Feb 142019
 
 February 14, 2019  Posted by at 10:42 am Finance Tagged with: , , , , , , , , , , ,  


Pablo Picasso Guitar 1925

 

Australia’s $7 Trillion Question: How Low Will House Prices Go (SMH)
US Mortgage Applications Drop Despite Lower Rates: Industry is Baffled (WS)
Surge In Delinquencies Threatens US Auto Loan Bubble (Colombo)
$1 Trillion Amazon Pays $0 In Income Taxes, Gets $129 Million Rebate (RT)
EU Officials: UK Only ‘Pretending To Negotiate’ Over Brexit (G.)
UK Has Rolled Over Just £16bn Out Of £117bn Trade Deals (G.)
Labour MPs Warn Corbyn: Back A Second Referendum Or We Quit (G.)
Hardline Brexiters Threaten To Vote Down Theresa May’s Motion (G.)
Maduro Claims Foes ‘Totally Failed’ To Topple Him As Efforts Falter (G.)
Venezuela Envoy Elliott Abrams Loses His Cool In Congress (ZH)
Germany Pulls Rank on Macron and Washington over Nordstream 2 (SCF)
Bikes Put Spanner In Works Of Dutch Driverless Car Schemes (G.)
Exposure To Glyphosate Increases Risk Of Cancer By 41% – Study (G.)

 

 

As I said yesterday, after 27 years without a recession, the no. 1 instrument to battle complacency, excesses and zombies, Australia is a fire hazard. At the same time, of course, after 27 years so many people have never seen a recession that nobody expects one anymore.

Australia’s $7 Trillion Question: How Low Will House Prices Go (SMH)

Industry experts say property prices in Sydney and Melbourne, which have led a slump in Australia’s $7 trillion residential property market, are likely headed lower before they hit rock bottom. The Australian Bureau of Statistics released figures this week showing new lending to owner occupiers fell 6.4% during December last year, outpacing the fall in lending to property investors, which dropped by 4.6%. The total value of new lending to households has now dropped 19.8% in the past year — the biggest annual fall in home loans since the height of the global financial crisis. “The lending numbers are atrocious; it tells us that property markets in Sydney and Melbourne are in a tailspin,” says Louis Christopher, managing director of property researcher SQM Research.

The issue is mostly access to credit and, for at least for past six months, banks have been scrutinising the spending of borrowers more closely when assessing their loans, Christopher says. Doron Peleg, chief executive of RiskWise Property Research, says the weak lending figures also show how those who would normally be entering the property market are now shying away in anticipation of lower prices. The Westpac-Melbourne Institute Index out this week showed consumers in Sydney and Melbourne have poor property price expectations. “Buyer sentiment has been hit as residential property, particularly in Sydney and Melbourne, is seen as a depreciating asset,” Peleg says.

[..] Many property experts are expecting a peak-to-trough drop in property prices of between 15% and 20%. “Without an interest-rate cut or regulatory changes there will be tough times ahead for the property market,” RiskWise’s Peleg says. [..] Tim Lawless, the head of research at property researcher CoreLogic, is expecting a peak-to-trough fall of up to 20% for both Sydney and Melbourne before prices start to level out in 2020. However, Lawless says the price declines should be kept in perspective. Sydney house and apartment prices have risen by more than 70% in the past decade, while Melbourne prices have gained even more, he says. This is despite recent price falls of more than 12% from their peak in Sydney in mid-2017 and 8% in Melbourne from a top in late 2017, he says.

Read more …

The Omen.

US Mortgage Applications Drop Despite Lower Rates: Industry is Baffled (WS)

A month ago, mortgages reappeared in the housing-hype circus, when it was widely reported that mortgage applications “soared” and “jumped.” Both types of mortgage applications did so: those used to purchase a home (purchase mortgages) and those used to refinance an existing mortgage (refinance mortgages). The jump in mortgage applications was ascribed to “plunging” mortgage interest rates. It was seen as a big sign that the weakening housing market was about to turn around. But that hope has gotten unwound.

