Apr 222018
 
 April 22, 2018  Posted by at 9:41 am Finance Tagged with: , , , , , , , , , ,  


Vincent van Gogh Green Wheat Field With Cypress 1889

 

US Hints at China Truce as World Warns of Trade-War Threat (BBG)
US Banks Push Mortgage Apps As Home Lending Slows (R.)
Chinese Gangs Are Laundering Drug Money Through Vancouver Real Estate (GN)
New Zealand’s Ban On Home Sales To Foreigners Is “Discriminatory” – IMF (BBG)
Whirling Whirling (Jim Kunstler)
Home Office Under Theresa May Was Urged in 2014 To Act On Windrush (Ind.)
Tory Ministers Milking The System Are The Real Shirkers (G.)
Theresa May’s Hateful ‘Hostile Environment’ Immigration Policy (O.)
Europe’s Depopulation Time Bomb Is Ticking in the Baltics (BBG)
Members of European Parliament Call For Boycott of FIFA World Cup in Russia (UAW)
World Bank Recommends That Countries Eliminate Minimum Wage (BB)
Hopes For Greek Debt Deal Low Amid EU-IMF Discord (K.)
Turkish Justice Minister: Greece ‘A Gathering Place For Criminals’ (K.)
Nassim Nicholas Taleb Has Never Borrowed a Cent in His Life (Esq.)

 

 

At least in words, China has caved.

US Hints at China Truce as World Warns of Trade-War Threat (BBG)

U.S. Treasury Secretary Steven Mnuchin said he’s considering a trip to China amid a trade dispute with Beijing that finance chiefs warn could derail the global economic upswing. Mnuchin said he’s “cautiously optimistic” of reaching an agreement with China that bridges their differences over trade. “A trip is under consideration,” Mnuchin told reporters on Saturday in Washington at the IMF’s spring meetings. “I’m not going to make a comment on timing, nor do I have anything confirmed.” China’s Ministry of Commerce said Sunday it is aware that the U.S. is considering a visit to Beijing to negotiate economic and trade issues and welcomes such a move.

A visit by the U.S. Treasury secretary to China could signal a breakthrough in the spat between the world’s two-biggest economies, whose threats to slap tariffs on each other have rattled markets and raised fears of a trade war. It would come at a sensitive time for the region’s geopolitics, with negotiations under way on a planned meeting between President Donald Trump and North Korean leader Kim Jong-Un. Mnuchin’s remarks came as finance ministers and central bankers at the IMF meetings gave their latest economic assessments, often citing trade as a threat looming over the strongest upswing in seven years.

[..] Mnuchin said he met with Yi Gang, governor of the People’s Bank of China, at the IMF gathering this week. The discussions focused on issues related to the Chinese central bank, not trade, said the secretary. Mnuchin said they also discussed China’s planned further opening of some markets, a move that U.S. has encouraged and “appreciated.” “China will vigorously push forward the reform and opening-up of the financial sector, significantly relax market access restrictions, create a more attractive investment environment, strengthen the protection of intellectual properties and actively expand imports,” Yi said in a statement on Saturday. China has announced plans to gradually remove foreign ownership caps for limits for car-, ship- and aircraft-makers.

Read more …

“Buying a house is supposed to be a joyful thing..”

US Banks Push Mortgage Apps As Home Lending Slows (R.)

Big U.S. banks are racing to launch websites and mobile apps to make getting a mortgage faster and easier, investments that may have modest near-term payoffs as home lending activity slows. Lenders have been spending on digital tools to cut costs, eliminate error-prone paperwork and appeal to younger home buyers. However, they are chasing a shrinking pool of refinancing business and new home loan volumes are still below pre-crisis levels. Bank of America has spent $1 billion on its digital banking services in the last six years and launched its lineup of techy mortgage products last week. Wells Fargo rolled out its website and app service during the first quarter, and JPMorgan Chase, which is investing $1.4 billion in technology in 2018, plans to launch its offering later this year.

Bank of America’s app automatically fills in a customer’s address, employment history and other information that the bank already has, cutting out hundreds of boxes customers would otherwise have to fill. JPMorgan’s lets customers e-sign important documents. Quicken Loans was the first to gain traction with digital home loans following its 2016 Rocket Mortgage launch. The app is now key to its mortgage sales with more than 98 percent of the $20 billion in first-quarter lending volume accessing Rocket Mortgage at some point in the mortgage process, Quicken spokeswoman Brianna Blust said.

Quicken was the biggest home lender by volume in the fourth quarter of 2017 and first quarter of 2018, Blust said. It was the second-largest U.S. mortgage lender for the full year 2017, according to data from Inside Mortgage Finance Publications. “Buying a house is supposed to be a joyful thing,” said Steve Boland, Bank of America’s head of consumer lending. “Filling out 330 fields is not, I think, something that brings you joy.” Refinancing volumes have plunged as interest rates have risen, meaning lenders must compete for a much smaller revenue pie in fresh home purchases.

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Bit over the top?

Chinese Gangs Are Laundering Drug Money Through Vancouver Real Estate (GN)

Criminal syndicates that control chemical factories in China’s booming Guangdong province are shipping narcotics, including fentanyl, to Vancouver, washing the drug sales in British Columbia’s casinos and high-priced real estate, and transferring laundered funds back to Chinese factories to repeat this deadly trade cycle, a Global News investigation shows. The flow of narcotics and chemical precursors — and a rising death count in western Canada caused by synthetic opioids — is driven by sophisticated organized crime groups known as Triads. The Triads have infiltrated Canada’s economy so deeply that Australia’s intelligence community has coined a new term for innovative methods of drug trafficking and money laundering now occurring in B.C.

It is called the “Vancouver Model” of transnational crime. Details of the Vancouver Model are outlined in a November 2017 report obtained by Global News from B.C.’s provincial government, in a freedom of information request. The report, by John Langdale of the department of security studies and criminology at Macquarie University, was presented to Australian intelligence officers and Austrac, the country’s anti-money laundering agency. B.C. Attorney General David Eby has reviewed the report, and recently travelled to Ottawa to inform a federal committee of his concerns. His message was blunt. Eby testified that Canada’s anti-money laundering system has completely failed. He told the committee that gangsters have been openly carrying hockey bags stuffed with hundreds of thousands in drug cash into B.C. casinos, and there has not been a single prosecution.

In an interview with Global, Eby said the Australian report shows “that Vancouver is now recognized internationally as a hub of transnational money laundering.”

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Is this also about Chinese gangs?

New Zealand’s Ban On Home Sales To Foreigners Is “Discriminatory” – IMF (BBG)

The IMF has criticized New Zealand’s “discriminatory” ban on home sales to foreigners, saying it’s unlikely to improve housing affordability. “Foreign buyers seem to have played a minor role in New Zealand’s residential real estate market recently,” the IMF said in a statement Tuesday, after concluding its annual Article IV mission to New Zealand. If the government’s broader housing policy agenda is fully implemented, that “would address most of the potential problems associated with foreign buyers on a less discriminatory basis,” it said. The new Labour-led government has pledged to fix the nation’s housing crisis with a raft of measures, including a ban on foreign speculators buying residential property, removal of tax distortions and an ambitious building program.

House prices have surged more than 60% in the past decade amid record immigration and a construction shortfall, shutting many out of the housing market. [..] Proposed changes to the Overseas Investment Act, which the government says will bring New Zealand into line with neighboring Australia, will classify residential land as “sensitive,” meaning non-residents or non-citizens can’t purchase existing dwellings without the consent of the Overseas Investment Office. While non-resident foreigners will be allowed to invest in new construction, they will be forced to sell once the homes are built.

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“Their parting shot to an unjust world was voting for Donald Trump. Next time, they won’t even be around.”

Whirling Whirling (Jim Kunstler)

It begins to look like The USA will litigate itself into Civil War Two with the first battle being half the lawyers in the Department of Justice prosecuting the other half until Anthropogenic Global Warming puts the DC Swamp completely underwater and all parties concerned scuttle off into the deep blue sea. It was rather a shock to see the photo lineup of all those familiar faces — Comey, Hillary, McCabe, Loretta Lynch et. al. — in the criminal referral “matters” sent over to the DOJ by congress on Wednesday, as if they were some mob of goombahs caught running a waste management kickback racket in the Hackensack mud-flats.

But the evidence trail has been in plain sight for more than a year that Justice Department officials of various ranks and stripes colluded to bring off a legalistic coup d’etat against the loathed and despised winner of the 2016 election — with a little help from (of all things and personae) Russia, as in that political smallpox blanket known as the Steele Dossier. Mixed metaphors aside, it looks like all the clones of Ricky Ricardo and Lucy engineered in some CIA black lab will never satisfy the amount of ’splainin’ that needs to be done, and that the ensuing trials may last longer than the lifetimes of millennials still struggling on campus with their gender presentation. There may be even more line-ups to come.

I’m thinking players like Susan Rice, the Podesta brothers, Huma Abedin, John Brennan, James Clapper, Debbie Wasserman-Schultz, and perhaps the gentleman who preceded the Golden Golem of Greatness in the oval office. This melodrama will make The Lord of the Rings look like a knock-knock joke. Meanwhile, the Republic actually whirls around the drain, both as a legitimate polity between Montauk Point and the Farallon Islands, and as an actor on the world stage. The Washington bureaucracy is not the only swamp that needs to be drained. There’s also the reeking Okeefenokee wasteland known as the US economy, led by its financial avatars on Wall Street who engineered the orgy of asset-stripping that chewed through the industrial states like some flesh-eating bacteria.

There is nothing left in Flyover-land. I drove through part of it yesterday on a book-reporting chore: the “quiet corner” of northeastern Connecticut south of Worcester, Mass, a valley of decrepitating mill towns and opiate addiction, like some place out of H.P. Lovecraft’s demon-haunted imagination, where the sun comes up twenty minutes later than anywhere else, and a dwindling population of malevolent diseased imbeciles shriek their lonesome agonies of failure and destitution to a God that never returned from lunchbreak one day in 1985. Their parting shot to an unjust world was voting for Donald Trump. Next time, they won’t even be around.

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No accident.

Home Office Under Theresa May Was Urged in 2014 To Act On Windrush (Ind.)

Home Office officials were urged four years ago to act on the growing problems facing the Windrush generation, it has emerged, including recommendations to create a specialist taskforce which was only set up this week. It follows intense pressure on the government department and Theresa May over their handling of the Windrush scandal that has highlighted the plight of members of a generation of immigrants who arrived as British citizens in the mid-twentieth century. This week both Amber Rudd, the home secretary, and the prime minister have personally apologised for the debacle, promising compensation for those affected and setting up a new dedicated team in the Home Office tasked with helping members of the Windrush generation prove their right to British citizenship.

But the government now faces renewed criticism after it emerged that a similar recommendation – the creation of specialist Home Office unit – was made in October 2014 while Ms May was in charge of the department as home secretary. In a detailed report, published in October 2014 by the Legal Action Group, it was also warned that thousands of migrants who have been in Britain legally for decades were falling victim to the “hostile immigration” policies aimed at illegal immigrants in the UK. The recommendations of the Chasing Status report also included maintaining applicants’ ability to work and claim benefits while their status is resolved.

[..]The Labour MP David Lammy, who has been a leading campaigner for those members of the Windrush generation experiencing difficulties, told The Independent: “It is utterly extraordinary that the Home Office was clearly aware of the impact that their pernicious policies would have, yet ignored all the warnings and impact assessments. “The apologies made by the home secretary and prime minister are merely crocodile tears given that they were fully aware of the human cost that their policies would have. It’s time for a proper and independent review of our immigration policy and the hostile environment.”

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“Lose one form, and you lose cancer treatment and your liberty – lose a generation’s forms, and you’re the effing PM..”

Tory Ministers Milking The System Are The Real Shirkers (G.)

If I were editing a tabloid newspaper this week – and I’m always open to guest stints – I would have had advertising vans out since Monday. They would have been crawling v-e-r-y slowly back and forth past the houses of Theresa May, Amber Rudd, Nick Timothy and David Cameron – and those just for starters. Instead of the repulsive GO HOME message that adorned the infamous vans May’s Home Office sent out, which resulted in the eventual deportation of precisely 11 migrants, I would have something along the lines of STAY HOME. Stay home, permanently. Whether they would get the message is uncertain. Collectively, Britain did its very best to provide a hostile environment for May with the election result. The message was very clear: take a hike. Not a hiking holiday, but the full hike.

Yet the import does not seem to have got through to the prime minister, or the various arse-coverers around her. It’s fair to say we are dealing with a very specific class of unworthy here. There are few groups who take less responsibility for their actions, as this week in the Windrush scandal has laid starkly bare. Some of the most senior political figures in the land are – in the purest sense of one of their favourite terms – shirkers. They are feckless. They act like these things are happening to them, as opposed to because of them. Given the judgments they like to visit on the weaker members of society for comparatively minuscule transgressions, this makes them the most raging hypocrites too.

