not as if China will step in. They can’t afford to take over a losing proposition; the Chinese economy is not only growing at a slower pace, it may well be actually shrinking. Beijing’s new reality is that imports and exports both are falling quite considerably (no matter the ‘official’ numbers), and the cost of a huge expansion into global mining territory makes little sense right now.

With the yuan now part of the IMF ‘basket‘m Beijing can no longer print at will. China must focus on what happens at home. So must the US. They have no choice. Other than going to war.

And, granted, given that choice, they all probably will. But the mining companies will still be mere shells of their former selves by then. There’s no profit left to be made.

This is not going to end well. Not for anybody. Other than the arms lobby. What it will do is change geopolitics forever, and a lot.

Oct 212015
 
 October 21, 2015  Posted by at 9:51 am Finance Tagged with: , , , , , , , , ,  


Christopher Helin Federal truck, City Ice Delivery Co. 1934

China: A Debt Balloon With Nowhere to Go But Down (Bloomberg)
China Stocks Down Over 4% In Choppy Trade (CNBC)
China’s Overheated Bond Market Showing Strain for Local Bankers (Bloomberg)
China Bond Defaults Seen Rising After Sinosteel Misses Payment (Bloomberg)
Just How Bad Was the 2009 Global Recession? Really, Really Bad (Bloomberg)
Why Miners May Want To Rethink Record High Output (CNBC)
Barclays Plots Bombshell Ring-Fencing Plan (Sky)
Credit Suisse to Launch $6.3 Billion Capital Increase (WSJ)
Irish Biggest Losers From Financial Crash: ECB (Reuters)
Why There’s No Easy Way Out Of Spain’s Insurmountable Economic Mess (Telegraph)
From European Union to Just a Common Market (Roberto Savio)
Lessons for Draghi From a Land of Sub-Zero Interest Rates (Bloomberg)
Developers in Australia Roll Out Red Carpet for Wealthy Chinese (WSJ)
Britain Addicted To Bombing With The Weary Rationale Of A Junkie (Frankie Boyle)
Number Of London’s ‘Working Poor’ Surges 70% In 10 Years (Guardian)
Food Banks Have Become A Lifeline For Many, But Where Is The Way Out? (Guardian)
Buying Begets Buying: Stuff Has Consumed The Average American’s Life (Guardian)
Slovenia Deploys Troops to Border as Migrant Exodus Swells (AP)
Resettling Migrants From Middle East Camps Could Ease Crisis: Greece (Reuters)
Refugee Boats Wash Up At UK Military Base In Cyprus (Guardian)

“..the real problem will come in U.S. dollar China corporates.”

China: A Debt Balloon With Nowhere to Go But Down (Bloomberg)

Chinese skyscrapers apparently aren’t scaring bond investors, but they probably should. Debt buyers have brushed off concerns about China’s overvalued real estate and slowing growth this year. They have been snapping up speculative-grade bonds of Chinese companies, even those sold in the U.S., where the appetite for risk is waning in general. Consider, for example, a $41.5 billion pool of dollar-denominated bonds sold in large part by deeply indebted Chinese property companies. The debt has gained 9.2% this year, which is equal to $3.8 billion of market gains, according to Bank of America Merrill Lynch index data. These hefty returns are pretty amazing when juxtaposed with losses on U.S. high-yield bonds, which have suffered amid plunging commodity prices and waning economic momentum, especially in China.

Frederic Neumann, HSBC’s co-head of Asian economics research, put it more bluntly. “In many ways, the market is divorced from reality,” he said Monday at a conference in New York. While local-currency Chinese debt may hold its value, “the real problem will come in U.S. dollar China corporates.” Chinese debt markets have benefited from tumult in the nation’s equities, which has pushed local investors into the safety of bonds. A lot of this money is sticky, with institutions wanting to keep their money close to home. But some of these investors have made their way to the U.S., where they’re buying up bonds of Chinese companies. That’s propping up this slice of the dollar-denominated market at an unlikely time.

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Shanghai closed own 3% -after a late surge-, Shenzhen dropped almost 6%.

China Stocks Down Over 4% In Choppy Trade (CNBC)

Asian stocks mostly advanced on Wednesday, but share markets in China were hit by a sudden bout of selling in the afternoon session. Major U.S. averages slipped overnight, with the Dow Jones Industrial Average snapping a three-day winning streak, amid a decline in healthcare and biotech names. The blue-chip Dow and S&P 500 shed 0.1% each, while the Nasdaq Composite closed down 0.5%. Volatility returned to China’s share markets on Wednesday, with the Shanghai Composite index skidding over 4% after weaving in and out of positive territory since the market open. Earlier in the session, the key index touched 3,444 points – its highest level in two months.