Today, the Mortgage Bankers Association (MBA) reported that its purchase mortgage index – which tracks applications (not approvals) for conventional and government mortgages to purchase a single-family house – fell 6% from the prior week and was down 5% from the same week last year – despite falling mortgage rates, which should have cranked up home buying and mortgage activity. It was the fourth week in a row of drops:

The Purchase Mortgage Index is considered a reliable indicator of impending home sales, and so this decline, given the lower mortgage rates, mystifies the industry.“Application activity fell last week – even with rates decreasing – as renewed uncertainty about the domestic and global economy likely held potential homebuyers off the market,” said MBA Associate VP of Industry Surveys and Forecasts, Joel Kan, in the report. “The 30-year fixed-rate mortgage dropped to its lowest level since last March, and was 52 basis points lower than its recent high last November,” he said.

You can practically hear between the lines, so to speak, the bafflement in his voice about this decline in purchase mortgage applications in light of the decline in mortgage rates. The MBA also reported today that the average interest rate for 30-year fixed-rate mortgages with conforming loan balances inched down to 4.65%, back where it had been last April (chart via Investing.com):

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AKA the Thelma and Louise economy.

Surge In Delinquencies Threatens US Auto Loan Bubble (Colombo)

My concerns about the U.S. automobile bubble are being confirmed. As Bloomberg reports: “More Americans than ever are at least three months behind on their auto loans, a sign that the U.S. economy may have little growth left in the tank. The number of loans at least 90 days late exceeded 7 million at the end of last year, the highest total in the two decades the Federal Reserve Bank of New York has kept track. Expressed as a percentage of total debt, the delinquency rate is the highest since 2012, as overall borrowing has also increased.

The data show not all Americans are benefiting from the strong labor market, New York Fed economists say. Consumers with the weakest credit have driven deteriorating performance of auto debt: The share of subprime borrowers who fell well behind on car payments the last three months of the year was the highest since the second quarter of 2010.

As I’ve been warning for the past couple years, the U.S. automobile sales boom is a byproduct of a bubble in auto loans:

The auto sales and auto loan bubble is a byproduct of ultra-cheap credit conditions in the past decade since the Great Recession. Interest rates are now rising, which threatens the auto bubble: It’s only a matter of time before the U.S. auto sales and loan bubble experiences a serious bust. Rising delinquencies are just the start, I’m afraid. Booms fueled by cheap credit always end the same way – in a terrible bust. Ignore the voices that say “this time will be different!”

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And the people who lost their retail jobs don’t pay income taxes either anymore.

$1 Trillion Amazon Pays $0 In Income Taxes, Gets $129 Million Rebate (RT)

Trillion-dollar-company Amazon skated through 2018’s tax filings without paying a cent for the second year in a row. The e-commerce behemoth, which made $11 billion last year, will pay no taxes at all, thanks to 2017’s tax reform. Rather than pay the standard 21% corporate income tax rate, Amazon is actually claiming a tax rebate of $129 million, which works out to a logic-defying rate of -1%. Aside from the nebulous “tax credits,” which the company does not have to spell out in its public filings, Amazon is also claiming a tax break for executive stock options, according to the Institute for Taxation and Economic Policy – a longstanding loophole that permits profitable corporations to dodge federal and state income taxes on almost half their profits.

While President Donald Trump’s 2017 tax reform legislation lowered corporate tax rates from 35% to 21%, it was sold as an incentive for companies to keep their money in the US, instead of stashing it overseas where the IRS couldn’t touch it. Now that Amazon and Netflix have both made headlines for using the new regulations to avoid paying anything at all, it remains to be seen whether the legislation’s failure to close corporate loopholes will leave the US holding the bag for fiscal year 2018 as the country’s national debt inches past $22 trillion – a record high.

Amazon’s tax windfall doesn’t even take into account the billions in tax breaks the state governments of Virginia and New York offered the company to open a second (and third) headquarters in their states, though there are rumors that New York is getting cold feet about the unprecedented corporate giveaway. Amazon didn’t pay any taxes in 2017 either, though it raked in a comparatively paltry $5.6 billion in profits and extracted a slightly larger $137 million refund.

Read more …

“Verhofstadt asked Lidington four times what the British proposal was and “four times didn’t get an answer”, according to the EU official, who described the encounter as “very surreal”.”

EU Officials: UK Only ‘Pretending To Negotiate’ Over Brexit (G.)

The British government is “pretending to negotiate” with the European Union and has not presented any new proposals to break the Brexit deadlock, according to EU officials. Theresa May’s de-facto deputy, David Lidington, and the Brexit secretary, Stephen Barclay, met senior EU officials and MEPs in Brussels and Strasbourg this week, but the talks yielded no obvious results. The British side thinks a crucial process has begun and hopes progress will have been made by 27 February when MPs are expected to have another crunch Brexit vote. However, on Wednesday night European council president Donald Tusk said the EU27 was still waiting for proposals. “No news is not always good news,” he tweeted, after meeting with the EU’s chief negotiator Michel Barnier.