[..] And on they all go. If the government is in any doubt as to why so many millions think it’s one rule for them and another for the little people, then this week couldn’t be a better primer. You lose one form and you lose your job, your cancer treatment, your benefits, your liberty; you lose a generation’s forms and you’re the effing prime minister. Those condemned to battle the systems that ministers design know what happens if they make tiny errors. Furthermore, they know that if they messed up a tenth as badly in their jobs, they’d be sacked. But in the arse-over-tit world of government, you’re safe because your sacking would make the big boss – May – look weak. Just like your HR department, right? Except on crystal meth.

I don’t want to fall back on a series of politicians’ best-loved cliches, but this level of irresponsibility is just scrounging with a red box. They play for high stakes – but never their own. It’s the sort of system-milking demonised in a benefits office in Grimsby but regarded as career progression in Westminster. It makes it appear there’s no glass ceiling in modern political life, just a reinforced lead floor. Once you’re in, you basically have to die to stop earning rewards.

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“Children as young as 10 who were born in the UK are subjected to a “good character” test when they apply for citizenship..”

Theresa May’s Hateful ‘Hostile Environment’ Immigration Policy (O.)

History will judge Theresa May harshly. In recent weeks, the appalling stories about the impact of the government’s “hostile environment” policy reported by our sister paper, the Guardian, have continued to grow in number. They paint a shocking picture of a Kafkaesque state that has denied people who came to the UK from the Commonwealth as children their rightful entitlement to work, to housing and to healthcare. May has maintained these are people who have been wrongly caught up in her 2013 decision as home secretary to create a “really hostile environment” for people living in Britain illegally. But their tragic stories are the direct consequence of a policy so punitive that it would inevitably make life intolerable for legal British residents.

People without a passport are now being required to provide an absurd level of proof – four pieces of documentary evidence for each year of residence – of their legal status. Without this, they can no longer work, rent a home, open a bank account or access NHS care and may be detained and threatened with deportation. Doctors, bank clerks and landlords have become obliged to snoop on their fellow citizens by checking up on their immigration status.

[..] Those who become caught up in this are confronted with a cruel Home Office bureaucracy that operates outside the principles of natural justice. Officials are incentivised to reject applications for the tiniest of technical errors; immigration application fees are so high they are generating profits of up to 800% for the state, and there is no longer any right of appeal or legal aid available in most types of immigration cases. Children as young as 10 who were born in the UK are subjected to a “good character” test when they apply for citizenship; if they have been cautioned, their application can be refused.

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The EU fails everywhere, and spectacularly. It sucks the periphery dry. Just like Rome did.

Europe’s Depopulation Time Bomb Is Ticking in the Baltics (BBG)

With much of Eastern Europe already in the European Union or looking to join, living standards have been rising in the cities that dot these former Soviet satellites. More storefronts beckon to western tourists, who have grown more eager to wander among the cobblestones of historic capitals that were once less than hospitable. But a closer look outside the central squares reveals a different reality. According to the UN’s Department of Economic and Social Affairs, nine of the world’s countries most at risk of losing citizens over the next few decades are former East bloc nations. Porous borders and greater opportunity in the west have lured people away. Meanwhile, the populist wave sweeping the continent has made it next-to-impossible for African or Middle Eastern refugees to take their place.

Former Latvian economic minister Vjaceslavs Dombrovskis, now head of the Certus think tank, compared the westward migration of young eastern Europeans to the industrial revolution, when peasants rushed to large urban centers. He said these countries risk turning into what ancestral villages are for city dwellers: “a lovely place where you might spend an odd weekend with your folks.” The trend is hitting especially hard in the Baltics. Latvia, with a current population of 1.96 million, has lost about 25% of its residents since throwing off Soviet control in 1991. The UN predicts that by 2050, it will have lost an additional 22% of its current population—second only to Bulgaria—and by 2100, 41%.

In Estonia, with a population of 1.32 million, the UN foresees a 13% decline by 2050, growing to 32% by 2100. And in Lithuania, the current population of 2.87 million is expected to drop by 17% in 2050. By 2100, it will have lost 34%. As bad as those numbers look, the trend looks even worse for Ukraine and Moldova. The UN predicts 36% and 51% declines in those nations by the end of the century, respectively. Russia, meanwhile, is expected to lose 13% by 2100. Several factors are contributing to the depopulation of Eastern Europe, and Latvia has all of them: low income, compared with more developed EU nations; insufficient growth; and strong anti-immigrant sentiment. The average annual take-home pay among all EU nations was 24,183 euros ($29,834) in 2015, according to Eurostat, while in Latvia it was only 6,814 euros ($8,406).

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There are 751 members. 60 support this.

Members of European Parliament Call For Boycott of FIFA World Cup in Russia (UAW)

60 members of the European Parliament called on EU member states to boycott the FIFA World Cup in Russia, DW reports. The initiator of this appeal is a representative of the Green Party, Rebecca Harms. She believes that Russian President Vladimir Putin cannot be a host of the World Cup while the war continues in Syria and Ukraine. She also pointed out that Russia supports right-wing extremist and anti-democratic parties in the EU and has been trying to influence elections. Overall, the statement was signed by representatives of 5 factions of the European Parliament from 16 countries. The authors of the document indicate that Russia itself is pushing Europe towards such steps.

A group of deputies reminded others about the poisoning of former GRU agent Sergei Skripal and his daughter Yulia, which they called a mockery of European values. MEPs believe that EU member states should take the UK and Iceland as good examples of the countries which counter the “strengthening of the authoritarian and anti-Western course of the Russian president.” The authors also draw attention to the unsatisfactory situation with human rights and freedoms in Russia, especially the violation of freedom of speech. Earlier, a White House representative urged British and American fans to think twice before going to the World Cup in Russia.

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Let’s shut down the World Bank. It’s been rotting for too long.

World Bank Recommends That Countries Eliminate Minimum Wage (BB)

A draft of the World Bank’s annual flagship World Development Report says that its creditor-states (the poorest countries in the world) should eliminate their minimum wage rules, allow employers to fire workers without cause, and repeal laws limiting abusive employment contract terms. The bank argues that this is necessary to stop employers from simply investing in automation and eliminating workers altogether. The report does not contemplate the possibility that the world’s governments would just raise taxes on corporations and their investors to provide for all their citizens.

Poor countries – especially decolonized countries – are often in debt to organizations like the World Bank and IMF, sometimes because they were forced to literally buy their freedom (like Haiti, whose slave-descended population had to remit a sizable portion of its annual GDP to the descendants of French slavers until 1947), sometimes because their wealth was looted by colonists during and after the colonial period, and sometimes because rich creditor nations were complicit in the exfiltration of the nation’s treasure by gangster-politicians, a practice that continues to this day.

Countries generally carry more debt than they can hope to repay, and teeter on the brink of continuous default, putting them at the mercy of creditor-organizations, who can order changes to national laws, sell-offs of public industries and assets, and other measures that further reduce debtor-states’ ability to prosper, creating more debt and deeper concessions. The World Bank’s recommendations feel like the beginning of the end-game of late-stage capitalism, a recognition that the post-war era in which cruel exploitation of workers was considered a bug rather than a feature is drawing to a close, and a return to a kind of market feudalism, where property rights – no matter how corrupt their origins – always trump human rights.

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Divide and rule.

Hopes For Greek Debt Deal Low Amid EU-IMF Discord (K.)

Hopes for a breakthrough on the issue of Greek debt relief at a summit of eurozone finance ministers in Sofia on Friday are muted following a lack of progress in talks between European officials and representatives of the IMF in Washington over the weekend. Talks involved all of the key players in the debate on Greece’s debt, including IMF chief Christine Lagarde, European Monetary and Economic Affairs Commissioner Pierre Moscovci, and the finance ministers of Germany, Italy, Spain and France. But a long-standing rift between EU and IMF officials over how a debt relief mechanism should operate continued, with the Fund representatives insisting that it should be automatic and the Europeans saying it should be tied to conditions.

In view of the resistance put up chiefly by Germany, the EU’s largest economy, Finance Minister Euclid Tsakalotos expressed his concern that the debt relief being considered for Greece would be inadequate. Another worry is over creditors’ objections to a growth plan proposed by Greece. European officials responded with a 30-page memo to Greece’s 85-page proposal, requesting more detail and a stricter time frame. The growth plan was one of the issues discussed by leftist SYRIZA’s political secretariat during a session chaired by Prime Minister Alexis Tsipras on Saturday.

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What you say about a neighbor you want good relations with.

Turkish Justice Minister: Greece ‘A Gathering Place For Criminals’ (K.)

Turkish Justice Minister Abdulhamit Gul has written to his Greek counterpart Stavros Kontonis saying “Greece is becoming a gathering place for criminals” following a court ruling releasing one of eight Turkish servicemen seeking asylum in Greece, Anadolu reported on Saturday. Gul’s letter came a day after Turkish Prime Minister Binali Yildirim slammed the Council of State ruling, saying Greece was becoming a “safe haven” for Turkey’s enemies. The ruling issued on Thursday by Greece’s highest administrative court relates to Süleyman Özkaynakçı, who piloted the helicopter in which he and seven other Turkish servicemen fled to Greece in July 2016 following Turkey’s failed coup.

However it is expected to apply to all eight servicemen. In his comments on Friday, Yildirim said it was “unacceptable” for people who took part in the coup attempt in the summer of 2016 to be protected by Greece. “Unfortunately, recently, criminals of the FETO organization have started seeing Greece as a safe haven,” he said, referring to what Ankara describes as a terrorist group led by exiled cleric Fethullah Gulen. “I hope they will extradite the members of this organization,” he said, adding that Turkish authorities “do not desire a negative impact on Greek-Turkish relations because of members of the FETO organization.”

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“We have to worry about the 2 percent—the intellectuals and politicians making the big decisions who don’t have skin in the game and are messing the whole thing up for everybody else.”

Nassim Nicholas Taleb Has Never Borrowed a Cent in His Life (Esq.)

People ask me my forecast for the economy when they should be asking me what I have in my portfolio. Don’t make pronouncements on what could happen in the future if you’re immune from the consequences. In French, they use the same word for wallet and portfolio. I have never, ever borrowed a penny. So I have zero credit record. No loans, no mortgage, nothing. Ever. When I had no money, I rented. I have an allergy to borrowing and a scorn for people who are in debt, and I don’t hide it. I follow the Romans’ attitude that debtors are not free people. I carry euros, dollars, and British pounds. What I do with my money is personal. People who say they give it to charity, that’s a no-no in my book. Nobody should ever talk about a charitable act in public.

Better to miss a zillion opportunities than blow up once. I learned this at my first job, from the veteran traders at a New York bank that no longer exists. Most people don’t understand how to handle uncertainty. They shy away from small risks, and without realizing it, they embrace the big, big risk. Businessmen who are consistently successful have the exact opposite attitude: Make all the mistakes you want, just make sure you’re going to be there tomorrow. Don’t invest any energy in bargaining except when the zeros become large. Lose the small games and save your efforts for the big ones. There’s nothing wrong with being wrong, so long as you pay the price. A used-car salesman speaks well, they’re convincing, but ultimately, they are benefiting even if someone else is harmed by their advice.

A bullshitter is not someone who’s wrong, it’s someone who’s insulated from their mistakes. There is less “skin in the game” today than there was fifty years ago, or even twenty years ago. More people determine the fates of others without having to pay the consequences. Skin in the game means you own your own risk. It means people who make decisions in any walk of life should never be insulated from the consequences of those decisions, period. If you’re a helicopter repairman, you should be a helicopter rider. If you decide to invade Iraq, the people who vote for it should have children in the military. And if you’re making economic decisions, you should bear the cost if you’re wrong.

Ninety-eight percent of Americans—plumbers, dentists, bus drivers—have skin in the game. We have to worry about the 2 percent—the intellectuals and politicians making the big decisions who don’t have skin in the game and are messing the whole thing up for everybody else. Thirty years ago, the French National Assembly was composed of shop owners, farmers, doctors, veterinarians, and small-town lawyers—people involved in daily activities. Today, it’s entirely composed of professional politicians—people who are just divorced from real life. America is a little better, but we’re heading that way.

Read more …

Feb 102018
 
 February 10, 2018  Posted by at 11:26 am Finance Tagged with: , , , , , , , , , , , , ,  


Frank Larson Times Square, New York 1950s

 

Worst Week in 2 Years for Stocks Ends on High Note (BBG)
By Betting On Calm, Did Investors Worsen The Stock Market Fall? (G.)
The Scariest Chart For The Market (ZH)
‘Bond Vigilantes’ Are Saddled Up And Ready To Push Rates Higher (CNBC)
The Worst Of The Bond Rout Is Yet To Come, Says Piper Jaffray (CNBC)
US GDP Growth Is Not As Rosy As It Seems (Lebowitz)
2018 Won’t Kill The Speculators. But It Will Teach Them A Lesson Or Two (Xie)
Minimum Wage Awkward Pillar Of Emerging Social Europe (AFP)
Relations Between Britain And The EU Sink To A New Low (Ind.)
UK Has More Than 750,000 Property Millionaires (G.)
Brexit Plan To Keep Northern Ireland In Customs Union Triggers Row (G.)
Greek PM Steps In To Police Exploding Novartis Bribery Investigation (FPh)
EU’s Moscovici Says Greece Will Be ‘Sovereign Country’ After Bailout (K.)

 

 

The one thing that really matters now is volatility, and all the outstanding bets for or against it.