“For the Shanghai Composite, the 3,500 level remains the key barrier to break. I expect stiff resistance above this handle as those who bought when the market was above this level, expecting state buying to prop up prices, will be keen to get rid of their stock holdings,” IG’s market strategist Bernard Aw wrote in a note. Shares of Huaneng Power leaped 2% after the listed unit of China’s biggest power generator delivering a 11.2% rise in third-quarter net profit on Tuesday, marking its weakest pace in three quarters amid slowing growth in the mainland. Among other indexes, the CSI300 erased early gains to slide 2.3%. Small-caps underperformed; the Shenzhen Composite tumbled 4% and the start-up ChiNext board plummeted 4.4%, a day after jumping 2%. Hong Kong markets are closed for the Chung Yeung Festival.

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“Repurchase transactions allowing investors to use existing note holdings as collateral to borrow money for one day doubled in the past year..”

China’s Overheated Bond Market Showing Strain for Local Bankers (Bloomberg)

Chinese bankers say a debt-driven bond market rally is starting to show the same signs of overheating that preceded a collapse in equities. Repurchase transactions allowing investors to use existing note holdings as collateral to borrow money for one day doubled in the past year to a record 2.1 trillion yuan ($331 billion) on Tuesday. The cost of such funding in the interbank market has risen to 1.87% from a five-year low of 1% in May and has swung violently before, reaching 11.74% in June 2013. A similar contract on the Shanghai stock exchange climbed to 2.21% as equities rallied. Credit spreads near the narrowest in six years are being questioned after a state-owned steel trader missed a bond payment. “There are signs of an overheating market, and certainly the rally can’t last for long,” said Wei Taiyuan at China Merchants Bank in Shanghai.

“Leverage in the bond market is much higher than at any time in history. If equities continue to perform well, or initial public offerings resume, the liquidity-fueled rally may come to an end.” Among possible triggers for a correction is Sinosteel Co.’s failure to pay interest due Tuesday on 2 billion yuan of bonds maturing in 2017, a default that’s fanned concern about the government’s willingness to meet the obligations of state-owned companies. Competition for funds is increasing as the best weekly rally in stocks since June has led to the biggest growth in margin debt for buying equities in half a year, which risks diverting money away from money markets. The yield premium of five-year AAA rated corporate bonds over similar-maturity Chinese government debt fell to 84 basis points on Sept. 7, the least since 2009. The spread widened to 100 basis points on Tuesday, compared with an average of 144 over the past five years.

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Think UK steel is bad?

China Bond Defaults Seen Rising After Sinosteel Misses Payment (Bloomberg)

China bond defaults are forecast to climb after a state-owned steelmaker missed an interest payment, raising questions about the government’s commitment to stand behind such firms. Sinosteel failed to pay interest due Tuesday on 2 billion yuan ($315 million) of 5.3% notes maturing in 2017 after saying it will extend the deadline as it plans to add a unit’s stock as collateral. That came after the National Development and Reform Commission planned to meet noteholders and ask them not to exercise a redemption option on Tuesday to force full repayment, people familiar with the matter said last week. Chinese authorities are weeding out weak state firms that Premier Li Keqiang called zombies. Australia & New Zealand Bank. warned that rising debt in the sector may drag economic growth down to as low as 3%.

Two state-owned companies, Baoding Tianwei and China National Erzhong reneged on obligations earlier this year, according to China International Capital and China Bond Rating Co. “Sinosteel’s default means we will see more and more real bond defaults, in which investors may not get full repayment, in China,” said Ivan Chung at Moody’s in Hong Kong. “The government may want to reduce its intervention in default cases and let market forces play a bigger role.” Sinosteel’s failure to pay interest on time constitutes a default, according to Industrial Securities, Haitong Securities and China Merchants Securities.

China Bond Rating Co. said in a report Wednesday if Sinosteel bond investors had agreed to the delay of interest payment, it didn’t constitute a default, whereas if they hadn’t, it did. Sinosteel hasn’t said in its statements whether it got permission from investors, and two calls to the company Wednesday went unanswered. Flagging authorities’ balancing act as they try to liberalize markets while preventing turbulence, Li said last week the government will prevent systemic risks and banks should not cut or withdraw lending to companies which are in “temporary” difficulties.

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“How do you define a global recession? For individual countries, the rule of thumb is two consecutive quarters of falling output. That convention is difficult to apply to the world economy, which rarely contracts.”

Just How Bad Was the 2009 Global Recession? Really, Really Bad (Bloomberg)

The global recession that followed the financial crisis was the most severe in half a century, an unusually synchronized shock that paralyzed trade and left 23 million more people out of work. Yet the response by policy makers hasn’t been up to the task, with central banks bearing too much of the burden. And the world may be on the edge of another recession, even though it hasn’t recovered from the last one. Those are the conclusions of a new book on business cycles released Tuesday by the IMF. “The 2009 episode was the most severe of the four global recessions of the past half century and the only one during which world output contracted outright – truly deserving of the ‘Great Recession’ label,” write Ayhan Kose, director of the World Bank’s Development Prospects Group, and Marco Terrones, deputy division chief at the IMF’s research department.

