Jan 122018
 
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Do these people ever consider this perhaps helps Trump? The Man’s on Fire!

 

Bitcoin Steadies But Set For Worst Weekly Slide Since 2015 (BBG)
Cryptos Surge As South Korea Backs Away From Trading Ban (ZH)
South Korea Is Talking Down The Idea Of A Cryptocurrency Trading Ban (CNBC)
China’s Trade Surplus With The US Hit A Record High In 2017 (CNBC)
China Sets New Records for Gobbling Up the World’s Commodities (BBG)
Household Debt Boom Sows The Seeds For A Bust (CBR)
Markets Still Blow Off the Fed, Dudley Gets Nervous, Fires Warning Shot (WS)
We’re Going To See A Radically Changing World In 2018 – (Nomi Prins)
Why We Have to Talk About a Bubble (BBG)
Uber’s Secret Tool for Keeping the Cops in the Dark (BBG)
Monsanto Seeks To Cash In On The Organic Food Market (CP)
Electric Car Dreams Run Into Metal Crunch (BBG)
Greece Is Now Worse Off Than When It Defaulted For The First Time (ZH)

 

 

It’s a slide! It’s a surge! Depends who you ask, and what time of day. Ask again every half hour, or you may miss the big moves. Translation: bitcoin is far from ready for the big leagues. It’s about stability.

Bitcoin Steadies But Set For Worst Weekly Slide Since 2015 (BBG)

Bitcoin steadied Friday after four days of losses for the largest cryptocurrency amid increasing scrutiny from regulators around the world with concerns ranging from investor losses to strains on power systems. Bitcoin was little changed on the day, at $13,467 as of 1:27 p.m. Hong Kong time, reversing an earlier decline. It was down as much as 23% for the week at one point, on track for the deepest decrease since January 2015, according to Bloomberg composite pricing, and is now down about 20%. The token peaked in mid-December soon after the introduction of futures trading on regulated exchanges in Chicago. Among the blows to cryptocurrencies this week was the South Korean justice minister’s reiteration of a proposal to ban local cryptocurrency exchanges, though the comments were later downplayed by a spokesman for the president.

Meanwhile, bitcoin mining is set to become more expensive as China’s government cracks down on the industry, in part out of concerns about power use. In the U.S., scrutiny is set to increase amid concerns about the potential use of cryptocurrencies for fraudulent purposes such as money laundering. Securities and Exchange Commission Chairman Jay Clayton and Commodity Futures Trading Commission Chairman J. Christopher Giancarlo are set to testify to the Senate Banking Committee on risks tied to bitcoin and its counterparts, according to a person with direct knowledge of the matter. The committee intends to hold a hearing in early February, the person said.

Read more …

The reaction scared the sh*t out of Seoul. But they still have to act, because bitcoin’s wide acceptance in the country means it’s a real danger to the whole economy.

Cryptos Surge As South Korea Backs Away From Trading Ban (ZH)

After what has seemed like a non-stop barrage of bad news for crypto bulls from South Korea, we noted some cracks in the foundation of the anti-cryptocurrency push as the ministry of finance refused to support the ministry of justice’s exchange shutdown bill. Tonight we get further clarification that the end of South Korean crypto trading is not nigh as Yonhap reports the various government ministries need more time and more consultations over the mininstry of justice’s plan to ban crypto-exchanges. “The issue of shutting down (cryptocurrency) exchanges, told by the justice minister yesterday, is a proposal by the justice ministry and it needs consultations among ministries,” Kim said.

Ministers reportedly seek a “soft-landing” considering the shock the measures may have on the market is an issue that can result in huge social, economic damage. Additionally Yonhap notes that even if pursued, shutdown of exchanges would take some time as it needs discussion at parliament (it would take months or even years for a bill to become a law). All of which can be roughly translated as – we have no idea of the impact of banning this stuff and just how much damage to the nation’s wealth could occur if we do… The result is a broad-based rally across the major cryptocurrencies… Tens of thousands of people filed an online petition, asking the presidential office to stop the clampdown against cryptocurrency trading. South Korea is home to one of the world’s biggest private bitcoin exchanges, with more than 2 million people estimated to own some of the best-known digital currency.

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Stand up comedian minister: “..a balanced perspective is necessary because blockchain technology has high relevance with many industries such as security and logistics.”

South Korea Is Talking Down The Idea Of A Cryptocurrency Trading Ban (CNBC)

South Korea’s finance minister on Friday said that relevant officials need to hold more consultations over the justice ministry’s plan to ban cryptocurrency exchanges in the country. “All government ministries agree on the need for a government response to an overheating in cryptocurrency speculation and for a degree of regulation,” Minister Kim Dong-yeon told reporters, according to news agency Yonhap. “The issue of banning exchanges that the justice minister talked about yesterday is a proposal by the Justice Ministry and it needs more coordination among ministries,” Kim added. He also said that discussion was under way on how the government could reasonably regulate cryptocurrency trading that’s overheating with irrational and speculative behavior, Yonhap reported.

Kim said “a balanced perspective is necessary because blockchain technology has high relevance with many industries such as security and logistics.” Kim’s comments followed news that the country’s justice ministry appeared to have softened its stance after remarks from its chief on Thursday saw billions wiped off the global cryptocurrency market. The justice ministry explained, according to Yonhap, that the ban was not a done deal in a text message to reporters on Thursday. “The ministry has been preparing a special law to shut down all cryptocurrency exchanges, but we will push for it after careful consideration with related government agencies,” the justice ministry said.

[..] “Justice Minister Park Sang-ki’s remarks regarding the shutdown of cryptocurrency exchanges is one of the measures that have been prepared by the Justice Ministry, but it is not a finalized decision and will be finalized through discussion and a coordination process with each government ministry,” the chief press secretary to President Moon Jae-in said in a statement reported by Yonhap. Even if a bill aiming to ban all cryptocurrency trading is drafted, it will require a majority vote in the country’s National Assembly before it can be enacted into law. That process could take months — or even years.

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This must worry Xi. China sets itself up for a strong reaction. And then? Withdraw back into its own cocoon? Not an option for an export-dependent economy. The shift to domestic consumption has so far failed miserably.

China’s Trade Surplus With The US Hit A Record High In 2017 (CNBC)

China’s 2017 trade surplus with the U.S. was $275.81 billion, the country’s customs data showed Friday, according to Reuters. By that data, last year’s surplus is a record high, the wire service reported. For comparison, the previous record was a surplus of $260.8 billion in 2015. The world’s second-largest economy had a surplus of $25.55 billion in December, data showed, compared to $27.87 billion in November. Trade with China is politically sensitive as the world’s second-largest economy runs surpluses against many of its trading partners. President Donald Trump has repeatedly signaled tougher action on what he calls unfair practices that have lead to a massive trade deficit with China. Overall, China’s trade balance for 2017 was a surplus of $422.5 billion

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Stocking up on oil and gas instead of Treasuries, just in case Trump launches a trade war.

China Sets New Records for Gobbling Up the World’s Commodities (BBG)

China continues to gobble up the world’s commodities, setting new records for consumption of everything from crude oil to soybeans. In a year of flux marked by industrial capacity cuts, environmental curbs and financial deleveraging, demand for raw materials has continued to grow in the world’s biggest consumer, helping drive a second annual gain in global commodity returns. As President Xi Jinping consolidates power behind an economy that may have posted its first full-year acceleration since 2010, there are few signs of the Chinese commodity juggernaut slowing as it rolls into 2018. “China’s economic expansion has been beating expectations since the second half of last year, boosting demand for all kinds of commodities,” Guo Chaohui at China International Capital, said by phone. “We are expecting continued strength in economic growth in 2018 which will keep up the nation’s import appetite.”

Inbound shipments from across the globe – Russia to Saudi Arabia and Venezuela – jumped about 10% to average 8.43 million barrels a day in 2017, data from China’s General Administration of Customs showed on Friday. The unprecedented purchases may be bettered in 2018, if import quotas granted by the government to China’s independent refiners are a signal. The first batch of allocations was 75% higher than for 2017. The world’s second-biggest economy is also realizing that the key to winning its war on smog may lie overseas. Record amounts of less-polluting grades of iron ore – typically not available within China – are being pulled in to feed the nation’s mammoth steel industry, with imports rising 5% to 1.07 billion metric tons in 2017.

Purchases of less-polluting ore is only one tactic in China’s war against pollution. Another is curbing coal use and encouraging the use of cleaner natural gas instead. Imports of the fuel via both sea and pipeline surged almost 27% to 68.57 million tons in 2017.

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Coherent.

Household Debt Boom Sows The Seeds For A Bust (CBR)

What causes the ebbs and flows of the business cycle? In the first of two videos, Chicago Booth’s Amir Sufi argues that one key factor is the financial sector and its willingness to lend. As credit becomes more and more available, the economy booms—but when household debt becomes unsustainable, it sows the seeds for a bust.

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Financial stress at a record low. There’s no stronger stress indicator.

Markets Still Blow Off the Fed, Dudley Gets Nervous, Fires Warning Shot (WS)

“So, what am I worried about?” New York Fed President William Dudley, who is considered a dove, asked rhetorically during a speech on Thursday at the Securities Industry and Financial Markets Association in New York City. “Two macroeconomic concerns warrant mention,” he continued. And they are: One: “The risk of economic overheating.” He went through some of the mixed data points, including “low” inflation, “an economy that is growing at an above-trend pace,” a labor market that is “already quite tight,” and the “extra boost in 2018 and 2019 from the recently enacted tax legislation.” Two: The markets are blowing off the Fed. He didn’t use those words. He used Fed-speak: “Even though the FOMC has raised its target range for the federal funds rate by 125 basis points over the past two years, financial conditions today are easier than when we started to remove monetary policy accommodation.”

When the Fed raises rates, its explicit intention is to tighten “financial conditions,” meaning that borrowing gets a little harder and more costly at all levels, that investors and banks become more risk-averse and circumspect, and that borrowers become more prudent or at least less reckless – in other words, that the credit bonanza cools off and gets back to some sort of normal. To get there, the Fed wants to see declining bond prices and therefor rising yields, cooling equities, rising risk premiums, widening yield spreads, and the like. These together make up the “financial conditions.” There are various methods to measure whether “financial conditions” are getting “easier” or tighter. Among them is the weekly St. Louis Fed Financial Stress Index, whose latest results were published on Thursday.

The Financial Stress Index had dropped to a historic low of -1.6 on November 3, meaning that financial stress in the markets had never been this low in the data series going back to 1994. Things were really loosey-goosey. On Thursday, the index came in at -1.57, barely above the record low, despite another rate hike and the Fed’s “balance-sheet normalization. And this rock-bottom financial stress in the markets is occurring even as short-term interest rates have rocketed higher in response to the Fed’s rate hikes, with the two-year Treasury yield on Thursday closing at 1.96% for the third day in a row, the highest since September 2008.

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Nomi doesn’t really clarify what is radical about events.

We’re Going To See A Radically Changing World In 2018 – (Nomi Prins)

In last year’s roadmap, I forecast that 2017 would end with gold prices up and the dollar index down, both of which happened. I underestimated the number of Fed hikes by one hike, but globally, average short term rates have remained around zero. That will be a core pattern throughout 2018. Central banks may tweak a few rates here and there, announce some tapering due to “economic growth”, or deflect attention to fiscal policy, but the entire financial and capital markets system rests on the strategies, co-dependencies and cheap money policies of central banks. The bond markets will feel the heat of any tightening shift or fears of one, while the stock market will continue to rush ahead on the reality of cheap money supply until debt problems tug at the equity markets and take them down.

Central bankers are well aware of this. They have no exit plan for their decade of collusion. But a weak hope that it’ll all work out. They have no dedicated agenda to remove themselves from their money supplier role, nor any desire to do so. Truth be told, they couldn’t map out an exit route from cheap money even if they wanted to. The total books of global central banks (that hold the spoils of QE) have ballooned by $2 Trillion in assets (read: debt) over 2017. That brings the amount of global central banks holdings to more than $21.7 trillion in assets. And growing. Teasers about tapering have been released into the atmosphere, but numbers don’t lie.

That’s a hefty cushion for international speculation. Every bond a central bank buys or holds, gets a price-lift. Trillions of dollars of such buys have artificially lifted all bond prices, and stocks because of the secondary-lift effect and rapacious search for self-perpetuating returns. Financial bubbles pervade the world. Central bank leaders may wax hawkish –manifested in strong words but tepid actions. Yet, overall, policies will remain consistent with those of the past decade to combat this looming crisis. US nationalistic trade policies will push other nations to embrace agreements with each other that exclude the US and shun the US dollar.

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Jean-Michel Paul, founder and Chief Executive of Acheron Capital in London, says: “..one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash.. “. Well, not in my circles, which talk ONLY about that.

Why We Have to Talk About a Bubble (BBG)

Back in November, former Fed chief Janet Yellen described the current low level of inflation as a “mystery.” Despite a small pickup in prices, Europe has the same mystery to solve: Economic confidence in the euro area is at its highest point for a decade, according to the European Commission’s measure, released this week. But there’s no sign of the inflation that you’d normally expect with that kind of economic upsurge. The ECB minutes from December, released Thursday, show some in the ECB are similarly baffled by what they call a “disconnect” between the real economy and prices. With QE having multiplied the amount of fiat money issued by central banks in just a few years, it’s fair to wonder: How come it didn’t trigger much higher levels of inflation than what we now see?

The technical answer is that the money created has ended up full circle – on the books of the central banks. The more fundamental answer is that QE resulted in a wealth increase for the richest, who consume relatively little of their revenue, while the middle class and the neediest largely failed to reap any benefit. Having not gained from QE, their consumption has not risen, leaving prices pretty much flat. There are many problems with this, from growing inequality to pressures on social cohesion. But one that has received too little attention up to now is the prospect that we are heading toward a growing asset bubble that will result in a pronounced crash, as Jeremy Grantham, co-founder of the investment firm GMO, argued in a note last week. He predicts a “melt-up” – where investors pile into assets as prices rise – followed by a significant decline “of some 50%.”

[..] central bankers are still using inflation as a measure to gauge how much more QE they should proceed with. The ECB has repeatedly justified QE expansion because its goal of 2 percent consumer inflation remains unmet. [..] British journalist Ambrose Evans-Pritchard, commenting on the Grantham thesis recently in the Daily Telegraph, put the challenge now in the starkest possible terms, as a threat not simply to the recovery but to democracy: “The central banks themselves entered into a Faustian Pact from the mid-Nineties onwards, falsely thinking it safe to drive real interest rates ever lower with each cycle, until they became ensnared in what the Bank for International Settlements calls a policy “debt trap”. This has gone on so long, and pushed debt ratios so high, that the system is now inherently fragile. The incentive to let bubbles run their course has become ever greater.”

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Can’t decide if this is hard to believe, or entirely normal by now.

Uber’s Secret Tool for Keeping the Cops in the Dark (BBG)

In May 2015 about 10 investigators for the Quebec tax authority burst into Uber Technologies Inc.’s office in Montreal. The authorities believed Uber had violated tax laws and had a warrant to collect evidence. Managers on-site knew what to do, say people with knowledge of the event. Like managers at Uber’s hundreds of offices abroad, they’d been trained to page a number that alerted specially trained staff at company headquarters in San Francisco. When the call came in, staffers quickly remotely logged off every computer in the Montreal office, making it practically impossible for the authorities to retrieve the company records they’d obtained a warrant to collect. The investigators left without any evidence.

Most tech companies don’t expect police to regularly raid their offices, but Uber isn’t most companies. The ride-hailing startup’s reputation for flouting local labor laws and taxi rules has made it a favorite target for law enforcement agencies around the world. That’s where this remote system, called Ripley, comes in. From spring 2015 until late 2016, Uber routinely used Ripley to thwart police raids in foreign countries, say three people with knowledge of the system. Allusions to its nature can be found in a smattering of court filings, but its details, scope, and origin haven’t been previously reported. The Uber HQ team overseeing Ripley could remotely change passwords and otherwise lock up data on company-owned smartphones, laptops, and desktops as well as shut down the devices.

This routine was initially called the unexpected visitor protocol. Employees aware of its existence eventually took to calling it Ripley, after Sigourney Weaver’s flamethrower-wielding hero in the Alien movies. The nickname was inspired by a Ripley line in Aliens, after the acid-blooded extraterrestrials easily best a squad of ground troops. “Nuke the entire site from orbit. It’s the only way to be sure.” [..] Uber deployed Ripley routinely as recently as late 2016, including during government raids in Amsterdam, Brussels, Hong Kong, and Paris, say the people with knowledge of the matter. The tool was developed in coordination with Uber’s security and legal departments, the people say. The heads of both departments, Joe Sullivan and Salle Yoo, left the company last year.

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Monsanto wants a monopoly on all the world’s food. If you don’t stop them now, it’ll soon be too late.

Monsanto Seeks To Cash In On The Organic Food Market (CP)

At the recent Codex meeting in Berlin, there was an attempt to define genetically engineered (GE) food ingredients as ‘biofortified’ and therefore mislead consumers. This contravened the original Codex mandate for defining biofortification. That definition is based on improving the nutritional quality of food crops through conventional plant breeding (not genetic engineering) with the aim of making the nutrients bioavailable after digestion. The attempt was thwarted thanks to various interventions, not least by the National Health Federation (NHF), a prominent health-freedom international non-governmental organization and the only health-freedom INGO represented at Codex. But the battle is far from over.

The Codex Alimentarius Commission’s Codex Committee on Nutrition and Foods for Special Dietary Uses (CCNFSDU) convened in Berlin during early December and drafts provisions on nutritional aspects for all foods. It also develops international guidelines and standards for foods for special dietary uses that will be used to facilitate standardized world trade. Based upon previous meetings, the initial intention of the Committee was to craft a definition for biofortification that could then be used uniformly around the World. Biofortification originally referred to increasing certain vitamin and mineral content of basic food crops by way of cross-breeding, not genetic engineering, for example by increasing the vitamin or iron content of sweet potatoes so that malnourished populations would receive better nutrition.

However, according to president of the NHF, Scott Tips, Monsanto wants to redefine the definition to include GE ‘biofortified’ foods and it has seemingly influenced Codex delegates in that direction. Tips says, “I am sure that Monsanto would be thrilled to be able to market its synthetic products under a name that began with the word ‘bio’.” [..] Including GE foods within any definition of biofortification risks consumer confusion as to whether they are purchasing organic products or something else entirely. “Monsanto seeks to cash in on the organic market with the loaded word ‘bio’,” argues Scott Tips. At the Codex meeting in Berlin, Tips addressed the 300 delegates in the room. “Although NHF was an early supporter of biofortification, we have since come to see that the concept is in the process of being hijacked and converted from something good into something bad,” explained Tips.

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Luckily the CIA is still dividing the people in the Congo. And making money selling all sides weapons.

Electric Car Dreams Run Into Metal Crunch (BBG)

When BMW revealed it was designing electric versions of its X3 SUV and Mini, the going rate for 21 kilograms of cobalt—the amount of the metal needed to power typical car batteries—was under $600. Only 16 months later, the price tag is approaching $1,700 and climbing by the day. For carmakers vying to fill their fleets with electric vehicles, the spike has been a rude awakening as to how much their success is riding on the scarce silvery-blue mineral found predominantly in one of the world’s most corrupt and underdeveloped countries. “It’s gotten more hectic over the past year,” said Markus Duesmann, BMW’s head of procurement, who’s responsible for securing raw materials used in lithium-ion batteries, such as cobalt, manganese and nickel. “We need to keep a close eye, especially on lithium and cobalt, because of the danger of supply scarcity.”

[..] Complicating the process is the fact that the cobalt trail inevitably leads to the Democratic Republic of the Congo, where corruption is entrenched in everyday business practices. The U.S. last month slapped sanctions on Glencore’s long-time partner in Congo, Israeli billionaire Dan Gertler, saying he used his close ties to Congolese President Joseph Kabila to secure mining deals. There’s also another ethical obstacle to negotiate. The African nation produces more than 60 percent of the world’s cobalt, a fifth of which is drawn out by artisanal miners who work with their hands — some of whom are children. The country is also planning to double its tax on the metal.

“There just isn’t enough cobalt to go around,” said George Heppel, a consultant at CRU. “The auto companies that’ll be the most successful in maintaining long-term stability in terms of raw materials will be the ones that purchase the cobalt and then supply that to their battery manufacturer.” To adjust to the new reality, some carmakers are recruiting geologists to learn more about the minerals that may someday be as important to transport as oil is now. Tesla Inc. just hired an engineer who supervised a nickel-cobalt refinery in New Caledonia for Vale to help with procurement. But after decades of dictating terms with suppliers of traditional engine parts, the industry is proving ill-prepared to confront what billionaire mining investor Robert Friedland dubbed “the revenge of the miner.”

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Never use Greece and Recovery in one sentence together. Because you’d be spouting nonsense.

Greece Is Now Worse Off Than When It Defaulted For The First Time (ZH)

According to the market, the situation in Greece has staged a tremendous recovery. So much so, in fact, that Greek 2Y bonds are now trading inside US 2Y Treasurys. Yes, according to the market, Greece is now a safer credit than the US. And yet, a quick peek inside the actual Greek economy, reveals that nothing has been fixed. In fact, one can argue that things are now worse than they were when Greece defaulted (for the first time), According to statistics from IAPR, unpaid taxes in Greece currently make up more than 55% of the country’s GDP due to – well – the inability of people to pay the rising taxes. Overdue debt to the state has reached nearly €100 billion with only €15 billion possible to be returned to the government’s coffers, as most are due to bankrupt businesses and deceased individuals.

The Greek tax authorities seized pensions, salaries, and assets of more than 180,000 taxpayers in 2017, meanwhile bad debt to the state treasury continue to grow. The Independent Authority for Public Revenue confiscated nearly €4 billion in the first 10 months of this year with forced measures to be reportedly taken against 1.7 million defaulters in 2018. Bad debt owed to the state in Greece has been growing at €1 billion a month since 2014, and nearly 4.17 million taxpayers currently owe money to the country, which means that every second Greek is directly indebted. Demonstrating the full extent of the economic mess, a recent report from Kathimerini revealed that Greek lenders are proposing huge haircuts, as high as 90%, for borrowers with debts from consumer loans, credit cards or small business loans without collateral.

In the context of the sale of a 2.5-billion-euro bad-loan portfolio named Venus, Alpha Bank is using the incentive of major haircuts in letters it has sent to some 156,000 debtors. The fact that this concerns some 240,000 bad loans means that some debtors may have two or three overdue loans. Another major local lender, Eurobank, is employing the same strategy for a set of loans adding up to 350 million euros. Most of them range between 5,000 and 7,000 euros each and have been overdue for over a decade. Yes, most Greek are unable to repay a few thousands euros and would rather default. This means that the banks are expecting to collect a small amount of those debts, coming to 250 million euros for Alpha and 35 million for Eurobank – whopping 90% haircuts – accepting that the rest of the debt is uncollectible.

Read more …

Jan 052018
 
 January 5, 2018  Posted by at 10:30 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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GordonParks Place de la Concorde, Paris, France 1950

 

UPDATE: There still seems to be a problem with our Paypal widget/account that makes donating -both for our fund for homless and refugees in Greece, and for the Automatic Earth itself- hard for some people. What happens is that for some a message pops up that says “This recipient does not accept payments denominated in USD”. This is nonsense, we do. We notified Paypal weeks ago.

We have no idea how many people have simply given up on donating, but we can suggest a workaround (works like a charm):

Through Paypal.com, you can simply donate to an email address. In our case that is recedinghorizons *at* gmail *com*. Use that, and your donations will arrive where they belong. Sorry for the inconvenience.

 

 

 

Global Debt Hits Record $233 Trillion (BBG)
The Tsunami Of Wealth Didn’t Trickle Down. It Surged Upward – Buffett (CNBC)
Apple Says All Macs, iPhones and iPads Exposed to Chip Security Flaws (BBG)
2018 Economy Goes Cold – Inflation Hot – Danielle DiMartino Booth (USAW)
Inflation Risk May Shake Global Markets (BBG)
Economists Think Inflation Will Rise Sharply in 2018: They’re Wrong (Mish)
China Won’t Be Prioritizing Growth This Year – Andy Xie (CNBC)
‘Melt-Up’ Coinage Could Signal Last Hurrah For US Stock Market (G.)
US on The Cusp of Enjoying ‘Energy Superpower’ Status (CNBC)
A Good German Idea for 2018 (Varoufakis)
Monsanto Forecasts Profit Increase as Farmers Plant More Soy (BBG)
Greek State To Start Its Own E-auctions (K.)
Work To Improve Greek Island Centers For Refugees Moving Slowly (K.)
Oceanic ‘Dead Zones’ Quadruple In Volume In 50 Years (Ind.)
Iguanas Rain From Trees As Animals Struggle With US Cold Snap (G.)

 

 

Private debt is the one to watch. Up rapidly in Canada, France, Hong Kong, South Korea, Switzerland and Turkey. And Australia, New Zealand, Scandinavia, Holland.

Global Debt Hits Record $233 Trillion (BBG)

Global debt rose to a record $233 trillion in the third quarter of 2017, more than $16 trillion higher from end-2016, according to an analysis by the Institute of International Finance. Private non-financial sector debt hit all-time highs in Canada, France, Hong Kong, South Korea, Switzerland and Turkey. At the same time, though, the ratio of debt-to-GDP fell for the fourth consecutive quarter as economic growth accelerated. The ratio is now around 318%, 3 percentage points below a high set in the third quarter of 2016, according to the IIF. “A combination of factors including synchronized above-potential global growth, rising inflation (China, Turkey), and efforts to prevent a destabilizing build-up of debt (China, Canada) have all contributed to the decline,” IIF analysts wrote in a note. Yet the debt pile could act as a brake on central banks trying to raise interest rates, given worries about the debt servicing capacity of highly indebted firms and government, the IIF analysts wrote.

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Warren in praise of technology. Blind and boring. “This game of economic miracles is in its early innings. Americans will benefit from far more and better ‘stuff’ in the future.”

The Tsunami Of Wealth Didn’t Trickle Down. It Surged Upward – Buffett (CNBC)

Warren Buffett knows first hand the power of American capitalism. As the third richest person in the world, with a net worth of more than $86 billion, the octogenarian investor has personally benefited from it. And yet, in a piece penned for Time magazine, published Thursday, Buffett says there is a problem with that economic system, which made him a king: Many individuals suffer even as those at the top prosper wildly. He points to the Forbes 400, which lists the wealthiest Americans. “Between the first computation in 1982 and today, the wealth of the 400 increased 29-fold — from $93 billion to $2.7 trillion — while many millions of hardworking citizens remained stuck on an economic treadmill. During this period, the tsunami of wealth didn’t trickle down. It surged upward.”

America’s capitalist economy requires its winners not ignore the system’s faults, says Buffett. The market system has “left many people hopelessly behind, particularly as it has become ever more specialized. These devastating side effects can be ameliorated: a rich family takes care of all its children, not just those with talents valued by the marketplace,” writes Buffett. He also notes that, in particular, those workers replaced by technological advancements will be left behind. “This game of economic miracles is in its early innings. Americans will benefit from far more and better ‘stuff’ in the future. The challenge will be to have this bounty deliver a better life to the disrupted as well as to the disrupters,” Buffett writes. “And on this matter, many Americans are justifiably worried.”

In the long term, those technological advancements are a boon for the economy. But in the short term, they cause unemployment and anxiety for those who lose their jobs to automation and are left unemployed. To demonstrate his point, Buffett points to 1776, when the United States declared its independence, and the evolution of farming technology. “Replicating those early days would require that 80% or so of today’s workers be employed on farms simply to provide the food and cotton we need. So why does it take only 2% of today’s workers to do this job? Give the credit to those who brought us tractors, planters, cotton gins, combines, fertilizer, irrigation and a host of other productivity improvements,” writes Buffett.

“We know today that the staggering productivity gains in farming were a blessing. They freed nearly 80% of the nation’s workforce to redeploy their efforts into new industries that have changed our way of life.” Indeed, despite the warnings, Buffett is optimistic. “In 1776, America set off to unleash human potential by combining market economics, the rule of law and equality of opportunity. This foundation was an act of genius that in only 241 years converted our original villages and prairies into $96 trillion of wealth,” he says.

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Don’t be fooled: this is not a flaw, it’s a feature. It’ll be interesting to see how companies aim to fix a pretty much hardware feature with a software patch.

Apple Says All Macs, iPhones and iPads Exposed to Chip Security Flaws (BBG)

Apple said all Mac computers and iOS devices, like iPhones and iPads, are affected by chip security flaws unearthed this week, but the company stressed there are no known exploits impacting users. The company said recent software updates for iPads, iPhones, iPod touches, Mac desktops and laptops, and the Apple TV set-top-box mitigate one of the vulnerabilities known as Meltdown. The Apple Watch, which runs a derivative of the iPhone’s operating system is not affected, according to the company. Despite concern that fixes may slow down devices, Apple said its steps to address the Meltdown issue haven’t dented performance.

The company will release an update to its Safari web browser in coming days to defend against another form of the security flaw known as Spectre. These steps could slow the speed of the browser by less than 2.5 percent, Apple said in a statement posted on its website. Intel on Wednesday confirmed a report stating that its semiconductors contain a vulnerability based around a chip-processing technique called speculative execution. Intel said its chips, which power Macs and devices from other manufacturers, contain the flaw as well as processors based on ARM Holdings architecture, which is used in iOS devices and Android smartphones.

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Danielle DiMartino Booth seems like a smart person. But “We can have deflation and inflation at the same time.” is utter nonsense. If only because defining inflation without referencing money velocity is a useless exercise.

2018 Economy Goes Cold – Inflation Hot – Danielle DiMartino Booth (USAW)

“We have seen 24 consecutive back-to-back months when credit card spending has outpaced incomes. That tells you households are struggling to get by. This is not Yves Saint Laurent handbags and Jimmy Choo shoes. These are families who are using their credit cards to take care of the necessities, to fill up the gas tank, to buy groceries and fill up their refrigerator… We have seen month after month of subprime automobile delinquencies, and we are starting to see a big tic up in FHA mortgage delinquencies as well. …We are at almost 10% (delinquencies) of FHA mortgage loans. Underlying this sugar high that we will see from all of these hurricanes and rebuilding efforts and wildfires, underneath that, still waters run deep and the economy is not doing well. We are a consumption driven economy that is weakening underneath. The sugar high will absolutely wear off in 2018.”