Worst Week in 2 Years for Stocks Ends on High Note (BBG)

U.S. equities ended their worst week in two years on a positive note, but rate-hike fears that pushed markets into a correction remain as investors await American inflation figures on Feb. 14. The S&P 500 tumbled 5.2% in the week, its steepest slide since January 2016, jolting equity markets from an unprecedented stretch of calm. At one point, stocks fell 12% from the latest highs, before a furious rally Friday left the equity benchmark 1.5% higher on the day. Still, the selloff has wiped out gains for the year. Signs mounted that jitters spread to other assets, with measures of market unrest pushing higher in junk bonds, emerging-market equities and Treasuries. The Cboe Volatility Index ended at 29, almost three times higher than its level Jan. 26.

The VIX’s bond-market cousin reached its highest since April during the week, and a measure of currency volatility spiked to levels last seen almost a year ago. Pressure on equities came from the Treasury market, where yields spiked to a four-year high, raising concern the Federal Reserve would accelerate its rate-hike schedule. Yields ended the week at 2.85%, near where they started, as Treasuries moved higher when equity selling reached its most frantic levels. Commodities including oil, gold and industrial metals moved lower Friday. The dollar, euro and sterling all declined. “Sometimes making a bottom can take time,” Ernie Cecilia, chief investment officer at Bryn Mawr Trust Co., said by phone. “Investors should be at least aware, cognizant, and expect a little more volatility after we go through this period of more cathartic volatility.”

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In more detail: volatility. Or in other words: how the Fed killed the market.

By Betting On Calm, Did Investors Worsen The Stock Market Fall? (G.)

Back in 2008, the non-financial world had to digest a lot of jargon in a hurry – collateralised debt obligations (CDOs), asset-backed securities (ABSs) and the rest of the alphabet soup of derivative products that contributed to the great banking crash. This week’s diet has felt similar. As the Dow Jones industrial average twice fell 1,000 points in a day, we have had to swallow tales about the VIX, the inverse VIX, the XIV, and ETPs. Did this overdose of three-letter acronyms really cause the stock markets to swoon? Have those geniuses in the back offices of investment banks really baffled themselves – and a lot of investors – with complexity again? The short answer to the second question is: yes. The chart shows one of the most spectacular blow-ups you could hope to see.

This is the XIV – it is actually the snappier name for the Credit Suisse VelocityShares Daily Inverse VIX Short Term exchange traded note – since the start of 2016. It was a beautiful investment until, suddenly, it was a disaster. What is the XIV? It was a way to bet that the S&P 500, the main US stock index, would be tranquil – in other words suffer few outbreaks of volatility. The measure of volatility is called the VIX and it is compiled and published by the Chicago Board Options Exchange by noting the prices of various option contracts in the market and then applying a mathematical formula. The VIX is more famously known as the “fear index”. In itself, the VIX is just a number – its long-term average is about 20, more than 30 is a worry, and more than 40 could herald a crisis.

For much of last year it was between 10 and 12 but on Tuesday it hit 50, before recoiling back to around 30 currently. The fun starts when products are invented to trade and speculate on how the VIX will perform. Conventional futures contracts came first. Then ETFs, or exchange-traded funds, a low-cost product that has taken the financial world by storm in the last couple of decades, followed. The XIV is slightly different (it’s a note, rather than a fund) but it comes from the same school. By trading S&P 500 options, or contracts to buy and sell the S&P at points in the future, it was structured to do the exact opposite of the VIX. If volatility in the stock market was low – as it was throughout 2016 and 2017 – owners of the XIV would do well. In the jargon, they were “short vol”. But, if volatility exploded, then the XIV would fall.

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Posted a different version of this chart (from Arbeter) yesterday, coming from Market Watch.

The Scariest Chart For The Market (ZH)

Interest-rates going up “for the right reason” is bullish, right? Each time interest rates have surged up to their long-term trendline, a ‘crisis’ has occurred…

But this time is different right? Because rates are “going up for the right reason.” Hhmm, the reaction in markets each time the yield on the 10-Year Treasury yield reaches its trendline is ominous…

So the question is – have interest rates ‘ever’ gone up for the right reason? Or is this narrative just one more bullshit line from a desperate industry of asset-gatherers and commission-takers? It does make one wonder what the relationship between US government ‘interest costs’ and global money flow really is. Does an engineered equity tumble spark safe-haven-buying and ease the pain as deficits and debt loads soar. It would certainly help as $300bn additional budget deals are passed, The Fed has left the game, and China is threatening to be a seller not a buyer…

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If everyone’s on the same side of the boat, somebody must be on the other.

‘Bond Vigilantes’ Are Saddled Up And Ready To Push Rates Higher (CNBC)

There’s reason to be concerned about bond vigilantes, who are no longer under “lock and key” and are free to push yields higher, Wall Street veteran Ed Yardeni told CNBC on Friday. Yardeni, a market historian, coined the term bond vigilantes in the 1980s to refer to investors who sell their holdings in an effort to enforce fiscal discipline. Having fewer buyers drives prices down — and drives yields up — in the fixed-income market. That, in turn, makes it more expensive for the government to borrow and spend. “They had been sort of put under lock and key by the central banks. The Fed had lowered interest rates down to zero in terms of short-term rates and that pushed bond yields down. And then they bought up a lot of these bond yields,” said Yardeni, president of Yardeni Research.

Now the Fed is slowly raising interest rates and starting to unwind its balance sheet. On top of that, new tax cuts were passed and a massive spending deal was just signed into law. “Now people are looking more at the domestic situation and saying, ‘You know what, maybe we need a higher bond yield,'” Yardeni said in an interview with “Power Lunch.” “They’ve saddled up, and they’re riding high. The posse is getting ready. They’re getting the message out.” Bond vigilantes last made their mark during the Clinton administration, when a bond market sell-off forced President Bill Clinton to tone down his spending agenda. Yardeni said while Clinton got the message back then, he doesn’t think the Trump administration has this time around.

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Sub: Rising rates slam stocks as market volatility rages on.

The Worst Of The Bond Rout Is Yet To Come, Says Piper Jaffray (CNBC)

It all started with bond yields. Spiking yields spilled over onto the stock market in the past week, first triggering a nearly 666-point drop on the Dow last Friday and then sparking two declines of more than 1,000 points within just 4 days. The bond rout will continue with yields on the 10-year possibly reaching 3% in the near term, according to Craig Johnson, senior technical strategist at Piper Jaffray. That is a level it has not reached since January 2014. “This is a 36-year reversal in rates,” Johnson told CNBC’s “Trading Nation” on Thursday. Bond yields, which move inversely to prices, have generally been in decline over the past 3 decades, indicating a long-term bull market for bond prices.

“When you reverse that downtrend from down to up you typically get a momentum response and a quick move up. That’s exactly what you’re seeing in the bond market right now,” added Johnson. “You’ve got to be careful in here right now.” The yield on 10-year Treasurys has risen at a fast clip since the U.S. election in November 2016. Bond yields held at around 1.8% prior to the election and have since moved up 100 basis points to hit a 4-year high of 2.86% this week. The uncertainty of a Trump presidency initially sent bond prices lower and yields higher at the end of 2016. Now, worries over the effect an accelerating economy and rising inflation might have on Federal Reserve policy this year have taken over. Historically, bond prices fall when interest rates rise.

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No savings and huge debt means less consumer spending. Which is what 70% of US GDP is made of.

US GDP Growth Is Not As Rosy As It Seems (Lebowitz)

Last Friday, GDP for the fourth quarter of 2017 was released. Despite being 0.3% short of expectations at 2.6% annual growth, it nonetheless produced enthusiasm as witnessed by the S&P 500 which jumped 25 points. One of the reasons for the optimism following the release was a strong showing of the consumer which notched 2.80% growth in real personal consumption. The consumer, representing about 70% of GDP, is the single most important factor driving economic growth and therefore we owe it to ourselves to better understand what drove that growth. This knowledge, in turn, allows us to better assess its durability. There are three core means which govern the ability of individuals to spend. The most obvious is income and wages earned.

To help gauge the effect of changes in income we rely on disposable income, or the amount of money left to spend after accounting for required expenses. Real disposable personal income in the fourth quarter, the same quarter for which GDP growth data was released, grew at a 1.80% year over year rate. While other indicators of wage growth are slightly higher, we must consider that payroll gains are not evenly distributed throughout the economy. In fact as shown below 80% of workers continue to see flat to declining growth in their wages. While this may have accounted for some of the growth in consumption we need to consider the two other means of spending over which consumers have control, savings and credit card debt.

Savings: Last month the savings rate in the United States registered one of the lowest levels ever recorded in the past 70 years. In fact, the only time it was lower was in a brief period occurring right before the 2008/09 recession. At a rate of 2.6%, consumers are spending 97.4% of disposable income. The graph below shows how this compares historically. [..] the savings rate is less than half of that which occurred since the 2008/09 recession and well below prior periods.

Credit Card Debt: In addition to reducing savings to meet basic needs or even splurge for extra goods, one can also use credit card debt. Confirming our suspicion about savings, a recent sharp increase in revolving credit (credit card debt) is likely another sign consumers are having trouble maintaining their standard of living. Over the last four quarters revolving credit growth has increased at just under 6% annually which is almost twice as fast as disposable income. Further, the 6% credit card growth rate is about three times faster than that of the years following the recession of 2008/09.

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The liquidity super machine is stalling.

2018 Won’t Kill The Speculators. But It Will Teach Them A Lesson Or Two (Xie)

A decade of massive, synchronised monetary and fiscal stimulus has led to the greatest asset bubble in history, to the tune of about $100 trillion, nearly 1.5 times the world’s GDP. Compared to 2-3% of GDP growth in the global economy, we should be mindful of the potential and huge cost associated with it. Even though the US stock market is more expensive than in 1929 or 2000, and China’s property valuation is higher than Japan’s a quarter-of-a-century ago, fear-driven selloffs have been rare and brief, leading to the belief that high asset prices are the new normal. Massive amounts of financial and business activities, especially in technology, are predicated on high asset prices going higher. The unusual longevity and resilience of high asset prices are largely because government actions — not herd behaviour in the market — are force-feeding the bubble.

Government actions will lose their grip only when growth expectations crash or inflation flares up. Neither is a major risk for 2018. Hence, 2018 won’t kill the speculators of the world. But 2018 will teach them a lesson or two. High-risk assets such as internet stocks and high-end properties will struggle like never before in the past decade. US interest rates will rise above inflation for the first time in a decade. And China is tightening, especially in the property sector, out of fear of a life-threatening financial crisis. China accounts for about half of global credit growth. The interaction between the US Federal Reserve’s quantitative easing and China’s credit targeting has been the liquidity super machine. It is stalling in 2018. The asset bubble demands that the excess liquidity-money supply rises faster than GDP to sustain it.

This year may see global money supply line up with GDP. The Fed is likely to raise interest rates from the current 1-1.25% and take the level to 2.5%. This is still low compared with the 4.5-5% nominal GDP growth rate. But the US stock market is more expensive than it was in 1929 or 2000. When the interest rate surpasses inflation, it will become wobbly. Policymakers are caught between a rock and a hard place. The structural problems that led to the 2008 crisis are still here. The global economy grows ever more dependent on asset bubbles. If the global asset bubble bursts, the economy will slide into recession. Hence, when a market wobbles — as it probably will in 2018 — policymakers will come out to soothe market sentiment and may even temporarily reverse the tightening.

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The EU is a feudal neo-liberal machine. There is no such thing as Soical Europe anywhere but in words. It’s about keeping the poor down, and dependent on your money.

Minimum Wage Awkward Pillar Of Emerging Social Europe (AFP)

Twenty-two out of 28 EU states have introduced a minimum wage, trumpeted as a key pillar in the construction of a social Europe. But huge disparities from one country to the next are fuelling resistance from opponents who see the policy as dragging down competitiveness, sovereignty as well as levelling down salaries. Brexit, as an expression of eurosceptic populism, has jolted the European Commission into going on the offensive as it looks to show the European Union is not just a common market but a bloc with a social dimension. A November 17 Social Summit for Fair Jobs and Growth last year set the ball rolling as all 28 EU members signed up to a Europe-wide charter on social rights, laying down 20 basic principles including statutory minimum wages as a mainstay of a policy framework to boost convergence.

“Adequate minimum wages shall be ensured, in a way that provide for the satisfaction of the needs of the worker and his/her family in the light of national economic and social conditions, whilst safeguarding access to employment and incentives to seek work,” according to the guidelines. But the non-binding declaration is, as such, merely symbolic, not least because “European treaties stipulate clearly that salaries come under the national purview,” notes Claire Dheret, head of employment and social Europe at the Brussels-based European Policy Centre (EPC). To date, the Gothenburg charter is being respected only partially, even if all but six EU states have a legal minimum wage, as witnessed by Eurostat data highlighting starkly varying levels from Bulgaria’s 460 leva (€235; $270) a month gross to €1,999 in Luxembourg, that is, nine times as much.

Even so, the discrepancy does shrink to around a factor of three when the cost of living in each state is taken into account. But the Eurostat data shows up major discrepancies between eastern and western states. Ten of the former pay a minimum of less than €500, whereas seven western EU members have set rates surpassing €1,300 euros. Five southern states pay between €650 and €850. The six without an official minimum, which have their own arrangements to cover the basic needs of low earners are Austria, Cyprus, Denmark, Finland, Italy and Sweden.