“EU27 still waiting for concrete, realistic proposals from London on how to break Brexit impasse,” Tusk said. Barnier, has said current talks with the UK do not even qualify as negotiations. In a call on Tuesday morning with Guy Verhofstadt, chief Brexit representative for the European parliament, Barnier said there were “no negotiations” with the British. “These are courtesy calls at best and we have nothing new to say,” Barnier was reported to have said, by a source familiar with the conversation. Verhofstadt had asked the EU negotiator for an update, following Barnier’s meeting with Barclay over dinner at the British ambassador’s residence in Brussels, where they dined on North Sea sole, roast duck and British cheese, washed down with sancerre and saint-émilion wines.

“They are pretending to negotiate while they still don’t know what they want and how they want it,” the source said, who described this week’s meetings as “kicking up dust” and a series of “photo opportunities and pictures”. “We are willing to negotiate, but there is nothing on the table from the British side.” Verhofstadt asked Lidington four times what the British proposal was and “four times didn’t get an answer”, according to the EU official, who described the encounter as “very surreal”.

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Don’t be so negative: they got a hard-fought deal with the Seychelles!

UK Has Rolled Over Just £16bn Out Of £117bn Trade Deals (G.)

The government’s push to roll over EU trade deals from which the UK currently benefits has yielded agreements covering only £16bn of the near-£117bn of British trade with the countries involved. Despite frenetic efforts by ministers to ensure the continuity of international trade after the UK leaves the EU on 29 March, the international trade secretary, Liam Fox, has so far only managed to secure deals with seven of the 69 countries that the UK currently trades with under preferential EU free trade agreements, which will end after Brexit.

Fox’s department has yet to sign agreements with several major UK trading partners – including Canada, Japan, South Korea and Turkey – while sources have said that sufficient progress is unlikely to be made before the Brexit deadline in less than 50 days’ time. Canada, Japan, South Korea and Turkey alone accounted for goods exports worth £25bn in 2017 and imports of merchandise worth £28.6bn, with the UK currently able to access these markets on preferential terms as part of membership of the EU. Fox sought to downplay the significance of the deals in parliament on Wednesday, saying all of the countries involved only accounted for about 11% of total UK trade in 2018, with the smallest 20 nations worth less than 0.8%.

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I’ve been wondering why any politician in Britain is still in their jobs.

Labour MPs Warn Corbyn: Back A Second Referendum Or We Quit (G.)

Jeremy Corbyn faces up to 10 resignations from the Labour frontbench if he fails to throw his party’s weight behind a fresh attempt to force Theresa May to submit her Brexit deal to a referendum in a fortnight’s time, frustrated MPs are warning. With tension mounting among anti-Brexit Labour MPs and grassroots members, several junior shadow ministers have told the Guardian they are prepared to resign their posts if Corbyn doesn’t whip his MPs to vote for a pro-referendum amendment at the end of the month. Corbyn has been struggling to balance the conflicting forces in his party over Brexit, as the clock ticks down towards exit day on 29 March..

Many party members and MPs would like him to take a lead in seeking to block Brexit before time runs out – but some frontbenchers are equally adamant they could never support a referendum. Len McCluskey, the general secretary of the Unite union and a close ally of Corbyn, risked stoking the conflict in the party on Wednesday when he argued that stopping Brexit was “not the best option for our nation”. “My view is that, having had a 2016 referendum where the people have voted to come out of the EU, to try and deflect away from that threatens the whole democratic fabric on which we operate,” he told Peston on ITV. “I’m saying that in reality it is not the best option for our nation.”

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43 days. Both extremities, hard brexit and 2nd referendum, think they have a chance of winning it all.

Hardline Brexiters Threaten To Vote Down Theresa May’s Motion (G.)

Hardline Brexit supporters are threatening to inflict yet another Commons defeat on Theresa May because they fear the government is effectively ruling out leaving the EU with no deal. Members of the Tory European Research Group are unhappy with the wording of a No 10 motion because it endorses parliament’s vote against any Brexit without a withdrawal agreement. The motion for debate on Thursday simply affirms “the approach to leaving the EU” backed by the Commons on 29 January, when an amendment was passed in favour of an attempt to replace the Northern Ireland backstop with “alternative arrangements”.