“The possibility of another global recession lingers in light of the persistently weak recovery, even though damage from the previous one has yet to be fully repaired.” The 272-page book, “Collapse and Revival: Understanding Global Recessions and Recoveries,” underscores the challenges policy makers face as they try to jumpstart a sputtering recovery more than six years after the global financial crisis. A slowdown in emerging markets driven by weak commodity prices forced the IMF this month to cut its outlook for global growth in 2015 to 3.1%, which would be the weakest rate since 2009, from a July forecast of 3.3%. Kose and Terrones try to answer a question that has become more pressing as nations become more integrated: How do you define a global recession? For individual countries, the rule of thumb is two consecutive quarters of falling output. That convention is difficult to apply to the world economy, which rarely contracts.

In predicting a global recession next year, Citigroup Chief Economist Willem Buiter recently forecast that world growth would slow to “well below” 2% in 2016. Kose and Terrones define a recession as a contraction in inflation-adjusted output per capita accompanied by a broad, synchronized decline in various measures, such as industrial production, unemployment, trade and capital flows, and energy consumption. By that standard, there have been four world recessions since 1960, starting in 1975, 1982, 1991 and 2009. In only the last case did the global economy shrink. The 2009 downturn was “by far” the deepest, Kose and Terrones found. It was also the broadest, with almost all advanced economies and a large number of emerging and developing countries contracting. About 65% of countries fell into recession, the highest among the four slumps.

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Iron ore is like oil: everyone produces full-tard just to stay alive for another day.

Why Miners May Want To Rethink Record High Output (CNBC)

The world’s top three iron-ore producers continue to consistently churn out record volumes of output, worsening an already dire supply glut, but investors are now wondering just how long that strategy can last. On Wednesday, BHP Billiton—the world’s largest miner by market capitalization—reported a 7% annual rise in September quarter output to 61 million tons, adding to a 6% gain in the June quarter, and maintaining its full-year guidance of 247 million tons. Report cards over the past week confirms other miners are also in high-output mode. Rio Tinto reported a 12% annual rise in third-quarter production to 86 million tons, building on a 9% gain in the previous quarter.

The world’s second largest miner also announced it was on track to meet a full-year target of 340 million tons. Meanwhile, Brazilian giant Vale logged a record performance, with output up 2.9% on year to 88.2 million tons and more increases to come. A low cost of production has been the secret to miners’ profitability despite iron ore prices crashing to $52 a ton from nearly $200 four years ago. Rio Tinto’s unit cash production cost at its Pilbara operation fell to $16.20 a ton during the first half of this year, from $20.40 per ton during the same period last year, while Vale plans to reduce its current unit cost from $15.80 per ton to less than $13 by 2018, according to the companies.

But if miners continue ramping up production at high levels, it could become counterproductive. “So far, miners have been able to withstand commodity price declines but if they keep pushing prices down, and testing the low cost producer-price relationship, margins and cash flow will eventually decline and they’ll get to a point where they can’t escape by cutting costs further,” explained David Lennox, resources analyst at market research firm Fat Prophets.

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Consumer deposits to be owned by investment bankers…

Barclays Plots Bombshell Ring-Fencing Plan (Sky)

Barclays is heading for a showdown with the Bank of England over a secret plan to place its high street operations under the temporary ownership of its investment banking arm. Sky News can reveal that Barclays is preparing to warn regulators that the credit rating of its investment bank could be slashed unless it is allowed to restructure its operations in this way. The development threatens to drop a bombshell into the heart of the debate about banking reform just days after City regulators outlined new measures designed to protect taxpayers in the event of a future banking crisis. John McFarlane, Barclays’ executive chairman, is understood to have briefed more than 100 of the bank’s top executives on the plans at a meeting at a west London hotel this month.

Mr McFarlane, who will revert to a non-executive role after a new chief executive is in place, is said to have acknowledged to colleagues the likely difficulty of securing regulators’ approval for the proposals. But an insider familiar with the meeting said he expressed a belief that the idea was consistent with the blueprint drawn up by the Independent Commission on Banking in 2011 for separating banks’ high street and investment banking operations. One source speculated that a rejection of Barclays’ proposals by the PRA could oblige it to sell large parts of its investment bank or seek to raise many billions of pounds in new capital from investors. Like other lenders – although to a greater degree owing to the size of its investment bank – Barclays’ credit rating derives a diversification benefit from its current structure.

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All big banks are in deep.