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We can repeat this every day: the mess gets messier.

Relations Between Britain And The EU Sink To A New Low (Ind.)

David Davis has been dragged into renewed war of words with Brussels over the Brexit transition period, accusing the EU of having a “fundamental contradiction” in its approach and wanting to “have it both ways” after a week of fruitless talks. Relations between Britain and the European Commission sank to a new low on Friday after Michel Barnier, the EU’s chief negotiator, casually claimed at a press conference the UK had cancelled an important meeting due to a “diary clash”. UK officials behind the scenes took offence to the claim and said the meeting had not been cancelled at all and instead took place in the afternoon. Mr Barnier sealed the state of mutual incomprehension, telling reporters in Brussels that he had “problems understanding the UK’s position” on the transition period.

In a statement issued on Friday afternoon after Mr Barnier’s press conference – a solo affair in contrast to previous joint outings – Mr Davis said the EU could not “have it both ways” on the transition period. “Given the intense work that has taken place this week it is surprising to hear that Michel Barnier is unclear on the UK’s position in relation to the implementation period,” he said. “As I set out in a speech two weeks ago, we are seeking a time-limited period that maintains access to each other’s markets on existing terms. “However for any such period to work both sides will need a way to resolve disputes in the unlikely event that they occur.

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And collapsing social services, health care etc. It’s a choice, not a flaw.

UK Has More Than 750,000 Property Millionaires (G.)

There are now more than 750,000 property millionaires in Britain, and in some towns in the south of England half of all homes cost more than £1m, according to analysis by website Zoopla. Despite a slowing property market, Zoopla estimated that the number of property millionaires has climbed to 768,553, a rise of 23% since August 2016. The figures underscore the hugely lopsided nature of the UK property market. Yorkshire and Humberside has 4,103 property millionaires, and Wales 2,223, while in London the figure is 430,720. The figures suggest that while one in 20 people in the capital are paper property millionaires, the same can be said for only one in every 1,400 people in Wales. Zoopla did not take into account the mortgage debt attaching to properties, just the number of properties valued at over £1m.

Outside London, Guildford in Surrey is the town with the most property millionaires, estimated at 5,889, followed by Cambridge and Reading. But Beaconsfield in Buckinghamshire emerges as having the greatest concentration of property wealth in just one town. Zoopla found that 49% of all the houses in the town of 12,000 people nestled below the Chiltern Hills are valued at more than £1m. Agents in the town – dubbed Mayfair in the Chilterns – are currently marketing an opulent six-bed home in Beaconsfield’s “golden triangle” for £6m, boasting a cinema, wine-tasting room and its own six-person smoke-mirrored passenger lift opening on to a galleried balcony with a “Sexy Crystals” chandelier. There is a separate annexe for staff.

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The EU plays the ultimate card: Scotland. The UK has no rebuttal. None. Nada.

Brexit Plan To Keep Northern Ireland In Customs Union Triggers Row (G.)

Officials from the UK and EU are drawing up a plan to in effect keep Northern Ireland in the customs union and the single market after Brexit in order to avoid a hard border. The opening of technical talks followed a warning from Brussels that keeping the region under EU laws was currently the only viable option for inclusion in its draft withdrawal agreement. The development, first reported by the Guardian on Friday and later confirmed by the EU’s chief negotiator, Michel Barnier, triggered an immediate row. Scotland’s first minister, Nicola Sturgeon, tweeted: “If NI stays in single market, the case for Scotland also doing so is not just an academic ‘us too’ argument – it becomes a practical necessity. Otherwise we will be at a massive relative disadvantage when it comes to attracting jobs and investment.”

Anne-Marie Trevelyan, a Tory MP and officer in the European Research Group of Brexit-supporting Conservatives, accused Barnier of “playing hardball”. “I am surprised that the media are reporting his comments as if they are the only voice and hard fact,” she said. “Perhaps Mr Barnier could remember that the UK is in negotiations, which is a two-way discussion.” “It is important to tell the truth,” Barnier said. “The UK decision to leave the single market and to leave the customs unions would make border checks unavoidable. Second, the UK has committed to proposing specific solutions to the unique circumstances of the island of Ireland. And we are waiting for such solutions. “The third option is to maintain full regulatory alignment with those rules of the single market and the customs union, current or future, that support north-south cooperation, the all-island economy and the Good Friday agreement. “It is our responsibility to include the third option in the text of the withdrawal agreement to guarantee there will be no hard border whatever the circumstances.”

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The present European commissioner for migration and home affairs is reported to have taken €40 million in bribes. He should lose his job, today.

Greek PM Steps In To Police Exploding Novartis Bribery Investigation (FPh)

Just days after 10 former ministers in Greece were implicated in bribery allegations against Novartis, the country’s prime minister is calling for a special parliamentary committee to investigate the charges, which have been pegged as slanderous by some politicians pulled into the widening scandal. Meanwhile, three former Novartis executives believed to have provided the meat of the allegations have come under fire, even as their lawyer fights to shield their identities. The investigation targeting Novartis’s Greece offices has been going on since last January, but it blew up earlier this week when news emerged that the case would be submitted to the Greek parliament, which would then decide whether to prosecute the 10 politicians. Novartis is the target of allegations that it bribed doctors and government officials to help boost sales of its drugs.

Now Prime Minister Alexis Tsipras wants the special committee to look into allegations that the 10 politicians received millions of euros in exchange for fixing drug prices and granting other favors to Novartis, according to local press reports. A spokesman for Novartis told FiercePharma that the company continues “to cooperate with requests from local and foreign authorities.” Novartis has not received an indictment related to the investigation in Greece, he added. According to press accounts of the prosecutors’ report, the allegations of bribery stemmed from testimony from three witnesses who worked for Novartis. The witnesses spoke to the FBI, which joined in the investigation in Greece. The employees reported that Greece’s health minister from 2006 to 2009 took €40 million ($49 million) in exchange for ordering “a huge amount” of Novartis products, according to The Greek Reporter.

The health minister working between 2009 and 2010 allegedly accepted €120,000 ($147,000) from the company and laundered it through a computer hardware firm, the news organization added. At least one of the politicians named in the report wants the identities of the three Novartis witnesses to be revealed. Dimitris Avramopoulos, who was the health minister from 2006 to 2009 and now serves as European commissioner for migration and home affairs, held a press conference Friday during which he said he will file a lawsuit demanding the names of the witnesses be made public, according to Politico.

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How dare he use the word sovereign in this context? Greece, like all other EU nations, was and is always sovereign. Demand his resignation.

EU’s Moscovici Says Greece Will Be ‘Sovereign Country’ After Bailout (K.)

On exiting its third international bailout in August, Greece will be an “absolutely sovereign country,” European Economic and Monetary Affairs Commissioner Pierre Moscovici told a conference on Friday organized by the Stavros Niarchos Foundation Cultural Center (SNFCC), French magazine Le Nouvel Observateur and Kathimerini in Athens. “There should be no precautionary credit line,” Moscovici said. “There should be an end to the programs.” The commissioner said that Greece “did what it had to do” but that economic and structural reforms must continue. He also drew attention to an “issue of administrative competence,” without elaborating. In addition, Moscovici expressed his confidence in Prime Minister Alexis Tsipras, who he described as “smart and flexible,” adding that their relationship was “perfect.” Tsipras and Finance Minister Euclid Tsakalotos decided to “play ball,” Moscovici said. He further said Tsakalotos’s predecessor Yanis Varoufakis wreaked major political and financial damage on Greece.

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Mar 272016
 
 March 27, 2016  Posted by at 11:24 am Finance Tagged with: , , , , , , , , ,  


NPC Pittsburg Water Heater Co., Washington DC 1920

Hugh Hendry: “If China Devalues By 20% The World Is Over” (ZH)
The Great Deflation: Stocks To Plunge 80-90% – Harry Dent (Maloney)
You Are -Still- Here (ZH)
US Banks Ramp Up Push for Home-Equity Lines (WSJ)
China Warns Officials: No Unrest, Or Lose Your Job (WSJ)
China Coal Use Slides Further On Weakening Industrial Demand (BBG)
Guessing The Future Without Say’s Law (Macleod)
Seven Ugly Latina Sisters In Deep Political Trouble (Bawerk)
California Lawmakers, Unions Reach Deal for $15 an Hour Minimum Wage
The Church of Economism and Its Discontents (EI)
The State Has Lost Control: Tech Firms Now Run Western Politics (Morozov)
Trump Questions US Position On OPEC Allies, NATO, China (NY Times)
Greece Removes Migrants From FYROM Border Camp (AFP)
The Bar at the End of the Road (WSJ)

Hendry finds trouble sticking to his bull position.

Hugh Hendry: “If China Devalues By 20% The World Is Over” (ZH)

For now, as we showed just ten days ago, those short the Yuan have swung to wildly profitable to losing money as both the USD has slid and the Yuan has spiked, although both of these trades appear to be reversing now. Needless to say, Hendry disagrees with the China contrarians and believes that the way to fix the Chinese economy is through a stronger currency, even if there is no logical way how that could possibly work when China’s debt load is 350% of GDP while its NPLs are over 10% and rising.

So, borrowing form a favorite Keynesian trope, one where when the countrfactual to his prevailling – if incorrect – view of the world finally emerges, Hendry is convinced that a 20% devaluation would lead to global devastation; the same way if Paulson did not get Congress to sign off on his three page term sheet that would lead to the “apocalypse.” Only unlike Paulson who only hinted at a Mad Max world, for Hendry the alternative to him being right is a very explicit doomsday scenario, as he explains in the following excerpt from his RealVision interview:

Tomorrow we wake up and China has devalued 20%, the world is over. The world is over. Euro breaks up. The world is over. The euro breaks up. Everything hits a wall. There’s no euro in that scenario. The US economy, I mean everything hits a wall! Everything hits a wall!

The dollar strength that you imagined is devastation because you just eliminated dollars. They’re a scarce commodity. You’ve wiped them out. And China is a pariah state.

It’s a ‘Mad Max’ movie, right. OK, China gets to be the king in ‘Mad Max’ world. How appealing is that? There is no world after the tomorrow where China devalues by 20%. There is no world. Yeah, it’s looney tunes to believe that, people say, ‘oh wow, they needed to catch a break.’

Their share of world trade has never been higher. They’re facing no pressure, immense terms of trade improvement, and you would destroy world trade. World trade is down 25%. You would probably have passport restrictions, the world is over.

And while it is clear on which side of the Yuan Hugh is currently positioned (Hendry’s Eclectica is down 2.1% through March 18 and -5.9% YTD) either directly or synthetically, we can’t wait to see who is right in the end: China and its central bank (as well as Hugh Hendry) or reason and common sense (as well as some of the smartest hedge funds in the world).

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Mike Maloney’s a TAE fan.

The Great Deflation: Stocks To Plunge 80-90% – Harry Dent (Maloney)

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Look out below.

You Are -Still- Here (ZH)

Buybacks blacked out, option expiration ramp over, and real investors fleeingwhat happens next?

Dip, Jawbone, Rip… Repeat…

 

And close-up…


 

But this time it’s different, 150 days of almost perfect correlation and co-movement means nothing – right?

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Insane that this is possible.

US Banks Ramp Up Push for Home-Equity Lines (WSJ)

At hardware stores along the U.S. East Coast in recent weeks, TD Bank has been trying to persuade shoppers to think bigger than paint and plumbing supplies: The bank wants them to start taking cash out of their homes again. The TD Bank tour bus, equipped with a galley kitchen and iPads where homeowners can start the application process, is part of a marketing push unusual for the mortgage industry since the housing bust. As the broader mortgage market remains in the doldrums, banks are again touting home-equity lines of credit, which allow homeowners to draw down the equity in their home as they need the cash, as well as cash-out refinances, which involve taking cash out of a home while refinancing and ending up with a larger mortgage balance.

The effort is gaining steam as banks try to offset faltering mortgage originations and a refinancing wave that is fizzling out. Lenders are betting that offers for home-equity lines of credit, or helocs, will resonate with many borrowers whose home values are higher than they were just a couple of years ago and who need cash for renovations or other expenses after holding on to their homes for longer than expected. Lenders extended just over $156 billion in home-equity lines of credit last year, the largest dollar amount since 2007, the beginning of the housing bust, according to new figures from mortgage-data firm CoreLogic. That marks a 24% increase from 2014 and a 138% spike from 2010 when new approvals hit a low point. The average line amount extended to homeowners last year reached a record $119,790, according to the firm, which tracks the data back to 2002.

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No. 1 worry.

China Warns Officials: No Unrest, Or Lose Your Job (WSJ)

In China, the timing of an announcement is sometimes more significant than the announcement itself. The Communist Party’s Central Committee and the State Council, China’s cabinet, this week warned party and state officials that they will lose their jobs if they fail to control public unrest. That’s not altogether surprising: on one level,it’s just a restatement of longstanding practice. “For more than 10 years, one of the assessment criteria for promotion of regional officials is the extent to which they can minimize protests,” said Willy Lam, a China politics analyst at the Chinese University of Hong Kong. “So most local officials pull out all stops to prevent petitioners going to Beijing.” But this week’s announcement marks the first time authorities have come up with a definitive public statement explicitly warning party and state officials “at all levels” that their jobs are on the line, state media said.