What about the bond market in 2018? Booth says, “We have gone from $150 trillion (in global debt) in 2007 to $220 trillion and counting today. If you delude yourself into thinking a rising rate environment can be good when we have tacked on $70 trillion of debt in the last decade, you are fooling yourself. It is an accident waiting to happen, and anyone who doesn’t think that it will take the stock market down with it is more optimistic than I am by a country mile.” Booth says, along with a “bond market debacle,” the world will see inflation right along with it. Booth explains, “Look at lumber prices, look at the cost of packaging, plastics, raw materials, the producer price index… is at a six year high right now. It’s called the mother of all margin squeezes.

Companies are suffering. We have inflation. We have very real inflation, and it is hitting corporate America between the eyes. We have seen inflation happening, and we continue to see it happening… Rental inflation is off the scale…Inflation is up for 2018, and it has been up. We can have deflation and inflation at the same time. If all of this debt that has built up, especially for households, if they are allocating more of their income to servicing debt, then they have fewer dollars to spend on other things. So, you are going to have deflation and inflation at the same time.” What does the regular guy on the street do? Booth says, “Figure out a way to have exposure to precious metals. Put your bubble vision on mute. You do not have to be invested in the market. That is a fallacy. Take what you have and pay down your debts.”

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This whole discussion is vapid. Central banks have been trying in vain for over a decade to push up inflation, and now, overnight, they have not just succeeded, but overdone it?

Inflation Risk May Shake Global Markets (BBG)

Investors devoted to the idea that inflation will stay subdued should be worried. Worldwide data have recently made clear that producer-price increases have picked up steam. That’s led bond buyers to begin wagering that consumer inflation could be soon to follow, with U.S. breakeven rates above 2 percent in many tenors for the first time since March. The shift represents a sea change for investors who have grown complacent about the threat of rising prices over the past few years, when inflation was subdued by modest economic growth rates, suppressed wages and shifts in technology and demographics. While few are betting on runaway increases anytime soon, even a modest uptick in prices could have an outsize impact on sentiment and change the prevailing narrative.

“There is this idea that inflation is dead,” said Peter Boockvar, the chief financial officer at Fairfield, New Jersey-based Bleakley Financial Group. “But what we are beginning to see – such as in the purchasing managers index surveys – is a lot of talk about inflation pressures. For the markets, inflation is an under appreciated risk in 2018.’ The latest sign of prices pressures came Wednesday. U.S. manufacturing expanded in December at the fastest pace in three months, as gains in orders and production capped the strongest year for factories since 2004, the Institute for Supply Management said. The index of prices paid rose to 69 from 65.5 the month before.

Factories across the globe have warned they are finding it increasingly hard to keep up with demand, potentially forcing them to raise prices as the world economy looks set to enjoy its strongest year since 2011. Purchasing Managers Indexes published Tuesday from countries including China, Germany, France, Canada and the U.K. all pointed to deeper supply constraints.

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Mish is one of the few who still understand the issue. Yes, it’s about definitions. But that doesn’t mean any definition is as as good as the next one.

Economists Think Inflation Will Rise Sharply in 2018: They’re Wrong (Mish)

Reason Number Five – Money Velocity This reason I found in a Tweet by LizAnn Sonders.

Money Velocity Rebuttal: A three month average vs a six month average offset by 21 months seems like a lot of curve fitting. Here is a Tweet Reply by Martin Pelletier that makes sense to me.

By the way, let’s look at what we are talking about here in actual terms instead of percentage increases.

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Beijing telegraphing lower growth.

China Won’t Be Prioritizing Growth This Year – Andy Xie (CNBC)

China’s fears of a financial crisis will spur Beijing to keep the country’s growth target in check, a widely followed China expert said Friday. “Their top priority is to prevent a financial crisis, so the government is looking for any pockets (of risk) that might be a trigger,” independent economist Andy Xie told CNBC’s “Squawk Box.” Chinese authorities have been cracking down on money fleeing the country and warning on “gray rhinos,” which are risks that could potentially be solved but have been unaddressed so far. “The government does not view growth as the top priority right now — we have to take the government’s word at face value. The government is worried about financial risk,” Xie added.

China will keep its target for economic growth at “around 6.5%” in 2018, unchanged from last year, Reuters reported on Thursday, citing unnamed policy sources. The world’s second-largest economy has been fighting debt for years, but with little success so far as it balances economic stability against fallout from a sharp deceleration. There have also been difficulties with the political buy-in for the debt crackdown. That’s been especially true down the Communist Party pecking order as many local governments still need to hit growth targets. “It takes time to filter down the ranks. Most government officials still don’t believe in the new direction,” said Xie.

However, unlike officials in previous administrations, Xie said current ones are likely to be changed if they don’t agree with the current economic direction, so the government will have more power to push through its agenda. Policies are working toward that direction, with higher interbank interest rates that will remain at elevated levels for the foreseeable future, Xie added. China is also looking to further slow money supply growth in 2018 after it already slowed to the all-time low around 9% in November 2017. With China likely headed toward a money supply growth rate of 7 to 8% in the next few years, it will be a “very different situation” for the economy, said Xie.

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A bit more on Jeremy Grantham: “Keep an eye on what the TVs at lunchtime eateries are showing..”

‘Melt-Up’ Coinage Could Signal Last Hurrah For US Stock Market (G.)

Welcome to the world of “melt-up”, a phrase we could be hearing a lot in coming months. It describes the idea that the US stock market, despite currently looking absurdly expensive by traditional yardsticks, could be set for one last euphoric hurrah before the inevitable crash happens. There are a couple of reasons why the “melt-up” theory may not be as wacky as it sounds. First, it comes from Jeremy Grantham, an investor who has rightly earned a reputation for knowing how to read financial bubbles. He dodged the end-of-the-century dotcom bubble and the 2007-09 blowup in the US housing market – two of the best calls anybody could have made in the past 20 years. Grantham’s default setting, as you would expect, tends to be bearish, or at least cautious. If he’s talking melt-up, that’s newsworthy.

Besides, GMO, the Boston-based fund management group he founded, manages $75bn of assets – he’s a player. A second reason is that Grantham is certainly not arguing that shares are cheap. “We can be as certain as we ever get in stock market analysis that the current price is exceptionally high,” he states. Instead, his melt-up thinking is driven by a “mish-mash of statistical and psychological factors based on previous eras”. On the statistical side, he points out that the global economy is in sync, profit margins are fat and president Trump’s corporate tax cuts could make them even fatter and “perhaps provide the oomph to keep stock prices rising”. Then there’s the fact that the current strength in the stock market is fairly broad-based. In past bubbles, the end was nigh when gains were concentrated in an increasingly small collection of “winners”.

The likes of Apple are roaring this time, but the same divergence has not occurred – yet. For “touchy-feely” evidence of excess about to appear, Grantham looks at media coverage. US newspapers and TV stations are getting interested in financial markets (with bitcoin, “a true, crazy mini-bubble of its own”, to the fore) but not yet with the wild obsession of the frenzied dotcom years. “Keep an eye on what the TVs at lunchtime eateries are showing,” he says.

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So much for OPEC cuts.

US on The Cusp of Enjoying ‘Energy Superpower’ Status (CNBC)

The U.S. is well-placed to join the likes of Saudi Arabia and Russia as one of the world’s leading energy powerhouses, an analyst said Thursday. “There is a big shift in market structure taking place and I think, so far, it really hasn’t got the attention it deserves. The U.S. is emerging as, not only a military and economic superpower, but as an energy superpower,” Martin Fraenkel, president at S&P Global Platts, told CNBC. “We are expecting that by 2020, the U.S. is going to be one of the top 10 oil exporters in the world,” he added. In recent years, America’s unprecedented oil and gas boom has been driven by one factor above all others — and that’s shale.

The so-called shale revolution could help to alleviate Washington’s reliance on foreign oil, including from turbulent Middle Eastern states, while also helping to export to more countries around the world. In November, the International Energy Agency (IEA) projected a dramatic increase in shale production could transform the U.S. into the world’s largest exporter of liquefied natural gas by the mid-2020s. The same forecast also predicted that the U.S. would likely notch another milestone a couple of years later. The Paris-based organization said that by the late-2020s, the U.S. would begin to ship more oil to foreign markets than it imports. “This is a big, big shift in the dynamics of energy markets and, in my view, will be a shift in geopolitical markets as well,” Fraenkel said.

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Not sure Germany and France are too likely to philosophize their dominance away.

A Good German Idea for 2018 (Varoufakis)

No god is necessary, no moralizing is required, to demonstrate our duty to tell the truth. Practical reasoning is all it takes: A world where everyone lies is one in which human rationality, which depends entirely on language, dies. So it is our rational duty to tell the truth, regardless of the benefits lying might bring in practice. Applied to market societies, Kant’s idea yields fascinating conclusions. Strategic reductions in price to undercut a competitor pass the test of rational duty (as long as prices do not fall below costs). After all, producing maximum quantities at minimum prices is the holy grail of any economy. But strategic reductions of wages to ever lower levels (the Uberization of society) cannot be rational, because the result would be a catastrophic collapse, owing to disappearing aggregate demand.

Turning to Europe, Kant’s principle implies important duties for governments and polities. And Germany and France would be held to be in dereliction of their duties to a functioning Europe. If Germany’s current-account surpluses, currently running at 9% of GDP, were universalized, with every member state’s government, private sector, and households net savers, the euro would shoot through the roof, destroying most of Europe’s manufacturing. Equally, universalized Greco-Latin deficits would turn Europe into a basket case.

The trick, and our rational duty, is to embrace policies and to build institutions that are consistent with balanced trade and financial flows. Put differently, authentic German rectitude cannot be achieved without a form of redistribution that is bound to clash with the interests of, say, a French or a Greek oligarchy too lazy to come to terms with its own unsustainability. A critic of this German idea for reforming Europe might credibly ask why anyone should do their rational duty, rather than remain on the time-honored path of narrow self-interest? The only sound answer is: because there is no truly rational alternative. Or, rather, the alternatives are all cant.

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We’re running out of time to block Monsanto.

Monsanto Forecasts Profit Increase as Farmers Plant More Soy (BBG)

Everything’s pointing to another year of growth for U.S. seed giant Monsanto. Pretax earnings in the fiscal year through August are expected to increase, the company said Thursday is its first-quarter earnings statement. Commodity prices have stabilized from the free-fall of recent years, with corn prices starting 2018 at the same price they began 2017. Like last year, farmers are expected to buy the most expensive, newest hybrid seeds, and companies won’t have to slash prices to keep customers. Prices “are challenging for growers, but when the environment is stable, they can figure out how to operate in that environment,” Brett Wong at Piper Jaffray & Co., said by phone. “The industry has stabilized and there’s good demand for new products.”

While the company isn’t providing detailed guidance for full-year earnings, as its $66 billion takeover by Germany’s Bayer is still pending, Monsanto will be helped by growth in its soybean business. U.S. farmers are planting the crop more than ever, devoting as many acres to the oilseed as they will to corn. Adoption of Xtend, the company’s new herbicide system for soy, is expected to double in acreage this year. South American farmers are also buying more of the company’s Intacta-branded soybean seeds, which are resistant to caterpillars, and at higher prices, Christopher Perrella, a Bloomberg Intelligence analyst, said in a note last month. Recent U.S. tax reform legislation will have a positive impact on Monsanto’s effective tax rate in fiscal 2019, the company said. Early estimates are that the rate for the current financial year shouldn’t be more than 30%, and could be lower.

Monsanto expects the Bayer deal to close in early 2018, with about half of regulatory approvals secured so far. It also said its digital agriculture platform, Climate FieldView, was on 35 million paid acres last year, and expects the total to grow to 50 million acres. Roundup, Monsanto’s blockbuster herbicide, is also making a comeback. The price of glyphosate, the active ingredient in the weedkiller, is rebounding faster than expected as Chinese producers of generic brands cut output due to environmental restrictions, Don Carson, an analyst at Susquehanna Financial Group, said in a note. The increase for gross profit in 2018 for the company’s unit that produces glyphosate will exceed $1 billion for the first time in three years, according to Carson.

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The Greek state is in a very bad position to auction off properties.

Greek State To Start Its Own E-auctions (K.)

The Greek state is planning to launch its own online auctions – to be conducted according to properties’ market value – with a legislative intervention that will bring the country in line with its commitments to international creditors. The Finance Ministry is expected to presents lawmakers with the relevant clause by the end of the month – along with dozens of other pending prior actions – so that the state’s online auctions can begin in February or early March at the latest. In any case, as of the first quarter of the new year homes, land plots, stores and corporate buildings owned by state debtors will go under the hammer at market rates, which tend to be far below the taxable ones, known as “objective values,” as dictated by the law.

Ministry officials say the state will use the same platform as the one used by banks or other private creditors, arguing that there is no reason to create a separate system. It is noted that the state did not conduct a single auction in 2017, while in 2016 there were just 11 conventional auctions – all requested by the debtors themselves so they could pay off their arrears to tax authorities. However, one ministry official expressed concerns about the impending state auctions, arguing that the state comes low in the ranking of creditors – as others take precedent – and that tax authorities have a slew of other procedures for collecting debts, such as the ongoing repayment programs and the most recent out-of-court settlement plan for debts of up to 50,000 euros.

He added that after the above clause is ratified, the government will have to decide on the policy the state will follow in the auctions. Each of its 4 million debtors will have to be judged separately and according to their property assets, as “owning a house in Kolonos is very different to having one in Kolonaki,” he said, referring to one poor and one affluent Athens neighborhood. The official also expressed reservations over the result of the state’s initiative to push for auctions where several other creditors are likely to secure more benefits by ranking higher on the creditor list.

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Playing off one group of people against the next.

Work To Improve Greek Island Centers For Refugees Moving Slowly (K.)

Efforts to improve living conditions at reception centers for migrants on the islands of the eastern Aegean are progressing slowly amid continuing resistance from locals toward expanding facilities to accommodate hundreds of new arrivals from neighboring Turkey. On Tuesday alone, 196 undocumented migrants reached Aegean islands from Turkey, being sent to reception centers that are already cramped. On Lesvos and Chios, the facilities are hosting more than double the number of people they were designed to hold: 7,520 and 2,063 respectively. Hundreds of migrants have been transferred from the island facilities to less crowded camps on the mainland but, as the pace of arrivals is faster than that of the transfers and conditions remain substandard at the island camps.

The general secretary for migration policy, Miltiades Klapas, traveled to Chios on Wednesday to inspect progress in the erection of prefabricated buildings around the island’s main reception center to host scores of asylum seekers sleeping in tents. A total of 50 structures were sent to the island before the holidays but, by Wednesday, only eight had been set up. Works to upgrade the electricity and drainage systems for the accommodation are also dragging. A key reason for the delays is the continuing objection of local authorities to the presence of thousands of undocumented migrants on the island. The municipality of Chios has appealed to the Greek justice system, seeking the evacuation of the Vial reception center.

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Ten-fold in coastal regions.

Oceanic ‘Dead Zones’ Quadruple In Volume In 50 Years (Ind.)

The volume of water in the world’s oceans that is totally devoid of oxygen has more than quadrupled over the past 50 years, according to a new study. Over the past half century, the open ocean has lost around 2% of its dissolved oxygen, vital for sustaining fish and other marine life. There has also been a ten-fold increase in low oxygen sites, known as “dead zones”, in coastal regions during this period. Oxygen saturation is a major limiting factor that affects ocean productivity, as well as the diversity of creatures living in it and its natural geochemical cycling. The new study, published in the journal Science, represents the most comprehensive view yet of ocean oxygen depletion.

Pollution and climate change both play significant roles in depleting the ocean’s oxygen levels and the authors emphasise the role humans must play in addressing these issues. “Oxygen is fundamental to life in the oceans,” said lead author Dr Denise Breitburg, a marine ecologist with the Smithsonian Environmental Research Centre. “The decline in ocean oxygen ranks among the most serious effects of human activities on the Earth’s environment.” [..] In dead zones oxygen levels tend to be so low that any animals living there suffocate and die. As a result, marine creatures avoid these areas, resulting in their habitats shrinking. Even in areas where oxygen depletion is less severe, smaller decreases in oxygen levels can impact animals in various non-lethal ways such as stunting their growth and hindering reproduction.

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Just for the headline.

Iguanas Rain From Trees As Animals Struggle With US Cold Snap (G.)

As New Englanders bundle up and hunker down to ride out the “bomb cyclone” that is currently hammering the eastern United States with freezing temperatures, heavy winds and snow, they can take comfort in one thing: at least it’s not raining iguanas. That’s the situation in Florida, where unusually cold temperatures have sent the green lizards tumbling from their perches on trees – a result of the cold-blooded creatures basically shutting down when it gets too chilly. The iguanas are likely not dead, experts say, but merely stunned and will reanimate when they warm up. Iguanas aren’t the only species struggling to cope with the cold snap. In Texas, the temperature in the waters of the Gulf of Mexico has dipped low enough to cold-stun sea turtles, causing them to float to the surface where they are vulnerable to predators.

The National Park Service had rescued 41 live but freezing turtles by midday Tuesday. Meanwhile on Massuchusetts’ Cape Cod, the Atlantic White Shark Conservancy has reported the strandings of three thresher sharks. Two of the sharks were likely suffering from “cold shock”, the group said, while the third had frozen solid. “A true sharkcicle!” the group wrote on Facebook. Even animals that seem particularly well-suited to frigid temperatures are feeling the chill. The Calgary Zoo announced Sunday that it was moving its king penguins inside amid -13F (-25C) temperatures. King penguins are native to the subantarctic islands surrounding Antarctica. And a group of snowmobilers in Canada rescued a bull moose buried in 6ft of snow.

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Dec 112017
 
 December 11, 2017  Posted by at 10:27 am Finance Tagged with: , , , , , , , , , ,  9 Responses »
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MC Escher Balcony 1945

 

Bitcoin Futures Top $18,000, Soar 20% From Open – Halted for Second Time (ZH)
Investors Told to Brace for Steepest Rate Hikes Since 2006 (BBG)
The Struggle To Maintain The “Standard Of Living” (Roberts)
China Audit Finds Provinces Faked Data and Borrowed Illegally (BBG)
Markets Tell You What To Do If You Listen (Peters)
UK Seeking ‘Canada Plus Plus Plus’ EU Trade Deal (BBG)
Brexit’s Just A Distraction To The Real Problem: UK’s Clapped-Out Economy (G.)
Poland Risks Being the EU’s Rogue State (BBG)
Pentagon To Undergo First Ever Audit (ZH)
‘A Christmas Carol’, Money, Debt, and Success (MW)
Mass Starvation Is Humanity’s Fate (Monbiot)
Monsanto Offers Cash To US Farmers Who Use Controversial Chemical (R.)

 

 

You don’t have to own bitcoin anymore to bet on it.

Bitcoin Futures Top $18,000, Soar 20% From Open – Halted for Second Time (ZH)

Update: At 10:05pm ET, the CFE halted trading in Cboe Bitcoin Futures (XBT), in accordance with CFE Rule 1302(i)(ii) which defines the threshold for the halt as a 20% surge. XBT will re-open for trading approximately five (5)minutes from the time of the halt. Bitcoin Futures have topped $18,000 for the first time… It was reopened at 10:10pm ET. All of which is odd because Bob Pisani and the rest of the mainstream said that the opening of Bitcoin Futures would bring about the demise of the cryptocurrency due to the ability to short?

Update: At precisely 8:31pm ET, the CBOE instituted the first ever XBT trading halt, which lasted for two minutes according to a notice on Cboe’s website. XBT contracts have since resumed trading. As a reminder, the Cboe can halt trading for 2 minutes after 10% swings, and 5 minutes at 20%, an attempt to prevent wild swings.

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Things are a-changing.

Investors Told to Brace for Steepest Rate Hikes Since 2006 (BBG)

Wall Street economists are telling investors to brace for the biggest tightening of monetary policy in more than a decade. With the world economy heading into its strongest period since 2011, Citigroup Inc. and JPMorgan Chase & Co. predict average interest rates across advanced economies will climb to at least 1 percent next year in what would be the largest increase since 2006. As for the quantitative easing that marks its 10th anniversary in the U.S. next year, Bloomberg Economics predicts net asset purchases by the main central banks will fall to a monthly $18 billion at the end of 2018, from $126 billion in September, and turn negative during the first half of 2019. That reflects an increasingly synchronized global expansion finally strong enough to spur inflation, albeit modestly.

The test for policy makers, including incoming Federal Reserve Chair Jerome Powell, will be whether they can continue pulling back without derailing demand or rocking asset markets. “2018 is the year when we have true tightening,” said Ebrahim Rahbari, director of global economics at Citigroup in New York. “We will continue on the current path where financial markets can deal quite well with monetary policy but perhaps later in the year, or in 2019, monetary policy will become one of the complicating factors.” A clearer picture should form this week when the Norges Bank, Fed, Bank of England, European Central Bank and Swiss National Bank announce their final policy decisions of 2017. They collectively set borrowing costs for more than a third of the world economy. At least 10 other central banks also deliver decisions this week.

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Again, from an article with much more info and many more graphs.

The Struggle To Maintain The “Standard Of Living” (Roberts)

Economic cycles are only sustainable for as long as excesses are being built. The natural law of reversions, while they can be suspended by artificial interventions, cannot be repealed. More importantly, while there is currently “no sign of recession,” what is going on with the main driver of economic growth – the consumer? The chart below shows the real problem. Since the financial crisis, the average American has not seen much of a recovery. Wages have remained stagnant, real employment has been subdued and the actual cost of living (when accounting for insurance, college, and taxes) has risen rather sharply. The net effect has been a struggle to maintain the current standard of living which can be seen by the surge in credit as a percentage of the economy.

To put this into perspective, we can look back throughout history and see that substantial increases in consumer debt to GDP have occurred coincident with recessionary drags in the economy. No sign of recession? Are you sure about that?

There has been a shift caused by the financial crisis, aging demographics, massive monetary interventions and the structural change in employment which has skewed the seasonal-adjustments in economic data. This makes every report from employment, retail sales, and manufacturing appear more robust than they would be otherwise. This is a problem mainstream analysis continues to overlook but will be used as an excuse when it reverses. Here is my point. While the call of a “recession” may seem far-fetched based on today’s economic data points, no one was calling for a recession in early 2000 or 2007 either. By the time the data is adjusted, and the eventual recession is revealed, it won’t matter as the damage will have already been done. As Howard Marks once quipped: “Being right, but early in the call, is the same as being wrong.”

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You need an audit for that?

China Audit Finds Provinces Faked Data and Borrowed Illegally (BBG)

China found some local governments inflated revenue levels and raised debt illegally in a nationwide audit, a setback for Beijing in its bid to boost the credibility of economic data after a run of scandals. Ten cities, counties or districts in the Yunnan, Hunan and Jilin provinces, as well as the southwestern city of Chongqing, inflated fiscal revenues by 1.55 billion yuan ($234 million), the National Audit Office said in a statement on its website dated Dec. 8. Of that, 1.24 billion yuan was from the Wangcheng district in the provincial capital of Hunan, where officials faked the ownership transfer of local government buildings to boost income. The inspection, which covered the third quarter, also found that five cities or counties in the Jiangxi, Shaanxi, Gansu, Hunan and Hainan provinces raised about 6.43 billion yuan in debts by violating rules, such as offering commitment letters.

The findings are a blow to China’s bid to rein in data fraud, which has been widespread in some of the poorer provinces where officials were incentivized to inflate the numbers as a way of advancing their careers. Concern from investors wanting to be able to trust data out of the world’s second-largest economy led to the government trying to crack down on the practice, with President Xi Jinping saying in March that data fraud “must be throttled,” according to the state-run Xinhua News Agency. Rigid stability in provincial data on growth and employment has long sparked questions from economists, with the rust-belt province of Liaoning, in China’s northeast, famously admitting back in January that it had fabricated fiscal data from 2011 to 2014. Some regions and cities in Jilin province and Inner Mongolia also falsified reports, the Communist Party said in June, without providing details.

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“Near the highs, few opportunities exist to earn substantial returns, so you should take little risk..”

Markets Tell You What To Do If You Listen (Peters)

Anecdote” “What are the odds we come across an opportunity in the coming 4yrs to earn 20%?” the investor asked his team. “High,” they answered. “The odds are 100%,” he said, having seen this movie a few times. “So our cost of capital is 5% per year (20% divided by 4yrs), plus the 1% we earn on cash,” he said. His team nodded. “Under no circumstances should we deploy capital unless it earns well more than 6% per year from here on out.” It made sense. “What do we see that earns more than this hurdle?” he asked. His team’s list was as short today as it was long in 2016, 2011, 2009, 2003, 1998, 1997, 1994, 1992, 1990, 1987, etc. Today’s few opportunities have much in common with previous peaks: negative convexity, complexity, illiquidity, leverage, and/or all the above. “Investors confuse a 7.5% average annualized return target with a 7.5% annual return target,” he explained. “They’re entirely different things.”

Targeting average annualized returns allows you to accept what the market gives you, while targeting annual returns forces you to leverage investments near peak valuations to hit your bogey. “Typical pension and endowment boards want incoming investment returns to consistently exceed outgoing flows.” So most investors attempt to produce the highest return every year, no matter what it takes. “But that’s the wrong objective. Never underestimate the value of cash and patience in achieving the real goal; superior returns over the complete cycle,” he explained. “Markets tell you what to do if you listen,” he said. “Near the highs, few opportunities exist to earn substantial returns, so you should take little risk. Near the lows, opportunities to earn attractive returns are abundant.” You should take a lot of risk. “This sounds simple because it is. It’s obvious. But obvious is not easy.”

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But Canada says no.

UK Seeking ‘Canada Plus Plus Plus’ EU Trade Deal (BBG)

Britain wants a trade deal with the European Union that includes the best parts of the bloc’s agreements with Japan, Canada and South Korea, along with financial services, Brexit Secretary David Davis said, showing optimism a pact can be struck within a year. The chances of the U.K. leaving the EU without a deal, defaulting to World Trade Organization rules, have “dropped dramatically,’’ Davis said in a BBC TV interview on Sunday. Still, he signaled the painstaking agreement struck on Friday to end the first phase of Brexit negotiations isn’t binding, and that Britain’s exit payment of as much as 39 billion pounds ($52 billion) is contingent on reaching a free-trade agreement. Doing so, he said, “is not that complicated.”

“We start in full alignment: we start in complete convergence with the EU, so we then work it out from there,” Davis said on the Andrew Marr Show. “What we want is a bespoke outcome: We’ll probably start with the best of Canada, the best of Japan and the best of South Korea and then add to that the bits that are missing, which is services,” he said. “Canada plus plus plus would be one way of putting it.” The Brexit secretary’s bullishness belies the noise coming from his counterparts in the EU. It’s taken eight months of at times bitter haggling to make sufficient progress on what was supposed to be the easiest part of the talks – resolving Britain’s exit payment, its future border with Ireland, and the rights of EU and U.K. citizens living in each other’s territories.

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Don’t think I ever heard clapped-out before.

Brexit’s Just A Distraction To The Real Problem: UK’s Clapped-Out Economy (G.)

As Brexiteers shout “forward” and remainers chant “ back”, the battle over the EU dominates British politics. Yet it obscures a more basic British problem. Our clapped-out economy, brilliant at consumption, poor at production, is becoming unviable. A “nation of shopkeepers” has become a nation of shoppers, dependent on debt. Deindustrialisation and misguided economic policies have reduced the former workshop of the world to a level where Britain can neither pay its way, nor afford the defence and public services an advanced society needs. Everything in which we once were leaders – ships, railways, TV, great bridges, nuclear plants, bicycles, textiles, clothing, even Kit Kats – we now import.

We consume more than we produce, leading to an annual balance of payments deficit rising above 6% of GDP, financed by borrowing and selling companies, property and citizenship to survive. The result is a sluggish economy (a growing proportion of which is owned by foreigners); low productivity (because the manufacturing sector has shrunk to one-tenth of GDP); and static pay, as every sector except finance cuts costs to survive. Being in or out of the EU has little relevance to this basic problem. The EU is a market, not a mutual support system. Instead of redistributing growth to succour laggards it punishes them, as it has Greece. It drains us and proscribes the techniques of nurture by state aid, protectionism and devaluation by which Germany and France grew. Its “aid” is just our own money back, with the EU’s heavy costs taken out.

Even worse, Germany’s huge surpluses mean that deficit countries like the UK, with our £60bn-plus trade deficit, are compounded by the single market. Yet coming out offers no solution either. It generates uncertainty and deters investment. Most of world trade is controlled by multinationals, and Britain would be more vulnerable to their ministrations. Tory Brexiteers aim at turning us, down and dirty, into a low-wage, deregulated, cost-cutting tax haven-on-Thames. Hardly acceptable to an electorate that has already endured decades of that. The only solution is to rebalance an economy excessively dependent on finance and services by widening the manufacturing and production base and making it competitive. Neither free trade nor the single market will do that.

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The EU is going to make this ugly. It’s the only thing they know how to do.

Poland Risks Being the EU’s Rogue State (BBG)

Behind the noise of Brexit negotiations, the talk in the EU this year has been that there’s potentially a bigger problem in the east. And the prospect of another rupture looks to be increasing. Poland’s de facto leader, Jaroslaw Kaczynski, hand-picked his second prime minister in two years, opting last week for western-educated Finance Minister Mateusz Morawiecki as he seeks to boost the economy after revamping the judicial system. He is another Kaczynski acolyte who has backed the increasingly authoritarian Law & Justice party’s push to seize more control of the courts, a plan condemned by the European Parliament and European Commission The mood in Brussels is that EU institutions can no longer stand by and watch a country that’s the biggest net recipient of European aid thumb its nose without paying some sort of price. Few people are discussing Poland following Britain out of the bloc, but a protracted conflict is getting more likely.

Concerns about the shift in Poland triggered calls to limit access to EU funds for countries disrespecting the democratic rule of law. At a ministerial meeting on Nov. 15 in Brussels, the issue was raised during a discussion about the 2021-2028 budget by countries including Germany, France and the Nordic states, according to two EU officials with knowledge of the matter. Poland’s refusal to take in mainly Muslim refugees was referred last week to the European Court of Justice along with Hungary and the Czech Republic. “There is a growing feeling in Brussels that solidarity cannot be a one-way street, and that it becomes difficult to justify the 10 billion-euro per year net transfers for a country that is increasingly at odds with the bloc’s values,” said Bruno Dethomas, a senior policy adviser at GPLUS consultancy in Brussels and a former EU ambassador to Poland. “It is high time the EU reacted, or it risks losing its soul.”