Credit Suisse to Launch $6.3 Billion Capital Increase (WSJ)

ZURICH— Credit Suisse nnounced plans on Wednesday to raise roughly 6 billion francs ($6.3 billion) in fresh capital and slash costs, as the Swiss bank delivered a disappointing set of quarterly results. Incoming Credit Suisse Chief Executive Tidjane Thiam took over the top job in July, and has been widely expected to raise capital and reduce what has been a relatively expensive, and relatively high-risk investment banking unit. On Wednesday, Credit Suisse said it would restructure its investment bank and significantly cut the amount of capital allocated to the business. That will be coupled by a proposed rights offering of about 4.7 billion francs to raise capital, and a private placing of roughly 1.35 billion francs, Credit Suisse said.

In addition, Credit Suisse said it plans a partial initial public offering for its Swiss bank unit. Its plans also include cutting 3.5 billion francs in costs by the end of 2018. [..] Credit Suisse has long operated a larger investment bank than that of its Swiss peer, UBS. That has provided Credit Suisse with needed profit during good quarters, but also with a relatively expensive set of businesses that are increasingly impractical due to stricter capital rules. Regulators in Switzerland are expected to unveil new rules for the big banks later this year, including a requirement to maintain a bigger cushion of capital relative to the loans and investments being made.

On Wednesday, Credit Suisse said it would reduce the amount of risk-weighted assets allocated to its investment banking businesses such as foreign exchange and rates by 72%, while the allocation to its so-called “prime” business providing services for hedge funds will be cut by half. On Wednesday, Credit Suisse reported a pretax loss of 125 million francs for its investment bank in the third quarter, compared with a profit of 516 million francs in the period last year. The bank cited challenging market conditions and “reduced client activity.” Overall, Credit Suisse posted a 24% decline in net profit for the third quarter, and an 8% decline in net revenues.

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Germany, Holland came out big winners from the crash. if that doesn’t tell you the EU is a failure, what does?

Irish Biggest Losers From Financial Crash: ECB (Reuters)

The Irish lost more of their personal wealth than any other euro zone country in the aftermath of the financial crash while Germany and the Netherlands gained the most, fresh data from the ECB shows. In an analysis of the years between 2009 and 2013, ECB experts discovered that Ireland lost more than €18,000 per person, while Spaniards saw wealth dwindle by almost €13,000 as property in both nations plummeted. Greeks saw their notional wealth decline by almost €17,000 for the same reason. In the Netherlands and Germany, by contrast, the wealth per capita grew by roughly €33,000 and €19,000 respectively, due in part to a boost to financial investments over that time. The data, which takes a snapshot before the recent economic upswing in Spain and Ireland, illustrates the stark differences between countries in the 19-country euro zone that extends from cities such as Helsinki in the north to Athens in the south.

By presenting the data in this manner, the ECB acknowledges the divergence, although there is little the central bank can do to remedy it. Its money-printing scheme known as quantitative easing is spread out according to euro zone member countries’ relative size and not determined by their economic needs. To fix imbalances between strong industrial nations such as Germany and countries such as Spain, experts have long pushed for a system of financial transfers or payments from rich to poor states. Germany, which fears that this would lumber it with unmanageable costs and believes that handouts would discourage spendthrift countries from reforming, has flatly rejected the suggestion.

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A pumped-up success story.

Why There’s No Easy Way Out Of Spain’s Insurmountable Economic Mess (Telegraph)

Spain is the current superstar economy of the eurozone. The former bail-out country, which became embroiled in one of the worst banking and house price collapses in the euro just four years ago, is now proudly held up as the European Union’s model economic pupil. Spain is set to be the fastest growing economy of the “Big Four” euro economies – Germany, France, Italy and Spain – over the next two years, expanding by 3.2pc and 2.5pc respectively, according to the IMF. This compares to just 1.5pc and 1.6pc in Germany, and a paltry 1.2pc and 1.5pc in France. Madrid’s growth rate will also surpass the eurozone average of 2pc and 2.2pc over 2015-16, as it races ahead of the rest. The secret of this success lies in the implementation of belt-tightening measures and structural reforms, as demanded by Brussels, so the story goes.

But the economic turnaround has attracted high-profile critics. The recently-departed chief economist of the IMF has rubbished any talk of a growth “miracle” in Spain. In a new report, Simon Tilford at the Centre for European Reform also pours cold water over the dominant narrative of the Spanish recovery. “There is no evidence that [growth numbers] are the result of austerity, and not much evidence that they are the product of structural reforms,” writes Mr Tilford. Instead, he paints a picture of a fragile economy that has benefited from a number of headwinds, but remains acutely vulnerable to another global downturn. Here are some of the insurmountable challenges that are set to condemn Spain to more economic pain.