Why the urgency? The policy announcement comes two weeks after hundreds of unpaid coal workers took to the streets in the gritty northeastern city of Shuangyashan, after their provincial governor claimed a troubled coal company there did not owe its miners any wages. The governor, Lu Hao, later said he misspoke. Mr. Lu remains in office. It’s quite likely the Shuangyashan incident was pivotal in galvanizing the State Council and the party’s Central Committee, Mr. Lam and others say. The incident, widely publicized in the media, came in the thick of China’s annual meeting of its top legislature in Beijing, where Mr. Lu made his comments. At the meeting, known as the lianghui or “two sessions,” a battery of top officials including Premier Li Keqiang repeatedly vowed that they would be able to navigate a sharp slowdown in the economy without seriously affecting workers caught in the transition.

Mr. Li’s public positioning percolates through to a wide swathe of policy in the immediate wake of the congress. “In China, the political calendar doesn’t start in January – it starts with the lianghui in March,” human rights activist Hu Jia said. Government officials are likely worried that the Shuangyashan incident and others could inflict a political cost on the leadership by highlighting issues such as the deficit of labor rights in China, Mr. Hu said. Party chiefs face a difficult task. Over the next five years, they need to shut down millions of tons of industrial capacity that’s making China’s economy inefficient. This means downsizing scores of steel, coal and other large industries that currently employ hundreds of thousands of workers. They have promised to do this without large-scale layoffs. Those displaced, Mr. Li said, would be given new jobs or government assistance.

These promises now hang in the balance. The Shuangyashan incident came amid a surge in other forms of public unrest. Data from labor rights watchdog China Labour Bulletin show a 200% increase in the number of strikes, industrial action and other protests occurring in China from July last year to January this year. Disparate groups of Chinese, from jobless migrant workers to angry taxi drivers have taken to the streets to protest a new era of economic dislocation. The slowing economy has wiped out at least 156 billion yuan ($24 billion) worth of investments in wealth management products across the country, mostly involving small investors. Many of these failures have sparked public protests. Dogged by the prospect of more layoffs and deepening economic woes, the question looms: How many officials will China axe?

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Not because it wants to come clean.

China Coal Use Slides Further On Weakening Industrial Demand (BBG)

China’s coal use is forecast to fall a third year as industrial output slows, adding force to President Xi Jinping’s drive to cut overcapacity and dimming the hopes of global miners for an uptick in demand by the world’s biggest consumer. Demand will slide 2% this year and prices will remain at a low level, according to the state-run Xinhua News Agency, citing Xu Liang, deputy secretary general of the China Coal Industry Association. Output by the world’s largest producer will also fall by 2%. Consumption has weakened amid a push to use cleaner fuels and shift a slowing economy away from heavy industry. Demand for coal, which accounted for 64% of the country’s total energy use last year, contracted 3.7% last year, following a 2.9% decline in 2014, according to the National Bureau of Statistics.

“This year’s coal situation is equally bleak,” Xinhua quoted Xu as saying. China’s easing coal appetite has helped push prices in Asia to their lowest since 2006, punishing mining companies and prompting the government to propose capacity cuts that threaten the jobs of 1.3 million coal miners. By cutting capacity in the next two to three years, production could fall to about 3.5 billion to 3.6 billion tons, balancing supply and demand, Xu said. The country aims to eliminate as much as 500 million metric tons of coal capacity by 2020, almost 9% of its total. Coal output dropped 3.3% to 3.75 billion metric tons last year, while consumption slipped to 3.965 billion tons, both sliding from record highs in 2013, according to Xu. Use of the fuel in power generation dropped 6.2% last year, while demand from industries including steel, cement and glass making declined.

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“..when an economist talks of economic growth being above or below trend, he is talking about a measure that has no place in sound economic reasoning, and that is gross domestic product.

Guessing The Future Without Say’s Law (Macleod)

With Japanese and Eurozone interest rates becoming increasingly negative, and the Fed backing off from at least some of the planned increases in the Fed funds rate this year, economists are reassessing the interest rate outlook. Economists lack consensus, with some expecting yet more easing, based on the apparent collapse in cross-border trade last year. The fact that the Bank of Japan and the European Central Bank see fit to pursue increasingly aggressive monetary reflation is taken as evidence of underlying difficulties faced in these key economies. And lingering doubts about the sustainability of China’s credit bubble point to a high risk of a credit-induced slump in the world’s growth engine.

Other economists, citing official US data and relying on the Fed’s statements, point out that unemployment levels have more than satisfied the Fed’s target, and that core inflation has picked up to the point where the Fed would be fully justified to increase interest rates over the course of this year, or risk overheating in 2017. These two opposite camps conflict in their forecasts, but where they fundamentally differ is in expectations of future economic growth. Far from displaying the highest levels of macroeconomic discipline, their diversity of opinion should alert us that their forecasts may lack sound theoretical foundation. The purpose of reasoned theory is to reduce uncertainty, not promote it. And the explanation for most of the failures behind modern macroeconomic thinking is the substitution of market-based economics by economic planning.

The fact that today’s macroeconomics dismisses the laws of the markets, commonly referred to by economists as Say’s law, explains all. Subsequent errors confirm. The many errors are a vast subject, but they boil down to that one fateful step, and that is denying the universal truth of Say’s law. Say’s law is about the division of labour. People earn money and make profits from deploying their individual skills in the production of goods and services for the benefit of others. Despite the best attempts of Marxism and Keynesianism along with all the other isms, attempts to override this reality have always failed. The failure is not adequately reflected in government statistics, which have evolved to the point where they actually conceal it. So when an economist talks of economic growth being above or below trend, he is talking about a measure that has no place in sound economic reasoning, and that is gross domestic product.

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The CIA still has a lot of power to the south.

Seven Ugly Latina Sisters In Deep Political Trouble (Bawerk)

Get beyond endless Latin American headlines burning column inches and you come to far broader strategic conclusion: The seven ‘ugly Latino sisters’, namely Brazil, Venezuela, Ecuador, Bolivia, Colombia, Mexico and Argentina are all deep political trouble from collapsed benchmark prices. It’s merely a case of who’s in more advanced states of political decay where left leaning governments’ can’t hang on much longer vs. those trying to buy a bit of time with more ‘centrist’ positions. In either case, it’s going to be a classic example of too little too late where the seven ugly sisters have committed at least seven deadly sins when it comes to resource mismanagement over the past decade. This isn’t about whether crisis can be avoided, but how bad the impacts will be. Another ‘lost Latino decade’ beckons. The ugliest twins are obviously Brazil and Venezuela right now.

We firmly expect Rousseff to be impeached next month on the back of endless corruption scandals, and the drastically ill-judged return of Lula that poured far more oil on corruption cover up flames. Watch for Michel Temer to take over the reins of a coalition PMDB government, busily negotiating posts behind closed doors with other players to tee up a formal Worker’s Party split to form a caretaker government through to 2018. How much Temer can get done depends on how far the outstanding ‘car wash’ scandal still rubs off on PMDB factions for major economic reforms, where the rot still runs pretty deep. Initial rhetoric (and inevitable market lifts) on supposed ‘structural reforms’ and far broader liberalisation measures remain unlikely to play through. Although it’s possible Petrobras might push through 2017 licencing rounds purely for political appearances, it’s not going to deliver tangible results in current price environments.

Dig just ‘under the salt’, and Petrobras leverage will remain high; local content even higher. Until Brazil can properly clear its electoral decks in 2018 Mr. Temer is going to have a very limited mandate. If anything, his core challenge is trying to make sure his caretaker outfit doesn’t end up ‘washed out’ day one, given Temer is by no means beyond political reproach, with the PMDB basically as corrupt as the ruling PT. The smart move for Brazil would actually be calling fresh elections with the TSE (electoral authority) invalidating the entire Rousseff-Temer 2014 ticket to put a line under what currently shapes up to be the worst commodity driven economic crash Brazil has ever experienced. Regrettably, Brazilian politics has nothing to do with national interests at this stage, and everything to do with narrow self-preservation societies.

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“..most proposals have the wage increasing about a dollar a year until it reaches $15 an hour”

California Lawmakers, Unions Reach Deal for $15 an Hour Minimum Wage

California legislators and labor unions on Saturday reached an agreement aims to raise the state’s minimum wage to $15 from $10 an hour, a state senator said, a move that would make for the highest statewide minimum in the nation. Sen. Mark Leno (D., San Francisco) said the proposal would go before the Legislature as part of his minimum-wage bill that stalled last year. Mr. Leno didn’t confirm specifics of the agreement, but most proposals have the wage increasing about a dollar a year until it reaches $15 an hour. The Los Angeles Times, which first reported the deal, said the wage would rise to $10.50 in 2017, with subsequent increases to take it to $15 by 2022. Businesses with fewer than 25 employees would have an extra year to comply.

At $10 an hour, California already has one of the highest minimum wages in the nation along with Massachusetts. Only Washington, D.C., at $10.50 an hour is higher. The hike to $15 would make it the highest statewide wage in the nation by far, though raises are in the works in other states. The deal means the issue won’t have to go to the ballot, Mr. Leno said. One union-backed initiative has already qualified for the ballot, and a second, competing measure is also trying to qualify. Union leaders, however, said they wouldn’t immediately dispense with planned ballot measures. Sean Wherley, a spokesman for SEIU-United Healthcare Workers West, confirmed that his group was involved in the negotiations. But he said the group would continue pushing ahead with its initiative on the ballot. “Ours is on the ballot. We want to be certain of what all this is,” Mr. Wherley said.

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The Econocene.

The Church of Economism and Its Discontents (EI)

The global human population increased from approximately 1 billion in the year 1800 to 7 billion in 2011. Over this period, the field of economics emerged, transforming political discourse. The institutional conditions for market expansion were put in place, and the success of markets suppressed myriad other ways societies have organized themselves. Economic activity per capita increased somewhere between 10 and 30-fold, resulting in a 70 to 210-fold increase in total economic activity.1 Population growth has slowed significantly in recent decades, but both economic growth through market expansion and its attendant environmental destruction have only continued.

Econocene is a fitting term for this new era because it makes us think about the expanding market economy, the ideological system that supports it, and its impact on society and the environment. Reflecting on environmental boundaries led ecological economist Herman Daly to propose limits on material throughput. Environmental economists propose taxes on greenhouse gas emissions and the creation of markets to resolve environmental conflicts. While acknowledging the importance of making markets work within the limits of nature and for the common good, I will explore how this new dominance of economic thinking, which I will call economism, has reshaped the diverse cultures of the world and come to function as a modern secular religion.

An advantage of the term Econocene is that it evokes the everyday cosmos of modern people. Artifacts of the economy—towering buildings, sprawling shopping malls, and swirling freeways—surround the 50% of the globe’s population who live in cities. A combination of smog and bright lights now obliterates the starry heavens so important to humanity’s historic consciousness and so humbling to our species’s historic sense of importance, focusing our attention on the economic constructs all around us. The cosmos reflected in the term Econocene includes not only the material artifacts of the economy, but also the market relations that bind us and define our place in the system. Urban dwellers are now fully dependent on markets for material sustenance.

They awake to radio announcers discussing supposedly significant changes in exchange rates, stock markets, and the proportion of people looking for work. The dominance of the market is not just an urban phenomenon: its “invisible hand” guides rural life as well. The crops planted reflect expected future prices, and soils reflect their history of economic use. Farmers have become so specialized that they, too, buy most of their food in supermarkets. In order to grapple with the challenges of this new era, we need to give it a name that resonates with people’s lived experiences.

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The role of Google and Facebook clearly warrants more scrutiny.

The State Has Lost Control: Tech Firms Now Run Western Politics (Morozov)

[..] The grim reality of contemporary politics is not that it’s impossible to imagine how capitalism will end – as the Marxist critic Fredric Jameson once famously put it – but that it’s becoming equally impossible to imagine how it could possibly continue, at least, not in its ideal form, tied, however weakly, to the democratic “polis”. The only solution that seems plausible is by having our political leaders transfer even more responsibility for problem-solving, from matters of welfare to matters of warfare, to Silicon Valley. This might produce immense gains in efficiency but would this also not aggravate the democratic deficit that already plagues our public institutions? Sure, it would – but the crisis of democratic capitalism seems so acute that it has dropped any pretension to being democratic; hence the proliferation of euphemisms to describe the new normal (with Angela Merkel’s “market-conformed democracy” probably being the most popular one).

Besides, the slogans of the 1970s that were meant to bolster the democratic pillar of the compromise between capital and labour, from economic and industrial democracy to codetermination, look quaint in an era where workers of the “gig economy” cannot even unionise, let along participate in some broader management of the enterprise. There’s something even more sinister afoot though. “Buying time” no longer seems like an adequate description of what is happening, if only because technology companies, even more so than the banks, are not only too big too fail but also impossible to undo – let alone replicate – even if a new government is elected. Many of them have already taken on the de facto responsibilities of the state; any close analysis of what’s happening with “smart cities” – whereby technology firms become key gateways to essential services of our cities – easily confirms that.