Poles are accustomed to their government stirring up nationalist fervor with blistering attacks on the EU while welcoming the policies of U.S. President Donald Trump. It’s railed against taking in Muslim refugees, claimed the country has been enslaved and snapped at criticism of its power grab this year. But even by Kaczynski’s standards, his speech on Nov. 10 to mark Independence Day pulled no punches. It’s up to Poles to show “the sick Europe of today the path back to health, to fundamental values, to true freedom and to the strengthening of our civilization based on Christianity,” he said.

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How confident are you in this audit?

Pentagon To Undergo First Ever Audit (ZH)

After decades of waste, overpayments, trillions of missing or improperly accounted for dollars, and most recently losing track of 44,000 US soldiers, the Pentagon is about to undergo its first audit in history conducted by 2,400 auditors from independent public accounting firms to conduct reviews across the Army, Navy, Air Force and more – followed by annual audits going forward. The announcement follows a May commitment by Pentagon comptroller David Norquist, who previously served as the CFO at the Department of Homeland Security when the agency performed its audit. “Starting an audit is a matter of driving change inside a bureaucracy that may resist it,” Norquist told members of the Armed Services Committee at the time when pressed over whether or not he could get the job done at the DHS.

According to the DoD release: “The audit is massive. It will examine every aspect of the department from personnel to real property to weapons to supplies to bases. Some 2,400 auditors will fan out across the department to conduct it, Pentagon officials said. “It is important that the Congress and the American people have confidence in DoD’s management of every taxpayer dollar,” Norquist said. -defense.gov”. The Pentagon is no stranger to criticism over serious waste and purposefully sloppy accounting. A DoD Inspector General’s report from 2016 – which appears to be unavailable on the DoD website (but fortunately WAS archived)- found that in 2015 alone a staggering $6.5 trillion in funds was unaccounted for out of the Army’s budget, with $2.8 trillion in “wrongful adjustments” occurring in just one quarter.

In 2015, the Pentagon denied trying to shelve a study detailing $125 billion in waste created by a bloated employee counts for noncombat related work such as human resources, finance, health care management and property management. The report concluded that $125 billion could be saved by making those operations more efficient. On September 10th, 2001, Secretary of Defense Donald Rumsfeld announced that “According to some estimates we cannot track $2.3 trillion in transactions,” after a Pentagon whistleblower set off a probe. A day later, the September 11th attacks happened and the accounting scandal was quickly forgotten.

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Dickens was a big spender how had little.

‘A Christmas Carol’, Money, Debt, and Success (MW)

Karl Marx was so broke in 1859 he couldn’t afford the postage stamps to mail off his new manuscript, leading the philosopher to lament, “I don’t suppose anyone has ever written about ‘money’ when so short the stuff.” He was probably right about that. However, the most famous book about money written by someone strapped for cash wasn’t “Das Kapital” or “The Communist Manifesto.” It was “A Christmas Carol.” Charles Dickens suffered not only a personal-finance crisis but a creative one, as well, in the fall of 1843, when, in a sort of literary Hail Mary pass, he committed to writing a Christmas book in an impossible six weeks. And, in a plot twist as improbable as anything he himself could have come up with, this gambit actually worked: “A Christmas Carol” became one of the best-selling and most widely adapted books of all time, a work that shaped the very meaning of the holiday itself, and singlehandedly wiped out the goose market — more on that later.

This remarkable tale, recounted in Les Standiford’s biography, “The Man Who Invented Christmas,” and just turned into a highly entertaining new movie of the same name starring Dan Stevens and Christopher Plummer, holds financial lessons for everyone, especially those of us who’ve been tormented by the ghosts of bills past due and deadlines soon to come. Dickens was in debt: to begin with. There is no doubt whatever about that. Sales of his two most recent novels were so disappointing that his publishers cut his pay. Meanwhile, the 31-year-old author and social-justice warrior had just moved into a larger, and much more expensive, home to accommodate the birth of his fifth child (like Marx, his pecuniary troubles stemmed somewhat from the age-old failure to live within one’s means).

On top of all this, his relatives, including his chronically deadbeat dad, kept hitting him up for money. His father, who later inspired the beloved character Wilkins Micawber in “David Copperfield,” was so hopeless with money that Dickens rented his parents a cottage far out in the country, where he hoped it would be harder for them to overspend. For Dickens this was all kind of galling because he had been working so hard and he didn’t have much to show for it,” said Declan Kiely, curator of a terrific ongoing exhibit on Dickens at the Morgan Library in New York. When Scrooge berates his cheerful nephew Fred, “What’s Christmas time to you but a time for paying bills without money; a time for finding yourself a year older, but not an hour richer?” that could just as well have been Dickens ranting.

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How inevitable is this?

Mass Starvation Is Humanity’s Fate (Monbiot)

[..] to keep pace with food demand, farmers in south Asia expect to use between 80 and 200% more water by the year 2050. Where will it come from? The next constraint is temperature. One study suggests that, all else being equal, with each degree celsius of warming the global yield of rice drops by 3%, wheat by 6% and maize by 7%. These predictions could be optimistic. Research published in the journal Agricultural & Environmental Letters finds that 4C of warming in the US corn belt could reduce maize yields by between 84 and 100%. The reason is that high temperatures at night disrupt the pollination process. But this describes just one component of the likely pollination crisis. Insectageddon, caused by the global deployment of scarcely tested pesticides, will account for the rest. Already, in some parts of the world, workers are now pollinating plants by hand. But that’s viable only for the most expensive crops.

[..] Because they tend to use more labour, grow a wider range of crops and work the land more carefully, small farmers, as a rule, grow more food per hectare than large ones. In the poorer regions of the world, people with fewer than five hectares own 30% of the farmland but produce 70% of the food. Since 2000, an area of fertile ground roughly twice the size of the UK has been seized by land grabbers and consolidated into large farms, generally growing crops for export rather than the food needed by the poor. While these multiple disasters unfold on land, the seas are being sieved of everything but plastic. Despite a massive increase in effort (bigger boats, bigger engines, more gear), the worldwide fish catch is declining by roughly 1% a year, as populations collapse. The global land grab is mirrored by a global sea grab: small fishers are displaced by big corporations, exporting fish to those who need it less but pay more.

About 3 billion people depend to a large extent on fish and shellfish protein. Where will it come from? All this would be hard enough. But as people’s incomes increase, their diet tends to shift from plant protein to animal protein. World meat production has quadrupled in 50 years, but global average consumption is still only half that of the UK – where we eat roughly our bodyweight in meat every year – and just over a third of the US level. Because of the way we eat, the UK’s farmland footprint (the land required to meet our demand) is 2.4 times the size of its agricultural area. If everyone aspires to this diet, how exactly do we accommodate it? The profligacy of livestock farming is astonishing. Already, 36% of the calories grown in the form of grain and pulses – and 53% of the protein – are used to feed farm animals. Two-thirds of this food is lost in conversion from plant to animal. A graph produced last week by Our World in Data suggests that, on average, you need 0.01m2 of land to produce a gram of protein from beans or peas, but 1m2 to produce it from beef cattle or sheep: a 100-fold difference.

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Monsanto is the no.1 risk to our food. Presented as our savior.

Monsanto Offers Cash To US Farmers Who Use Controversial Chemical (R.)

Monsanto will give cash back to U.S. farmers who buy a weed killer that has been linked to widespread crop damage, offering an incentive to apply its product even as regulators in several U.S. states weigh restrictions on its use. The incentive to use XtendiMax with VaporGrip, a herbicide based on a chemical known as dicamba, could refund farmers over half the sticker price of the product in 2018 if they spray it on soybeans Monsanto engineered to resist the weed killer, according to company data. The United States faced an agricultural crisis this year caused by new formulations of dicamba-based herbicides, which farmers and weed experts say harmed crops because they evaporated and drifted away from where they were sprayed. Monsanto says XtendiMax is safe when properly applied.

The company is banking on the chemical and soybean seeds engineered to resist it, called Xtend, to dominate soybean production in the United States, the world’s second-largest exporter. BASF SE and DowDuPont also sell versions of dicamba-based herbicides. Monsanto’s cash-back offer comes as federal and state regulators are requiring training for farmers who plan to spray dicamba in 2018 and limiting when it can be used. Weed specialists say the restrictions make the chemical more costly and inconvenient to apply, but Monsanto’s incentive could help convince farmers to use it anyway.

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Dec 102017
 
 December 10, 2017  Posted by at 10:22 am Finance Tagged with: , , , , , , , , , ,  8 Responses »
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Robert Frank Motorama, Los Angeles 1956

 

Peak Fantasy Time (David Stockman)
Deflation Remains Biggest Threat As Lofty Stock Markets Head Into 2018 (F.)
Global Powers Lobby To Stop Special Brexit Deal For UK (G.)
The US Media Yesterday Suffered its Most Humiliating Debacle in Ages (GG)
Principles of Political Economy: The Opening Lines (Steve Keen)
Half A Salary, Half A Job, Half A Life (K.)
Erdogan, Tsipras Strike Secret Deal On Refugees (K.)
Refugee Arrivals in Greece Offset Decongestion Efforts (K.)
Super Rich Shown To Have Grown Out Of Ancient Farming (G.)
India Gov. Files Suits Against Monsanto et al Over Bollworm Cotton Attack (VoI)

 

 

Politics is the entertainment division of the military industrial complex.
-Frank Zappa

The decline in quality of jobs -and compensation- is as horrible as the jobs reports’ attempts at hiding that decline.

Peak Fantasy Time (David Stockman)

If you want to know why both Wall Street and Washington are so delusional about America’s baleful economic predicament, just consider this morsel from today’s Wall Street Journal on the purportedly awesome November jobs report. “Wages rose just 2.5% from a year earlier in November—near the same lackluster pace maintained since late 2015, despite a much lower unemployment rate. But in a positive sign for Americans’ incomes, the average work week increased by about 6 minutes to 34.5 hours in November…. November marked the 86th straight month employers added to payrolls.” Whoopee! Six whole minutes added to a work week that has been shrinking for decades owing to the relentlessly deteriorating quality mix of the “jobs” counted by the BLS establishment survey.

In fact, even by that dubious measure, the work week is still shorter than it was at the December 2007 pre-crisis peak (33.8) and well below its 2000 peak level. The reason isn’t hard to figure: The US economy is generating fewer and fewer goods producing jobs where the work week averages 40.5 hours and weekly pay equates to $58,400 annually and far more bar, hotel and restaurant jobs, where the work week averages just 26.1 hours and weekly pay equates to only $21,000 annually. In other words, the ballyhoed headline averages are essentially meaningless noise because the BLS counts all jobs equal – that is, a 10-hour per week gig at the minimum wage at McDonald’s weighs the same as a 45 hour per week (with overtime) job at the Caterpillar plant in Peoria that pays $80,000 annually in wages and benefits.

In fact, what has been the weakest expansion in history by far may now be finally running out of gas. During the last several weeks the pace of US treasury payroll tax collections has actually dropped sharply – and it is ultimately Uncle Sam’s collection box which gives the most accurate, concurrent reading on the state of the US economy. Some 20 million employers do not tend to send in withholding receipts for the kind of phantom seasonally maladjusted, imputed and trend-modeled jobs which populate the BLS reports.

Yet we we are not close to having recovered the 4.3 million goods producing jobs lost in the Great Recession; 40% of them are still AWOL – meaning they are not likely to be recovered before the next recession hits. Stated differently, the US economy has been shedding high paying goods producing jobs ever since they peaked at 25 million way back in 1980. Indeed, we are still not even close to the 24.6 million figure which was posted at the turn of the century.

By contrast, the count of leisure and hospitality jobs( bars, hotels and restaurants), or what we have dubbed the “Bread and Circuses Economy” keeps growing steadily, thereby filling up the empty space where good jobs have vacated the BLS headline total. Thus, when goods-producing jobs peaked at 25 million back in 1980, there were only 6.7 million jobs in leisure and hospitality. Today that sector employs 16.0 million part-time, low-pay workers..

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“.. the Fed has erroneously predicted 2% inflation for 66 months and continues to tell us that the low levels of inflation are “transitory.“

Deflation Remains Biggest Threat As Lofty Stock Markets Head Into 2018 (F.)

In the two weeks running up to the passage of the Senate’s version of the tax bill, the equity markets moved significantly depending on how any particular Republican senator intended on voting. Then, when the Senate finally passed the bill on the next business day, markets made new intra-day record highs, but then reversed course. Given the current sky-high market valuation levels, the tax benefits are already priced in. Economist David Rosenberg examined market reaction to the five major tax bills of the last 70 years. He found that, on average, the S&P 500 rises 14.3% (median 18.9%) in the year leading up to the passage of the tax legislation. In the year following, on average, the index falls 7.5% (median 13.1%). It could be he is on to something.

If it has been historically easy money that has propelled the U.S. and every other major stock market to record heights over the past few years, then it is noteworthy that the last 12 moves from the world’s central banks have been tightening moves. We know that the Fed is certain to tighten next week at its December 12-13 meeting. This, despite the fact that the Fed’s governing board is deeply divided on the outlook for interest rates and inflation. According to their own minutes, some Fed-governing members continue to hold to the academic view that the Phillips curve (i.e., inflation always rises when the unemployment rate is low) is alive and well. Under this view, inflation is just around the corner and the Fed had better be pre-emptive, lest inflation get ahead of them.

The other view is that today’s economy exhibits behaviors that are significantly different from those that dominated the 60+ years of post-WWII America, and that inflation is no longer the threat it used to be. In fact, deflation may be a bigger threat, especially given the high and rising debt levels. Regular readers know that I have espoused the latter viewpoint. I have pointed out several times that the Fed has erroneously predicted 2% inflation for 66 months and continues to tell us that the low levels of inflation are “transitory.” Fed Chair-Elect Powell espoused this viewpoint in his confirmation hearing, so, there is not much hope that they Fed will back off.

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US, Canada et al don’t want any special treatment for Britain. But that’s not their decision.

Global Powers Lobby To Stop Special Brexit Deal For UK (G.)

Theresa May’s hopes of securing a unique post-Brexit trade deal with the EU were under threat on Saturday night as Brussels said it was coming under international pressure to deny Britain special treatment. After a week that saw May reach a deal with the EU that will allow Brexit talks to move forward on to future trade relations, EU officials insisted a bespoke deal more favourable to the UK than other non-EU nations was out of the question. One EU source close to the talks said: “We have been approached by a number of [non-member] countries expressing concerns and making it clear that it would constitute a major problem for them if suddenly the UK were to get better terms than they get.”

The official said that once the UK is out of the single market and customs union in March 2019, there could be no replication of the terms of the current trading relationship, or anything close to it, and no special treatment. “It is not just an indication of some strange rigid principle. It is because things won’t work,” he said. “First and foremost we need to stick to this balance of rights and obligations, otherwise we will be undermining our own customs union and single market. Second, we cannot upset relations with other third countries,” the official said. “If we were to give the UK a very lopsided deal, then the other partners with whom we have been engaging and who entered into balanced agreements would come back and question those agreements.”

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Julian Assange on Twitter: “Is the fake news story about @WikiLeaks yesterday the worst since Iraq? It’s a serious question. Three outlets, CNN, NBC and ABC all independently “confirmed” the same false information. Has there previously been a serious triple origin fake news story? i.e not just re-reporting.”

The US Media Yesterday Suffered its Most Humiliating Debacle in Ages (GG)

Friday was one of the most embarrassing days for the U.S. media in quite a long time. The humiliation orgy was kicked off by CNN, with MSNBC and CBS close behind, with countless pundits, commentators and operatives joining the party throughout the day. By the end of the day, it was clear that several of the nation’s largest and most influential news outlets had spread an explosive but completely false news story to millions of people, while refusing to provide any explanation of how it happened. The spectacle began on Friday morning at 11:00 am EST, when the Most Trusted Name in News™ spent 12 straight minutes on air flamboyantly hyping an exclusive bombshell report that seemed to prove that WikiLeaks, last September, had secretly offered the Trump campaign, even Donald Trump himself, special access to the DNC emails before they were published on the internet.

As CNN sees the world, this would prove collusion between the Trump family and WikiLeaks and, more importantly, between Trump and Russia, since the U.S. intelligence community regards WikiLeaks as an “arm of Russian intelligence,” and therefore, so does the U.S. media. This entire revelation was based on an email which CNN strongly implied it had exclusively obtained and had in its possession. The email was sent by someone named “Michael J. Erickson” – someone nobody had heard of previously and whom CNN could not identify – to Donald Trump, Jr., offering a decryption key and access to DNC emails that WikiLeaks had “uploaded.”

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Steve is busy introducing economics to energy. Another thing the entire field entirely overlooked.

Principles of Political Economy: The Opening Lines (Steve Keen)

Labor without Energy is a Corpse; Capital without Energy is a Statue

Economics went astray from the very first sentence of Adam Smith’s Wealth of Nations in 1776: “The annual labour of every nation”, Smith asserted, “is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consist always, either in the immediate produce of that labour, or in what is purchased with that produce from other nations.” This paragraph mimicked the structure, and even the cadence (though not the brevity), of the opening sentence of Richard Cantillon’s 1730 treatise Essai sur la Nature du Commerce en Général (which Smith read). However, Smith made one crucial substitution: he asserted that “Labor … is the fund” from which our wealth springs, whereas Cantillon asserted that it was Land:

“Land”, Cantillon began, “is the source or matter from which all wealth is drawn; man’s labor provides the form for its production, and wealth in itself is nothing but the food, conveniences, and pleasures of life.” (21) Both these assertions are strictly false. The true source of the wealth that humanity has generated from production is neither Labor nor Land, but the Energy that humanity’s production systems harness and turn into useful work (now known as “Exergy”). However, Smith’s assertion is irredeemably false, whereas Cantillon’s merely needs generalization to make it consistent with the fundamental laws of the universe known as the Laws of Thermodynamics. These Laws are still poorly known by economists, which in part explains why economic theory has managed to be in conflict with them for so long. Illustrating why this is so, and why it is crucial, will take time, and effort on your part too to understand them (if you do not already).

But the fact that no theory that contradicts them can be taken seriously, was stated eloquently by the physicist Arthur Eddington in his 1928 book for lay readers The Nature of the Physical World: The law that entropy always increases—the second law of thermodynamics—holds, I think, the supreme position among the laws of Nature. If someone points out to you that your pet theory of the universe is in disagreement with Maxwell’s equations—then so much the worse for Maxwell’s equations. If it is found to be contradicted by observations—well, these experimentalists do bungle things sometimes. But if your theory is found to be against the second law of thermodynamics I can give you no hope; there is nothing for it but to collapse in deepest humiliation. (37)

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Life in Greece. Every day gets worse.

Half A Salary, Half A Job, Half A Life (K.)

Two in three Greeks fail to pay their bills on time, mainly because they don’t have the money. Three in 10 private sector workers, meanwhile, work part time and get paid a salary of 407.15 euros a month, on average. The first case puts Greece at the top of the list of EU countries in terms of citizens that don’t keep up with their bills, according to the European Consumer Payment Report 2017, with the main reason being the lack of money. In the rest of Europe, the main causes of delays are simple absentmindedness or forgetfulness. The second case is something entirely different. In one sense, it can be interpreted as a reduction in unemployment, which dropped to 20.5% in September. Basically, unemployment falls as part-time work rises, with 30.6% of employees in the private sector working such jobs.

Is this something to be glad about? Should we welcome it as an improvement in the country’s economy? Flexible forms of labor that bring in a pittance of a salary strengthen the ranks of the nouveau pauvre, but at the same time bring down unemployment – albeit dragging down every index that points to a normal life along with it. This is the new normal. But how can 400 euros a month possibly be considered normal? We are beyond the viral videos of the first months of the crisis, of frenzied officials claiming that children were fainting of hunger at school, of images of people rummaging through trash cans looking for food, of pensioners falling over each other for a bag of free potatoes and other such dramatic scenes, real or contrived, that appeared on screens all over the world, and which the present government is quick to claim no longer exist.

Today, some really “lucky” Greeks are insured and have a daily wage of 51 euros, adding up to 1,193 euros a month. But the majority, the less fortunate – yet still fortunate enough to have a job – need to make do with 400 euros a month. It is a conundrum that requires a good deal of math. This month you’ll pay the water bill but not the electricity, you’ll limit your purchases to the bare essentials and you’ll adapt your diet to your budget. What’s left after that? A constant knot in your stomach that you have to learn to put up with. You won’t faint in the street, but each day will be a struggle. You will die a little bit inside, but this is not a measurable reaction and the indices don’t care. Neither does the government, whose slogan when it was in the opposition was that there are real people behind the data. Now the only number it cares to talk about is the shrinking unemployment rate.[..]

The line that defines normal is constantly being shifted and with it the definition of poverty.

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Erdogan was in Greece the past week and tried to stir up as much shit as he could. Refugees remain his main weapon.

Erdogan, Tsipras Strike Secret Deal On Refugees (K.)

As pressure due to overcrowding continues to build at reception centers for migrants on the islands of the eastern Aegean, Turkish President Recep Tayyip Erdogan accepted a request by Prime Minister Alexis Tsipras that Turkey take back migrants from the Greek mainland as well as the islands, Kathimerini understands. During a joint press conference with Erdogan on Thursday, Tsipras declared that “new measures have been agreed for cooperation in the context of the European Union-Turkey agreement,” referring to a deal signed between Ankara and Brussels in March 2016 to curb human trafficking across the Aegean. Tsipras’s comments spurred much speculation about what those measures might be. It appears that they would involve triggering the return of migrants to Turkey, a process that has largely halted as new arrivals often lodge applications for asylum, a lengthy process.

Thousands of migrants, particularly those deemed to be the most vulnerable such as children, pregnant women and the elderly, have already been transferred from cramped facilities on the islands to the mainland. But conditions remain overcrowded at the island camps amid a constant stream of new arrivals from neighboring Turkey. What remains unclear is whether officials in Brussels have approved the deal; as it stands, it would basically undermine the basis of last year’s EU-Ankara agreement, according to which migrants should remain on the islands until a decision has been reached on their status (whether they are considered to belong to vulnerable groups meriting priority treatment, to be granted asylum etc). In recent comments, Dutch Ambassador in Athens Caspar Veldkamp expressed concerns about the prospects of mass relocations to the mainland if returns are not being made to Turkey, noting that this could undermine the EU-Turkey deal and encourage human smugglers rather than averting them.

For the leftist-led government, however, moving migrants from cramped facilities to mainland camps would appease those in the party concerned about inhumane conditions on the islands. As winter looms, and hundreds of migrants continue to live in tents around the reception centers, Migration Minister Yiannis Mouzalas has conceded that he could not rule out the risk of people dying from hypothermia. In an interview with Der Spiegel that was published on Friday, Mouzalas said that authorities were making preparations to ensure that island camps are ready to deal with plunging temperatures. Everything should be in place by December 15, he said. “The key though is the number of new arrivals,” he said, adding that if there is no large increase in numbers “then we are well prepared.” Authorities might reserve some rooms at local hotels if necessary, he said.

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Haven’t heard this one before, and it feels like an ominous sign: “Migration Minister Yiannis Mouzalas told Germany’s Spiegel Online that he cannot guarantee that no one will die in the camps with the onset of winter.”

Refugee Arrivals in Greece Offset Decongestion Efforts (K.)

The effort to improve the living conditions of refugees and migrants stranded at overcrowded reception centers on the eastern Aegean islands of Lesvos, Chios and Samos by transferring some of them to the mainland will fail to yield the desired result as long as flows from Turkey continue. In its latest report, the UNHCR said that 17,764 people were transferred from the islands to the mainland in the period from July 2016 to November 2017. UNHCR sources clarified, however, that the number of those removed from the islands is significantly higher than the official figure. Many of the people who have completed the necessary procedures or are deemed to be vulnerable, and as such are allowed to depart for the mainland, do so at their own cost, the same sources said.

They also reckoned that in 2016 around 40% of transfers were conducted by the UNHCR but the%age rose to 80% in 2017 after a request by the Migration Policy Ministry. At the same time, however, in the period between early April 2016, when Ankara and Brussels reached a deal to limit migrant flows into Europe, until late November, some 48,600 people arrived in Greece. In November, 3,800 people arrived on the Greek islands from Turkey, while 2,128 asylum seekers were transferred to the mainland in the same month. The Migration Policy Ministry on Saturday dismissed rumors on Chios that there are plans for the immediate removal of some 1,000 people from the Vial hotspot. It said that removals will take place gradually.

Meanwhile, Migration Minister Yiannis Mouzalas told Germany’s Spiegel Online that he cannot guarantee that no one will die in the camps with the onset of winter. “What we can do,” he said, “is try the utmost to prevent death.” Moreover, the German newspaper Bild said that an increasing number of refugees in Greece are trying to get to other European Union countries using forged passports.

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There are multiple pieces coming out lately that prove the obvious: once mankind started gathering surpluses, hierarchies developed, and so did inequality.

Super Rich Shown To Have Grown Out Of Ancient Farming (G.)

To measure relative wealth in a society, the team worked with archaeologists studying 62 different societies in Europe, Asia and North America. Some of these were up to 10,000 years old and included digs in ancient Babylonia, Catalhoyuk (now in Turkey) and Pompeii. Researchers analysed the sizes of houses at these sites and used these as indicators of the variations of wealth that existed there at any one time. “House size gives a very good indication of wealth,” said Smith. This point was backed by Kohler. “We consider house size to be a proxy for wealth.” The figures produced by these analyses provided the team with an indication of a particular society’s wealth. The greater the diversity in house size, the greater the inequality. In turn this disparity was measured using a system based on the Gini coefficient.

“Gini coefficients range from zero for societies in which each person has exactly the same amount of wealth to a society in which a single person owns the resources of an entire society. Such a society would have a Gini coefficient of one,” Kohler said. The team found that ancient farming societies had an inequality with a coefficient of around 0.35. That is a higher level of inequality than the level that is likely to have existed in earlier millennia when humans lived as hunter gatherers and shared many resources. “However, this inequality among these, the first farmers, is an awful lot less than the inequality you find in the US today,” said Kohler. “Here we have a Gini coefficient of around 0.8 today.” In the ancient farms of the New World, inequality stayed more or less the same. However, in Eurasia it started to climb over time until it reached levels of around 0.6 a few thousand years ago. This rise coincides with the introduction of oxen and horses and their exploitation in the ploughing of fields.

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More. Monsanto. Mayhem.

India Gov. Files Suits Against Monsanto et al Over Bollworm Cotton Attack (VoI)

The Maharashtra government on Friday announced that it would file police complaints against seed companies like Monsanto, which supplied seeds of BT Cotton, the crops from which were destroyed in a large-scale bollworm attack. Maharashtra’s Revenue Minister Chandrakant Patil said on Friday more than 70% of the cotton crop in Vidarbha has been destroyed due to the bollworm attack. He added that companies like Monsanto had provided the BT Cotton seeds with the promise that they were immune to attacks by the pest. The Vasantrao Naik Shetkari Swavalamban Mission, a state government body, has estimated that the output of cotton in Maharashtra would fall to 43.10 lakh quintal as compared to 78.61 quintals in December 2016.

The opposition parties are however demanding that the Maharashtra government pay compensation to cotton farmers on the lines of the ongoing farm loan waiver extended to cultivators. The Nationalist Congress Party is demanding that the government provide a compensation of Rs 25,000 per hectare for farmers whose crop has been destroyed in the bollworm attack. NCP leader Dhananjay Munde said his party would hold protests in the cotton-growing areas of Vidarbha to force the government raise compesation to farmers. With the opposition parties likely to paralyse the state legislature during the Winter Session to be held in Nagpur from Monday, Chief Ministre Devendra Fadnavis’s government on Friday asked revenue officials to carry out panchnama of crops destroyed in the bollwork attack. “We are working on a compensation package for farmers,” Patil told reporters.

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Politics is the entertainment division of the military industrial complex.
-Frank Zappa

 

Nov 292017
 
 November 29, 2017  Posted by at 10:06 am Finance Tagged with: , , , , , , , , , ,  9 Responses »
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Claude Monet The Manneporte (Étretat) 1883

 

VIX – From Fear Index To Greed Index (Tchir)
When VIX Trade Finally Blows Up, It Could Get Ugly All Over (MW)
DB’s “2018 Credit Outlook” – Bearish Not Benign Conclusion (ZH)
The GOP Tax Bill: Fuggedaboutit! (Stockman)
Number Of US Store Closings Triples From Last Year (Snyder)
Trump Deserves Some Credit for the Rally in Stocks (A. Gary Shilling)
Fed Chair Nominee Jerome Powell Says Too Big To Fail Is Over (BI)
Britain Close To Deal On Brexit Bill With EU (R.)
Former New Zealand PM John Key Lied About Mass Surveillance Program (NZH)
Senior Saudi Prince Freed In $1 Billion Settlement Agreement (R.)
Europe Needs a Way to Prevent the Next Greek-Style Debt Crisis (BBG)
Controversial Glyphosate Weedkiller Wins New 5-Year Lease In Europe (G.)
New Zealand Fault Line Wakes Up: “We Must Think Japan 2011 Ruptures” (SHTF)
Libya “Chose” Freedom, Now It Has Slavery (CP)
The EU Created Libya’s Migrant Abuses, Now It Must Address Them (CP)

 

 

The crazy idea of ultra low risk will be found out.

VIX – From Fear Index To Greed Index (Tchir)

We have all heard the VIX or volatility index referred to as the Fear Index or Fear Gauge. Rising VIX was meant to signal fear in the markets. That is how most investors have historically thought about VIX and traded it (directly or through Exchange Traded Products). I have gone back in time and combined the total assets under management of XIV and SVXY (two short VIX products) and UVXY and VXX (the two largest long VIX products). There are others and it doesn’t account for the fact that UVXY incorporates leverage, but the point is the same. The funds that in theory helped investors ‘hedge’ their portfolios went from being the dominant species to those that enable investors to sell volatility.