Spain’s export performance has been held up as the backbone of its stellar growth performance since 2013. Bouyed by a cheap euro, exports have boomed over the past two years. Key to this growth has been Spain’s “remarkable cost adjustment process” – where it has managed to slash wage costs – helping to “transform the export sector into a lean and mean machine, able to compete at a high level”, notes Angel Talavera at Oxford Economics. But buoyant exports have also been accompanied by falling imports, as suffering Spaniards have endured lower living standards and high unemployment, notes Mr Tilford. The composition of the exports is also a cause for concern. More than half of the growth has come from “low-value” goods such as food and fuel.

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That’s all that’ll be left. Best case.

From European Union to Just a Common Market (Roberto Savio)

Seventy years ago Europe came out from a terrible war, exhausted and destroyed. That produced a generation of statesman, who went about creating a European integration, in order to avoid the repetition of the internal conflicts that had created the two world wars. Today a war between France and Germany is unthinkable, and Europe is an island of peace for the first time in its history. This is the mantra we hear all the time. What is forgotten is that in fact a good part of Europe did not want integration. In 1960, the United Kingdom led the creation of an alternative institution, dedicated only to commercial exchange: the European Free Trade Association (EFTA), formed by the United Kingdom, Austria, Denmark, Norway, Portugal, Sweden, Switzerland, then later Finland and Iceland.

It was only in 1972 that, bowing to the success of European integration, the UK and Denmark asked to join the EU. Later, Portugal and Austria left EFTA to join the European Union. The UK was never interested in the European project and always felt committed to “a special relation” with United States. Union would mean also solidarity and integration, as the various EU treaties kept declaring. The UK was only interested in the market side of the process. Since 1972, the gloss of European integration has lost much of its shine. Younger generations have no memory of the last war. The EU is perceived far from its citizens, run by unelected officials who make decisions without a participatory process, and unable to respond to challenges. Where is the external policy of the EU? When does it take decisions that are not an echo of Washington?

Since the financial crisis of 1999, xenophobic, nationalistic and right wing parties have sprouted all over Europe. In Hungary, one of them is in power and openly claims that democracy is not the most efficient system. The Greek crisis has made clear that there is a north-south divide, while Germany and the others do not consider solidarity a criterion for financial issues. And the refugee crisis is now the last division in European integration. The UK has openly declared that it will take only a token number of 10,000 refugees, while a new west-east divide has become evident, with the strong opposition of Eastern Europe to take any refugee. The idea of solidarity is again out of the equation.

Germany moved because of its demographic reality. It had 800,000 vacant jobs, and it needs at least 500,000 immigrants per year to remain competitive and keep its pension system alive. But that mentality is even more clear with the East European countries, which experience increasing demographic decline. At the end of communism in 1989, Bulgaria had a population of 9 million. Now it is at 7.2 million. It is estimated that it will lose an additional 7% by 2030, and 28.5% by 2050. Romania will lose 22% by 2050, followed by Ukraine (20%), Moldova (20%), Bosnia and Herzegovina (19.5%), Latvia (19%), Lithuania (17.5%), Serbia (17%), Croatia (16%), and Hungary (16%). Yet, all Eastern Europe countries have followed the British rebellion, and take a strong stance on refusing to accept refugees.

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Fear.

Lessons for Draghi From a Land of Sub-Zero Interest Rates (Bloomberg)

Until not so long ago, the idea of sub-zero interest rates was about as far-fetched as the prospect of a brash real estate tycoon running for U.S. president. These days, the discussion is whether a deposit rate below minus 0.20% is a good trump card to play when dealing with Europe’s sclerotic economy. The ECB meets on Thursday for yet another discussion on how to stimulate growth. Rate cuts are improbable – ECB board member Benoit Coeure recently described the current level as “the effective lower bound.” Should ECB President Mario Draghi and his colleagues nevertheless opt to discuss the matter, they might consider taking this lesson from Denmark: negative rates don’t provide a quick fix. The Danish central bank, whose sole mandate is to guard the krone’s peg to the euro, first cut rates below zero in mid-2012, when investors were looking for havens at the height of Europe’s debt crisis.

The key deposit rate, now minus 0.75%, has been mostly negative since then. Economists recently surveyed by Bloomberg see negative rates continuing into 2017. That’s not necessarily because they expect rates to rise after that, but because their models just don’t go any further. One of the key lessons from Denmark is that banks are reluctant to charge customers for holding their money. While some have raised fees, “real rates for real people were actually never negative,” says Jesper Rangvid, a professor of finance at the Copenhagen Business School. For that reason, Danes haven’t been hoarding cash. According to Rangvid, rates would have to drop as low as minus 10% before people start “building their own vaults.” Experiences in Switzerland and Sweden tell a similar story. Economic theory says interest rates are inversely related to investment.