In fact, technology firms are rapidly becoming the default background condition in which our politics itself is conducted. Once Google and Facebook take over the management of essential services, Margaret Thatcher’s famous dictum that “there is no alternative” would no longer be a mere slogan but an accurate description of reality. The worst is that today’s legitimation crisis could be our last. Any discussion of legitimacy presupposes not just the ability to sense injustice but also to imagine and implement a political alternative. Imagination would never be in short supply but the ability to implement things on a large scale is increasingly limited to technology giants. Once this transfer of power is complete, there won’t be a need to buy time any more – the democratic alternative will simply no longer be a feasible option.

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Some questions must be asked. If nobody else does that, you get Trump.

Trump Questions US Position On OPEC Allies, NATO, China (NY Times)

Donald J. Trump, the Republican presidential front-runner, said that if elected, he might halt purchases of oil from Saudi Arabia and other Arab allies unless they commit ground troops to the fight against the Islamic State or “substantially reimburse” the United States for combating the militant group, which threatens their stability. “If Saudi Arabia was without the cloak of American protection,” Mr. Trump said during a 100-minute interview on foreign policy, spread over two phone calls on Friday, “I don’t think it would be around.” He also said he would be open to allowing Japan and South Korea to build their own nuclear arsenals rather than depend on the American nuclear umbrella for their protection against North Korea and China. If the United States “keeps on its path, its current path of weakness, they’re going to want to have that anyway, with or without me discussing it,” Mr. Trump said.

And he said he would be willing to withdraw United States forces from both Japan and South Korea if they did not substantially increase their contributions to the costs of housing and feeding those troops. “Not happily, but the answer is yes,” he said. Mr. Trump also said he would seek to renegotiate many fundamental treaties with American allies, possibly including a 56-year-old security pact with Japan, which he described as one-sided. In Mr. Trump’s worldview, the United States has become a diluted power, and the main mechanism by which he would re-establish its central role in the world is economic bargaining. He approached almost every current international conflict through the prism of a negotiation, even when he was imprecise about the strategic goals he sought.

He again faulted the Obama administration’s handling of the negotiations with Iran last year — “It would have been so much better if they had walked away a few times,” he said — but offered only one new idea about how he would change its content: Ban Iran’s trade with North Korea. Mr. Trump struck similar themes when he discussed the future of NATO, which he called “unfair, economically, to us,” and said he was open to an alternative organization focused on counterterrorism. He argued that the best way to halt China’s placement of military airfields and antiaircraft batteries on reclaimed islands in the South China Sea was to threaten its access to American markets. “We have tremendous economic power over China,” he argued. “And that’s the power of trade.” He did not mention Beijing’s ability for economic retaliation.

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Keep it peaceful.

Greece Removes Migrants From FYROM Border Camp (AFP)

Greece has begun evacuating refugees from the main Idomeni camp on the Macedonia border, while the flow of refugees arriving on the Aegean islands has slowed to a trickle, officials said on Saturday. Eight buses transported around 400 refugees from Idomeni to nearby refugee camps on Friday, police sources said. A dozen more buses were waiting for migrants reluctant to leave the border, which has been shut down since earlier this month. “People who have no hope or have no money, maybe they will go. But I have hope, maybe something better will happen tomorrow, maybe today,” said 40-year-old Fatema Ahmed from Iraq, who has a 13-year-old son in Germany and three daughters with her in the camp. She said she would consider leaving the squalid Idomeni camp – where people are sheltering even on railway tracks – if the Greek government decides to give every migrant family “a simple house”.

Those persuaded to board the first buses were mainly parents with children who can no longer tolerate the difficult conditions. Janger Hassan, 29, from Iraqi Kurdistan, who has been at the Idomeni camp for a month with his wife and two young children, thinks he will probably leave. “There’s nothing to do here. “The children are getting sick. It’s a bad situation the last two days: it’s windy, sometimes it’s raining here,” he said. “We don’t have a choice. We have to move,” he said. Desperation was evident in the camp. One tent bore the slogan: “Help us open the border”. A total of 11,603 people remained at the sprawling border camp on Saturday, according to the latest official count. Giorgos Kyritsis, spokesman of the SOMP agency, which is coordinating Athens’s response to the refugee crisis, said the operation to evacuate Idomeni will intensify from Monday.

“More than 2,000 places can be found immediately for the refugees that are at the Idomeni camp and from Monday on, this number can double,” Kyritsis added, pledging to create 30,000 more places in the next three weeks in new shelters. Meanwhile, the flow of refugees arriving in Greece is slowing. Athens on Thursday said no migrants had arrived on its Aegean islands in the previous 24 hours, for the first time since the controversial EU-Turkey deal to halt the massive influx came into force at the weekend. The agreement, under which all migrants landing on the Greek islands face being sent back to Turkey, went into effect last Sunday. Despite the deal, 1,662 people arrived on Monday, but this fell to 600 on Tuesday and 260 on Wednesday.

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“Today we had little people, but if we have all the people then we will succeed.”

The Bar at the End of the Road (WSJ)

A tiny bar in a rundown train station in a remote Greek town has become the center of the universe for the migrants stuck at the border of Macedonia. When Macedonia shut its border to Greece in early March, the Greek border town of Idomeni, once a quick stopover for migrants on route to Europe became the end of the line for many. At least for now. But that isn’t stopping many migrants from trying to make their way across the border and beyond. On a recent cold and wet few days at the camp, migrants hang out in the bar for the warmth it provides and the food and friendship it offers. People talk over chips, pizza and beer, but mostly take solace in having a temporary escape from the misery of the camp. Out of their cold, muddy tents and playing games like checkers and backgammon, or connecting with distant relatives on their phones.

Groups are usually separated by nationality, but talking about how to get out of Greece and farther into Europe is a topic everyone discusses. One morning, someone had a plan to cross a fast-flowing, ice-cold river to the border, despite the fence and increased police presence. It was a dangerous plan, but any escape would do. Someone had a printout of a map showing the route across the river all the way to the border. People study it and take photos of it. Zakaria, a migrant from Aleppo, Syria, says, “I want to continue my studies. I don’t care which country. It can be Germany or another country so long as I can continue my studies. I will wait here until I cross somehow. I would go back home to Syria if I could. Believe me I don’t want to be here, I want to be home, but I don’t even have a home there. No country and no home.”

By noon that day, hundreds of people amassed at the meeting point on the map. Following the trail through forests and fields, this group of men and women, young and old carry their belongings and eventually come to the river. The water is freezing. People are yelling and crying. Children are terrified. But they made it across. They were lucky. Earlier that morning, a separate group attempted to cross and three people reportedly died attempting the cross. After resting, they continue to the border, but are turned back by the Macedonian army. Back at the camp, they are exhausted and downtrodden, but they have the bar, and talk soon turns to finding another way to escape. Sarwar, a migrant from Lahore, Pakistan, who has been in Idomeni for 16 days and just returned from trying to cross the border says, “They stop us today but we will try again. We are many, many people and more come now. Soon we can run through the fence. Today we had little people, but if we have all the people then we will succeed.”

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Jan 022016
 
 January 2, 2016  Posted by at 10:09 am Finance Tagged with: , , , , , , , , ,  


Earl Theisen Walt Disney oiling scale model locomotive at home in LA 1951

After a Tumultuous 2015, Investors Have Low Expectations for Markets (WSJ)
Will Corporate Investment and Profits Rebound This Year? (WSJ)
A Year of Sovereign Defaults? (Carmen Reinhart)
The Next Big Short: Amazon (Stockman)
The Real Financial Risks of 2016 (Taleb)
High-Yield Bonds: Worthy of the Name Again (WSJ)
Slowdown In Chinese Manufacturing Deepens Fears For Economy (Guardian)
Opinion Divided On State Of Chinese Economy, But Not Its Importance (Guardian)
‘Indigestion’ Hits Diamond Companies: Too Much Supply, Too Little Demand (FT)
Iraq Says It Exported More Than 1 Billion Barrels of Oil in 2015 (BBG)
The Federal Reserve’s Brave New Interest Rate World (Coppola)
Economic Sweet Spot Of 2016 Before The Reflation Storm (AEP)
New Year Brings Minimum Wage Hikes For Americans In 14 States (Reuters)
Swiss Bank Admits Cash and Gold Withdrawals Cheated IRS (BBG)
Edward Hugh, Economist Who Foresaw Eurozone’s Struggles, Dies At 67 (NY Times)
As 2016 Dawns, Europe Braces For More Waves Of Refugees (AP)

Watch out below.

After a Tumultuous 2015, Investors Have Low Expectations for Markets (WSJ)

After a year of disappointment in everything from U.S. stocks to emerging markets and junk bonds, investors are approaching 2016 with low expectations. Some see the past year as a bad omen. Two major stock indexes posted their first annual decline since the financial crisis, while energy prices fell even further. Emerging markets and junk bonds also struggled. Others view the pullback as a sensible breather for some markets after years of strong gains. While large gains were common as markets recovered in the years after the 2008 financial crisis, many investors say such returns are growing harder to come by, and expect slim gains at best this year.

“You have to be very muted in your expectations,” said Margie Patel, senior portfolio manager at Wells Fargo Funds who said she expects mid-single percentage-point gains in major U.S. stock indexes this year. “It’s pretty hard to point to a sector or an industry where you could say, well, that’s going to grow very, very rapidly,” she said, adding that there are “not a lot of things to get enthusiastic about, and a long list of things to be worried about.” As the year neared an end, a fierce selloff hit junk bonds in December, while U.S. government bond yields rose only modestly despite the Federal Reserve’s decision to raise its benchmark interest rate in December, showing investors weren’t ready to retreat from relatively safe government bonds.

For the U.S., 2015’s rough results stood in contrast to three stellar years. After rising 46% from 2012 through 2014, the Dow Jones Industrial Average fell 2.2% last year. The S&P 500 fell 0.7%. While most Wall Street equity strategists still expect gains for U.S. stocks this year, they also once again expect higher levels of volatility than in years past. Of 16 investment banks that issued forecasts for this year, two-thirds expect the S&P 500 to finish 2016 at a level less than 10% above last year’s close, according to stock-market research firm Birinyi Associates. Some investors say a pause for stocks is normal for a bull market of this length, which has been the longest since the 1990s. Including dividends, the S&P 500 has returned 249% since its crisis-era low of 2009.

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How could they? On what? “This recovery still stinks.”

Will Corporate Investment and Profits Rebound This Year? (WSJ)

In 2015, the American corporate landscape was dominated by activist investors, buybacks, currencies and deals. This year, the question is whether U.S. businesses will shake off the weight of a strong dollar and lower commodity prices to expand profit growth, end their dependence on boosting returns with buybacks, and turn to investing in their operations. The Federal Reserve had enough confidence in the economic recovery to raise interest rates in December, but it remains unclear whether global growth will be buoyant enough reverse weak business investment. Many big companies are reining in spending. 3M, with thousands of products from Scotch tape to smartphone materials, forecasts capital spending roughly unchanged from 2015.

Telecom companies AT&T and Verizon both plan to hold capital spending generally level in the coming year. Meanwhile, industrial giants like General Electric and United Technologies are aggressively cutting costs and seeking to squeeze more savings from suppliers. Capital expenditures by members of the S&P 500 index fell in the second and third quarters of 2015 from a year earlier, the first time since 2010 that the measure has fallen for two consecutive quarters, according to data from S&P Dow Jones Indices. Another measure of business spending on new equipment—orders for nondefense capital goods, excluding aircraft—was down 3.6% from a year earlier in the first 11 months of 2015, according to data from the U.S. Department of Commerce.

More broadly, only 25% of small companies plan capital outlays in the next three to six months, according to a November survey of about 600 firms by the National Federation of Independent Business. That compares with an average of 29% and a high of 41% since the surveys began in 1974. “Our guys are in maintenance mode,” said William Dunkelberg, chief economist for the trade group. “This recovery still stinks.” Profit growth for the constituents of the S&P 500 index stalled in 2015 thanks to a combination of a strong dollar and falling prices for steel, crude oil and other commodities. Deutsche Bank estimates total net income for companies in the index fell 3% in 2015, while sales declined 4%. For 2016, Deutsche Bank forecasts net income growth of 4.3% and a 4% increase in revenue.

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Given the reliance on dollar-denominated low interest loans, it seems all but certain.

A Year of Sovereign Defaults? (Carmen Reinhart)

When it comes to sovereign debt, the term “default” is often misunderstood. It almost never entails the complete and permanent repudiation of the entire stock of debt; indeed, even some Czarist-era Russian bonds were eventually (if only partly) repaid after the 1917 revolution. Rather, non-payment – a “default,” according to credit-rating agencies, when it involves private creditors – typically spurs a conversation about debt restructuring, which can involve maturity extensions, coupon-payment cuts, grace periods, or face-value reductions (so-called “haircuts”). If history is a guide, such conversations may be happening a lot in 2016. Like so many other features of the global economy, debt accumulation and default tends to occur in cycles.