Short VIX Funds are Larger than Long VIX Funds (source Bloomberg)

This has rarely been the case. Typically investors had more interest in hedging their portfolios despite the evidence that the long VIX ETFs and ETNs had to continually perform reverse splits as their share prices drifted lower (some would argue “raced” lower is a more accurate description). While the products looking to benefit on a volatility spike still attract inflows (otherwise their assets under management would be even lower), they have lost the competition to the VIX sellers. The only other gap of similar size and duration was in late August 2015 – AFTER the market sold off and volatility spiked. This time, it is occurring as stock markets are near all-time highs and VIX is still close to the all-time low it set just a few weeks ago (VIX is only calculated since 1990). [..] A spike in volatility could be far more problematic than the market is prepared for as even a small spike could turn into a larger problem with so many people positioned the other way.

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“.. it has the potential to destabilize the entire financial system on its own.”

When VIX Trade Finally Blows Up, It Could Get Ugly All Over (MW)

Bitcoin’s face-melting rally toward $10,000 is the talk of financial circles these days. But if the digital currency is, indeed, the dangerous bubble many believe it to be, its inevitable implosion will pale in comparison to the potential damage caused by the demise of one of the best trades the Wall Street has ever seen: Shorting the VIX. You’d have to be living under a rock — or maybe just a normal person who doesn’t fixate on the stock market — to not notice the incredible lack of volatility in this bull run. This persistent trend has lined the pocket of any investor who’s been savvy/lucky enough to bet against the VIX. Count Seth Golden, a former Target manager, among those fortunate to be on the right side of it. He told the Times this summer his net worth exploded from $500,000 to $12 million in about five years thanks to his VIX shorts. This chart shows insane it’s been:

But all good things come to an end, and when this historic trend finally reverses, the fallout could be devastating. In our call of the day, Kevin Muir of the Macro Tourist blog warns that these people face getting completely “wiped out” when volatility returns to this market. And it won’t end there. “A VIX spike is dangerous not only for everyone that is playing in the VIX square, but for all market participants,” he explained in a recent blog post. “Given the size of the VIX complex, it has the potential to destabilize the entire financial system on its own. If the move is abrupt and large enough, it will not only bankrupt many different parties, but will cause a ripple effect in other markets.”

Muir went on to warn the real worry here is not just that those who have made enormous sums on shorting the VIX are about to give it all back. No, he believes they, as well as many others, stand to lose a whole lot more. “Shorting VIX, at these low levels, in the size they are doing, is not only dumb, but crazily dangerous, not only to the parties trading it, but also to the stability of the entire financial system,” he said.

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How can the VIX remain low in the face of this?

DB’s “2018 Credit Outlook” – Bearish Not Benign Conclusion (ZH)

Heading into 2018, Reid characterises risk assets as a tightrope walker who’s successfully negotiated a hire wire since the 2008 crisis. However, the confidence of our risk asset funambulist was always fortified by the knowledge that there was a huge safety net direct beneath him in the shape of the central bank put. In Reid’s own words. “The best analogy for our view on 2018 is that risk assets are like a highly skilled but still relatively inexperienced tightrope walker. Our tightrope walker started his career immediately after the GFC and earned his apprenticeship in very difficult conditions with lots of crosswinds but with the knowledge that a huge safety net existed beneath him. This allowed him to walk across the narrow line with slow but ever-increasing confidence, skill and aplomb. In our analogy the safety net is the central bank put that has continued to help financial markets’ confidence over the last several years in spite of very challenging conditions.”

As the tightrope walker steps from December 2017 into January 2018, he’s going to notice a disconcerting change in his safety net. “However in 2018 our tightrope walker will have to move onto the next phase of his career where the structural support of the safety net will likely be slowly weakened. Every time he looks down he’ll figuratively see a central banker loosen or take away a supporting rope. As such his skills and confidence are likely to be tested more than in recent years.” Reid is specifically referring to the growth in the size of the big four DM central bank balance sheets, i.e. the Federal Reserve, ECB, Bank of Japan and the Bank of England. At the end of 2017, the combined size of the big four’s balance sheets is estimated to reach about $14.9 trillion, an increase of about $1.8 trillion on the end of 2016. That’s about to change radically, as he notes. “Assuming fairly neutral and consensus assumptions, central bank balance sheet growth will fall sharply over the next 12-24 months from the near peak levels currently seen.”

The chart below shows that on a rolling twelve-month basis, growth will fall sharply, beginning in 2Q 2018. By the end of 2018, DM estimates that the rolling twelve-month growth will have declined about 75% from its 2017 level to about $450 billion. By August 2019, growth will have declined to zero according to DB’s estimate.

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Hope the GOP reads these missives.

The GOP Tax Bill: Fuggedaboutit! (Stockman)

The GOP has become so politically desperate that they might as well enact a two-word statute and be done with it. It would simply read: Tax Bill! Actually, that’s not far from where they are in the great scheme of things. The Senate Finance Committee’s bill is a dog’s breakfast of K-Street/Wall Street pleasing tax cuts, narrowly focused revenue raisers that will be subject to withering attack on the Senate floor, nonsensical vote-driven compromises and outrageous fiscal gimmicks – the most blatant of which is the sun-setting of every single individual tax provision after 2025. This latter trick is designed to shoe-horn the revenue loss into the $1.5 trillion 10-year allowance in the budget reconciliation instruction and also comply with the Senate’s “Byrd Rule” which allows a point of order to strike down a reconciliation bill that increases the deficit after year 10.

Save for these gimmicks, the actual 10-year cost of the Senate bill would be $2.2 trillion including interest on the added deficits. Nevertheless, this and other sunset gimmicks also underscore how threadbare the whole undertaking has become. To wit, the bill provides interim, deficit-financed tax relief of $1.38 trillion during 2018-2025 before these budget gimmicks kick-in, which is not a big number in the scheme of things: it amounts to just 4.2% of current law revenue collections during the eight year period, and only 0.8% of GDP. Since the bill doesn’t even really cut marginal rates during this interim period (the top bracket drops from 39.6% to 38.5%), its hard to see how a mere 0.8% “stimulus” to GDP is going to incite a tsunami of growth and jobs.

As we have frequently pointed out, the Reagan tax cut of 1981 – which had no measureable effect on the trend rate of economic growth – slashed marginal rates from 70% to 50% and as a total package paled the current Senate Plan into insignificance: It reduced the Federal revenue base by 26%, not 4.2%; and it amounted to 6.2% of GDP, not 0.8%, when fully effective in the later 1980s. Moreover, the “fully effective” part is especially salient because the Senate bill’s impact does not widen with time, as do most permanent tax cuts which require phase-in periods, but, instead, shrinks into virtual insignificance. Thus, the bill’s net tax cut amounts to $225 billion or 1.1% of GDP in 2019, but by 2022 the net cut shrinks to $199 billion and 0.9% of GDP – and then to just $145 billion or 0.6% of GDP in 2025 when the sunset gimmick kicks in.

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Changing the landscape.

Number Of US Store Closings Triples From Last Year (Snyder)

Did you know that the number of retail store closings in 2017 has already tripled the number from all of 2016? Last year, a total of 2,056 store locations were closed down, but this year more than 6,700 stores have been shut down so far. That absolutely shatters the all-time record for store closings in a single year, and yet nobody seems that concerned about it. In 2008, an all-time record 6,163 retail stores were shuttered, and we have already surpassed that mark by a very wide margin. We are facing an unprecedented retail apocalypse, and as you will see below, the number of retail store closings is actually supposed to be much higher next year. Whenever the mainstream media reports on the retail apocalypse, they always try to put a positive spin on the story by blaming the growth of Amazon and other online retailers.

And without a doubt that has had an impact, but at this point online shopping still accounts for less than 10% of total U.S. retail sales. Look, Amazon didn’t just show up to the party. They have been around for many, many years and while it is true that they are growing, they still only account for a very small sliver of the overall retail pie. So those that would like to explain away this retail apocalypse need to come up with a better explanation. [..] Of course the truth is that the economy is not doing well. The U.S. economy has not grown by at least 3% in a single year since the middle of the Bush administration, and it isn’t going to happen this year either. Overall, the U.S. economy has grown by an average of just 1.33% over the last 10 years, and meanwhile U.S. stock prices are up about 250% since the end of the last recession.

The stock market has become completely and utterly disconnected from economic reality, and yet many Americans still believe that it is an accurate barometer for the health of the economy. [..] So far this year, more than 300 retailers have filed for bankruptcy, and we are currently on pace to lose over 147 million square feet of retail space by the end of 2017. Those are absolutely catastrophic numbers. And some analysts are already predicting that as many as 9,000 stores could be shut down in the United States in 2018.

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Deregulation.

Trump Deserves Some Credit for the Rally in Stocks (A. Gary Shilling)

Reducing government regulation is tough. It’s resisted by all those who benefit, including government employees who administer the many programs. Every president since Jimmy Carter has attempted to lower the cost of regulation. At best, any cuts have been tiny and mostly centered on trimming paperwork. But less regulation is one campaign promise made by Donald Trump that is coming true. With tax and health-care reform problematic and given the president’s protectionist leanings, deregulation is probably a major driver of the stock market rally. The size and scope of the federal government give the president immense powers. In relation to gross domestic product, federal spending rose from 16% in 1946 to 22% in the 2017 fiscal year. Executive orders give the chief executive, in effect, legislative powers.

President Barack Obama issued many in his waning days, especially affecting power plants and oil pipelines. The Competitive Enterprise Institute last year found regulation cost American businesses $1.9 trillion, dwarfing the $344 billion in corporate taxes. About 56% of CEOs see overregulation as a major threat to their organization, more than cybersecurity (50%), rising taxes (41%) or even protectionism (27%). Whenever a new regulation is made or changed, it must be chronicled in the Federal Register. In the last years of the Obama administration, regulatory activity went parabolic, hitting almost 97,000 pages in a year. The annualized pace under Trump through July 31 was 61,330 pages, the fewest since the 1970s.

This year through June, the federal government had made 1,731 preliminary, proposed or final rules, the least since 2000 and down 40% from the 2011 peak under Obama. Many actions taken under Trump are reversals of earlier rules made under Obama. Of 66 completed actions at the Environmental Protection Agency, a third were rule withdrawals. Shares of banks have benefited, as those with more than $50 billion in assets are now able to merge without increased scrutiny. Scaling back the Volcker Rule would allow big banks to resume proprietary lending. The delay and likely alterations of the fiduciary requirement would aid brokers and insurers. The House has already approved a widespread rewrite of Dodd-Frank.

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I think he meant it.

Fed Chair Nominee Jerome Powell Says Too Big To Fail Is Over (BI)

Jerome Powell, Donald Trump’s nominee to replace Janet Yellen as Federal Reserve Chair, just made a frightening statement that suggests he is far too sanguine about risks in the US and global financial systems. During his confirmation hearing at the Senate on Tuesday, when pressed on the issue of whether any US banks are still considered too big to fail, Powell said simply: “No.” It’s the kind of blind optimism that could come back to haunt him during his tenure, which begins in February. Too big to fail, of course, is the financial crisis-era term for banks that the US government would be forced to bail out in a crisis because they might take the entire system down with them. Think of Citigroup, JPMorgan Chase, and Goldman Sachs. They underpin too much of our financial network to be allowed to falter.

“Dodd-Frank did a lot of things, but ending Too Big To Fail can’t be listed among its accomplishments,” Isaac Boltansky, director of policy research at Compass Point, told Business Insider. “The system is far safer given the capital and liquidity rules, and new mandates such as living wills and orderly liquidation authority should blunt panic in a crisis, but I doubt anyone in Washington or on Wall Street truly believes the federal government would stand idly by in the event of another systemic banking crisis,” he said. Democratic Senator Elizabeth Warren also took issue with Powell’s opening statement, which talked about “easing the burden” of regulation for banks.

“I’m troubled that you believe the biggest problem with bank regulations is that they are too tough,” Warren said during the hearing, arguing that it was that kind of mindset that led to the financial crisis of 2007-2008. At that time, many large investment banks were rescued by the Treasury and the Federal Reserve after their investments in housing soured quickly as a historic boom turned to bust. Treating the banks as victims of burdensome rules — rather than perpetrators of a historic crisis in need of deeper and more constant supervision — could lay the groundwork for a repeat. When it comes, Powell is going to regret that he didn’t have more to say about this.

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The pound surged on this news, but without solving the Irish border issue, none of it is worth a thing.

Britain Close To Deal On Brexit Bill With EU (R.)

Britain has offered to pay much of what the European Union was demanding to settle a Brexit “divorce bill”, bringing the two sides close to agreement on a key obstacle to opening talks on a future free trade pact, EU sources said on Tuesday. The offer, which British newspapers valued at around 50 billion euros, reflected the bulk of outstanding EU demands that include London paying a share of post-Brexit EU spending on commitments made before Britain leaves in March 2019 as well as funding of EU staff pensions for decades to come. A British government official said they “do not recognize” this account of the talks going on ahead of a visit by Prime Minister Theresa May to Brussels this coming Monday.

EU officials close to the negotiations stressed that work was still continuing ahead of May’s talks with European Commission President Jean-Claude Juncker and his chief Brexit negotiator Michel Barnier. But EU diplomats briefed on progress said the British offer was promising and that, on the financial settlement, the two sides were, as one said, “close to a deal”. Nonetheless, others cautioned that Britain had yet to make a fully committed offer and that essential agreement from the other 27 member states could not yet be taken for granted. The EU set the condition of “significant progress” on three key elements of a withdrawal treaty before it would accede to London’s request for negotiations on a free trade pact that could keep business flowing after Brexit in 16 months.

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See you in court.

Former New Zealand PM John Key Lied About Mass Surveillance Program (NZH)

Sir John Key’s story of how and why he canned a “mass surveillance” programme are at odds with official papers detailing development of the “Speargun” project. The issue blew up in the final days of the 2014 election with Key claiming the programme was long-dead and had been replaced by a benign cyber-security system called Cortex. Key always claimed the Speargun project to tap New Zealand’s internet cable was stopped in March 2013. But new documents show development of Speargun continued after the time he had said he ordered a halt – apparently because the scheme was “too broad”. Instead, they show Speargun wasn’t actually stopped until after Key was told in a secret briefing that details were likely to become public because they could be in the trove of secrets taken by NSA whistleblower Edward Snowden.

With days to go until voting in 2014, Key found himself accused by some of the world’s most high-profile and outspoken surveillance critics of secretly developing a mass surveillance system with the United States’ National Security Agency. It was high stakes for Key, also Minister of the GCSB, as he had previously promised the public he would resign as Prime Minister if there was ever mass surveillance of New Zealanders At the Kim Dotcom-organised “Moment of Truth” event, journalist Glenn Greenwald and Snowden claimed our Government Communications Security Bureau spy agency had developed the “Speargun” project to tap New Zealand’s internet cable and suck out masses of data.

Key denied it, saying Speargun had been canned in March 2013 because it was too intrusive. He said: “We made the call as government and I made the call as the Minister and as Prime Minister, that actually it was set too broadly. “What we ultimately did, when it comes to Speargun, in my opinion, I said it’s set too far. I don’t even want to see the business case.” The NZ Herald has found – after three years of refusals and information going missing – that the former Prime Minister’s version of events doesn’t match that of documents created at the time.

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As if MbS is any different.

Senior Saudi Prince Freed In $1 Billion Settlement Agreement (R.)

Senior Saudi Prince Miteb bin Abdullah, once seen as a leading contender to the throne, was freed after reaching an “acceptable settlement agreement” with authorities paying more than $1 billion, a Saudi official said on Wednesday. Miteb, 65, son of the late King Abdullah and former head of the elite National Guard, was among dozens of royal family members, ministers and senior officials who were rounded up in a graft inquiry partly aimed at strengthening the power of Crown Prince Mohammed bin Salman. The official, who is involved in the anti-corruption campaign, said Miteb was released on Tuesday after reaching “an acceptable settlement agreement”. The amount of the settlement was not disclosed but the official said it is believed to be the equivalent of more than $1 billion.

“It is understood that the settlement included admitting corruption involving known cases,” the official said. According to a Saudi official, Prince Miteb was accused of embezzlement, hiring ghost employees and awarding contracts to his own firms including a $10 billion deal for walkie talkies and bulletproof military gear worth billions of Saudi riyals. The allegations against the others included kickbacks, inflating government contracts, extortion and bribery.

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Easy: let the banks take the losses, not the people.

Europe Needs a Way to Prevent the Next Greek-Style Debt Crisis (BBG)

If there was ever a textbook example of how not to handle a sovereign debt crisis, it was Greece. Nearly a decade since Athens first asked for help from its euro zone partners and the IMF, the Greek economy is still struggling to recover. Even after a steep restructuring, sovereign debt remains unsustainable. If Greece is not to be crippled by its debt load, European governments will have to accept further debt-reducing measures, on top of the maturity extensions and the cut in interest rates they have already agreed to. So it’s no surprise that one of the key debates on the future of the euro zone relates to how sovereign debt restructuring should be made easier. There is little doubt that forcing losses on creditors at an earlier stage, as some propose, would increase the chance that a program of financial assistance is successful.

However, the euro zone should be wary of automatic triggers; they risk bringing on the very crisis they are designed to avert. The debate on the future of debt restructuring in the euro zone largely involves two positions. The first, which is widely shared in Germany, sees an orderly debt restructuring mechanism as an essential next step for the currency union. When a country applies for financial help from the European Stability Mechanism (ESM), creditors should face some form of debt restructuring immediately. This would ensure a better distribution of risks between debt-holders and the ESM. The threat of a haircut will make investors more discerning in their lending, contributing to fiscal discipline within the euro zone.

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Because Bayer is a German chemical company with very deep roots in Berlin, and it’s buying Monsanto. Ironically, the only party that can stop that purchase is the EU… German media say Merkel was angry at the German representative for going it alone on Germany’s decision to support this stance. So let’s see her reverse it.

Controversial Glyphosate Weedkiller Wins New 5-Year Lease In Europe (G.)

Glyphosate, the key ingredient in the world’s bestselling weedkiller, has won a new five-year lease in Europe, closing the most bitterly fought pesticide relicensing battle of recent times. The herbicide’s licence had been due to run out in less than three weeks, raising the prospect of Monsanto’s Roundup disappearing from store shelves and, potentially, a farmers’ revolt. Instead, an EU appeal committee voted on Monday to reauthorise the substance despite a petition by 1.3 million EU citizens last week calling for a ban. In 2015, the World Health Organisation’s cancer agency, the IARC, famously declared glyphosate “probably carcinogenic to humans,” although several international agencies, including Efsa, subsequently came to opposite conclusions. Monsanto insists glyphosate is safe.

The EU health commissioner Vytenis Andriukaitis said: “Today’s vote shows that when we all want to, we are able to share and accept our collective responsibility in decision making.” However, the approval falls far short of the 15-year licence the commission had originally sought and Conservative MEPs lashed out at what they called “an emotional, irrational but politically convenient fudge”. Ashley Fox, the Conservative party’s delegation leader in the European parliament, said that the vote “simply prolongs the uncertainty for our farmers, who are being badly let down. They cannot plan for the future without long term assurances about the availability of substances they rely on.”

A re-run of the struggle to reauthorise glyphosate will now begin again in two years’ time, with a new safety assessment by the European Food Safety Authority (Efsa). Greenpeace EU food policy director, Franziska Achterberg, commented: “The people who are supposed to protect us from dangerous pesticides have failed to do their jobs and betrayed the trust Europeans place in them.” The Green party called it “a dark day for consumers, farmers and the environment”.

[..] Traces of glyphosate are routinely found in tests of foodstuffs, water, topsoil, and human urine in amounts way above safe limits set by regulators. Ben & Jerry’s recently introduced a new line of organic ice cream, in a bid to sate public concern. Campaigners say Monsanto ghostwrote research papers for regulators, enlisted EPA officials to block a US government review of glyphosate and formed front groups to discredit critical scientists and journalists, citing documents revealed in a US lawsuit by non-Hodgkin’s lymphoma sufferers. More than 280 similar lawsuits are now pending against Monsanto, according to the US right to know campaign.

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A tad scary?!

New Zealand Fault Line Wakes Up: “We Must Think Japan 2011 Ruptures” (SHTF)

The devastating Kaikura earthquake in 2016 has resurrected the Hikurangi subduction zone where two tectonic plates clash and one is pushed down. Geologists are now warning that this trench could cause a massive earthquake on the ocean floor, and could trigger other 9.0 magnitude earthquakes and tsunamis that will reach the western coast of the islands in just seven minutes. The Australian plate is heading north while the Pacific plate is heading west, and the combination of these motions means that the Pacific plate, which includes much of the South Island, is moving relative to the Australian plate at a rate of about 40millimeters each year in a southwesterly direction. Ursula Cochran, from the science firm GNS, told The Marlborough Express: “We need to think Japan 2011 basically, because if our whole plate boundary ruptured it would be a magnitude-9 earthquake.”

The Great East Japan Earthquake and resulting tsunami smashed through the country’s north-eastern coast killing almost 16,000 people and destroying the lives of thousands more. It also triggered a major ongoing crisis at the Fukushima nuclear plant. “One of the biggest hazards of that kind of earthquake is the tsunami that is triggered by a fault rupture offshore.,” Cochran added. “We know from tsunami modeling from a hypothetical earthquake from the Hikurangi subduction zone that the travel times could be very short to the coast, so seven minutes for some of the south Wairarapa coast.” One year after it struck, scientists are also warning that the Kaikoura quake was not the “big one” for the Hikurangi subduction zone. The quake on the Hikurangi subduction zone was devastating. The magnitude 7.8 that destroyed houses, lifted the Kaikoura seabed by 2m, tore apart farmland, and wrecked kilometers of State Highway 1, may be minor compared to what could come, Cochran said.

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Has the west ever ended slavery?

Libya “Chose” Freedom, Now It Has Slavery (CP)

NATO’s military intervention in Libya in 2011 has justifiably earned its place in history as an indictment of Western foreign policy and a military alliance which since the collapse of the Soviet Union has been deployed as the sword of this foreign policy. The destruction of Libya will forever be an indelible stain on the reputations of those countries and leaders responsible. But now, with the revelation that people are being sold as slaves in Libya (yes, you read that right. In 2017 the slave trade is alive and kicking Libya), the cataclysmic disaster to befall the country has been compounded to the point where it is hard to conceive of it ever being able to recover – and certainly not anywhere near its former status as a high development country, as the UN labelled Libya 2010 a year prior to the ‘revolution’.

Back in 2011 it was simply inconceivable that the UK, the US and France would ignore the lessons of Iraq, just nine years previously in 2003. Yet ignore them they did, highlighting their rapacious obsession with maintaining hegemony over a region that sits atop an ocean of oil, despite the human cost and legacy of disaster and chaos which this particular obsession has wrought. When former UK Prime Minister David Cameron descended on Benghazi in eastern Libya in the summer of 2011, basking in the glory of the country’s victorious ‘revolution’ in the company of his French counterpart Nicolas Sarkozy, he did so imbued with the belief he had succeeded in establishing his legacy as a leader on the global stage. Like Blair before him, he’d won his war and now was intent on partaking of its political and geopolitical spoils.

Cameron told the crowd, “Your city was an inspiration to the world, as you threw off a dictator and chose freedom.” The destruction of Libya by NATO at the behest of the UK, the US and France was a crime, one dripping in the cant and hypocrisy of Western ideologues for whom the world with all its complexities is reduced to a giant chessboard upon which countries such as Libya have long been mere pieces to be moved around and changed at their pleasure and in their interests – interests which are inimical to the people of the countries they deem ripe for regime change.

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Europe’s politicians care only about their careers.

The EU Created Libya’s Migrant Abuses, Now It Must Address Them (CP)

Revelations into Libya’s awful migrant detention centres showed the humanitarian emergency that occurs within them. The international community – particularly the European Union, has not only failed to address this problem, but is responsible for causing it. After Libya descended into chaos following long-time leader Muammar Gaddafi’s fall in 2011, the nation became a major hub of slavery and migrant-trafficking. For the hundreds of thousands of those fleeing war-torn areas in Sub-Saharan Africa, Libya serves as a strategic point to reach the safe havens of Europe. However, those who fail to reach Europe face equally dire circumstances to their homeland after being detained by Libyan authorities, as part of an EU-deal with the Libyan Government of National Accord (GNA) penned in February.

This deal entails the Libyan coastguard stopping migrant vessels leaving Libya. It was quite rightly slammed as ‘inhumane’ by the UN recently. Due to lack of protections for migrants from in this deal, migrants are either brutally tortured, abused and even sexually assaulted by Libyan authorities in camps, or are sold into slavery by unscrupulous smugglers. A CNN investigation showed the true horrors of human-trafficking. Migrants are treated like cattle, sold for as little as four hundred dollars, and sometimes moved from one slave master to another. Others on the scene report migrants in camps showing signs of torture, burns, lashings, and other abuses. An Italian doctor Pietro Bartolo slammed them as ‘concentration camps’. “You must realise that in Libya, black people are not considered human beings, they’re seen as inferior, you can do whatever you want to them,” Bartolo told Euro News.

Observers foresaw the humanitarian consequences soon after the deal with Libya was agreed. German foreign minister Sigmar Gabriel warned in April that thousands of men, women and children would face “catastrophic conditions”. It turns out Gabriel and other’s predictions were correct. The EU must therefore accept the blame for creating this crisis, for backing these unregulated, barbaric camps with the Libyan authorities. However, Europe has a clear geopolitical aim: to contain migrants, rather than help them – even if their suffering is enhanced. In doing so it uses Libya – a frail nation itself, as a dumping ground, to rid itself of the migrant issue. It has no regard for the human rights of those in detention centres.

Read more …

Nov 242017
 
 November 24, 2017  Posted by at 9:50 am Finance Tagged with: , , , , , , , , ,  5 Responses »
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Dorothea Lange Migrant agricultural workers in California 1935

 

The Party Is Over for Australia’s $5.6 Trillion Housing Frenzy (BBG)
The UK’s Future Economic Storm Just Got Worse (CNBC)
UK Consumer Confidence Hits Lowest Level Since Aftermath Of Brexit Vote (BBG)
After Sudden Rout, China Stock Traders Question Beijing Put
China Bank Profits Face Squeeze From Tighter Rules – Fitch (BBG)
China Reports Breaking Up Gang That Moved $3 Billion Abroad (AP)
Bitcoin Mining Now Consumes More Electricity Than 159 Countries (PCUK)
Mexico Revokes Monsanto Permit To Market GMO Soy In Seven States (R.)
Turkey, Iran, Russia and India are Playing the New Silk Roads (Escobar)
Greek PM Tsipras ‘Proud’ Of Living Conditions Of Refugees (K.)
Greece Vows Greater Effort To Protect Refugees Over Winter (AP)
Greek Pensioners March Against Government That ‘Took Everything’ (R.)

 

 

In case you were wondering just how big the bubble has become. Look at New Zealand too.

The Party Is Over for Australia’s $5.6 Trillion Housing Frenzy (BBG)

The party is finally winding down for Australia’s housing market. How severe the hangover is will determine the economy’s fate for years to come. After five years of surging prices, the market value of the nation’s homes has ballooned to A$7.3 trillion ($5.6 trillion) – or more than four times gross domestic product. Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them. Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche, fueled by record-low interest rates, generous tax breaks, banks hooked on mortgage lending, and prime-time TV shows where home renovators are lauded like sporting heroes. For many, homes morphed into cash machines to finance loans for boats, cars and investment properties. The upshot: households are now twice as indebted as China’s.

So far, the Reserve Bank of Australia has relied on banking regulators to apply the brakes with lending curbs. It reckons the financial system is well-placed to withstand any shocks, but isn’t so confident on consumers. That puts it out of step with developed-world peers that are incrementally tightening policy, with Governor Philip Lowe this week making clear local interest rates aren’t going anywhere soon. To be sure, there are key dynamics that differentiate Australia’s housing boom with those that soured in recent years around the world. Aussie banks can claim against other income and assets or chase individuals into bankruptcy if borrowers default. Tax deductions for interest paid on investment loans also support demand, as does a rich pipeline of demand from Asian buyers, especially Chinese. But with prices in major cities like Sydney finally leveling off and a wave of new apartments about to hit markets in Brisbane and Melbourne, it’s worth taking a look at housing’s out-sized influence on Australia’s economy.

The weight of Australian homes on the economy is heavier than policy makers would like. On one hand, the dizzy valuations reflect a desirable location and strong population growth. But they also reflect the massive liabilities that are now tied to these assets. “The risk is that it leaves the Australian economy extremely exposed, and a minor shock could become far more significant,” said Daniel Blake, an economist at Morgan Stanley in Sydney.

The increasing treatment of housing as a financial commodity has seen borrowers rush into a byzantine maze of mortgage-related products. That’s made banks very profitable, but very exposed. While the RBA is satisfied that lenders have adequate buffers to cope with any downturn, banks may find it harder to value their collateral in a falling market as investors look to consolidate their portfolios of multiple homes, said Blake.

Read more …

Projecting until 2070 may not be the most useful exercise. The next 10 years is wobbly enough.

The UK’s Future Economic Storm Just Got Worse (CNBC)

Britons should better get used to austerity. Even though the U.K. government has mostly fixed its short-run fiscal problems caused by the global financial crisis, the long-run challenge of keeping fiscal policy on a sustainable path has grown even bigger, according to the latest economic projections published alongside Wednesday’s Autumn Budget. Over the medium term, U.K. fiscal policy looks to be heading towards calm waters. Combining the progress made under then-Finance Minister George Osborne from 2010 until early 2016 with the tax and spending plans announced on Wednesday by the incumbent Philip Hammond, will manage to get the annual fiscal deficit down from a peak of 8% of GDP in 2009 to less than 2.5% this year, and eventually to close to 1% by early next decade.

This should be enough for debt as a percentage of GDP to begin to fall gradually from around 87% of GDP from next year onwards into the 2020s. This is good news. But looking further out, U.K. fiscal policy appears to be heading towards a storm. Back in January, the Office for Budget Responsibility (OBR), the U.K.’s independent fiscal watchdog, projected that U.K. public debt will rise again from the 2030s onwards to nearly 250% of GDP by the 2070s. Rising health, state pension and long-term social care costs linked to demographic factors are likely to cause the fiscal deficit to surge again. U.K. public sector debt is projected to reach highs not seen since World War II. It gets worse. Keep in mind that the projections made in January assumed that productivity growth, the major determinant of economic growth, would average 2% per year into the long run.