People are also supposed to spend less when rates are high and spend more when they’re low. Because interest rates determine the value of cash today, they have been described as “a tax on holding money” and “the price of impatience.” And yet, Danes have actually been squirreling away. According to central bank data, Danish households’ have added 28 billion kroner ($4.3 billion) to bank deposits since rates shrank to their record low on Feb. 5. Danish businesses, meanwhile, have barely increased their investments, adding less than 6% in the 12 quarters since Denmark’s policy rate turned negative for the first time. At a growth rate of 5% over the period, private consumption has been similarly muted. Why is that? Simply put, a weak economy makes interest rates a less powerful tool than central bankers would like.

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“People underestimate how much residential construction has been propping up the economy..”

Developers in Australia Roll Out Red Carpet for Wealthy Chinese (WSJ)

Cranes dominate skylines above Sydney and Melbourne, which are popular with Asian migrants. Current rules generally only allow foreign investors to buy real estate before construction, typically in apartment developments. Cracks are emerging in the market, however. On Friday, the country’s central bank warned that risks to residential property developers had risen over the past six months, with inner-city Melbourne and Brisbane particularly exposed to a supply glut of apartments. The central bank has previously warned that any sudden collapse in home prices risks destabilizing the nation’s banks and the economy, which grew by just 0.2% in the second quarter from the first, the slowest pace in four years.

“People underestimate how much residential construction has been propping up the economy,” said Warren Hogan, chief economist at Australia & New Zealand Banking Group. Approvals to build new dwellings hit an all-time high in the year through August, as did the number of permits given to build high-rise apartments, which now account for 31% of the total, up from 11% six years ago, according to government data. China has become the largest source of foreign money flowing into Australian real estate, with Chinese investment in residential property up by more than 60% to A$8.7 billion in the year through June 2014, a Credit Suisse analysis of government data shows.

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“Why is war more palatable than more refugees? Why is the destruction of lives you can’t see easier to live with than someone on your bus making a phone call in a language you don’t understand?”

Britain Addicted To Bombing With The Weary Rationale Of A Junkie (Frankie Boyle)

In every addiction, a part of us is addicted to the process. Laying out the cigarette papers to build the joint; heating the spoon and flicking the syringe; dealing with our emails before our DMs; cueing up Netflix for when the kids go to sleep; methodically polishing the keys to our own prisons. Britain seems to be going through the preliminaries associated with one of its most cherished addictions: bombing. Bombing Syria has probably only been postponed by Russia’s intervention. It was, of course, amusing to see the western press suddenly preoccupied about whether bombs were hitting their intended targets. Perhaps Putin should have avoided such rigorous international scrutiny by bombing only hospitals.

The recent immolation of a Médecins Sans Frontières hospital in Afghanistan presented us with the internal contradiction of our media’s presentation of bombing: that we have technology so precise our weapons can hear their victims begging for a trial, and that we sometimes blow up stuff “accidentally”. It has been suggested that non-white people caught up in our foreign wars are “unpersons reported”. More accurately, they are treated as subpersons. A handful of Afghans dying could make the front pages, but only if they were strangled one by one by Beyoncé as the half-time entertainment at the Super Bowl. Historically, Syria has existed as a place where outsiders come to fight, a bit like Wetherspoon’s.

No one likes Assad: he has the surprised appearance of a man who has just swallowed his own chin, and a bizarre, faint, fluffy moustache, as if he pulled on a cashmere turtleneck just after eating a toffee apple. He has created a hell for his own people that British teenagers seem eager to go to and fight in, just to give you some idea of how shit Leeds is. But if their desire to go to Syria is deluded, how is our government’s any less so? A government that doesn’t believe it should have any responsibility for regulating our banks or even delivering our post thinks it needs to be a key player in, of all things, the Syrian civil war. Somehow, the plight of this strategically significant state has touched their hearts. Britain is so concerned about refugees that it will do anything – except take in refugees – to try to kill its way to a peaceful solution.

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Is that why the Chinese are coming?

Number Of London’s ‘Working Poor’ Surges 70% In 10 Years (Guardian)

More than a million Londoners who are defined as living in poverty are members of households in which at least one adult has a job, according to a new analysis. The figures include 450,000 children who live in such households, and research estimates that cuts in working tax credits to families next April could make 640,000 children worse off. The analysis is contained in the fifth London Poverty Profile, which is compiled by the New Policy Institute thinktank for the charity Trust for London. It indicates that the total number of Londoners in poverty now stands at 2.25 million. Of these, slightly more than half – 1.2 million – qualify as “in-work poor”, representing an increase of 70% in the past 10 years.

The study found that, although the numbers of unemployed adults and the proportion of people in workless households has fallen in the capital, the city’s overall poverty rate is 27%, much as it has been for the past decade. The rate for the rest of England is 20%. The report also illuminates how the poverty picture is changing in some parts of the Greater London area, with two east London boroughs, Newham and Tower Hamlets, seeing significant falls in the numbers and%ages of benefit claimants there, while Brent and Ealing in the west now stand out for their high levels of low pay and unemployment. Just over one fifth of people in London in all types of working households are in poverty, compared with 15% a decade ago.