Since 1800, the global economy has endured several such cycles, with the share of independent countries undergoing restructuring during any given year oscillating between zero and 50% (see figure). Whereas one- and two-decade lulls in defaults are not uncommon, each quiet spell has invariably been followed by a new wave of defaults. The most recent default cycle includes the emerging-market debt crises of the 1980s and 1990s. Most countries resolved their external-debt problems by the mid-1990s, but a substantial share of countries in the lowest-income group remain in chronic arrears with their official creditors. Like outright default or the restructuring of debts to official creditors, such arrears are often swept under the rug, possibly because they tend to involve low-income debtors and relatively small dollar amounts.

But that does not negate their eventual capacity to help spur a new round of crises, when sovereigns who never quite got a handle on their debts are, say, met with unfavorable global conditions. And, indeed, global economic conditions – such as commodity-price fluctuations and changes in interest rates by major economic powers such as the United States or China – play a major role in precipitating sovereign-debt crises. As my recent work with Vincent Reinhart and Christoph Trebesch reveals, peaks and troughs in the international capital-flow cycle are especially dangerous, with defaults proliferating at the end of a capital-inflow bonanza.

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Big call from Dave.

The Next Big Short: Amazon (Stockman)

If you have forgotten your Gulliver’s Travels, recall that Jonathan Swift described the people of Brobdingnag as being as tall as church steeples and having a ten foot stride. Everything else was in proportion – with rats the size of mastiffs and the latter the size of four elephants, while flies were “as big as a Dunstable lark” and wasps were the size of partridges. Hence the word for this fictional land has come to mean colossal, enormous, gigantic, huge, immense or, as the urban dictionary puts it, “really f*cking big”. That would also describe the $325 billion bubble which comprises Amazon’s market cap. It is at once brobdangnagian and preposterous – a trick on the casino signifying that the crowd has once again gone stark raving mad.

When you have arrived at a condition of extreme “irrational exuberance” there is probably no insult to ordinary valuation metrics that can shock. But for want of doubt consider that AMZN earned the grand sum of $79 million last quarter and $328 million for the LTM period ending in September. That’s right. Its conventional PE multiple is 985X! And, no, its not a biotech start-up in phase 3 FDA trials with a sure fire cancer cure set to be approved any day; its actually been around more than a quarter century, putting it in the oldest quartile of businesses in the US. But according to the loony posse of sell-side apologists who cover the company – there are 15 buy recommendations – Amazon is still furiously investing in “growth” after all of these years.

So never mind the PE multiple; earnings are being temporarily sacrificed for growth. Well, yes. On its approximate $100 billion in LTM sales Amazon did generate $32.6 billion of gross profit. But the great builder behind the curtain in Seattle choose to “reinvest” $5 billion in sales and marketing, $14 billion in general and administrative expense and $11.6 billion in R&D. So there wasn’t much left for the bottom line, and not surprisingly. Amazon’s huge R&D expense alone was actually nearly three times higher than that of pharmaceutical giant Bristol-Myers Squibb. But apparently that’s why Bezos boldly bags the big valuation multiples.

Not so fast, we think. Is there any evidence that all this madcap “investment” in the upper lines of the P&L for all these years is showing signs of momentum in cash generation? After all, sooner or later valuation has to be about free cash flow, even if you set aside GAAP accounting income. In fact, AMZN generated $9.8 billion in operating cash flow during its most recent LTM period and spent $7.0 billion on CapEx and other investments. So its modest $2.8 billion of free cash flow implies a multiple of 117X.

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“Zero interest rates turn monetary policy into a massive weapon that has no ammunition.”

The Real Financial Risks of 2016 (Taleb)

How should we think about financial risks in 2016? First, worry less about the banking system. Financial institutions today are less fragile than they were a few years ago. This isn’t because they got better at understanding risk (they didn’t) but because, since 2009, banks have been shedding their exposures to extreme events. Hedge funds, which are much more adept at risk-taking, now function as reinsurers of sorts. Because hedge-fund owners have skin in the game, they are less prone to hiding risks than are bankers. This isn’t to say that the financial system has healed: Monetary policy made itself ineffective with low interest rates, which were seen as a cure rather than a transitory painkiller. Zero interest rates turn monetary policy into a massive weapon that has no ammunition.

There’s no evidence that “zero” interest rates are better than, say, 2% or 3%, as the Federal Reserve may be realizing. I worry about asset values that have swelled in response to easy money. Low interest rates invite speculation in assets such as junk bonds, real estate and emerging market securities. The effect of tightening in 1994 was disproportionately felt with Italian, Mexican and Thai securities. The rule is: Investments with micro-Ponzi attributes (i.e., a need to borrow to repay) will be hit. Though “another Lehman Brothers” isn’t likely to happen with banks, it is very likely to happen with commodity firms and countries that depend directly or indirectly on commodity prices.

Dubai is more threatened by oil prices than Islamic State. Commodity people have been shouting, “We’ve hit bottom,” which leads me to believe that they still have inventory to liquidate. Long-term agricultural commodity prices might be threatened by improvement in the storage of solar energy, which could prompt some governments to cancel ethanol programs as a mandatory use of land for “clean” energy.

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Yield rises with risk. Risk leads to losses.

High-Yield Bonds: Worthy of the Name Again (WSJ)

By mid-2014, some were starting to wonder whether the high-yield bond market needed to find a new name for itself. U.S. yields fell below 5%, while European yields dipped beneath 4%, according to Barclays indexes. But at the end of 2015, the market once again has an appropriate moniker. U.S. yields are ending the year at 8.8%, the Barclays index shows, returning to levels last seen in 2011. They have risen by about 2.3 percentage points this year. European yields stand at 5% — not huge in absolute terms, but high relative to ultralow European government bond yields. Of course, for existing investors that has been bad news. The ride—including the high-profile meltdown of Third Avenue Management’s Focused Credit Fund, which shook the market in December—has been rough.

It has taken its toll on borrowers too. The U.S. high-yield bond market has recorded the slowest pace of fourth-quarter issuance since 2008, when the collapse of Lehman Brothers essentially shut the market down, according to data firm Dealogic. Global issuance has fallen 23% this year to $366.5 billion, the lowest level since 2011. The market is likely to face further tests in 2016. Defaults are set to rise, and companies may find it tougher to get financing. But at least investors will now get chunkier rewards for taking risk. Arguably, high-yield investors should always be focused on absolute rather than relative yields, given the need to compensate for defaults. From that point of view, 2015 was the year high-yield bonds got their mojo back.

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China will find it much harder to keep up appearances in 2016.

Slowdown In Chinese Manufacturing Deepens Fears For Economy (Guardian)

A further slowdown in China’s vast manufacturing sector has intensified worries about the year ahead for the world’s second largest economy. The latest in a string of downbeat reports from showed that activity at China’s factories cooled in December for the fifth month running, as overseas demand for Chinese goods continued to fall. Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly. The country’s central bank expects growth in 2015 to be the slowest for a quarter of a century. After growing 7.3% in 2014, the economy is thought to have expanded by 6.9% in 2015 and the central bank has forecast that it may slow further in 2016 to 6.8%.

A series of interventions by policymakers, including interest rate cuts, have done little to revive growth and in some cases served only to heighten concern about China’s challenges. Friday’s figures showed that the manufacturing sector limped to the end of 2015. The official purchasing managers’ index (PMI) of manufacturing activity edged up to 49.7 in December from 49.6 in November. The December reading matched the forecast in a Reuters poll of economists and marked the fifth consecutive month that the index was below 50, the point that separates expansion from contraction. “Although the PMI slightly rebounded this month, it still lies below the critical point and is lower than historic levels over the same period,” Zhao Qinghe, a senior statistician at the national bureau of statistics, said.

Analysts said the latest manufacturing PMI pointed to falling activity, but that some hope could be taken from the improvement on November’s three-year low. The small rise “suggests that growth momentum is stabilising somewhat … however, the sector is still facing strong headwinds,” said Zhou Hao at Commerzbank. “In order to facilitate the destocking and deleveraging process, monetary policy will remain accommodative and the fiscal policy will be more proactive.”

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Can China let go of the peg and let the yaun plunge, while it’s in the IMF basket?

Opinion Divided On State Of Chinese Economy, But Not Its Importance (Guardian)

It was perhaps fitting that China’s latest lacklustre industrial survey was the first fragment of financial data to greet the new year. Economists are divided about the risks facing the vast Chinese economy, but agree that how they play out will have profound consequences for the rest of the world in 2016. The optimists point to China’s large and growing middle class, the vast foreign currency reserves that give Beijing ample ammunition to respond to any crisis that emerges, and the authoritarian regime that allows its policymakers to force through economic change. And official figures do suggest that economic growth may have stabilised at about 6.5% – considerably weaker than the double-digit pace that was the norm before the financial crisis, but not the feared “hard landing”.

Yet pessimists argue that the official figures radically overestimate the true pace of growth: using alternative indicators such as freight volumes and electricity usage, City analysts Fathom calculate that growth could be below 3%. And last summer’s share price crash, and the chaos that surrounded Beijing’s decision to devalue the yuan, suggested there is no reason to think Chinese policymakers are any more in control of the forces of capitalism than their western counterparts were in the run-up to the financial crisis. China’s latest five-year plan involves a conscious attempt to switch growth away from the export-led model that has driven its rise to the economic premier league, and towards more sustainable, domestic consumption-led growth.

But with many of the country’s powerful state-owned enterprises loaded up with debt, property bubbles deflating and the knock-on effects of the share price crash still being felt, domestic demand has so far failed to pick up the slack. The challenge of maintaining politically acceptable rates of economic growth may become tougher in 2016, particularly if the US Federal Reserve presses ahead with its bid to return interest rates to somewhere near normal. The value of the Chinese yuan is not allowed to move too far out of line with the dollar, under a “crawling peg” – effectively a semi-fixed exchange rate.

But as the greenback moves upwards to reflect the strengthening US economy and rising rates, it is taking the yuan with it, and making it harder for Chinese exporters to compete. As the dollar continues to appreciate, it may become increasingly tempting for policymakers to abandon the peg and let the currency plunge, returning to the familiar export-led pattern of growth. And if Beijing does devalue sharply, it would damage China’s exporting rivals, and send deflation rippling out through the global economy, increasing the risk of a lengthy period of economic weakness. China’s true fragility is impossible to gauge; but it matters.

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Not a good sign for gold.

‘Indigestion’ Hits Diamond Companies: Too Much Supply, Too Little Demand (FT)

De Beers was hoping its “Live your love today” campaign would entice Chinese consumers to buy diamond jewellery this holiday season. It is unlikely to be enough to turn round the miner’s fortunes. While auction prices set records for some big gems in 2015 — Lucara Diamond found one of the largest stones to date — the sector has had its toughest year since the global financial crisis as it struggles with too much supply and too little demand. Miners including De Beers, which is owned by Anglo American, and Canada’s Dominion Diamond have acknowledged falling revenues and lower prices for rough diamonds. In China, the big jewellers are suffering. Chow Tai Fook, the largest by market value, reported a 42% fall in net profits in interim results.

But the pain has been most acute for the trade’s “midstream”, the hundreds of cutters and polishers, mostly in India, which buy rough stones from miners and supply retailers. “The raw [rough] diamond price is still high but the polishers [like us] have to sell cheaper because of the drop in demand,” said Chirag Kakadia of Sheetal, an Indian diamond polisher, speaking at a Hong Kong trade show. “We are forced to purchase higher but sell lower. Our production has dropped 40% from 2014 but our sales are 50% less.” Companies such as Sheetal have been hit by a bout of what Johan Dippenaar, chief executive of Petra Diamonds, has described as industry “indigestion”, stemming from an over-optimistic assessment of demand from China.

Retailers that had geared up for years of growth were caught out by a slowing economy and an anti-corruption drive, with officials banned from receiving gifts. A person in the industry who asked not to be named said demand in Hong Kong and Macau had been “absolutely mullered” by the corruption crackdown. The lack of interest from consumers has left cutters and polishers holding too much stock. In turn, their need to buy from miners has declined, forcing down rough prices. Analysts said that, even if midstream groups wanted to restock, many would find it hard to do so. Much of the credit in the sector has been withdrawn as banks have grown wary of lending to businesses that are family-owned and tend to be opaque. The question is whether the market will bounce back or be altered for good.

De Beers, which has lost much of its power as a supplier but remains a dominant participant, says the industry does not face a long-term bust and once the temporary oversupply is dealt with equilibrium will be restored. Philippe Mellier, chief executive, told industry analysts in December: “This is a stock crisis, not a demand crisis.” De Beers has allowed midstream companies to put regular purchases on hold. “We just want our customers to buy what they need and not increase the stock problem,” said Mr Mellier. The miner has also cut production and closed two diamond mines. Consultants at Bain say the diamond pipeline should return to normal functioning once midmarket businesses and retailers clear excess inventories, provided that miners and polishers manage supplies adroitly.

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And now Iran will follow.