Yesterday, the OBR downgraded this judgement to 1.3%. While productivity growth has declined across the advanced world in the past decade, the Brexit-stricken U.K. is suffering an extra hit by weakening the economic ties with its biggest market, the EU. In this new context, the earlier forecast that debt would rise to 250% of GDP within 50 years looks like a significant underestimate, to put it mildly. By reducing projected growth rates for wages and profits, the new lower outlook for trend productivity growth steepens the U.K.’s future fiscal hill. Unlike revenues from taxation, which mostly rise and fall in line with the rate of economic growth, future costs coming from the ageing population are independent of economic factors.

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Everyone can see the clowns in the news everyday.

UK Consumer Confidence Hits Lowest Level Since Aftermath Of Brexit Vote (BBG)

U.K. consumer confidence tumbled in November, reaching the lowest level since the aftermath of the Brexit vote. YouGov and the Centre for Economics and Business Research said optimism suffered its biggest monthly decline since the month after the referendum, with all eight measures that make up the index falling. The score for household financial situations in the past 30 days dropped to its lowest since January 2014, and a gauge of home owners’ expectations for values over the next 12 months slid to the least in a year following the Bank of England’s rate increase on Nov. 2. The report on Friday comes after official data this week highlighted the importance of consumers to the U.K. economy, as a jump in household spending offset slowing business investment and a drag from trade to drive a 0.4% expansion in the third quarter.

It also follows Chancellor of the Exchequer Philip Hammond’s announcement of a downgrade to the economic outlook as a result of a sluggish productivity and Brexit headwinds. Warnings of a consumer slowdown are coming ahead of the crucial Christmas shopping period as the squeeze on incomes from inflation continues. Figures last week showed retail sales fell in October from a year earlier, the first decline in more than four years. “Households are understandably worried.” said Christian Jaccarini, an economist at the CEBR. “The first interest-rate hike in over a decade triggered fears that higher borrowing costs will compound the inflation-induced squeeze on household incomes.”

Read more …

How do you go from running a casino to having actual stock markets?

After Sudden Rout, China Stock Traders Question Beijing Put

What happened to the Beijing put? That’s what investors in China are asking themselves after a gauge of large-cap stocks plunged 3% on Thursday, rattling a market that’s grown accustomed to state support when losses get extreme. While there were signs over the past week that the government was looking to cool gains in high-flying shares like Kweichow Moutai – along with concerns over rising corporate bond yields – the severity of Thursday’s slump caught some traders off guard. The biggest surprise was that losses accelerated into the close. The nation’s CSI 300 Index sank 52 points in the final 45 minutes of trading, the steepest afternoon decline since the depths of China’s stock market crash in January 2016. Such late-day selloffs have been rare this year, with the index rising an average 2.9 points.

While it’s unclear why state funds allowed shares to tumble this time, analysts said the episode may help wring some of the complacency out of China’s stocks. Before Thursday’s slump, the CSI 300 had climbed 28% this year to the highest level since July 2015. Margin debt, while still well below its bubble peak in 2015, has increased for six straight months. “Some investors might have been just taking profit in the morning, and that turned into a selling stampede in the afternoon,” said Wang Chen, Shanghai-based partner with XuFunds Investment Management Co. “Investments in blue chips were overcrowded, and a lot of them were bought with margin financing.”

[..] For Sun Jianbo, president of China Vision Capital Management, valuations among large-cap shares are too expensive for state-backed funds to intervene. The CSI 300 traded at its highest level relative to the broader Shanghai Composite Index in at least 12 years at the start of this week as investors flocked to large caps such as Moutai and Ping An Insurance. “There’s no need to prop up the market yet,” Sun said. “A lot of big caps are still expensive and it would do more harm than good to state-backed funds if they buy now.”

The divergence between large-cap shares and the rest of the market may be one reason why the government took aim at Moutai. Before Xinhua warned last week that gains in the liquor maker were excessive, the stock had more than doubled this year. Given that much of the gains in Chinese shares this year can be explained by improving earnings prospects, it’s likely that government’s bigger target is leverage, according to Ken Peng at Citi Private Bank in Hong Kong.

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Aimed at the shadows, but…

China Bank Profits Face Squeeze From Tighter Rules – Fitch (BBG)

Profit margins at Chinese banks will be squeezed next year and credit growth is likely to slow as increasing regulation eats up capital, Fitch Ratings said. The lending businesses of the country’s smaller banks face the most pressure and they will rely more on larger state-owned rivals for liquidity, the ratings company said in a statement Friday. At the same time, the shadow-banking sector, which one brokerage values at about $19 trillion, will attract even more regulatory scrutiny in 2018, Fitch said. Chinese regulators are sweeping through the country’s $40 trillion financial sector in a bid to contain risk after total debt ballooned to about 260 percent of the size of the economy. In the past week alone, they’ve proposed rules governing returns from asset-management products, laid out limits on bank shareholdings and unveiled a purge of cash micro-lenders.

“Credit growth is likely to decelerate next year, given the tighter regulatory stance,” Fitch said. “Funding conditions are likely to remain tight, pointing to continued margin pressure at smaller banks which rely more on non-deposit funding.” The predictions from Fitch and S&P Global Ratings on Thursday suggest the cost of the system-wide measures will be sluggish profit growth at domestic banks, which include Industrial & Commercial Bank of China, the world’s largest by assets. New rules pushing shadow-banking items back on to lenders’ balance sheets will lead to an increase in risk that could weigh on bank capital, Fitch said. Net income growth in the banking sector will remain in the “low single digits” in 2018, it said. The ratings company kept its outlook on Chinese banks at stable, saying sovereign support for the sector remains “very strong.”

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“..as many as 10,000 people might have been involved..”

China Reports Breaking Up Gang That Moved $3 Billion Abroad (AP)

Chinese police say they have broken up a gang that smuggled 20 billion yuan ($3 billion) out of the country, evading financial controls imposed by Beijing to stem an outflow of capital from the economy. Seven suspects were detained in the case centered in the southern city Shaoguan near Hong Kong but as many as 10,000 people might have been involved, the official Xinhua News Agency reported. Chinese authorities have steadily tightened foreign-exchange controls to stem a multibillion-dollar outflow of capital that they say hampers financial management in the world’s second-largest economy. The group in Shaoguan is accused of moving money illegally using 148 bank accounts opened in 20 provinces with stolen identity cards, according to Xinhua.

It said they made unspecified “huge profits” by trading on the difference in exchange rates between Hong Kong dollars and the mainland’s yuan. Beijing allowed an informal financial industry to flourish over the past two decades to support entrepreneurs but is tightening controls due to mounting concern about financial stability. Regulators are especially worried about unauthorized cross-border movement of money at a time when they are trying to stem an outflow of capital. Companies and investors rushed to export money after a change in the mechanism used to set the government-controlled exchange rate in 2015 prompted expectations the yuan would weaken in value. That forced the Chinese central bank to spend heavily to shore up the yuan.

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“In the past month alone, Bitcoin mining electricity consumption is estimated to have increased by 29.98%..”

Bitcoin Mining Now Consumes More Electricity Than 159 Countries (PCUK)

Bitcoin’s ongoing meteoric price rise has received the bulk of recent press attention with a lot of discussion around whether or not it’s a bubble waiting to burst. However, most the coverage has missed out one of the more interesting and unintended consequences of this price increase. That is the surge in global electricity consumption used to “mine” more Bitcoins. According to Digiconomist’s Bitcoin Energy Consumption Index, as of Monday November 20th, 2017 Bitcoin’s current estimated annual electricity consumption stands at 29.05TWh. That’s the equivalent of 0.13% of total global electricity consumption. While that may not sound like a lot, it means Bitcoin mining is now using more electricity than 159 individual countries. More than Ireland or Nigeria. If Bitcoin miners were a country they’d rank 61st in the world in terms of electricity consumption.

Here are a few other interesting facts about Bitcoin mining and electricity consumption:

• In the past month alone, Bitcoin mining electricity consumption is estimated to have increased by 29.98%
• If it keeps increasing at this rate, Bitcoin mining will consume all the world’s electricity by February 2020.
• Estimated annualised global mining revenues: $7.2 billion USD (£5.4 billion)
• Estimated global mining costs: $1.5 billion USD (£1.1 billion)
• Number of Americans who could be powered by bitcoin mining: 2.4 million (more than the population of Houston)
• Number of Britons who could be powered by bitcoin mining: 6.1 million (more than the population of Birmingham, Leeds, Sheffield, Manchester, Bradford, Liverpool, Bristol, Croydon, Coventry, Leicester & Nottingham combined) Or Scotland, Wales or Northern Ireland.
• Bitcoin Mining consumes more electricity than 12 US states (Alaska, Hawaii, Idaho, Maine, Montana, New Hampshire, New Mexico, North Dakota, Rhode Island, South Dakota, Vermont and Wyoming)

Read more …

Gracias Mexico.

Mexico Revokes Monsanto Permit To Market GMO Soy In Seven States (R.)

Monsanto said on Thursday that Mexico’s agriculture sanitation authority SENASICA had revoked its permit to commercialize genetically modified soy in seven states, criticizing the decision as unjustified. Monsanto said in a statement that the permit had been withdrawn on unwarranted legal and technical grounds. The company said it would take the necessary steps to safeguard its rights and those of farmers using the technology, but did not elaborate. Mexican newspaper Reforma cited a document saying the permit had been withdrawn due to the detection of transgenic Monsanto soya in areas where it was not authorized. Monsanto rejected that argument, saying in its statement that authorities had not done an analysis of how the soy on which their decision was based was sown. The revocation applies to the states of Tamaulipas, San Luis Potosi, Veracruz, Chiapas, Campeche, Yucatan and Quintana Roo and follows a 2016 legal suspension of the permit.

Read more …

China will build much of it all, but it won’t pay for it. It’s exporting a Ponzi.

Turkey, Iran, Russia and India are Playing the New Silk Roads (Escobar)

Vladimir Putin, Recep Tayyip Erdogan and Hassan Rouhani will hold a summit this Wednesday in Sochi to discuss Syria. Russia, Turkey and Iran are the three power players at the Astana negotiations – where multiple cease-fires, as hard to implement as they are, at least evolve, slowly but surely, towards the ultimate target – a political settlement. A stable Syria is crucial to all parties involved in Eurasia integration. As Asia Times reported, China has made it clear that a pacified Syria will eventually become a hub of the New Silk Roads, known as the Belt and Road Initiative (BRI) – building on the previous business bonanza of legions of small traders commuting between Yiwu and the Levant. Away from intractable war and peace issues, it’s even more enlightening to observe how Turkey, Iran and Russia are playing their overlapping versions of Eurasia economic integration and/or BRI-related business.

Much has to do with the energy/transportation connectivity between railway networks – and, further on the down the road, high-speed rail – and what I have described, since the early 2000s, as Pipelineistan. The Baku-Tblisi-Ceyhan (BTC) pipeline, a deal brokered in person in Baku by the late Dr Zbigniew “Grand Chessboard” Brzezinski, was a major energy/geopolitical coup by the Clinton administration, laying out an umbilical steel cord between Azerbaijan, Georgia and Turkey. Now comes the Baku-Tblisi-Kars (BTK) railway – inaugurated with great fanfare by Erdogan alongside Azerbaijani President Ilham Aliyev and Georgian Prime Minister Giorgi Kvirikashvili, but also crucially Kazakh Prime Minister Bakhytzhan Sagintayev and Uzbek Prime Minister Abdulla Aripov. After all, this is about the integration of the Caucasus with Central Asia.

Erdogan actually went further: BTK is “an important chain in the New Silk Road, which aims to connect Asia, Africa, and Europe.” The new transportation corridor is configured as an important Eurasian hub linking not only the Caucasus with Central Asia but also, in the Big Picture, the EU with Western China. BTK is just the beginning, considering the long-term strategy of Chinese-built high-speed rail from Xinjiang across Central Asia all the way to Iran, Turkey, and of course, the dream destination: the EU. Erdogan can clearly see how Turkey is strategically positioned to profit from it.

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Alexis, Alexis, we know you don’t mean it that way, so why risk getting caught with your foot in your mouth?

Greek PM Tsipras ‘Proud’ Of Living Conditions Of Refugees (K.)

Prime Minister has said he is “proud” of living conditions for refugees on the Greek mainland, although he admitted that “the situation remains difficult” for those stranded on the islands of the eastern Aegean. Speaking to France’s Le Figaro newspaper on the occasion of his visit to Paris, Tsipras also defended a deal between the European Union and Ankara to stem migrant flows in the Aegean. “The deal between the EU and Turkey is hard but necessary; it helped put an end to the daily deaths in the Aegean. We have received more than 60,000 refugees on mainland Greece who live in good conditions, with access to health and education. It is something I am proud of,” Tsipras said.

“The situation on the islands remains difficult. There is a large number of migrants and refugees and asylum procedures are time-consuming,” he said. Greece has seen a surge of migrant arrivals in recent months. With winter fast approaching and migrant reception centers on the Aegean islands reaching breaking point due to overcrowding, 20 human rights groups this week sent a letter to the Greek government calling for immediate action.

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People are dying already. It’s only autumn.

Greece Vows Greater Effort To Protect Refugees Over Winter (AP)

Greece has promised to step up efforts to protect migrants and refugees over the winter on the Greek islands, but defended a 2016 deal between Turkey and the European Union to stop the westward flow of migrants into Europe. On a visit to France, Prime Minister Alexis Tsipras told the country’s Figaro newspaper on Thursday that the agreement was difficult but necessary. His remarks followed strongly criticism from aid agencies and human rights groups over conditions at migrant shelters on Lesvos and other Greek islands. Greece has seen a surge of migrant arrivals in recent months. On Thursday, Greek border police recovered the body of a man believed to be a migrant in a river that divides Greece and Turkey – the second such incident in two days.

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“They’re killing us and they’re mocking us at the same time..”

Greek Pensioners March Against Government That ‘Took Everything’ (R.)

Several hundred elderly Greeks marched through Athens on Thursday, protesting against a government they say “took everything” with a new round of cuts to pensions and crumbling health care benefits. Greece’s three bailouts since 2010 have repeatedly taken aim at the pension system. Cuts have pushed nearly half its elderly below the poverty line with incomes of less 600 euros ($710.70) a month. With nearly a quarter of the workforce unemployed, a quarter of children living in poverty and benefits slashed, parents have grown dependent on grandparents for handouts. But after the cuts to pensions, some Greeks have seen their monthly cheque fall between 40 and 50 percent in seven years. After rent, utility bills and health care, they barely make ends meet.

“I have never seen the country in this state, not even during war,” said 80-year-old Nikos Georgiadis, a former hotel employee whose pension has been reduced by 40 percent. “Pensioners are impoverished, and not only can they not afford to buy medicines, some are looking for food in the trash,” he said, leaning on a tree to catch his breath. Fotini Karavidou, a 75-year-old retired accountant who joined the march in a wheelchair, said she had to “cut back on everything” to afford medicine. “It’s simple – many pensioners cannot afford to eat and to buy medicine,” said Yiannis Karadimas, 67, who heads a local pensioners association. Karadimas said it was “a joke” that the government had legalised marijuana for medical purposes while cutting back on health care spending. “They’re killing us and they’re mocking us at the same time,” he said.

The popularity of Prime Minister Alexis Tsipras has waned since he first won elections in 2015. In an effort to rebuild public support, the government gave Greece’s 1.3 million pensioners a one-off Christmas bonus last year, worth 300 to 500 euros each. But the handouts have failed to whip up any obvious increase in support. Pensioners have taken to the streets time and again in recent months. About 2,000 people joined Thursday’s march. “Unfortunately, I voted for them, and they turned out to be the biggest liars of all,” Georgiadis, the pensioner, said. “It [the government] promised us everything, and it took everything.”

Read more …

Nov 162017
 
 November 16, 2017  Posted by at 9:47 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Leonardo da Vinci Salvator Mundi 1513

 

Landmark Study Links Tory Austerity To 120,000 Deaths (Ind.)
Jeremy Corbyn Will Inevitably Become UK Prime Minister – Varoufakis (BI)
Why Care More About Benefit Scroungers Than Billions Lost To The Rich? (G.)
No Evidence Of Russian Interference In Brexit, PM May Admits In Parliament (RT)
China’s Outbound Investment Plunged 41% On Year In January To October (BBG)
Senior China Minister Says Some Officials Practice Sorcery (R.)
Corruption in China Could Lead To Soviet-Style Collapse – Graft Buster (ToI)
The Complete Idiot’s Guide To The Biggest Risks In China (ZH)
Why the Anti-Corruption Drive in Saudi Arabia is Doomed to Fail (CP)
Saudi Walks Back Escalation As Dramatic Moves Backfire (AP)
Friendly Reminder That Jeff Bezos Is Trying To Take Over The Universe (CJ)
Why Japan Knocks Down Its Houses After 30 Years (G.)
Kyle Bass: Investors to Pour Billions into Greece after Political Change (GR)
Lesvos Reaches Breaking Point, Mayor Declares General Strike (G.)
Monsanto, US Farm Groups Sue California Over Glyphosate Cancer Warnings (R.)
Plastics Found In Stomachs Of Deepest Sea Creatures (G.)

 

 

It doesn’t get much more damning than this. Nothing Monty Python about it.

Landmark Study Links Tory Austerity To 120,000 Deaths (Ind.)

The Conservatives have been accused of “economic murder” for austerity policies which a new study suggests have caused 120,000 deaths. The paper found that there were 45,000 more deaths in the first four years of Tory-led efficiencies than would have been expected if funding had stayed at pre-election levels. On this trajectory that could rise to nearly 200,000 excess deaths by the end of 2020, even with the extra funding that has been earmarked for public sector services this year. Real terms funding for health and social care fell under the Conservative-led Coalition Government in 2010, and the researchers conclude this “may have produced” the substantial increase in deaths.

The paper identified that mortality rates in the UK had declined steadily from 2001 to 2010, but this reversed sharply with the death rate growing again after austerity came in. From this reversal the authors identified that 45,368 extra deaths occurred between 2010 and 2014, than would have been expected, although it stops short of calling them “avoidable”. Based on those trends it predicted the next five years – from 2015 to 2020 – would account for 152,141 deaths – 100 a day – findings which one of the authors likened to “economic murder”. The Government began relaxing austerity measures this year announcing the end of its cap on public sector pay rises and announcing an extra £1.3bn for social care in the Spring Budget. Over three years the additional funding for social care is expected to reach £2bn, which Labour leader Jeremy Corbyn said was “patching up a small part of the damage” wrought by £4.6bn cuts.

[..] The papers’ senior author and a researcher at UCL, Dr Ben Maruthappu, said that while the paper “can’t prove cause and effect” it shows an association. And he added this trend is seen elsewhere. “When you look at Portugal and other countries that have gone through austerity measures, they have found that health care provision gets worse and health care outcomes get worse,” he told The Independent. One of his co-author’s, Professor Lawrence King of the Applied Health Research Unit at Cambridge University, said it showed the damage caused by austerity “It is now very clear that austerity does not promote growth or reduce deficits – it is bad economics, but good class politics,” he said. “This study shows it is also a public health disaster. It is not an exaggeration to call it economic murder.”

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After a report like that, yes. The Tories have taken things too far.

Jeremy Corbyn Will Inevitably Become UK Prime Minister – Varoufakis (BI)

Yanis Varoufakis, former finance minister of Greece and author of “Adults in the Room: My Battle with the European and American Deep Establishment,” explains that Jeremy Corbyn as Prime Minister may be a likely scenario and that this would be beneficial for the UK economy. The following is a transcript of the video. Isn’t it astonishing that after Jeremy Corbyn was being described as “the longest suicide note by the Labour Party” about a year ago, today there is an air of inevitability in a Corbyn-led government. I think it’s a delicious irony and I’m very excited by this transition from impossibility to inevitability. In the interests of full disclosure, I’m a friend of Jeremy Corbyn, a supporter, I’ve worked with his team and will continue to do so.

I believe that the re-orientation of British politics under Corbyn and in particular of the Labour Party is highly beneficial, not only to the large strata within British society that have been discarded in the last 20 to 30 years, but interestingly also for British business that produces real stuff as opposed to the City of London and various other service sectors that produce precarious jobs and nothing much of substance. British manufacturing has been left in the margins for far too long and the dearth of investment in fixed capital is something that this Conservative government has absolutely no interest in, or no concept of. A Labour, Corbyn-led government, might be what is necessary in order to create better circumstances both for labour and manufacturing capital in the United Kingdom.

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“Quite simply, people get hurt when the rich don’t pay their taxes.”

Why Care More About Benefit Scroungers Than Billions Lost To The Rich? (G.)

Will the Paradise Papers shift the public’s focus? The leaks alone are seemingly not enough. The 2016 British Social Attitudes survey was conducted just four months after the release of the Panama Papers. Even then, the British public remained more concerned about benefit claimants than tax avoiders. Fundamentally, the Paradise Papers are about numbers – vast sums of money disappearing offshore that could be spent on public services here in the UK. However, as the former chair of the UK Statistics Authority, Andrew Dilnot, has often pointed out, people are bad at dealing with numbers on this scale. Unless you are an economist or a statistician, numbers in the millions and billions are just not particularly meaningful.

The key is to link these numbers to their consequences. The money we lose because people like Lewis Hamilton don’t pay some VAT on their private jet means thousands more visits to food banks. The budget cuts leading to rising homelessness might not have been necessary if Apple had paid more tax. Fewer people might have killed themselves after a work-capability assessment if companies like Alphabet (Google) had not registered their offices in Bermuda, and the downward pressure on benefits payments was not so intense. The causal chains connecting these events are complex and often opaque, but that does not make their consequences any less real, especially for those who have felt the hard edge of austerity.

The Paradise Papers have dragged the murky world of offshore finance into the spotlight. However, calls for change may founder against the British public’s persistent focus on the perceived crimes of the poor. That is, unless we – as academics, politicians, journalists and others – can articulate how the decisions of the very rich contribute to the expulsion of the vulnerable from the protection of state-funded public services. Quite simply, people get hurt when the rich don’t pay their taxes.

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Oh, cut it out.

No Evidence Of Russian Interference In Brexit, PM May Admits In Parliament (RT)

Theresa May has rejected allegations that Russia interfered in the Brexit referendum. Speaking during Prime Minister’s Questions, she stated: “If they care to look at the speech on Monday, they will see that the examples I gave were not in the UK.” During a speech May gave at the Lord Mayor’s banquet, the British leader accused Russia of meddling in European elections, hacking attacks on western government institutions, and spreading fake news. During the customarily confrontational Prime Minister’s Questions, May said that, in her speech, she had indeed cited “Russian interference” occurring “in a number of countries in Europe.” However, she denied that this applied in any way to her own country.

Following the session, a spokesperson for Labour leader Jeremy Corbyn said that “I think we need to see more evidence about what’s being talked about. “In relation to Russia and tensions between NATO and Russia and western powers and Russia more generally, Jeremy has made clear on a number of occasions that we need to see an attempt through dialogue to ratchet down tensions with Russia.” May was responding to a question from Labour MP Mary Creagh, who referred to an assertion by Foreign Secretary Boris Johnson that he had seen no evidence of Russia interfering in the Brexit referendum. Johnson made the comment during an appearance before a Commons committee hearing on November 1. Upon prompting by a senior civil servant, Johnson replied “nyet,” and added in English that there was “not a sausage” of evidence.

Read more …

Once again: China needs its foreign reserves.

China’s Outbound Investment Plunged 41% On Year In January To October (BBG)

China’s non-financial outbound investment slumped to $86.3 billion in January to October, plunging 41% from a year earlier, as projects in some industries dried up. There were no new real estate, sports or entertainment deals for the period, the Commerce Ministry said in a statement Thursday. Most outbound investment was in leasing and business services, manufacturing, wholesale and retail sales and information technology services. “Irrational” outbound investment has been curbed further, the ministry said, repeating the language it has used this year as authorities push to halt capital outflows.

That’s reversing an unbroken streak of acceleration since at least 2010: Outbound investment soared 44.1% last year to $170.1 billion, about four times the 2009 level, Mofcom data show. “The combination of hardened capital controls and a crackdown on outbound M&A has dented China’s overseas investment,” said Tom Orlik, chief Asia economist at Bloomberg Economics in Beijing. “A short-term downturn was necessitated by the pressing need to stabilize the yuan. Sustained for too long, falling overseas investment would be tough to square with ambitions for greater international influence through the Belt and Road program.”

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In which sorcery is somehow the opposite of socialism.

Senior China Minister Says Some Officials Practice Sorcery (R.)

Some top Chinese officials are guilty of practicing sorcery and would rather believe in gurus and Western concepts of democracy than the Communist Party, a senior minister wrote on Thursday, warning of the danger they presented to its survival. China guarantees freedom of religion for major belief systems such as Buddhism, Christianity and Islam, but party members are meant to be atheists and are barred from what it calls superstitious practices, such as visits to soothsayers. Recent years have seen several cases of officials jailed as part of President Xi Jinping’s crackdown on corruption being accused of superstition, part of the party’s efforts to blacken their names.

Some senior officials in leadership positions had “fallen morally”, their beliefs straying from the correct path, wrote Chen Xi, the recently appointed head of the party’s powerful Organisation Department that oversees personnel decisions. “Some don’t believe in Marx and Lenin but believe in ghosts and gods; they don’t believe in ideals but believe in sorcery; they don’t respect the people but do respect masters,” he wrote in the official People’s Daily, referring to spiritual leaders or gurus. People in China, especially its leaders, have a long tradition of turning to soothsaying and geomancy to find answers to their problems in times of doubt, need and chaos. The practice has grown more risky amid Xi’s war on graft, in which dozens of senior officials have been imprisoned.

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Large scale arrests in the future?

Corruption in China Could Lead To Soviet-Style Collapse – Graft Buster (ToI)

China must step up its battle against corruption in order to safeguard against a Soviet-style collapse, the country’s second most senior graft buster said in an editorial on Wednesday. Yang Xiaodu, the deputy secretary of the Central Commission for Discipline Inspection, who was promoted to the ruling Communist Party’s 25-strong Politburo last month, said failure would risk the “red country changing colour”. In unusually direct and strongly worded criticism of previous administrations, Yang said “in a previous period”, corruption had been allowed to fester to such an extent that the party’s leadership had weakened, with supervision soft, and ideology apathetic. “It had developed to the point where if not rectified, the country could change colour,” Yang wrote in the official People’s Daily.

“The future fate of the party and the country’s people could follow the same old road to ruin as the Soviet Union and the Eastern Bloc.” President Xi Jinping, like many officials before him, is steeped in the party’s long-held belief that loosening control too quickly or even at all could lead to chaos and the break up of the country. The party regularly implores cadres to study the collapse of the Soviet Union in the early 1990s. Yang’s editorial is the latest salvo signalling that the intensity of Xi’s signature war on corruption would not wane despite the departure of Xi’s right-hand man, Wang Qishan, who was widely seen as China’s second most powerful politician before being replaced as anti-corruption chief in a leadership reshuffle last month. Wang’s replacement, Zhao Leji, wrote a similarly strongly worded editorial in the People’s Daily on Saturday.

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Not doing well. At all.

The Complete Idiot’s Guide To The Biggest Risks In China (ZH)

With both commodities and Chinese stocks suffering sharp overnight drops, it is hardly surprising that today trading desks have quietly been sending out boxes full of xanax their best under-25 clients (those veterans who have seen one, maybe even two 1% market crashes), along with reports explaining just what China is and why it matters to the new generation of, well, traders. One such analysis, clearly geared to the Ritalin generation complete with 3 second attention spans, comes from Deutsche Bank which in a few hundred words seeks to explain the key risks threatening the world’s most complex centrally-planned economy, and ground zero of the next financial crash. Which, one day after our summary take on why the Chinese commodity, economic and financial crash is only just starting (as those who traded overnight may have noticed), is probably a good place to reiterate some of the more salient points.

As Deutsche Bank’s Zhiwei Zhang writes in “Risks to watch in the next six months”, the key thing to keep in mind about China now that the 19th Party Congress is in the rear-view mirror, is that the government is likely to tolerate slower growth in 2018. Han Wenxiu, the deputy head of the Research Office of the State Council, said that GDP growth at 6.3% in 2018-2020 would be sufficient to achieve the Party’s 2020 growth target. And while this is a positive message for the long term, it indicates growth will likely slow in 2018. And, as DB warns, recent economic data suggest the economic cycle has indeed cooled down. For all those seeking key Chinese inflection points, here are the three big red flags involving China’s economy:

For the first time since Q4 2004, fixed asset investment (FAI) growth turned negative in real terms in Q3 this year.

Growth of property sales for the nation turned negative as well in October, the first time since 2015.

The property market boom in Tier 3 cities is also losing momentum.

We hope not to have lost by now all the Millennial traders who started reading this post. To those who persevered, here – in addition to the risks facing the economy – are the other two main risks facing China’s investors: (rising) inflation and (rising) interest rates.

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The most corrupt are the most powerful. Cue China.

Why the Anti-Corruption Drive in Saudi Arabia is Doomed to Fail (CP)

The problem in resource-rich states is that corruption is not marginal to political power, but central to acquiring it and keeping it. Corruption at the top is a form of patronage manipulated by those in charge, to create and reward a network of self-interested loyalists. It is the ruling family and its friends and allies who cherrypick what is profitable: this is as true of Saudi Arabia as it was true of Libya under Gaddafi, Iraq under Saddam Hussein and his successors, or Iraqi Kurdistan that was supposedly different from the rest of the country. Corruption is a nebulous concept when it comes to states with arbitrary rulers, who can decide – unrestrained by law or democratic process – what is legal and what is illegal. What typifies the politics of oil states is that everybody is trying to plug into the oil revenues in order to get their share of the cake.

This is true at the top, but the same is the case of the rest of the population, or at least a large and favoured section of it. The Iraqi government pays $4bn a month to about seven million state employees and pensioners. These may or may not do productive work, but it would be politically risky to fire them because they are the base support of the regime in power. Anti-corruption drives don’t work, because if they are at all serious, they soon begin to cut into the very roots of political power by touching the “untouchables”. At this point principled anti-corruption campaigners will find themselves in serious trouble and may have to flee the country, while the less-principled ones will become a feared weapon to be used against anybody whom the government wants to target.