This is despite the present number of unemployed adults, just over 300,000, being the lowest since 2008, at a time of rapid increases in the capital’s population, and with the proportion of workless households being at a 20-year low of 10%. The poverty threshold is defined as households with incomes of less than 60% of the national median after housing costs are included, consistent with standards used across the EU. The report says: “The increase in the number of people in poverty in London has been almost entirely among those in working families.” It points to low pay, limited working hours and the capital’s notoriously high housing costs as key reasons. The poverty rate among working families where an adult is self-employed, not all adults work or they work only part-time is 35% and among those where all adults work full time or one works full time and one part time is 9%.

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Britain’s only growth industry.

Food Banks Have Become A Lifeline For Many, But Where Is The Way Out? (Guardian)

In a large steel container outside St Philip’s church in north Nottingham, Nigel Webster is taking stock: not just of the thousands of neatly stacked tins of food arrayed there, but of his experience as a food bank volunteer. When we started out three years ago, he reflects, we thought we’d be gone by now. For Webster, the manager of Bestwood and Bulwell food bank, part of the Trussell Trust network, the pressing existential question is not just: “Why food banks?” but: “Food banks for how long?”. The growth of the food bank has been an astonishing achievement, but he regards its continued presence as a kind of social disgrace. It is the search for a food bank exit strategy, as much day-to-day operational problems, that keeps him awake at night.

“We will always seek to help people in need,” he says. His Christian faith means he could not do otherwise. But there must be limits, he says. Food banks cannot simply let the state withdraw from its responsibilities. It is important, he says, to keep in mind the idea that the food bank, essentially, is an “outrage”. “We do not want our food banks to exist. We look forward to a time when they disappear. We do not want to get too comfortable. We must resist the temptation to expand. I do not think having a food bank on every street corner is a way for our society to go. Foodbanks must do their best to remain ‘unusual’”.

If anything, food banks are in danger of becoming mainstream. A series of reports and studies have linked cuts in the social security system to the rise in charity food. Scores of evidence submissions to a Commons work and pensions committee inquiry, opening on 21 October, testify that thousands of vulnerable citizens are forced to rely on food banks as a result of avoidable delays to benefits being paid. Food banks are gearing up for a surge in demand for charity food parcels over the next few months, as proposed cuts to working tax credits and housing benefit, the continuing rollout of universal credit, and the shrinking of local welfare support schemes take effect.

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Slavery 21st century style.

Buying Begets Buying: Stuff Has Consumed The Average American’s Life (Guardian)

The personal storage industry rakes in $22bn each year, and it’s only getting bigger. Why? I’ll give you a hint: it’s not because vast nations of hoarders have finally decided to get their acts together and clean out the hall closet. It’s also not because we’re short on space. In 1950 the average size of a home in the US was 983 square feet. Compare that to 2011, when American houses ballooned to an average size of 2,480 square feet – almost triple the size. And finally, it’s not because of our growing families. This will no doubt come as a great relief to our helpful commenters who each week kindly suggest that for maximum environmental impact we simply stop procreating altogether: family sizes in the western world are steadily shrinking, from an average of 3.37 people in 1950 to just 2.6 today.

So, if our houses have tripled in size while the number of people living in them has shrunk, what, exactly, are we doing with all of this extra space? And why the billions of dollars tossed to an industry that was virtually nonexistent a generation or two ago? Well, friends, it’s because of our stuff. What kind of stuff? Who cares! Whatever fits! Furniture, clothing, children’s toys (for those not fans of deprivation, that is), games, kitchen gadgets and darling tchotchkes that don’t do anything but take up space and look pretty for a season or two before being replaced by other, newer things – equally pretty and equally useless. The simple truth is this: you can read all the books and buy all the cute cubbies and baskets and chalkboard labels, even master the life-changing magic of cleaning up – but if you have more stuff than you do space to easily store it, your life will be spent a slave to your possessions.

We shop because we’re bored, anxious, depressed or angry, and we make the mistake of buying material goods and thinking they are treats which will fill the hole, soothe the wound, make us feel better. The problem is, they’re not treats, they’re responsibilities and what we own very quickly begins to own us. The second you open your wallet to buy something, it costs you – and in more ways than you might think. Yes, of course there’s the price tag and the corresponding amount of time it took you to earn that amount of money, but possessions also cost you space in your home and time spent cleaning and maintaining them. And as the token environmentalist in the room, I’d be remiss if I didn’t remind you that when you buy something, you’re also taking on the task of disposing of it (responsibly or not) when you’re done with it. Our addiction to consumption is a vicious one, and it’s stressing us out.

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Weather getting worse fast. Balkans can get nasty in winter.