Iraq Says It Exported More Than 1 Billion Barrels of Oil in 2015 (BBG)

Iraq said it exported 1.097 billion barrels of oil in 2015, generating $49.079 billion from sales, according to the oil ministry. It sold 99.7 million barrels of oil in December, generating $2.973 billion, after selling a record 100.9 million barrels in November, said oil ministry spokesman Asim Jihad. The country sold at an average price of $44.74 a barrel in 2015, Jihad said. Iraq, with the world’s fifth-biggest oil reserves, needs to keep increasing crude output because lower oil prices have curbed government revenue. Oil prices have slumped in the past year as OPEC defended market share against production in the U.S. OPEC’s second-largest crude producer is facing a slowdown in investment due to lower oil prices while fighting a costly war on Islamist militants who seized a swath of the country’s northwest. The nation’s output will start to decline in 2018, Morgan Stanley said in a Sept. 2 report, reversing its forecast for higher production every year to 2020.

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The real rate rise is still substantially lower than 0.25%, though.

The Federal Reserve’s Brave New Interest Rate World (Coppola)

On December 17th, 2015, the FOMC raised interest rates for the first time since the 2008 financial crisis. To be sure, it had little choice. The Fed had been signalling an interest rate rise persistently for months, and had already disappointed markets twice by delaying rate rises in September and October. It had painted itself into the same corner as the ECB did over QE earlier in the year. The ECB signalled for months that it was going to start QE, and backed off several times, to the disappointment of market participants. Eventually, ECB was forced to start QE for the simple reason that NOT doing so threatened financial stability, because markets had already priced it in. So with the FOMC. Encouraged by broadly good economic data, and by the Fed’s approving noises, markets priced in a 25bps interest rate rise.

The FOMC was all but obliged to act, simply to avoid sparking a market rout. It was yet another fine example of markets being willing to let the Fed guide them along the road that they were already travelling. Since that small but oh-so-significant rate rise, the Fed Funds rate has obediently remained firmly within its new 25 to 50 bps corridor. Indeed, it has hovered persistently around the midpoint of the range. Given that the system is still awash with excess reserves and the Fed Funds rate therefore has little effect on bank lending, it is remarkable that the rate has stayed both elevated and stable. How has this been achieved? Yesterday, the FT reported that the Fed absorbed $475bn of excess reserves through overnight reverse repo operations in its last monetary operation of 2015, a record amount.

Overnight reverse repos allow certain non-bank financial institutions to place funds at the Fed overnight in return for USTs (yes, the ones bought in the Fed’s QE programs) and 25bps interest. The interest rate is no accident: it is the floor of the target Fed Funds rate range. These reverse repos provide competition for banks in the funding markets, forcing banks to offer higher interest rates on funds they lend to non-banks. The Fed said in December that it would make $2tn worth of USTs available as collateral for reverse repo transactions: it is actually needing to use considerably less to maintain the Fed Funds rate well above its floor. But reverse repos are only half the story. The Fed also set the interest rate it pays on excess reserves (IOER) to the top of the Fed Funds target range. This pulls the funding rate upwards, since banks will not lend reserves to each other at less than the IOER rate.

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Ambroze has been smoking. A lot. The sudden surge in China M1 in the graph looks like panic to me, and moreover, it hasn’t done any good either.

Economic Sweet Spot Of 2016 Before The Reflation Storm (AEP)

Sunlit uplands beckon. Almost $2 trillion of annual stimulus from cheap oil has been accumulating for months, pent up and waiting to be spent. It will soon come flooding through in a burst, catching the world by surprise. But beware: the more beguiling it is over coming months, the more traumatic it will be later as the reflation scare comes alive. Since the rite of New Year predictions is to stick one’s neck out, let me hazard hopefully that this treacherous moment can be deferred until 2017. The positive oil shock will hit just as austerity ends in the US, and big-spending states and cities ice the cake with a fiscal boost worth 0.5pc of GDP. Americans broke records with the purchase 1.7m new cars and trucks in December, a foretaste of blistering sales to come. There is a ‘deficit’ of 20m cars left from the Long Slump yet to be plugged.

The eurozone is nearing the sweet spot, a fleeting nirvana of 2pc growth, conjured by the trifecta of a cheap euro, budgetary break-out, and the end of bank deleveraging. Mario Draghi’s printing presses are firing on all cylinders. The ‘broad’ M3 money supply is growing at turbo-charged rates of 5pc in real terms. This is a 12-month leading indicator for the economy, so enjoy the ride, at least until the demonic Fiscal Compact returns at the dead of night to smother Europe once again. In China, the dogs bark, the caravan moves on. There will be no devaluation of the yuan this year, because there is no urgent need for it. Premier Li Keqiang has vowed to keep the new exchange basket stable. Armed with a current account surplus of $600bn, $3.5 trillion of reserves, and capitol controls, that is exactly what he will do.

The lingering hangover from the Great Chinese Recession of early 2015 has faded. The PMI services gauge has just jumped to a 15-month high of 54.4, and this is now the relevant index since the Communist Party is systematically winding down chunks of the steel, shipbuilding, and chemical industries. China’s money supply is also catching fire. Growth of ‘real true M1’ has spiked to 10pc, a giddy shot of caffeine not seen since the post-Lehman spree. Combined credit and local government bond issuance is surging at a rate of 14pc. The Communist Party cranked up fiscal spending by 18.9pc in November. Whether or not you think this recidivist stimulus is wise – given that the law of diminishing returns set in long ago for debt-driven growth – it will paper over a lot of cracks for the time being.

One thing that will not happen is a housing revival in the mid-sized T3 and T4 cities of the hinterland. It will be a long time before the latest reform of the medieval Hukou system unleashes enough rural migrants to fill the ghost towns. The stock of 4.5m unsold homes on the books of developers is frightening to behold. The epic dollar rally has come and gone. The world’s currency will drift down over coming months, and that will be a reprieve for the likes of Brazil, Turkey, South Africa, Indonesia, and Colombia. Those at the wrong end of $9 trillion of off-shore debt in US dollars may breath easier: they will not escape. The MSCI index of emerging market stocks will return from the dead, clawing back most of the 28pc in losses since last April, but only to lurch into a greater storm.

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Barely a start. But a strong sign of how much less ‘new’ jobs pay.

New Year Brings Minimum Wage Hikes For Americans In 14 States (Reuters)

As the United States marks more than six years without an increase in the federal minimum wage of $7.25 an hour, 14 states and several cities are moving forward with their own increases, with most set to start taking effect on Friday. California and Massachusetts are highest among the states, both increasing from $9 to $10 an hour, according to an analysis by the National Conference of State Legislatures. At the low end is Arkansas, where the minimum wage is increasing from $7.50 to $8. The smallest increase, a nickel, comes in South Dakota, where the hourly minimum is now $8.55.

The increases come in the wake of a series of “living wage” protests across the country, including a November campaign in which thousands of protesters in 270 cities marched in support of a $15-an-hour minimum wage and union rights for fast food workers. Food service workers make up the largest group of minimum-wage earners, according to the Bureau of Labor Statistics. With Friday’s increases, the new average minimum wage across the 14 affected states rises from $8.50 an hour to just over $9. Several cities are going even higher. Seattle is setting a sliding hourly minimum between $10.50 and $13 on Jan. 1, and Los Angeles and San Francisco are enacting similar increases in July, en route to $15 an hour phased in over six years.

Backers say a higher minimum wage helps combat poverty, but opponents worry about the potential impact on employment and company profits. In 2014, a Democratic-backed congressional proposal to increase the federal minimum wage for the first time since 2009 to $10.10 stalled, as have subsequent efforts by President Barack Obama. More recent proposals by some lawmakers call for a federal minimum wage of up to $15 an hour. Alan Krueger, an economics professor at Princeton University and former chairman of Obama’s Council of Economic Advisers, said a federal minimum wage of up to $12 an hour, phased in over five years or so, “would not have a noticeable effect on employment.”

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Many such banks did the same.

Swiss Bank Admits Cash and Gold Withdrawals Cheated IRS (BBG)

Large cash and gold withdrawals were one way Bank Lombard Odier & Co allowed U.S. clients to sever a paper trail on their assets and cheat the Internal Revenue Service, the Swiss lender admitted, agreeing to pay $99.8 million to avoid prosecution. That penalty is the second-largest paid under a program to help the U.S. clamp down on tax evasion through Swiss banks. Total penalties have reached more than $1.1 billion as banks have revealed how they helped clients hide money and where the assets went. DZ Privatbank (Schweiz) AG will also pay almost $7.5 million under accords released Thursday. The U.S. has struck 75 such non-prosecution agreements this year, with the tempo and dollar amount increasing in recent weeks as it rushes to finish. Geneva-based Lombard Odier, founded in 1796, had 1,121 U.S. accounts with $4.45 billion in assets from 2008 through 2014, according to the agreement, announced Thursday.

The bank adopted a policy in 2008 to force U.S. clients to disclose undeclared assets to the IRS or face account closures. However, the policy authorized large cash or gold withdrawals, donations to U.S. relatives or charitable institutions, resulting in further wrongdoing, according to the statement. In 2009 alone, the bank processed 14 cash withdrawals of more than $1 million each for clients closing 11 accounts, according to the non-prosecution agreement. One client closed an account by withdrawing more than $3 million in gold, the bank admitted. “These withdrawals of cash and precious metals enabled U.S. persons to sever the paper trail for their assets and further conceal their income and assets from U.S. authorities,” according to the agreement. The bank also closed at least 12 U.S. accounts worth $15.7 million with “fictitious donations” to other accounts at the bank, Lombard Odier admitted.

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“..Mr. Hugh insisted time and again that economists and policy makers were glossing over the extent to which swift austerity measures in countries like Greece, Ireland, Spain and Portugal would result in devastating recessions..”

Edward Hugh, Economist Who Foresaw Eurozone’s Struggles, Dies At 67 (NY Times)

Edward Hugh, a freethinking and wide-ranging British economist who gave early warnings about the European debt crisis from his adopted home in Barcelona, died on Tuesday, his birthday, in Girona, Spain. He was 67. The cause was cancer of the gallbladder and liver, his son, Morgan Jones, said. Mr. Hugh drew attention in 2009 and 2010 for his blog posts pointing out flaws at the root of Europe’s ambition to bind together disparate cultures and economies with a single currency, the euro. In clear, concise essays, adorned with philosophical musings and colorful graphics, Mr. Hugh insisted time and again that economists and policy makers were glossing over the extent to which swift austerity measures in countries like Greece, Ireland, Spain and Portugal would result in devastating recessions.

Mr. Hugh’s insights soon attracted a wide and influential following, including hedge funds, economists, finance ministers and analysts at the IMF. “For those of us pessimists who believed that the eurozone structure was leading to an unsustainable bubble in the periphery countries, Edward Hugh was a must-read,” said Albert Edwards, a strategist based in London for the French bank Société Générale. “His prescience in explaining the mechanics of the crisis went almost unnoticed until it actually hit.” As the eurozone’s economic problems grew, so did Mr. Hugh’s popularity, and by 2011 he had moved the base of his operations to Facebook. There he attracted many thousands of additional followers from all over the world.

If Santa Claus and John Maynard Keynes could combine as one, he might well be Edward Hugh. He was roly-poly and merry, and he always had a twinkle in his eye, not least when he came across a data point or the hint of an economic or social trend that would support one of his many theories. His intellect was too restless to be pigeonholed, but when pressed he would say that he saw himself as a Keynesian in spirit, but not letter. And in tune with his view that economists in general had become too wedded to static economic models and failed their obligation to predict and explain, he frequently cited this quotation from Keynes: “Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past, the ocean is flat again.”

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3 million forecast for 2016.

As 2016 Dawns, Europe Braces For More Waves Of Refugees (AP)

Bitter cold, biting winds and rough winter seas have done little to stem the seemingly endless flow of desperate people fleeing war or poverty for what they hope will be a brighter, safer future in Europe. As 2016 dawns, boatloads continue to reach Greek shores and thousands trudge across Balkan fields and country roads heading north. More than a million people reached Europe in 2015 in the continent’s largest refugee influx since the end of World War II – a crisis that has tested European unity and threatened the vision of a borderless continent. Nearly 3,800 people are estimated to have drowned in the Mediterranean last year, making the journey to Greece or Italy in unseaworthy vessels packed far beyond capacity.

The EU has pledged to bolster patrols on its external borders and quickly deport economic migrants, while Turkey has agreed to crack down on smugglers operating from its coastline. But those on the front lines of the crisis say the coming year promises to be difficult unless there is a dramatic change. Greece has borne the brunt of the exodus, with more than 850,000 people reaching the country’s shores, nearly all arriving on Greek islands from the nearby Turkish coast. “The (migrant) flows continue unabated. And on good days, on days when the weather isn’t bad, they are increased,” Ioannis Mouzalas, Greeces minister responsible for migration issues, told AP. “This is a problem and shows that Turkey wasn’t able – I’m not saying that they didn’t want – to respond to the duty and obligation it had undertaken to control the flows and the smugglers from its shores.”

Europe’s response to the crisis has been fractured, with individual countries, concerned about the sheer scale of the influx, introducing new border controls aimed at limiting the flow. The problem is compounded by the reluctance of many migrants’ countries of origin, such as Pakistan, to accept forcible returns. “If measures are not taken to stop the flows from Turkey and if Europe doesn’t solve the problems of the returns as a whole, it will be a very difficult year,” Mouzalas warned. “It’s a bad sign, this unabated flow that continues,” Mouzalas said. “It creates difficulties for us, as the borders have closed for particular categories of people and there is a danger they will be trapped here.”

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