A further consequence of the traditional anti-corruption drive is that it can paralyse government activities in general. This is because all officials, corrupt and incorrupt alike, know that they are vulnerable to investigation. “The safest course for them is to take no decision and sign no document which might be used or misused against them,” a frustrated American businessman told me in Baghdad some years ago. He added that it was only those so politically powerful that they did not have to fear legal sanctions who would take decisions – and such people were often the most corrupt of all.

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Wishful thinking?

Saudi Walks Back Escalation As Dramatic Moves Backfire (AP)

Saudi Arabia’s dramatic moves to counter Iran in the region appear to have backfired, significantly ratcheting up regional tensions and setting off a spiral of reactions and anger that seem to have caught the kingdom off guard. Now it’s trying to walk back its escalations in Lebanon and Yemen. On Monday, the kingdom announced that the Saudi-led coalition fighting Shiite rebels in Yemen would begin reopening airports and seaports in the Arab world’s poorest country, days after closing them over a rebel ballistic missile attack on Riyadh. The move came just hours after Lebanese Prime Minister Saad Hariri, who shocked the nation by announcing his resignation from the Saudi capital on Nov. 4, gave an interview in which he backed off his strident condemnation of the Lebanese militant Hezbollah, saying he would return to the country within days to seek a settlement with the Shiite militants, his rivals in his coalition government.

The two developments suggest that Saudi Arabia’s bullish young crown prince, Mohammed bin Salman, may be trying to pedal back from the abyss of a severe regional escalation. “This represents de-escalation by the Saudis,” said Yezid Sayigh, a senior fellow at the Carnegie Middle East Center in Beirut. “The general trend is that the Saudis are going to back off and this is largely because of the unexpected extent of international pressure, and not least of all U.S. pressure.” Mohammed bin Salman, widely known by his initials, MBS, has garnered a reputation for being decisive, as well as impulsive. At just 32 years old and with little experience in government, he has risen to power in just three years to oversee all major aspects of politics, security and the economy in Saudi Arabia. As defense minister, he is in charge of the Saudi-led war in Yemen.

He also appears to have the support of President Donald Trump and his son-in-law, senior adviser Jared Kushner, who visited the Saudi capital earlier this month. Saudi partners in the Gulf and the Trump administration rushed to defend the kingdom publicly after a rebel Houthi missile was fired at the Saudi capital, Riyadh, from Yemen last week. A top U.S. military official also backed Saudi claims that the missile was manufactured by Iran. However, Saudi Arabia’s move to tighten an already devastating blockade on Yemen in response to the missile was roundly criticized by aid groups, humanitarian workers and the United Nations, which warned that the blockade could bring millions of people closer to “starvation and death.” Saudi Arabia’s decision to ease the blockade after just a week suggests it bowed to the international criticism, and did not want the bad publicity of even more images of emaciated Yemeni children and elderly people circulating online and in the media.

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“WaPo ran sixteen smear pieces on Bernie Sanders in the span of sixteen hours at the hottest point in the Democratic presidential primary battle.”

Friendly Reminder That Jeff Bezos Is Trying To Take Over The Universe (CJ)

Jeff Bezos, currently the wealthiest human being on planet Earth, did not purchase the Washington Post in 2013 because he was expecting newspapers to make a lucrative resurgence. This self-evident fact doesn’t receive enough attention. I will say it again for emphasis: Jeff Bezos, who has used his business prowess to become the wealthiest person in the world, did not purchase the Washington Post in 2013 because he was expecting newspapers to make a profitable comeback. That did not happen. What did happen is the world’s richest plutocrat realizing that he needed a mouthpiece to manufacture public support for the neoliberal corporatist establishment that he is building his empire upon. This is why WaPo ran sixteen smear pieces on Bernie Sanders in the span of sixteen hours at the hottest point in the Democratic presidential primary battle.

[..] Last year Silicon Valley venture capitalist Chamath Palihapitiya said that Amazon is “a multi-trillion-dollar monopoly hiding in plain sight.” In June Stacy Mitchell, co-director of the Institute for Local Self-Reliance, wrote that Amazon is trying to “control the underlying infrastructure of the economy.”\ Bezos continues to get cozier and cozier with the US power establishment as his empire metastasizes across human civilization. He kicked WikiLeaks off Amazon servers in 2010, he scored a 600 million dollar contract with the CIA in 2013, he joined a Pentagon advisory board in 2016, he hung out with Defense Secretary James Mattis in August, and he’s spent nearly ten million dollars this year lobbying the federal government, which is likely what led to an NDAA amendment gifting Amazon a $54 billion market it’s expected to dominate as a supplier to the Pentagon. Billion. With a ‘b’.

[..] I gave this story a jokey headline, but seriously, watch Jeff Bezos very closely. Your future is increasingly more likely to be imperiled by new money tech plutocrats like him than by old money plutocrats like Soros and the Rothschilds.

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Interesting. Earthquakes are no. 1 incentive.

Why Japan Knocks Down Its Houses After 30 Years (G.)

In the suburban neighbourhood of Midorigaoka, about an hour by train outside Kobe, Japan, all the houses were built by the same company in the same factory. Steel frames fitted out with panel walls and ceilings, these homes were clustered by the hundreds into what was once a brand new commuter town. But they weren’t built to last. Daiwa House, one of the biggest prefabricated housing manufacturers in Japan, built this town in the 60s during a postwar housing boom. It’s not unlike the suburban subdivisions of the western world, with porches, balconies and rooflines that shift and repeat up and down blocks of gently curving roads. Most of those houses built in the 60s are no longer standing, having long since been replaced by newer models, finished with fake brick ceramic siding in beiges, pinks and browns.

In the end, most of these prefabricated houses – and indeed most houses in Japan – have a lifespan of only about 30 years. Unlike in other countries, Japanese homes gradually depreciate over time, becoming completely valueless within 20 or 30 years. When someone moves out of a home or dies, the house, unlike the land it sits on, has no resale value and is typically demolished. This scrap-and-build approach is a quirk of the Japanese housing market that can be explained variously by low-quality construction to quickly meet demand after the second world war, repeated building code revisions to improve earthquake resilience and a cycle of poor maintenance due to the lack of any incentive to make homes marketable for resale. In Midorigaoka, even the newer homes built in the 80s and 90s are nearing the end of their expected lifespan.

Under normal circumstances, their days might be numbered. But down at the end of one block, there’s a sign things are changing. Scaffolding surrounds a vacant house on a corner and workers from Daiwa House are clanging away inside. They’re not demolishing the house but refurbishing it – reorganising the floor plan, knocking down walls, opening up the kitchen and enhancing the insulation. Rather than tear down the house so the next buyer can build something new, they’re rebuilding it from the inside and putting it back on the market. It’s a relatively rare commodity, but something that is increasingly common across Japan: a secondhand home.

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I’ve long predicted that Greece will be much less peaceful once Syriza loses power. But yeah, the whole country’s put up for sale, so foreigners are certain to take over.

Kyle Bass: Investors to Pour Billions into Greece after Political Change (GR)

Hedge fund manager, Kyle Bass, believes that Greece will come out of the crisis and investors will pour billions into its economy once the government changes, according to a CNBC report. The founder and chief investment officer of Hayman Capital Management; which manages an estimated $815 million in assets, is closely following the course of the Greek economy and political situation, and has invested in Greek bank stocks. Bass says that foreign investors are waiting on the sidelines for a political shift to take place in 2018. “My best guess is a snap election for prime minister will be called between April and September of next year and Prime Minister Alexis Tsipras will lose power. When that happens, there will be a massive move into the Greek stock market. Big money will flow in as investors feel more confident with a more moderate administration,” Bass said.

“It’s going to take Kyriakos Mitsotakis; president of New Democracy, the Greek conservative party, to be voted in as prime minister to reform the culture and rekindle investor confidence,” the investor said. “I have no doubt 15 billion euros in bank deposits will come back to Greek banks if he’s elected. The stock and bond markets will also jump following the election.” Bass says that global investors are waiting for the political change in order to invest in real estate, energy and tourism. So far, the hedge fund manager noted, Greece has proceeded with privatizations of its main port; regional airports; its railway system; the largest insurance company, and there are more important ones to be completed within the next two years. “There is so much potential in Greece,” Bass said, noting that investors are waiting for the right moment to enter, the CNBC report concludes.

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Europe just lets it get worse.

Lesvos Reaches Breaking Point, Mayor Declares General Strike (G.)

With reception centers on Lesvos bursting at the seams and dozens more migrants arriving daily, the island’s mayor, Spyros Galinos, on Tuesday declared a general strike for Monday in protest. Currently, some 1,500 people – including hundreds of small children – are stranded on the island living in tents, and fears are growing that winter may bring a new humanitarian crisis. In total, there are more than 8,000 migrants and refugees on Lesvos, a favored destination of traffickers bringing people over from neighboring Turkey. “Lesvos has a population of 32,000 residents and there are at the moment 8,300 migrants and refugees,” Galinos told Kathimerini. Moreover, local police union members held a protest over deteriorating working conditions.

“The situation on Lesvos has fueled insecurity among citizens. The police force is dealing exclusively with the migrant issue,” the union chief Dimitris Alexiou said. “We are not expendables,” he added. And with flows to the eastern Aegean islands from Turkey showing no signs of letting up, locals and migrants have reached the end of their tether. Since the beginning of November, 1,603 people have arrived on the islands. In September, 6,000 people arrived from Turkey, the same number as in October. On Monday, another 101 migrants landed on eastern Aegean islands, while more than 400 arrived over the weekend. The situation in the Moria camp on Lesvos is a case in point.

“Conditions at Moria have reached breaking point as the facility is three times over capacity,” said Michael Bakas, coordinator of the northern Aegean branch of the Ecologist Greens, who escorted visiting Group of the Greens MEP and vice chairwoman of the European Parliament’s Subcommittee on Human Rights Barbara Lochbihler. Bakas said about 1,000 children are currently stranded at the camp. The issue will be discussed at the EU assembly on Wednesday.

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Monsanto must now have as many lawyers as scientists on its payroll. Time to say enough is enough.

Monsanto, US Farm Groups Sue California Over Glyphosate Cancer Warnings (R.)

Monsanto and U.S. farm groups sued California on Wednesday to stop the state from requiring cancer warnings on products containing the widely used weed killer glyphosate, which the company sells to farmers to apply to its genetically engineered crops. The government of the most populous U.S. state added glyphosate, the main ingredient in Monsanto’s herbicide Roundup, to its list of cancer-causing chemicals in July and will require that products containing glyphosate carry warnings by July 2018. California acted after the World Health Organization’s International Agency for Research on Cancer (IARC) concluded in 2015 that glyphosate was “probably carcinogenic”. For more than 40 years, farmers have applied glyphosate to crops, most recently as they have cultivated genetically modified corn and soybeans.

Roundup and Monsanto’s glyphosate-resistant seeds would be less attractive to customers if California requires warnings on products containing the chemical. In the lawsuit, filed in federal court in California, Monsanto and groups representing corn, soy and wheat farmers reject that glyphosate causes cancer. They say the state’s requirement for warnings would force sellers of products containing the chemical to spread false information.“Such warnings would equate to compelled false speech, directly violate the First Amendment, and generate unwarranted public concern and confusion,” Scott Partridge, Monsanto’s vice president of global strategy, said in a statement.

The controversy is an additional headache for Monsanto as it faces a crisis around a new version of an herbicide based on another chemical known as dicamba that was linked to widespread U.S. crop damage this summer. The company, which is being acquired by Bayer AG for $63.5 billion, developed the product as a replacement for glyphosate following an increase of weeds resistant to the chemical. Monsanto has already suffered damage to its investment of hundreds of millions of dollars in glyphosate products since California added the chemical to its list of products known to cause cancer, according to the lawsuit.

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Weep.

Plastics Found In Stomachs Of Deepest Sea Creatures (G.)

Animals from the deepest places on Earth have been found with plastic in their stomachs, confirming fears that manmade fibres have contaminated the most remote places on the planet. The study, led by academics at Newcastle University, found animals from trenches across the Pacific Ocean were contaminated with fibres that probably originated from plastic bottles, packaging and synthetic clothes. Dr Alan Jamieson, who led the study, said the findings were startling and proved that nowhere on the planet was free from plastics pollution. “There is now no doubt that plastics pollution is so pervasive that nowhere – no matter how remote – is immune,” he said. Evidence of the scale of plastic pollution has been growing in recent months. Earlier this year scientists found plastic in 83% of global tapwater samples, while other studies have found plastic in rock salt and fish.

Humans have produced an estimated 8.3bn tonnes of plastic since the 1950s and scientists said it risked near permanent contamination of the planet. Jamieson said underlined the need for swift and meaningful action. “These observations are the deepest possible record of microplastic occurrence and ingestion, indicating it is highly likely there are no marine ecosystems left that are not impacted by anthropogenic debris.” He said it was “a very worrying find.” “Isolating plastic fibres from inside animals from nearly 11 kilometres deep (seven miles) just shows the extent of the problem. Also, the number of areas we found this in, and the thousands of kilometre distances involved shows it is not just an isolated case, this is global.”

[..] The team examined 90 individual animals and found ingestion of plastic ranged from 50% in the New Hebrides Trench to 100% at the bottom of the Mariana Trench. The fragments identified include semi-synthetic cellulosic fibres, such as Rayon, Lyocell and Ramie, which are all microfibres used in products such as textiles, to plastic fibres that are likely to come from plastic bottles, fishing equipment or everyday packaging. Jamieson said deep-sea organisms are dependent on food “raining down from the surface which in turn brings any adverse components, such as plastic and pollutants with it.” “The deep sea is not only the ultimate sink for any material that descends from the surface, but it is also inhabited by organisms well adapted to a low food environment and these will often eat just about anything.”


This microscopic arrow worm has eaten a blue plastic fibre that is blocking the passage of food along its gut. Photograph: Richard Kirby/Courtesy of Orb Media

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Nov 132017
 
 November 13, 2017  Posted by at 9:42 am Finance Tagged with: , , , , , , , , , ,  6 Responses »
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Mark Twain in Nikola Tesla’s lab 1894

 

John Hussman Forecasts A Decade Of Stock Losses (BI)
One In Five American Households Have ‘Zero Or Negative’ Wealth (MW)
Top Tech Stocks’ $1.7 Trillion Gain Eclipses Canada’s Economy (BBG)
Bitcoin Plunges 29% From Record High (BBG)
The End Of “The End Of History” (Luongo)
Warnings From the “China Beige Book” (Rickards)
UK Government Tensions Rise After Leak Of ‘Orwellian’ Memo Sent To May (G.)
More Than A Third Of UK Home Sellers Cut Asking Price (G.)
Fossil Fuel Burning Set To Hit Record High In 2017 (G.)
The Decisions Behind Monsanto’s Weed-Killer Crisis (R.)
Weed-Killer Prompts Angry Divide Among US Farmers (AFP)
Millions On Brink Of Famine In Yemen As Saudi Arabia Tightens Blockade (G.)

 

 

Big fall, big rise and an even bigger fall.

John Hussman Forecasts A Decade Of Stock Losses (BI)

As the equity bull market has climbed into rarefied air, investors have continuously come up with new ways to rationalize the rally. Right now, they like to cite earnings growth, which has expanded for several quarters after a prolonged rough patch. They also frequently mention interest rates that, despite hawkish signals from central banks, have remained low, supplying the market with a seemingly endless supply of cheap money. On the other side of the spectrum, John Hussman, the president of the Hussman Investment Trust and a former economics professor, thinks that the investment community is unwisely ignoring the most stretched valuations in history on the heels of a nearly 300% bull market run. Ever the outspoken bear, Hussman says investors are being willfully ignorant, which has stocks at risk of a drop that could reach 63% and send the market spiraling into a full decade of negative returns.

It wouldn’t be the first time in history this has happened. But Hussman thinks this crash will be different, because the reasons for market instability are “purely psychological” this time around, according to a recent blog post. At the root of Hussman’s pessimistic market view are stock valuations that look historically stretched by a handful of measures. According to his preferred valuation metric — the ratio of non-financial market cap to corporate gross value-added (Market Cap/GVA) — stocks are more expensive than they were in 1929 and 2000, periods that immediately preceded major market selloffs. “US equity market valuations at the most offensive levels in history,” he wrote in his November monthly note. “We expect that more extreme valuations will only be met by more severe losses.”

Those losses won’t just include the 63% plunge referenced above – it’ll also be accompanied by a longer 10 to 12 year period over which the S&P 500 will fall, says Hussman. He cites the chart below, which shows how closely 12-year expected returns for the benchmark have historically tracked Market Cap/GVA, which is shown in inverted fashion. Note that the expected trajectory for Market Cap/GVA shows the S&P 500 veering into negative territory. The psychology behind the market’s willingness to accept lofty stock valuations stems from the flawed rationale that prices are justified by low interest rates, says Hussman. To him, the US economy is growing too slowly for this to be true, and that any belief to the contrary gives people false confidence.

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While other reports say some 70% live paycheck to paycheck. Which one is true? At least it should be clear that the US is not doing well at all.

One In Five American Households Have ‘Zero Or Negative’ Wealth (MW)

Millions of Americans are living on the edge. One in five households has zero or negative wealth, according to a report released this week by the Institute for Policy Studies, a progressive think tank based in Washington, D.C. What’s more, an even greater share of African-American (30%) and Latino (27%) households are “underwater” financially. The combined impact of $1 trillion in credit-card debt, $1.4 trillion in student loan debt, and stagnant wages are taking a toll. U.S. homes have regained value since the Great Recession, but many households have not. “Millions of American families struggle with zero or negative wealth, meaning they owe more than they own,” the report found. “This means that they have nothing to fall back on if an unexpected expense comes up like a broken down car or illness.” And inequality could get worse through new tax cuts for the wealthy.

President Trump’s tax proposals won’t give America’s middle class the reprieve they need to grow their wealth and recover from the financial crash, said Josh Hoxie, who heads up the Project on Opportunity and Taxation at the Institute for Policy Studies. A recent analysis by the Joint Committee on Taxation concluded that taxes would decline for all income groups, with the biggest percentage-point decline for millionaires. After-tax income would rise by nearly 7% for households earning over $1 million per year, compared to less than 2% for those earning between $50,001 and $1 million, as MarketWatch recently reported. And less than 1% for those earning less than $50,000, according to Ernie Tedeschi, an economist at Evercore IS investment banking advisory firm who worked in the Treasury Department under President Obama.

Looking at private income, such as earnings and dividends, and government benefits like Social Security, the income of families near the top increased roughly 90% from 1963 to 2016, while the income of families at the bottom rose less than 10%, according to a separate report released last month by the Urban Institute, a nonprofit policy group based in Washington, D.C., while most other groups have been left behind. And that gap between rich and poor is only going to get worse, Hoxie said. The wealthiest 25 individuals in the U.S., including co-founder Bill Gates, Amazon CEO Jeff Bezos and Facebook CEO Mark Zuckerberg, own $1 trillion in combined assets. These 25 — a group equivalent to the active roster of a major league baseball team — hold more wealth than the bottom 56% of the U.S. population.

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Completely nuts.

Top Tech Stocks’ $1.7 Trillion Gain Eclipses Canada’s Economy (BBG)

Between the FAANG quintet and China’s rivaling BAT companies, gains in the world’s top technology shares are nearing a whopping $1.7 trillion in market value this year. That’s more than Canada’s entire economy, and exceeds the worth of Germany’s biggest 30 companies put together. The eight tech giants – Facebook, Amazon, Apple, Netflix and Google parent Alphabet, as well as their Asian peers Baidu, Alibaba and Tencent – have amassed as much money in 2017 as PIMCO, one of the world’s biggest fund managers, has done in about 46 years. While the stocks have seen a meteoric rise this year, their combined market value came off highs last week amid a global selloff in which the year’s high flyers had a bigger retreat. A recent breakdown in the correlation between high-yield bonds and the tech-heavy Nasdaq 100 Index suggests the slide in junk may spread further.

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Confidence.

Bitcoin Plunges 29% From Record High (BBG)

Bitcoin plunged as the cancellation of a technology upgrade prompted some users to switch out of the cryptocurrency, spooking speculators who had profited from a more than 800% surge this year. The cryptocurrency has dropped 9.5% since late Friday, extending its slide from last week’s record to as much as 29%, according to data compiled by Coinmarketcap.com and Bloomberg. Bitcoin cash, a rival that split from the original bitcoin in August, has jumped nearly 40% since Friday. Bitcoin cash is gaining popularity because of its larger block size, a characteristic that makes transactions cheaper and faster than the original. When a faction of the cryptocurrency community canceled plans to increase bitcoin’s block size on Wednesday – a move that would have created another offshoot – some supporters of bigger blocks rallied around bitcoin cash.

The resulting volatility has been extreme even by bitcoin’s wild standards and comes amid growing interest in cryptocurrencies among regulators, banks and fund managers. While skeptics have called bitcoin’s rapid advance a bubble, it has become too big for many on Wall Street to ignore. Even after shrinking by as much as $38 billion since Wednesday, bitcoin boasts a market value of $101 billion. Supporters of bitcoin’s technology upgrade “are now switching support to bitcoin cash,” said Mike Kayamori, head of Tokyo-based Quoine, the world’s second most-active bitcoin exchange over the past day. “There’s a panic about what’s happening. People shouldn’t panic. Just hold on to both coins until we see how it plays out.”

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A different view from most.

The End Of “The End Of History” (Luongo)

The path to draining the swamp is a circuitous one but, in my mind, it’s hard to argue where things are headed. They are not headed towards confrontation with Iran but actually the opposite. The most rabidly anti-Iranian segment of the Saudi Royal house is impoverished and imprisoned. CNN will be sold and go out of business to allow for the Time-Warner/AT&T merger. Jeff Zucker is out. Add another scalp to Steve Bannon’s belt along with Harvey Weinstein, Kevin Spacey and so many to come. Will the vestiges of the neoconservative establishment in the U.S. and Israel continue to sabre-rattle and try to undermine what is happening? Yes.

They’ve been doing that since the day Trump was elected just over a year ago, but it hasn’t stopped the momentum. Why? Because Putin was on the job outmaneuvering them at every turn. Trump made a deal with the neocons back in August to cede them control of foreign policy and, in effect, outsourced cleaning up the Middle East to Putin. But, predictably they also didn’t follow through with their end of the bargain. Trump learned, like Putin did, the John McCain’s of the world don’t keep to their deals. They are ‘not agreement capable.’ And, as such, since the last failure to repeal Obamacare Trump has gone after every pillar of support these people had. It will end with Hillary Clinton’s indictment. But in the meantime it will look like the world is on the brink of world war.

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“Xi is ready to undertake reform of the financial system, which means shutting down insolvent companies and banks.”

Warnings From the “China Beige Book” (Rickards)

The China Beige Book, CBB, says that China had been covering up and smoothing over problems related to weak growth and excessive debt in order to provide a calm face to the world in advance of the National Congress of the Communist Party of China, which took place last month. CBB also makes it clear that the much-touted “rebalancing” of the Chinese economy away from investment and manufacturing toward consumption and spending has not occurred. Instead China has doubled down on excess capacity in coal, steel and manufacturing and has continued its policy of wasteful investment fueled with unpayable debt. It’s become obvious that the first cracks are starting to appear in China’s Great Wall of Debt. The Chinese debt binge of the past 10 years is a well-known story.

Chinese corporations have incurred dollar-denominated debts in the hundreds of billions of dollars, most of which are unpayable without subsidies from Beijing. China’s debt-to-equity ratio is over 300%, far worse than America’s (which is also dangerously high) and comparable to that of Japan and other all-star debtors. China’s trillion-dollar wealth management product (WMP) market is basically a Ponzi scheme. New WMPs are used to redeem maturing WMPs, while most of the market is simply rolled over because the underlying real estate and infrastructure projects cannot possibly repay their debts. A lot of corporate lending is simply one company lending to another, which in turns lends to another, giving the outward appearance of every company holding good assets, but in which none of the companies can actually pay its creditors.

It’s an accounting game with no real money behind it and no chance of repayment. All of this is well-known. What is not known is when it will end. When will confidence be lost in such a way that the entire debt house of cards crumbles? When will a geopolitical shock or natural disaster trigger a loss of confidence that ignites a financial panic? There was little prospect of this in the past year because President Xi Jinping was keeping a lid on trouble before the recently concluded National Congress of the Communist Party of China. With the congress behind him, Xi is ready to undertake reform of the financial system, which means shutting down insolvent companies and banks. Now the first bankruptcies have begun to appear.

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None of these people give one hoot about their country. They care about themselves only.

UK Government Tensions Rise After Leak Of ‘Orwellian’ Memo Sent To May (G.)

The tensions in Theresa May’s government intensified on Sunday night ahead of this week’s vital votes on the Brexit bill, as ministers accused Boris Johnson and Michael Gove of sending an “Orwellian” set of secret demands to No 10. As an increasingly weakened prime minister faces the possibility of parliamentary defeats on the bill, government colleagues have said they are aghast at the language used by the foreign secretary and the environment secretary in a joint private letter. The leaked letter – a remarkable show of unity from two ministers who infamously fell out during last year’s leadership campaign – appeared to be designed to push May decisively towards a hard Brexit and limit the influence of former remainers. It complained of “insufficient energy” on Brexit in some parts of the government and insisted any transition period must end in June 2021 – a veiled attack on the chancellor, Philip Hammond.

They urged the prime minister to ensure members of her top team fall behind their Brexit plans by “clarifying their minds” and called for them to “internalise the logic”. But the leak drew a bitter response from supporters of a soft Brexit, who suggested that May would now be forced to either discipline the pair or further weaken her position, which has already been tested by the recent resignations of Priti Patel and Michael Fallon and continuing pressure on Johnson and Damian Green. One cabinet minister told the Guardian: “It is not surprising that they [Gove and Johnson] would express their view. But what is surprising is that they would write this down and use this kind of language in a letter to the prime minister. “Some have described it as Orwellian, and it is. It is not helpful when people try and press their views in untransparent way.”

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It’s just starting. London falling.

More Than A Third Of UK Home Sellers Cut Asking Price (G.)

More than a third of home owners trying to sell their house have been forced to reduce their asking price, with the number of price cuts at their highest level since 2012, according to Rightmove. Traditionally house sellers are often forced to cut asking prices in the pre-Christmas period but this year the nation appears to be holding a collective autumn sale, said the property website. Rightmove, which claims to list 90% of the houses being sold in the UK, said 37% of current sellers had dropped their asking price, with a typical 0.8% or £2,392 price reduction. It also warned that those who recently put their property on the market were being too optimistic by not discounting by more. The mass price cut will be seen as further evidence that the market has slowed dramatically, particularly in London where prices have been falling.

Last week the Royal Institution of Chartered Surveyors said the overall UK property market had stalled. Rics also warned that it expected the market to remain subdued in the coming months as sales stay flat or fall in most regions. Rightmove director, Miles Shipside, said the slowdown in the housing market, the recent interest rate rise and the prediction that further rises were on the horizon suggested bigger reductions in house prices in the near future. “Given that the market has been price-sensitive for a while and a five-year high proportion of sellers are slashing their prices, some sellers and their agents are over-pricing. These sellers may well be asking themselves if they could have saved some time and stress by pricing a lot more conservatively at the start.”

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As you’re being pleasantly entertained with that dumb Paris agreement.

Fossil Fuel Burning Set To Hit Record High In 2017 (G.)

The burning of fossil fuels around the world is set to hit a record high in 2017, climate scientists have warned, following three years of flat growth that raised hopes that a peak in global emissions had been reached. The expected jump in the carbon emissions that drive global warming is a “giant leap backwards for humankind”, according to some scientists. However, other experts said they were not alarmed, saying fluctuations in emissions are to be expected and that big polluters such as China are acting to cut emissions. Global emissions need to reach their peak by 2020 and then start falling quickly in order to have a realistic chance of keeping global warming below the 2C danger limit, according to leading scientists. Whether the anticipated increase in CO2 emissions in 2017 is just a blip that is followed by a falling trend, or is the start of a worrying upward trend, remains to be seen.

Much will depend on the fast implementation of the global climate deal sealed in Paris in 2015 and this is the focus of the UN summit of the world’s countries in Bonn, Germany this week. The nations must make significant progress in turning the aspirations of the Paris deal into reality, as the action pledged to date would see at least 3C of warming and increasing extreme weather impacts around the world. The 12th annual Global Carbon Budget report published on Monday is produced by 76 of the world’s leading emissions experts from 57 research institutions and estimates that global carbon emissions from fossil fuels will have risen by 2% by the end of 2017, a significant rise.

“Global CO2 emissions appear to be going up strongly once again after a three-year stable period. This is very disappointing,” said Prof Corinne Le Quéré, director of the Tyndall Centre for Climate Change Research at the UK’s University of East Anglia and who led the new research. “The urgency for reducing emissions means they should really be already decreasing now.” “There was a big push to sign the Paris agreement on climate change but there is a feeling that not very much has happened since, a bit of slackening,” she said. “What happens after 2017 is very open and depends on how much effort countries are going to make. It is time to take really seriously the implementation of the Paris agreement.” She said the hurricanes and floods seen in 2017 were “a window into the future”.

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Farmers are using dicamba because they get it on their crops anyway from the neighbors. There’s not much time left to stop Monsanto from effectively owning all our food.

The Decisions Behind Monsanto’s Weed-Killer Crisis (R.)

In early 2016, agri-business giant Monsanto faced a decision that would prove pivotal in what since has become a sprawling herbicide crisis, with millions of acres of crops damaged. Monsanto had readied new genetically modified soybeans seeds. They were engineered for use with a powerful new weed-killer that contained a chemical called dicamba but aimed to control the substance’s main shortcoming: a tendency to drift into neighboring farmers’ fields and kill vegetation. The company had to choose whether to immediately start selling the seeds or wait for the U.S. Environmental Protection Agency (EPA) to sign off on the safety of the companion herbicide. The firm stood to lose a lot of money by waiting.

Because Monsanto had bred the dicamba-resistant trait into its entire stock of soybeans, the only alternative would have been “to not sell a single soybean in the United States” that year, Monsanto Vice President of Global Strategy Scott Partridge told Reuters in an interview. Betting on a quick approval, Monsanto sold the seeds, and farmers planted a million acres of the genetically modified soybeans in 2016. But the EPA’s deliberations on the weed-killer dragged on for another 11 months because of concerns about dicamba’s historical drift problems. That delay left farmers who bought the seeds with no matching herbicide and three bad alternatives: Hire workers to pull weeds; use the less-effective herbicide glyphosate; or illegally spray an older version of dicamba at the risk of damage to nearby farms.