Slovenia Deploys Troops to Border as Migrant Exodus Swells (AP)

Led by riot police on horseback, thousands of weary migrants marched across western Balkans borderlands as far as the eye could see Tuesday as authorities cautiously lowered barriers and intensified efforts to cope with a human tide unseen in Europe since World War II. Leaders of Slovenia deployed military units to support police on their overwhelmed southern border with Croatia, which delivered more than 6,000 asylum seekers by train and bus to the frontier in bitterly disputed circumstances between the former Yugoslav rivals. With far too few buses available in Slovenia to cope, most people walked 15 kilometers on rural lanes past cornfields and pastures to reach a refugee camp, a challenge eased by sunny weather after days of torrential rain, fog and frigid winds.

On Slovenia’s frontiers with Croatia and Austria, aid workers toiled to erect enough tents and other emergency accommodation to shelter up to 14,000 travelers, more than five times the tiny nation’s previous official limit. Interior Secretary of State Bostjan Sefic told reporters in the Slovene capital, Ljubljana, that the pressure on border security with Croatia had grown “very difficult with an enormous number of people.” He said Slovenia, an Alpine land of barely 2 million, needed much more help immediately from bigger EU partners to cope or the country might have to adopt border-toughening measures. “If this continues we will have extreme problems. Slovenia is already in dire straits, an impossible situation,” Sefic said as lawmakers debated whether to increase the military’s powers to manage border security.

In Brussels, Slovenian President Borut Pahor met European Union leaders and said he expected his country to apply for emergency financial aid and border patrol reinforcements from EU partners. Hungary, long the most popular eastern gateway for people fleeing conflict and poverty in the Middle East, Asia and Africa, has padlocked its borders for migrants progressively over the past month, forcing the tide west through Croatia and Slovenia. All three nations have expressed fears of ending up stuck accommodating tens of thousands of asylum-seekers indefinitely if other EU nations farther north close their borders too.

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Save them the Aegean trip and the drowning babaies.

Resettling Migrants From Middle East Camps Could Ease Crisis: Greece (Reuters)

Greece said on Tuesday that resettling migrants from camps in the Middle Eastern countries such as Turkey, Jordan and Lebanon, where they first arrive, could ease Europe’s refugee crisis. Greece is struggling to control the influx of more than half a million migrants through its islands bordering Turkey, with arrivals spiking over the past two days in a rush to beat the onset of winter. Some 10,000 people arrived on the island of Lesvos on Sunday and Monday alone, officials said. Reuters witnesses said there had also been a rush on Tuesday of mainly Syrians and Afghans.

“We have a huge problem in not being able to control the flow of arrivals,” migration minister Yannis Mouzalas told Skai TV. The International Organisation for Migration said of an estimated 650,500 arrivals to European Union states this year, almost 508,000 went through Greece, while the United Nations put that figure at 502,000 on Tuesday. “That (resettling) would mean we, and countries like Italy and Hungary, would not be dealing with uncontrolled flows of people, save these people from smugglers and from the prospect of drowning trying to get here,” Mouzalas said.

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“Asked whether the refugees would be able to claim asylum in Britain, the MoD official said: “That’s not our understanding.”

Refugee Boats Wash Up At UK Military Base In Cyprus (Guardian)

Three overloaded boats carrying more than 100 refugees from Syria have washed up at Britain’s military base in Cyprus, potentially opening up a new front line in the migration crisis. The refugees, believed to include women and children, have been transferred to a temporary reception area at the sovereign base at Akrotiri on southern coast of the Mediterranean island. A spokesman for the Ministry of Defence confirmed that three boats had arrived at the base, which has been used to launch airstrikes against Islamic State militants in Iraq and Syria. The MoD is still gathering details about the incident, including the number of refugees involved. “I believe it is more than a hundred, but there is no confirmation of the exact number at the moment,” the spokesman said.

He said it was unclear where the refugees had travelled from but a police official told local media that refugees “appear” to have come from Syria. He added: “At the moment the first priority is to make sure everyone is safe and well before decisions are taken on what’s going to happen to them. We don’t know full numbers. It is happening as we speak so details are still coming in.” Asked whether the refugees would be able to claim asylum in Britain, the MoD official said: “That’s not our understanding.” The base is one of two sovereign territories retained by Britain on Cyprus, a colony until 1960.

Cyprus has received hundreds of refugees from Syria, but if confirmed this would be the first time any have arrived at the Akrotiri base, which is about 150 miles from the Syrian port of Tartus. The news site In-Cyprus quoted George Kiteos, the head of police at the sovereign base area, as saying: “The number of persons has been counted and recorded. The boats were carrying over 100 persons.” He added: “They have received first aid and they all appear to be in good health. We have already alerted all the other necessary services. They appear to have come from nearby Syria.” The site said two small boats had been spotted off the coast of Akrotiri at about 6.30am and were shepherded back to the shore by the Cyprus coastguard.

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