The resulting rash of illegal spraying that year damaged 42,000 acres of crops in Missouri, among the hardest hit areas, as well as swaths of crops in nine other states, according to an August 2016 advisory from the U.S. Environmental Protection Agency. The damage this year has covered 3.6 million acres in 25 states, according to Kevin Bradley, a University of Missouri weed scientist who has tracked dicamba damage reports and produced estimates cited by the EPA. The episode highlights a hole in a U.S regulatory system that has separate agencies approving genetically modified seeds and their matching herbicides.

Monsanto has blamed farmers for the illegal spraying and argued it could not have foreseen that the disjointed approval process would set off a crop-damage crisis. But a Reuters review of regulatory records and interviews with crop scientists shows that Monsanto was repeatedly warned by crop scientists, starting as far back as 2011, of the dangers of releasing a dicamba-resistant seed without an accompanying herbicide designed to reduce drift to nearby farms.

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“Farmers need it desperately,” said Perry Galloway. “If I get dicamba on (my products), I can’t sell anything,” responded Shawn Peebles.”

Weed-Killer Prompts Angry Divide Among US Farmers (AFP)

When it comes to the herbicide dicamba, farmers in the southern state of Arkansas are not lacking for strong opinions. “Farmers need it desperately,” said Perry Galloway. “If I get dicamba on (my products), I can’t sell anything,” responded Shawn Peebles. The two men know each other well, living just miles apart in the towns of Gregory and Augusta, in a corner of the state where cotton and soybean fields reach to the horizon and homes are often miles from the nearest neighbor. But they disagree profoundly on the use of dicamba. Last year the agro-chemical giant Monsanto began selling soy and cotton seeds genetically modified to tolerate the herbicide. The chemical product has been used to great effect against a weed that plagues the region, Palmer amaranth, or pigweed – especially since it became resistant to another herbicide, glyphosate, which has become highly controversial in Europe over its effects on human health.

The problem with dicamba is that it vaporizes easily and is carried by the wind, often spreading to nearby farm fields – with varying effects. Facing a surge in complaints, authorities in Arkansas early this summer imposed an urgent ban on the product’s sale. The state is now poised to ban its use between April 16 and October 31, covering the period after plants have emerged from the soil and when climatic conditions favor dicamba’s dispersal.

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This is who we are. This is caused by people we support, that we call our friends.

Millions On Brink Of Famine In Yemen As Saudi Arabia Tightens Blockade (G.)

Abdulaziz al-Husseinya lies skeletal and appears lifeless in a hospital in Yemen’s western port city of Hodeidah. At the age of nine, he weighs less than one and a half stone, and is one of hundreds of thousands of children in the country suffering from acute malnutrition. Seven million people are on on the brink of famine in war-torn Yemen, which was already in the grip of the world’s worst cholera outbreak when coalition forces led by Saudi Arabia tightened its blockade on the country last week, stemming vital aid flows. Al-Thawra hospital, where Abdulaziz is being treated, is reeling under the pressure of more than two years of conflict between the Saudi-led coalition and Iranian-allied Houthi rebels. Its corridors are packed, with patients now coming from five surrounding governorates to wait elbow-to-elbow for treatment.

Less than 45% of the country’s medical facilities are still operating – most have closed due to fighting or a lack of funds, or have been bombed by coalition airstrikes. As a result, Al-Thawra is treating some 2,500 people a day, compared to 700 before the conflict escalated in March 2015. [..] Aid agencies are now warning that Yemen’s already catastrophic humanitarian crisis could soon become a “nightmare scenario” if Saudi Arabia does not ease the blockade of the country’s land, sea and air ports – a move that the kingdom insists is necessary after Houthi rebels fired a ballistic missile towards Riyadh’s international airport this month. United Nations humanitarian flights have been cancelled for the past week and the International Committee of the Red Cross (ICRC), along with Médecins Sans Frontières (MSF), have been prevented from flying vital medical assistance into the country.

More than 20 million Yemenis – over 70% of the population – are in need of humanitarian assistance that is being blocked. Following international pressure, the major ports of Aden and Mukalla were reopened last week for commercial traffic and food supplies, along with land border crossings to neighbouring Oman and Saudi Arabia, but humanitarian aid and aid agency workers remained barred from entering the country on Sunday. UN aid chief Mark Lowcock has said if the restrictions remain, Yemen will face “the largest famine the world has seen for many decades, with millions of victims”.

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Nov 102017
 
 November 10, 2017  Posted by at 9:52 am Finance Tagged with: , , , , , , , , , ,  11 Responses »
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Edward S. Curtis A smoky day at the Sugar Bowl—Hupa c. 1923

 

Stock-Market Investors Are Starting To Freak Out About Junk Bonds (MW)
China’s New Way To Hide Debt: Call It Equity (ZH)
China To Remove Foreign Ownership Limit In Chinese Banks, Brokers (BBG)
Why Have We Built A Paradise For Offshore Billionaires? (Thomas Frank)
We Should Tax Them On Transactions – Steve Keen (RT)
Kleptocrat-Owned Media Pick Out ‘Incrimination’ To Target Russia – Keiser (RT)
‘$300 Million In Cryptocurrency’ Accidentally Lost Forever Due To Bug (G.)
Monsanto Sued By Brazilian Soybean Farmers Over GMO Seed (RT)
Monsanto In Court Again: New Herbicide Kills 3.6 Million Acres Of Crops (ZH)
Lebanon PM’s Resignation Is Not All It Seems (Fisk)
Saudi Arabia Is Blocking Aid To The World’s Worst Humanitarian Crisis
Antarctica Is Being Rapidly Melted From Below (Ind.)
Next Round Of Greek Pension Cuts To Reach Up To 18% In 2019 (K.)
EU Parliamentarians Warn Refugees May Die on Greek Islands (GR)
Facebook: God Only Knows What It’s Doing To Our Children’s Brains (Axios)

 

 

is this where it’ll all blow up?

Stock-Market Investors Are Starting To Freak Out About Junk Bonds (MW)

Wall Street bears are sounding alarms about a recent drop in non-investment-grade bonds, popularly referred to as junk bonds. The SPDR Bloomberg Barclays High Yield Bond ETF, an exchange-traded fund that tracks junk bonds, is on track to finished at its lowest level since March 24. Another well known junk-bond ETF, the iShares iBoxx $ High Yield Corporate Bond ETF also carved out late-March nadir, according to FactSet data. Both ETFs fell below their 200-day moving averages early this month, signaling that momentum in fixed-income products is bearish. Technical analysts tend to follow short- and long-term averages in an asset to help determine bullish and bearish trends. The moves for JNK and HYG, referencing their widely used tickers, come as the S&P 500 index and the Dow Jones Industrial Average have been testing fresh highs.

Normally, junk bonds and stocks are positively correlated, or move in the same direction, because junk bonds are considered a proxy for risk appetite in the market. Junk bonds had been drawing interest, particularly in an environment of ultralow bonds, with the 10-year Treasury and the 30-year Treasury bond offering yields below their historic averages, even as the Federal Reserve embarks upon efforts to lift interest rates from crisis-era levels. Bonds with the highest yields tend to be the riskiest and therefore offer a commensurate compensation in exchange for that perceived risk. Bond prices and yields move in opposition. However, a recent divergence between junk bonds and stocks, taking hold in late October, has raised eyebrows among Wall Street investors.

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This cannot end well.

China’s New Way To Hide Debt: Call It Equity (ZH)

The legacy of the soon-to-retire PBoC governor, Zhou Xiochuan, will be that in sharp contrast to his western brethren, he warned that China’s credit bubble would burst before the fact. Two weeks ago, Zhou warned during the Party Congress that China’s financial system could be heading for a “Minsky moment” due to high levels of corporate debt and rapidly rising household debt. “If we are too optimistic when things go smoothly, tensions build up, which could lead to a sharp correction, what we call a ‘Minsky moment’. That’s what we should particularly defend against.” Perhaps sensing that nobody in the Middle Kingdom was paying attention, we noted two days ago his lengthy essay published on the PBoC website. It contained another warning that latent risks are accumulating in the Chinese system, including some that are “hidden, complex, contagious and hazardous.”

He also highlighted “debt finance disguised as equity” as a concern. Talking of which, there’s a new growth market in the gargantuan Chinese corporate debt market – we are referring to perpetual notes. Are you ready for the clever part about perpetual notes – they are debt but it’s permissible under Chinese accounting regulations to classify them as “equity” – et voila, corporate gearing has fallen. Under pressure to trim borrowings, China’s companies have found a way to reduce their lofty debt burdens – even if some of the risk remains. Sales of perpetual notes – long-dated securities that can be listed as equity rather than debt on balance sheets given that in theory they could never mature – have soared to a record this year as Beijing zeros in on leverage and the threat it poses to the financial system.

The bonds are so popular that issuance by non-bank firms has jumped to the equivalent of 433 billion yuan ($65 billion), more than seven times sales by companies in the U.S. “Chinese issuers love perpetual bonds because they are under great pressure to deleverage,” said Wang Ying, a senior director at Fitch Ratings in Shanghai. “Sophisticated investors should do their homework and shouldn’t be misled by the numbers in accounting books.

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China signals it needs money, badly.

China To Remove Foreign Ownership Limit In Chinese Banks, Brokers (BBG)

China took a major step toward the long-awaited opening of its financial system, removing foreign ownership limits on its banks and asset-management companies, and allowing overseas firms to take majority stakes in local securities ventures and insurers. Regulators are drafting detailed rules, which will be released soon, Vice Finance Minister Zhu Guangyao said at a briefing in Beijing on Friday. Foreign firms will be allowed to own up to 51% in securities ventures and life-insurance companies, caps that will be removed gradually over time, he said. China’s steps look poised to end years of frustration for foreign banks, who have long been marginal players in Asia’s largest economy. The announcement could be seen as a major win for U.S. President Donald Trump, whose first official visit to China was followed by a string of Sino-U.S. deals.

“This is a milestone in China’s progress of opening up its economy,” said Larry Hu at Macquarie in Hong Kong. Announcing this during Trump’s visit shows the world that “China and the U.S. are in a business and trade cooperation rather than confrontation,” Hu said. On Thursday, China’s Foreign Ministry foreshadowed the latest moves, with a statement saying that entry barriers to sectors such as banking, insurance, securities and funds will be “substantially” eased. Those comments came following a meeting between Trump and his counterpart Xi Jinping. The moves would be encouraging to foreign banks, asset managers and insurers, who have long been kept on the margins in China, the world’s second-largest economy, by various barriers. Global banks are currently limited to owning 49% of local securities joint ventures, frustrating their attempts to compete effectively with Chinese rivals.

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“This is their democracy today. We just happen to live in it.”

Why Have We Built A Paradise For Offshore Billionaires? (Thomas Frank)

It’s not enough to say, in response to the Paradise Papers revelations, that we already knew that rich people parked their money in offshore tax havens, where their piles accumulate far from the scrutiny of our government. Nor is it enough to say that we were already aware that we live in a time of “inequality.” What we have learned this week is the clinical definition of the word. What we have learned is how much the rich and the virtuous have been hiding away and where they’re hiding it. Yes, there are sinister-looking Russian capitalists involved. But there’s also our favorite actors and singers. Our beloved alma mater, supposedly a charitable institution. Everyone with money seems to be in on it. We’re also learning that maybe we’ve had it backwards all along.

Tax havens on some tropical island aren’t some sideshow to western capitalism; they are a central reality. Those hidden billions are like an unseen planet whose gravity is pulling our politics and our economy always in a certain direction. And this week we finally began to understand what that uncharted planet looks like; we started to grasp its mass and its power. Think about it like this. For decades Americans have been erupting in anger at what they can see happening to their beloved middle-class world. We think we know what the culprit is; we can see it vaguely through a darkened glass. It’s “elitism.” It’s a “rigged system.” It’s people who think they’re better than us. And for decades we have lashed out. At the immigrant next door. At Jews. At Muslims. At school teachers. At public workers who are still paid a decent wage. Our fury, unrelenting, grows and grows.

We revolt, but it turns out we have chosen the wrong political leader. We revolt again: this time, the leader is even worse. This week we are coming face to face with a big part of the right answer: it’s that the celebrities and business leaders we have raised up above ourselves would like to have nothing to do with us. Yes, they are grateful for the protection of our laws. Yes, they like having the police and the Marine Corps on hand to defend their property. Yes, they eat our food and breathe our air and expect us to keep these pure and healthy; they demand that we get educated before we may come and work for them, and for that purpose they expect us to pay for a vast system of public schools. They also expect us to watch their movies, to buy their products, to use their software. They expect our (slowly declining) middle class to be their loyal customers.

[..] Our leaders raised up a tiny class of otherworldly individuals and built a paradise for them, made their lives supremely delicious. Today they hold unimaginable and unaccountable power. We endure potholes and live in fear of collapsing highway bridges because our leaders wanted these very special people to have an even larger second yacht. Our kids sit in overcrowded classrooms in underfunded schools so that a handful of exalted individuals can relax on their own private beach. Today it is these same golden figures with their offshore billions who host the fundraisers, hire the lobbyists, bankroll the think tanks and subsidize the artists and intellectuals. This is their democracy today. We just happen to live in it.

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“So the only way we can really stop it – is by forgetting about taxing them with income. Income tax works for workers – it doesn’t work for a corporation; it doesn’t work for the wealthy.”

We Should Tax Them On Transactions – Steve Keen (RT)

Steve Keen, Professor of Economics at Kingston University says the findings of the so-called Paradise Papers haven’t been surprising as “Tax evasion by the wealthy has been going on for decades, and we’ll never stop it. “We simply have to find a way to bring tax revenue back into the government that they can’t evade. And it will always manage to evade income tax,” he told RT. Keen adds though that it won’t be easy to stop this thing from happening. Partly that’s “because we don’t understand how taxation actually works.” “We think taxation is necessary to finance government spending. In fact, the government can spend regardless of taxation – the taxation simply takes large amounts of the money out of the system that government has spent into it because if we didn’t tax, we would have a risk of inflation.”

“Once you look at it that way, what the rich are actually doing – are siphoning off money that has been created by the government, accumulating it in offshore accounts and hanging onto the wealth, which should be recycled back into the economy. So the only way we can really stop it – is by forgetting about taxing them with income. Income tax works for workers – it doesn’t work for a corporation; it doesn’t work for the wealthy. We should tax them on transactions, and then they can’t evade unless they stop having transactions. If they stop having transactions, they will stop being wealthy,” he said. RT: What are the chances of that happening? SK: It just takes politicians to understand how money is created. So I think it is almost virtually impossible. They continue spreading this myth that they have got to tax us to be able to spend, running austerity, which is unnecessary. All this fits in to actually loading the pockets of the rich. Maybe there is a connection…

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Part 2 of the article above.

Kleptocrat-Owned Media Pick Out ‘Incrimination’ To Target Russia – Keiser (RT)

Let’s talk about some numbers there. To put this into a broader context, the Tax Justice Network did a study a couple of years ago. They determined that between $21 and $31 trillion is held offshore. This means that hundreds of billions of dollars of taxes go uncollected. It means those who are paying tax are paying for the entire tax burden for various countries infrastructures, military, etc. You end up with what I would call apartheid, where you have got approximately 200,000 people in the world, who pay no tax and are able to invest without paying any tax. So they are compounding money at 20-22% a year without paying tax. So the billionaire class is escalating, we know this.

Meanwhile, the poverty levels are continuing to rise because people are being ripped off by these corrupt countries in cahoots with these billionaires, who are placing the entire cost of running a society on those who can least afford it. And into the mix comes the social uprising – more violence, because naturally, if you have everything stolen from you, you have nothing to lose, so you become violent. Now, to specifically answer your question about Russia being targeted by selectively picking out … here’s an elegant phrase – you’re trying to pick a fly poop from the pepper. So they look at this big scattershot of information, and with little tweezers, they try to pick out what they perceive to be incriminating data points.

Then they build a scenario, and then the corporations that are owned by the same people that are hiding the wealth… There are only approximately six major media companies in America. Those are owned by the same kleptocrats that are hiding all these billions of dollars. They then put that story out there to deflect and confuse the average mainstream media watcher that “oh my Gosh, Russia is involved in this scandal! Russia is involved in Black Lives Matter! Russia is involved with Hillary losing the election because she is completely inept. Russia, Russia, Russia…”

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Confidence.

‘$300 Million In Cryptocurrency’ Accidentally Lost Forever Due To Bug (G.)

More than $300m of cryptocurrency has been lost after a series of bugs in a popular digital wallet service led one curious developer to accidentally take control of and then lock up the funds, according to reports. Unlike most cryptocurrency hacks, however, the money wasn’t deliberately taken: it was effectively destroyed by accident. The lost money was in the form of Ether, the tradable currency that fuels the Ethereum distributed app platform, and was kept in digital multi-signature wallets built by a developer called Parity. These wallets require more than one user to enter their key before funds can be transferred. On Tuesday Parity revealed that, while fixing a bug that let hackers steal $32m out of few multi-signature wallets, it had inadvertently left a second flaw in its systems that allowed one user to become the sole owner of every single multi-signature wallet.

The user, “devops199”, triggered the flaw apparently by accident. When they realised what they had done, they attempted to undo the damage by deleting the code which had transferred ownership of the funds. Rather than returning the money, however, that simply locked all the funds in those multisignature wallets permanently, with no way to access them. “This means that currently no funds can be moved out of the multi-sig wallets,” Parity says in a security advisory. Effectively, a user accidentally stole hundreds of wallets simultaneously, and then set them on fire in a panic while trying to give them back. Some are pushing for a “hard fork” of Ethereum, which would undo the damage by effectively asking 51% of the currency’s users to agree to pretend that it had never happened in the first place.

That would require a change to the code that controls ethereum, and then that change to be adopted by the majority of the user base. The risk is that some of the community refuses to accept the change, resulting in a split into two parallel groups. Such an act isn’t unheard of: another hack, two years ago, of an Ethereum app called the DAO resulted in $150m being stolen. The hard fork was successful then, but the money stolen represented a much larger portion of the entire Ethereum market than the $300m lost to Parity. The lost $300m follows the discovery of bug in July that led to the theft of $32m in ether from just three multisignature wallets. A marathon coding and hacking effort was required to secure another $208m against theft. Patching that bug led to the flaw in Parity’s system that devops199 triggered by accident.

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Lawsuit after lawsuit after lawsuit. At what point will we say it’s enough?

Monsanto Sued By Brazilian Soybean Farmers Over GMO Seed (RT)

Growers in Brazil’s largest soybean producing state Mato Grosso have asked a court to cancel Monsanto’s Intacta GMO seed patent. They claim irregularities, including the company’s alleged failure to prove it brings de facto technological innovation. The Mato Grosso branch of Aprosoja, the association representing the growers, has filed a lawsuit in a federal court in Brasilia. The growers claim Monsanto’s Intacta RR2 PRO patent “does not fully reveal the invention so as to allow, at the end of the exclusivity period, for any person to freely have access to it.” That requirement “avoids that a company controls a technology for an undetermined period of time,” Aprosoja said, adding Intacta’s patent protection extends through October 2022. It cited data from consultancy Agroconsult, saying that about 53% of Brazil’s soy area was planted with Intacta technology in the 2016/17 crop cycle.

Around 40% of the crop is grown with Monsanto’s Roundup Ready seed technology (Intacta’s predecessor), and only seven% is non-GM. Brazilian farmers have been continually urging the replacement of genetically modified soybeans with non-GM seeds. Recently they asked Monsanto and other producers of pest-resistant corn seeds to reimburse them for money spent on additional pesticides when the bugs killed the crops instead of dying. Several years ago five million Brazilian soybean farmers sued Monsanto, claiming the genetic-engineering company was collecting royalties on crops it unfairly claims as its own. In 2012, the Brazilian court ruled in favor of the Brazilian farmers, saying Monsanto owes them at least $2 billion since 2004. After the legal disputes, Monsanto stopped collecting royalties linked to its first-generation Roundup Ready technology, and some farmers agreed to get a discount rate to use Intacta seeds.

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How is Monsanto not a criminal enterprise?

Monsanto In Court Again: New Herbicide Kills 3.6 Million Acres Of Crops (ZH)

[..] as the Wall Street Journal points out today, after allegedly wiping out millions of acres of farm ground across the Midwest, Monsanto once again finds itself in a familiar spot: the courtroom. Monsanto’s new version of the herbicide called dicamba is part of a more than $1 billion investment that pairs it with new genetically engineered seeds that are resistant to the spray. But some farmers say their nonresistant crops suffered after neighbors’ dicamba drifted onto their land. The agricultural giant in October sued the Arkansas State Plant Board following the board’s decision to bar Monsanto’s new herbicide and propose tougher restrictions on similar weed killers ahead of the 2018 growing season. Monsanto claims its herbicide is being held to an unfair standard.

Arkansas has been a flashpoint in the dispute: About 900,000 acres of crops were reported damaged there, more than in any other state. About 300 farmers, crop scientists and other attendees gathered in Little Rock on Wednesday for a hearing on Arkansas’s proposed stiffer dicamba controls, which Monsanto and some farmers are fighting. The proposed restrictions are subject to the approval of a subcommittee of state legislators.

As we pointed out previously, the EPA has reported that farmers in 25 states submitted more than 2,700 claims to state agricultural agencies that neighbors’ dicamba spraying shriveled 3.6 million acres of soybeans. The herbicide is also blamed for damaging other crops, such as cantaloupe and pumpkins. The massive crop damage prompted Arkansas’s Plant Board to propose the idea of prohibiting dicamba use from mid-April through the end of October to safeguard growing plants. The state has also refused to approve Monsanto’s dicamba product for use in Arkansas, saying it needs further analysis by University of Arkansas researchers.

Of course, delays didn’t sit well with Monsanto which stands to make some $350 million a year in dicamba and related seed sales according to Jonas Oxgaard, an analyst with Bernstein who described the products as “their big moneymaker.” Meanwhile, farmers are exploring their own legal options with some joining a class-action lawsuit against Monsanto and BASF, seeking compensation for damaged crops.

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Follow the money: ..the kingdom owes Hariri’s “Oger” company as much as $9bn..

Lebanon PM’s Resignation Is Not All It Seems (Fisk)

When Saad Hariri’s jet touched down at Riyadh on the evening of 3 November, the first thing he saw was a group of Saudi policemen surrounding the plane. When they came aboard, they confiscated his mobile phone and those of his bodyguards. Thus was Lebanon’s prime minister silenced. It was a dramatic moment in tune with the soap-box drama played out across Saudi Arabia this past week: the house arrest of 11 princes – including the immensely wealthy Alwaleed bin Talal – and four ministers and scores of other former government lackeys, not to mention the freezing of up to 1,700 bank accounts. Crown Prince Mohamed bin Salman’s “Night of the Long Knives” did indeed begin at night, only hours after Hariri’s arrival in Riyadh. So what on earth is the crown prince up to?

Put bluntly, he is clawing down all his rivals and – so the Lebanese fear – trying to destroy the government in Beirut, force the Shia Hezbollah out of the cabinet and restart a civil war in Lebanon. It won’t work, for the Lebanese – while not as rich – are a lot smarter than the Saudis. Every political group in the country, including Hezbollah, are demanding one thing only: Hariri must come back. As for Saudi Arabia, those who said that the Arab revolution will one day reach Riyadh – not with a minority Shia rising, but with a war inside the Sunni Wahhabi royal family – are watching the events of the past week with both shock and awe. But back to Hariri. On Friday 3 November, he was in a cabinet meeting in Beirut. Then he received a call, asking him to see King Salman of Saudi Arabia.

Hariri, who like his assassinated father Rafiq, holds Saudi as well as Lebanese citizenship, set off at once. You do not turn down a king, even if you saw him a few days’ earlier, as Hariri had. And especially when the kingdom owes Hariri’s “Oger” company as much as $9bn, for such is the commonly rumoured state of affairs in what we now call “cash-strapped Saudi Arabia”. But more extraordinary matters were to come. Out of the blue and to the total shock of Lebanese ministers, Hariri, reading from a written text, announced on Saturday on the Arabia television channel – readers can guess which Gulf kingdom owns it – that he was resigning as prime minister of Lebanon. There were threats against his life, he said – though this was news to the security services in Beirut – and Hezbollah should be disarmed and wherever Iran interfered in the Middle East, there was chaos.

[..] Of course, the real story is just what is going on in Saudi Arabia itself, for the crown prince has broken forever the great compromise that exists in the kingdom: between the royal family and the clergy, and between the tribes. This was always the bedrock upon which the country stood or fell. And Mohamed bin Salman has now broken this apart. He is liquidating his enemies – the arrests, needless to say, are supposedly part of an “anti-corruption drive”, a device which Arab dictators have always used when destroying their political opponents.

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Our friends.

Saudi Arabia Is Blocking Aid To The World’s Worst Humanitarian Crisis

Saudi Arabia is stopping food and aid from getting into Yemen, in a move that the United Nations said will be “catastrophic” for a country already facing world’s worst humanitarian crisis. Saudi Arabia shut down all access points to Yemen by air, land, and sea over the weekend, in what they say is an attempt to to curb arms trafficking from Iran to Houthi rebels after an intercepted missile landed on the outskirts Riyadh. “The Coalition Forces Command decided to temporarily close all Yemeni air, sea and land ports,” the coalition said in a statement on the Saudi state news outlet SPA. The Kingdom’s lock down means critical humanitarian aid like medical supplies, food, and water, are not getting into the country. Aid workers decried the decision, warning of “dire” consequences for a country where millions of people rely on humanitarian aid to stay alive.

“Humanitarian supply lines to Yemen must remain open,” urged Robert Mardini, the International Committee of the Red Cross’s regional director for the Near and Middle East. “Food, medicine and other essential supplies are critical for the survival of 27 million Yemenis already weakened by a conflict now in its third year.” Mardini said that shipments of chlorine tablets, used to tackle the spread of cholera, were stopped at the country’s northern border. “That lifeline has to be kept open and it is absolutely essential that the operation of the United Nations Humanitarian Air Service (UNHAS) be allowed to continue unhindered,”Jens Laerke, a spokesperson for the UN Office for the Coordination of Humanitarian Affairs (OCHA) told reporters Tuesday.

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It’s a wonder there’s any ice left.

Antarctica Is Being Rapidly Melted From Below (Ind.)

There is something mysterious and hot lurking beneath the surface of the Antarctic ice. Now Nasa says that it might have found the source of that strange heating – a “mantle plume” – or upwelling of abnormally hot rock, that lies deep beneath the surface. The heat is causing the surface of the ice to melt and crack, resulting in rivers and other disruption to Antarctica. Around 30 years ago, a scientist at the University of Colorado Denver said that there might be a mantle plume under a region of the continent known as Marie Byrd Land. That hypothesis helped explain some strange features seen on the ice, like volcanic activity and a dome. Mantle plumes are narrow streams through which hot rock rises up from the Earth’s mantle, and then spreads out under the crust. Because the material itself is hot and buoyant, it makes the crust bulge upwards.

They explain how some places – like Hawaii and Yellowstone – have huge amounts of geothermal activity despite being far from the edge of a tectonic plate. But it was also an idea that was hard to believe, since the ice above the plume is still there. “I thought it was crazy,” said Helene Seroussi of Nasa’s Jet Propulsion Laboratory, who helped the lead work. “I didn’t see how we could have that amount of heat and still have ice on top of it.” Now scientists have used the latest techniques to support the idea. The team developed a mantle plume numerical model to look at how much geothermal heat would be needed to explain what is seen at Marie Byrd Land, including the dome and the giant subsurface rivers and lakes present on Antarctica’s bedrock.

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Further guaranteeing the further demise of the country.

Next Round Of Greek Pension Cuts To Reach Up To 18% In 2019 (K.)

The recalculation of pensions paid out to people who have already retired will likely lead to major cuts for pensioners of the former Traders’ Fund (TEBE/OAEE) and the civil servants’ fund, as well as those who used to work at banks and state firms. According to data presented to the country’s creditors by the Labor Ministry, three-quarters of the recalculations have been completed, while the process is expected to finish by year-end. The cuts will be implemented from January 1, 2019, but the country’s 2.6 million pensioners should learn by how much their income will suffer by the middle of next year, as Athens has told the creditors it will inform all pensioners by June 2018.

Legally, the cuts cannot exceed 18%, even if the pensioner’s so-called personal difference – i.e. the margin between the pension they secured in the past and the amount a new pensioner would receive – is greater. The law also provides for the abolition of allowances for spouses and children, which a large share of pensioners receive. Kathimerini understands the recalculation results will lead to major cuts mainly for pensioners who had high salaries but few years of service, as well as widows.

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is there anyone is the EU left with a conscience?

EU Parliamentarians Warn Refugees May Die on Greek Islands (GR)

The EU Council and the European Commission must work urgently with Greece to prevent a humanitarian crisis this winter, according to the he Progressive Alliance of Socialists and Democrats (S&D) Group in the European Parliament. The group called for a debate in the parliament’s plenary session next week in Strasbourg. “Thousands of people seeking asylum on the Greek islands still do not have adequate protection for the coming cold months,” said S&D Group President Gianni Pittella.

“Many are still sleeping in light tents designed for summer weather, without sleeping bags, on thin mats or even on the ground. EU governments need to immediately stop sending back refugees to Greece under the Dublin mechanism; which is creating further strain on the Greek asylum system. If we do not act and refugees die from the cold, as they did last year, then their blood will be on our hands.” Pittella was also quick to stress that all EU member states must fulfill their obligations to relocate refugees from Greece. “A legal decision has been taken by the EU, and this must be fully respected. Relocation is the only way of taking these people out of limbo and allowing them to get on with rebuilding their lives.”

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‘We’ll get you eventually.”

Facebook: God Only Knows What It’s Doing To Our Children’s Brains (Axios)

Sean Parker, the founding president of Facebook, gave me a candid insider’s look at how social networks purposely hook and potentially hurt our brains. Be smart: Parker’s I-was-there account provides priceless perspective in the rising debate about the power and effects of the social networks, which now have scale and reach unknown in human history. He’s worried enough that he’s sounding the alarm. Parker, 38, now founder and chair of the Parker Institute for Cancer Immunotherapy, spoke yesterday at an Axios event at the National Constitution Center in Philadelphia, about accelerating cancer innovation. In the green room, Parker mentioned that he has become “something of a conscientious objector” on social media. By the time he left the stage, he jokingly said Mark Zuckerberg will probably block his account after reading this:

“When Facebook was getting going, I had these people who would come up to me and they would say, ‘I’m not on social media.’ And I would say, ‘OK. You know, you will be.’ And then they would say, ‘No, no, no. I value my real-life interactions. I value the moment. I value presence. I value intimacy.’ And I would say, … ‘We’ll get you eventually.'”

“I don’t know if I really understood the consequences of what I was saying, because [of] the unintended consequences of a network when it grows to a billion or 2 billion people and … it literally changes your relationship with society, with each other … It probably interferes with productivity in weird ways. God only knows what it’s doing to our children’s brains.”

“The thought process that went into building these applications, Facebook being the first of them, … was all about: ‘How do we consume as much of your time and conscious attention as possible?'” “And that means that we need to sort of give you a little dopamine hit every once in a while, because someone liked or commented on a photo or a post or whatever. And that’s going to get you to contribute more content, and that’s going to get you … more likes and comments.”

“It’s a social-validation feedback loop … exactly the kind of thing that a hacker like myself would come up with, because you’re exploiting a vulnerability in human psychology.”

“The inventors, creators — it’s me, it’s Mark [Zuckerberg], it’s Kevin Systrom on Instagram, it’s all of these people — understood this consciously. And we did it anyway.”

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 November 3, 2017  Posted by at 8:59 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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Edward S. Curtis Tipi in the snow 1908

 

Social Security Can Never Run Out Of Money – Just Ask Alan Greenspan (BI)
Inside Hillary Clinton’s Secret Takeover of the DNC (Donna Brazile)
Jay Powell – A Quiet Leader (DDMB)
Why Would Anyone Want The Fed Job? (Crudele)
The Borrower Is The Slave To The Lender (Lance Roberts)
US Manufacturing Worker Productivity Crashes Most In 8 Years (ZH)
Bitcoin Is the ‘Very Definition’ of a Bubble – Credit Suisse CEO (BBG)
One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week (MBV)
The Hidden Danger Bulls Are Missing (Rickards)
As Credit Booms, Citi Says Synthetic CDOs May Reach $100 Billion (BBG)
China Issues Guidelines On Overseas Investment Amid Crackdown On Deals (R.)
US Spends $250 Million Per Day For The War On Terror (TeleS)
Barcelona Council Says Catalan Government Legitimate, Independence Is Not (CN)
Kim Dotcom Wins Settlement From New Zeland Police Over 2012 Dawn Raid (NZH)
Monsanto Halts Launch Of Chemical After Farmers Complain Of Rashes (R.)

 

 

“The United States can pay any debt it has because it can always print money to do that, so there is zero probability of default.”

Social Security Can Never Run Out Of Money – Just Ask Alan Greenspan (BI)

I asked Kelton why, given her counterintuitive argument that deficits don’t really matter, Americans should take her word for it. Her reply: Don’t. Instead, listen to what Alan Greenspan, the prominent Republican former Federal Reserve chairman who is a purported deficit hawk, had to say on the matter. In March 2005, he was pressed by a young congressman named Paul Ryan about the need for privatizing Social Security because of the prospect of a looming “entitlements crisis.” Greenspan replied rather bitingly that there was no such thing or even a remote possibility. “I wouldn’t say that the pay-as-you-go benefits are insecure in the sense that there’s nothing to prevent the federal government to create as much money as it wants and pays it to somebody,” Greenspan told an incredulous Ryan. “The question is how do you set up a system that assures that the real assets are created which those benefits are employed to purchase.

So it’s not a question of security — it’s a question of the structure of the financial system.” That’s what Democrats should be saying, rather than regurgitating the old Republican rouse — which even the GOP is willing to abandon when it’s convenient — about a looming government debt crisis that never comes. “Instead of repeating talking points that reinforce the idea that Social Security is somehow financially unsustainable, Democrats should play Greenspan’s remarks on a loop. They should call attention to what Greenspan said — under oath — about the program’s long-term sustainability,” Kelton said. “Instead of accepting the premise that Social Security is in trouble, Democrats should accept Greenspan’s challenge — put forward an agenda that will do more to promote future growth than anything the Republicans are offering.”

The financial crisis was instructive on this count. Many critics of both the federal government’s fiscal stimulus and the Federal Reserve’s bond purchases worried that the country was getting so deep into debt that one of two things was bound to happen: a crisis in the Treasury market or a bout of runaway inflation. Nine years into the recovery, Treasury yields remain near historic lows and inflation is not only contained but remains worryingly low. That last point is key: It’s not that folks like Kelton and Baker believe there is no risk to government spending. They simply argue that the only risks are the misallocation of resources and inflation — not some amorphous “debt crisis” or default of the sort some politicians and market analysts have shouted about.

Unlike Greece, which actually did default on its debt because of a lack of control over its own currency, the US could default only by choice. Trump flirted with that choice once as a candidate — but quickly backed away from the threat after he realized the catastrophic market and economic consequences such a debacle would have. In August 2011, after the US’s credit rating was downgraded for the fist time following a prolonged impasse over the US debt ceiling, Greenspan was asked during a “Meet the Press” interview about the issue of “unfunded liabilities” and “entitlements.” His response again spoke volumes: “The United States can pay any debt it has because it can always print money to do that, so there is zero probability of default.”

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Quite a reversal. Brazile was fired from CNN a year ago when it was discovered she fed the Clinton campaign debate questions. Still, what a mess. Will they clean it up or try to ignore?

Inside Hillary Clinton’s Secret Takeover of the DNC (Donna Brazile)

When I got back from a vacation in Martha’s Vineyard I at last found the document that described it all: the Joint Fund-Raising Agreement between the DNC, the Hillary Victory Fund, and Hillary for America. The agreement—signed by Amy Dacey, the former CEO of the DNC, and Robby Mook with a copy to Marc Elias—specified that in exchange for raising money and investing in the DNC, Hillary would control the party’s finances, strategy, and all the money raised. Her campaign had the right of refusal of who would be the party communications director, and it would make final decisions on all the other staff. The DNC also was required to consult with the campaign about all other staffing, budgeting, data, analytics, and mailings. I had been wondering why it was that I couldn’t write a press release without passing it by Brooklyn. Well, here was the answer.

When the party chooses the nominee, the custom is that the candidate’s team starts to exercise more control over the party. If the party has an incumbent candidate, as was the case with Clinton in 1996 or Obama in 2012, this kind of arrangement is seamless because the party already is under the control of the president. When you have an open contest without an incumbent and competitive primaries, the party comes under the candidate’s control only after the nominee is certain. When I was manager of Gore’s campaign in 2000, we started inserting our people into the DNC in June. This victory fund agreement, however, had been signed in August 2015, just four months after Hillary announced her candidacy and nearly a year before she officially had the nomination.

I had tried to search out any other evidence of internal corruption that would show that the DNC was rigging the system to throw the primary to Hillary, but I could not find any in party affairs or among the staff. I had gone department by department, investigating individual conduct for evidence of skewed decisions, and I was happy to see that I had found none. Then I found this agreement. The funding arrangement with HFA and the victory fund agreement was not illegal, but it sure looked unethical. If the fight had been fair, one campaign would not have control of the party before the voters had decided which one they wanted to lead. This was not a criminal act, but as I saw it, it compromised the party’s integrity.

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We’ll go with Danielle DiMartino Booth for now. Powell’s no PhD, and not a Yellen clone. But he’s been at the Fed for 5 years already, which doesn’t make him an obvious agent for change.

Jay Powell – A Quiet Leader (DDMB)

The sheer breadth of Powell’s experience is refreshing compared to what we’ve had for the past 30 years. Powell has a deep understanding of the law and politics. He worked in the Treasury Department under Nicholas Brady and was confirmed as Undersecretary of the Treasury under George H.W. Bush. His background in politics and the experience he has had at the Fed thus far have prepared him well for his role as liaison to Congress and the White House. Powell’s experience as an investment banker was critical in his carrying out the investigation and sanctioning of Salomon Brothers. Understanding the entirely different type of politics that exists in big banks will bode well for his capacity to regulate the banks. This attribute especially will dilute the power traditionally exerted by the NY Fed in recent years, a District that has a long history of conflicts of interest vis-à-vis the banks it regulates.

A stronger regulator as Fed chair in the years leading up to the financial crisis. At the Carlyle Group, Powell founded and ran the Industrial Group within the Buyout Fund. A separate missing characteristic among Fed leaders for the past 30 years has been a woeful lack of understanding as to how Fed policy effects corporations and the decisions CEOs and CFOs make driven by Fed policy, the most obvious of which has been debt-financed share buybacks at the expense of capital expenditures. Some in the media have questioned Powell’s being the wealthiest individual at the Fed. That is an extremely strong attribute. In his work between 2010 and 2012 at a bipartisan think tank, Powell worked for a salary of $1 per year to carry out his mission to raise the debt ceiling. His wealth affords him the luxury of having no preset agenda. His history of working for his country to its best end exemplifies that he is at the Fed because he truly believes he is doing a greater good in servicing his country.

Powell’s work on Too Big to Fail banks also speaks to his ability to be independent and objective in his approach to regulating big banks with deep-pocketed lobbyists who hold huge sway over politicians. If he is willing to go up against the biggest banks, he will hopefully prove to be a leader cast in the mold of William McChesney Martin, the longest serving Fed Chairman famous for testifying to Congress that it was the Fed’s job to take away the punch bowl just as the party gets going. [..] His experience in the financial markets suggests he will be less apt to keep rates too low for too long as has been the case with his three predecessors. Powell was not in favor of the third round of QE, but voted for its nevertheless. This is his biggest black eye and why market participants perceive him to be as dovish as they do.

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Savings and pensions need higher rates, fast. But…

Why Would Anyone Want The Fed Job? (Crudele)

No matter who is appointed, the next Fed chairman has a problem. Right now, the economy is looking healthy. The stock market is booming. Consumer confidence is high. Home prices are soaring. And some economic indicators seem to say, “Happy days are here again.” Just Wednesday, for instance, the Atlanta Federal Reserve raised its forecast for economic growth in the fourth quarter to a booming 4.5% annual rate. The nation’s gross domestic product, the standard for measuring economic growth, rose at a healthy 3% annual rate in the third quarter. That 3% figure was puzzling because hurricanes should have stunted growth, which means that number might be revised downward once better-quality statistics come in.

Or it could mean that growth is darn good, despite the weather. Nevertheless, the 4.5% estimate for the fourth quarter — on top of the 3% growth in the July to September quarter — is going to force whoever ends up running the Fed to seriously consider raising interest rates faster than usual. But that’s where it gets tricky. Once rates increase, the economy could slow because borrowing costs will rise for both consumers and companies. When the cost of borrowing money increases, people and companies tend to cut back on spending. But there’s another possible twist that could complicate the job of the next Fed boss even more. The relatively impressive growth in the third-quarter GDP and the even better performance in the fourth quarter could turn out to be another fake-out.

The GDP, for instance, rose by a 4.6% annual rate in the second quarter of 2014 and by a 5.2% rate in the third quarter of that year, only to collapse back to subpar growth in the next eight quarters. Also, the New York Fed, which is more influential, doesn’t agree with the Atlanta Fed. It had current GDP at closer to 3%. With all that’s going on, why would anyone want the Fed job?

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When anyone tells you the economy has recovered, show them any of these graphs.

The Borrower Is The Slave To The Lender (Lance Roberts)

Despite the bullish economic optics, the reality for the majority of Americans is they simply have not yet recovered from the financial crisis. As the chart below shows, while savings spiked during the financial crisis, the rising cost of living for the bottom 80% has outpaced the median level of “disposable income” for that same group. As a consequence, the inability to “save” has continued.

I discussed previously the problem of rising debt. Beginning in 1990, the gap between the “standard of living” and real disposable incomes went negative with the resultant “gap” filled through the use of debt. However, since the financial crisis, this has no longer been the case. I modified the previous chart with the savings rate which tells the same story, as the cost of living began outpacing incomes the difference came from savings, and a continuous increase in debt. Again, despite the temporary uptick in the savings rate following the financial crisis, the real cost of living continues to erode the middle class.

You can see the erosion of the savings rate more clearly when you look at the rate of Personal Consumption Expenditure (PCE) growth as compared to debt growth. As spending and debt accelerated, the savings rate declined. More importantly, in 2000 the growth rate of debt sharply accelerated above PCE growth. This debt-fueled consumption, however, has not led to stronger rates of economic growth.

Debt is a negative thing for the borrower. It has been known to be such a thing even in biblical times as quoted in Proverbs 22:7: “The borrower is the slave to the lender.” Debt acts as a “cancer” on an individual’s wealth as it siphons potential savings from income as those funds are diverted to debt service. Rising levels of debt means rising levels of debt service which reduces actual disposable personal incomes that could be saved or reinvested back into the economy. The mirage of consumer wealth has been a function of surging debt levels. “Wealth” is not borrowed but “saved” and as shown in the chart below, this is a lesson that too few individuals have learned. The reality is that since “savings” are the cornerstone of economic growth longer-term, as savings provide for productive investment and lending, it should be of NO surprise that, as shown in the next chart, there is a very high correlation between the savings rate, GDP, and PCE.

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What happens when you don’t make stuff anymore.

US Manufacturing Worker Productivity Crashes Most In 8 Years (ZH)

US worker productivity rose at 3.0% QoQ in Q3 – the best since 2014.

Unit labor costs rose at 0.5% annualized rate in Q3 (est. 0.4%) following 0.3% pace in Q2. Output rose at a 3.8% rate following 3.9%. Hours worked rose at a 0.8% pace after 2.4%. The latest figure compares with a 1.2% average over the period spanning 2007 to 2016. Weak productivity helps explain why companies are reluctant to raise workers’ wages, even as profit margins have improved. However, among manufacturers, productivity crashed 5% QoQ – the biggest drop since Q1 2009, when the economy was in recession – after rising 3.4% in Q2. Let’s hope that is storm-related.

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Insert your opinion here: “From what we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble,..”

Bitcoin Is the ‘Very Definition’ of a Bubble – Credit Suisse CEO (BBG)

The speculation around bitcoin is the “very definition of a bubble,” Credit Suisse CEO Tidjane Thiam said as the currency exceeded $7,000 for the first time. “From what we can identify, the only reason today to buy or sell bitcoin is to make money, which is the very definition of speculation and the very definition of a bubble,” he said at a news conference in Zurich Thursday. He added that in the history of finance, such speculation has “rarely led to a happy end.” The digital currency got new impetus this week after CME, the world’s largest exchange owner, said it plans to introduce bitcoin futures by the end of the year, citing pent-up demand from clients. That pushes bitcoin closer to the mainstream by making it easier to trade without the hassles of owning bitcoin directly. Other bankers are also sounding warnings about the currency.

JPMorgan Chase CEO Jamie Dimon has called bitcoin “a fraud” that will eventually blow up. UBS Chairman Axel Weber said last month that bitcoin has no “intrinsic value” because it’s not secured by underlying assets. Bankers also are steering clear of bitcoin for fear that criminals could use its anonymity to hide their activities, Thiam said. “Most banks in the current state of regulation have little or no appetite to get involved in a currency which has such anti-money laundering challenges,” he said. While bitcoin remains a no-go with the industry, banks are racing to develop blockchain, the technology underpinning the currency. Thiam said blockchain may have many applications in banking. Credit Suisse is among more than 100 banks are working within the R3, a consortium created to find ways to use blockchain as to track money transfers and other transactions.

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It’s by design, and that remains worrisome.

One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week (MBV)

Bitcoin’s incredible price run to break over $6,000 this year has sent its overall electricity consumption soaring, as people worldwide bring more energy-hungry computers online to mine the digital currency. An index from cryptocurrency analyst Alex de Vries, aka Digiconomist, estimates that with prices the way they are now, it would be profitable for Bitcoin miners to burn through over 24 terawatt-hours of electricity annually as they compete to solve increasingly difficult cryptographic puzzles to “mine” more Bitcoins. That’s about as much as Nigeria, a country of 186 million people, uses in a year. This averages out to a shocking 215 kilowatt-hours (KWh) of juice used by miners for each Bitcoin transaction (there are currently about 300,000 transactions per day).

Since the average American household consumes 901 KWh per month, each Bitcoin transfer represents enough energy to run a comfortable house, and everything in it, for nearly a week. On a larger scale, De Vries’ index shows that bitcoin miners worldwide could be using enough electricity to at any given time to power about 2.26 million American homes. Expressing Bitcoin’s energy use on a per-transaction basis is a useful abstraction. Bitcoin uses x energy in total, and this energy verifies/secures roughly 300k transactions per day. So this measure shows the value we get for all that electricity, since the verified transaction (and our confidence in it) is ultimately the end product. Since 2015, Bitcoin’s electricity consumption has been very high compared to conventional digital payment methods. This is because the dollar price of Bitcoin is directly proportional to the amount of electricity that can profitably be used to mine it.

As the price rises, miners add more computing power to chase new Bitcoins and transaction fees. It’s impossible to know exactly how much electricity the Bitcoin network uses. But we can run a quick calculation of the minimum energy Bitcoin could be using, assuming that all miners are running the most efficient hardware with no efficiency losses due to waste heat. To do this, we’ll use a simple methodology laid out in previous coverage on Motherboard. This would give us a constant total mining draw of just over one gigawatt. That means that, at a minimum, worldwide Bitcoin mining could power the daily needs of 821,940 average American homes. Put another way, global Bitcoin mining represents a minimum of 77KWh of energy consumed per Bitcoin transaction.

Even as an unrealistic lower boundary, this figure is high: As senior economist Teunis Brosens from Dutch bank ING wrote, it’s enough to power his own home in the Netherlands for nearly two weeks. As goes the Bitcoin price, so goes its electricity consumption, and therefore its overall carbon emissions. I asked de Vries whether it was possible for Bitcoin to scale its way out of this problem. “Blockchain is inefficient tech by design, as we create trust by building a system based on distrust. If you only trust yourself and a set of rules (the software), then you have to validate everything that happens against these rules yourself. That is the life of a blockchain node,” he said via direct message.

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“Earnings are likely to fall short of expectations, which can lead to a correction. Once that happens, multiples can shrink as well. Soon you’re in a full-scale bear market with stock prices down 20% or more.”

The Hidden Danger Bulls Are Missing (Rickards)

Bull markets in stocks seem unstoppable right up until the moment they stop. Then comes a rapid crash-and-burn phase. Is there ever any warning that a collapse is about to happen? Of course there is. Analysts warn about it all the time and provide mountains of data and historical evidence to back up their analysis. The problem is that everyone ignores them! You can talk about the dangers represented by CAPE ratios, margin levels, computerized trading, persistent low volatility and complacency all you want, but nothing seems to slow down this bull market. Yet there is one thing that can stop a bull market in its tracks, and that’s corporate earnings. The simplest form of stock market valuation is to project earnings, apply a multiple and, voilà, you have a valuation. Multiples are already near record highs, so there’s not much room for expansion there.

The only variable left is projected earnings and that’s where Wall Street analysts are having a field day ramping up stock prices. Earnings did grow significantly in 2017 on a year-over-year basis, but that’s mainly because earnings were weak in 2016, so the year-over-year growth was relatively easy. Now comes the hard part. How do you expand earnings again in 2018 when 2017 was such a strong year? Wall Street just uses a simple extrapolation and says next year will be like this year, only better! But there is every reason to doubt that extrapolation. This is from a recent Bloomberg article:

“Ominously, Weekly Leading Index growth turned down early this year and is now at a 79-week low. Such cyclical downturns have historically telegraphed [growth-rate cycle] GRC downturns. That shows very clearly that economic growth is about as good as it gets and that a fresh growth slowdown may be on the way… ” “Over time, we find that stock price corrections — big and small — have historically clustered around GRC downturns. In other words, the risk of corrections rises around economic slowdowns… Today, there are rising rates, with quantitative tightening about to begin. This will take place during an economic slowdown, implying a likely downswing in corporate profit growth, delivering a proverbial one-two punch.”

Earnings are likely to fall short of expectations, which can lead to a correction. Once that happens, multiples can shrink as well. Soon you’re in a full-scale bear market with stock prices down 20% or more. That’s without even considering a war with North Korea and all of the dangers others have already mentioned. This may be your last clear chance to lighten up on listed equity exposure before the bubble bursts.

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Complex derivatives. What do they make you remember?

As Credit Booms, Citi Says Synthetic CDOs May Reach $100 Billion (BBG)

The comeback in complex credit derivatives blamed for exacerbating the global financial crisis is picking up pace. That’s according to new research this week from Citigroup, one of the biggest arrangers of so-called synthetic collateralized debt obligations. Sales of the products may jump to as much as $100 billion this year from about $20 billion in 2015, Citigroup analysts wrote in an Oct. 31 report. While investors suffered billions of dollars in losses on similar bets a decade ago, the leverage offered by synthetic CDOs is luring back buyers in an era of low yields and dwindling volatility. “It would seem as if the low spread-low vol environment, similar to back in 2006-2007 (when investors couldn’t get enough of levered synthetic tranches) has revived some interest in portfolio credit risk,” Citigroup analysts led by Aritra Banerjee wrote.

“Investors may not have necessarily wanted to add leverage, but, simply put, they have had to, given the lack of alternatives.” While post-crisis deals are typically tied to corporate credit as opposed to the mortgage debt that helped spur the credit crunch, the return of synthetic CDOs is likely to generate unease among investors who worry that markets are too frothy. The controversial product’s resurgence coincides with a boom in other types of credit wagers, including options on credit derivative indexes and exchange-traded funds that provide quick and easy access to a broad swath of credit. There are some key differences in today’s synthetic CDOs versus the pre-crisis vintage. Citigroup said it has created over 50 “full capital structure” deals in recent years, which vary from the single-tranche bespoke deals that dominated before and just after the crunch.

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“China’s non-financial outbound direct investment (ODI) fell 41.9% in January-September from a year earlier to $78.03 billion. For September alone, it plummeted 42.5% on-year to $9.31 billion..”

China Issues Guidelines On Overseas Investment Amid Crackdown On Deals (R.)

After years of rapid growth, China’s outbound investment has slumped so far in 2017 as authorities crack down on “irrational” overseas deals which are suspected of being used to bypass capital controls and move money offshore, pressuring the yuan currency. The draft regulations, released to the public to solicit feedback until Dec. 3, aim to improve oversight, safeguard national security and increase support, according to a post on the website of the National Development and Reform Commission (NDRC). Some administrative hurdles, such as a rule requiring that Chinese companies investing over $300 million overseas seek approval from the state planner, would be reduced or removed under the new rules, the post said.

At the same time, the new rules would also increase oversight on investments by overseas subsidiaries of Chinese companies, as well as for investments in sensitive sectors and countries, it said. Sensitive projects listed in the rules include those in countries that are at war, that do not have diplomatic ties with China or where investment is restricted by China’s commitments to international treaties, resolutions or requirements. Media organizations, weapons manufacturing, companies involved in multi-national water resources exploitation or those that China’s national macro policies restrict investment in were listed as sensitive sectors. A full list of sensitive areas would be released by the state planner in future, it said.

Punishments for companies that use dishonest measures to invest overseas, engage in unfair competition or damage national security will be increased, the rules said. The statement said that the new draft builds on previous regulations released in 2014. China’s non-financial outbound direct investment (ODI) fell 41.9% in January-September from a year earlier to $78.03 billion. For September alone, it plummeted 42.5% on-year to $9.31 billion, according to Reuters calculations.

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As Americans live paycheck to paycheck. Problem is, both parties support this lunacy.

US Spends $250 Million Per Day For The War On Terror (TeleS)

The Department of Defense’s “cost of war” report suggests that the U.S. has spent $250 million per day for the past 16 years on ‘defense.’ According to a newly published United States Department of Defense (DoD) “cost of war” report, U.S. taxpayers have shelled out $1.46 trillion for war since September 11, 2001, when the War on Terror began. This amounts to around $250 million per day. The report was published by the Federation of American Scientists Secrecy News blog and covers the period of September 11, 2001 to mid-2017. As the report notes, nearly $1.3 trillion of the total cost spent on the Iraq and Afghanistan wars alone. On top of this, continuing operations in Afghanistan and the U.S.-led air campaign in Iraq and Syria has totalled $120 billion.

U.S. President Donald Trump promised to rebuild America’s military which he sees as less extravagant than it ever has been. “Our active-duty armed forces have shrunk from 2 million in 1991 to about 1.3 million today,” he said in a speech. “The Navy has shrunk from over 500 ships to 272 ships during this same period of time. The Air Force is about one-third smaller than 1991. Pilots flying B-52s in combat missions today. These planes are older than virtually everybody in this room.” Part of Trump’s plan to ‘rebuild’ the U.S.’ military is to make sure that the military is “funded beautifully.” The Trump administration has proposed a $603 billion defense budget, which well exceeds the cap of $549 billion, and would require the U.S. Congress to make spending cuts in other areas.

In July, the House of Representatives approved $696.5 billion in defense spending, which includes a base budget of $621.5 billion and $75 billion in ‘Overseas Contingency Operations dollars’, commonly referred to as ‘war money’. Conversely, the Senate passed a $640 billion base defense budget with a $60 billion allocation for war money. Both versions of the budget well exceed the Trump administration’s proposal, making this defense budget, by far, the largest defense budget in U.S. history. While the U.S.’ current and proposed military spending is massive, the DoD’s “cost of war” report did not take into account other collateral costs of war, including veteran’s benefits and other related costs.

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Will Belgium extradite Puidgemont? 8 of his ministers are already in jail.

Barcelona Council Says Catalan Government Legitimate, Independence Is Not (CN)

Barcelona City Council has declared that the government dismissed by Spain after the application of Article 155 is “legitimate,” although it does not recognize Catalonia as an official republic. After meeting on Thursday, the council approved the proposal put forth by pro-independence party Esquerra Republicana (ERC) to “recognize the government that emerged from the polls on September 27 as the legitimate government of Catalonia,” with votes in favour from Barcelona en Comú (BeC), ERC, PDeCAt, and the anti-capitalist party CUP. Votes against came from the Socialists (PSC), the Catalan People’s Party (PP), and Ciutadans (Cs).

CUP also proposed a motion to “recognize the proclamation of the Catalan Republic approved by the Parliament of Catalonia on October 27.” Although this motion received support from ERC, PDeCAT, and the CUP, it received more votes against from BeC, Cs, PSC, and PP. Alfred Bosch, president of ERC warned that “the fact that the Catalan government has been dismissed, and its powers passed on to the Spanish government, will have an effect on Barcelona.” Barcelona’s mayor, Ada Colau, received criticism from CUP representative María José Lecha, who said the mayor cannot be “neutral or equidistant” in the face of the judicial persecution of the October 1 referendum, and that she must side either with “the oppressor or the oppressed.”

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What a story this still is.

Kim Dotcom Wins Settlement From New Zeland Police Over 2012 Dawn Raid (NZH)

Kim Dotcom and his former wife Mona have accepted a confidential settlement from the police over the raid which saw him arrested, saying he did so to protect their children and because the Government “recently changed for the better”. He said that their previous desire to see accountability had been trumped by wanting to “do what was best for our children” by bringing an end to the court case. The settlement came after a damages claim was filed with the High Court over what was considered an “unreasonable” use of force when the anti-terrorism Special Tactics Group raided his $30 million mansion in January 2012. The raid was part of a worldwide FBI operation to take down Dotcom’s Megaupload file-sharing website which was claimed to be at the centre of a massive criminal copyright operation.

Dotcom and three others were arrested and await extradition to the United States on charges which could land them in prison for decades. The NZ Herald has learned earlier settlements were reached between police and others arrested, including Bram van der Kolk and Mathias Ortmann. It was believed their settlements were six-figure sums and it is likely Dotcom would seek more as the main target in the raid. He was also the focus of risk assessments used to justify the use of the anti-terrorism squad which carried out a helicopter assault at dawn. Those assessments included photographs of Dotcom carrying shotguns – pictures taken while clay pigeon shooting – and descriptions of him as violent despite a lack of evidence to support the claim.

The court challenge also questioned “visual surveillance” which had not been authorised by the court. Evidence has emerged in court hearings of police watching the Dotcom Mansion from neighbouring properties, and scouting the mansion interior with a hidden camera carried on to the property by a local police officer on a goodwill meeting the day before the raid.

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Ban it. Ban the whole industry. We cannot afford this to continue. Let’s feed ourselves without poisoning ourselves in the process.

Monsanto Halts Launch Of Chemical After Farmers Complain Of Rashes (R.)

Monsanto put on hold the launch of a chemical designed to be applied to crop seeds on Wednesday following reports it causes rashes on people, in the latest instance of complaints about a company product that was approved by U.S. environmental regulators. Monsanto froze plans for commercial sales of the product called NemaStrike, which can protect corn, soybeans and cotton from worms that reduce yields. The company said it conducted three years of field tests across the United States in preparation for a full launch and that more than 400 people used it this year as part of a trial. The delayed launch of what Monsanto calls a blockbuster product is another setback for the company, which is already battling to keep a new version of a herbicide on the market in the face of complaints that it damaged millions of acres of crops this summer.

“There have been limited cases of skin irritation, including rashes, that appear to be associated with the handling and application of this seed treatment product,” Brian Naber, U.S. commercial operations lead for Monsanto, said in a letter to customers about NemaStrike. Some users who suffered problems may not have followed instructions to wear protective equipment, such as gloves, company spokeswoman Christi Dixon said. The company expected NemaStrike to launch across up to 8 million U.S. crop acres in fiscal year 2018, Chief Executive Hugh Grant said on a conference call last month. The product was “priced at a premium that reflects its consistent yield protection” against worms known as nematodes, he said.

The U.S. Environmental Protection Agency (EPA) did extensive evaluations of the product before approving it for use, according to Monsanto, which has described NemaStrike as “blockbuster technology.” [..] “The technology is effective and can be used safely when following label instructions,” Monsanto said. The EPA last year approved use of Monsanto’s new version of a weed killer using a chemical known as dicamba on crops during the summer growing season.Problems have also emerged with the herbicide since the agency’s approval. Farmers have complained it evaporates and drifts from where it is applied, causing damage to crops that cannot resist it.

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