The motion was thought to be fairly uncontroversial until pro-Brexit supporters realised it also encompassed a second amendment passed on that day, which ruled out a no-deal Brexit. The amendment, tabled by Dame Caroline Spelman, “rejects the United Kingdom leaving the European Union without a withdrawal agreement and a framework for the future relationship”. The ERG group, led by arch-Brexiter Jacob Rees-Mogg, is planning either to vote against or abstain on Thursday’s government motion, potentially causing another embarrassing parliamentary loss for the prime minister. However, talks with government whips will continue on Thursday in an attempt to find a compromise.

An ERG MP said many of its members were “not minded to support such a clumsily worded motion” that effectively ruled out a no-deal Brexit. Another said the group would not trust verbal assurances from No 10 that no deal was still on the table as such promises from the dispatch box had not been honoured many times in the past.

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How far away is a false flag?

Maduro Claims Foes ‘Totally Failed’ To Topple Him As Efforts Falter (G.)

Venezuela’s embattled leader, Nicolás Maduro, has claimed he has seen off a dramatic opposition challenge to his rule, as those efforts appeared to falter and the United States conceded it was “impossible to predict” how long he might remain in power. In an interview with Euronews, Maduro boasted that his political foes had “failed totally” in their quest to topple him. Opponents “could march every single day of their lives” and achieve nothing, Maduro said. Venezuela’s newly emboldened opposition continues to insist Maduro’s days are numbered, with about 50 governments now recognizing its leader, Juan Guaidó, as the country’s legitimate president.

Tens of thousands of supporters poured back on to the streets of Caracas and other major cities on Tuesday to demand the resignation of a politician they accuse of leading their oil-rich country into economic ruin. But three weeks after Guaidó electrified the previously rudderless opposition movement by declaring himself interim leader, there are signs his campaign risks losing steam. An anticipated mass defection of military chiefs – which opposition leaders admit is a prerequisite to Maduro’s departure – has not materialized, and Maduro’s inner-circle has begun claiming it has weathered the political storm. “In the end, nothing will come of [this challenge]. We will prevail,” Maduro’s second-in-command, Diosdado Cabello, tweeted on Wednesday.

[..] Opposition leaders have spent recent days trying to dampen expectations that Maduro’s exit is imminent. Juan Andrés Mejía, an opposition leader and Guaidó ally, admitted that goal “could take some time”. “We want it to end very soon because we know that every day that passes by people are suffering. But Maduro still has control of the military and basically that is the reason we haven’t been able to move things forward,” he told the Guardian.

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Shaking up US politics since 2016. And c’mon, Abrams is a war criminal, he should be facing a court, not Congress.

Venezuela Envoy Elliott Abrams Loses His Cool In Congress (ZH)

Rep. Ilhan Omar clashed with newly minted Venezuela Envoy Elliott Abrams during a Wednesday hearing in front of the House Foreign Relations Committee discussing the role of the US military in Central America. “Mr. Abrams, in 1991 you pleaded guilty to two counts of withholding information from Congress regarding your involvement in the Iran-Contra affair, for which you were later pardoned by president George H.W. Bush,” began Omar. “I fail to understand why members of this committee or the American people should find any testimony that you give today to be truthful.” “If I could respond to that…” interjected Abrams. “It was not a question,” shot back Omar.

After a brief exchange in which Abrams protested “It was not right!” Omar cut Abrams off, saying “Thank you for your participation.” Omar: “On February 8, 1982, you testified before the Senate foreign relations committee about US policy in El Salvador. In that hearing you dismissed as communist propaganda, a report about the massacre of El Mozote in which more than 800 civilians – including children as young as two-years old – were brutally murdered by US-trained troops. During that massacre, some of those troops bragged about raping 12-year-old girls before they killed them. You later said that the US policy in El Salvador was a “fabulous achievement.” “Yes or no – do you still think so?” asked Omar.

Abrams replied: “From, the day that Duarte was elected in a free election, to this day, El Salvador has been a democracy. That’s a fabulous achievement.” Omar shot back: “Yes or no, do you think that massacre was a fabulous achievement that happened under our watch?” Abrams protested: “That is a ridiculous question- to which Omar shot back, “Yes or no,” cutting him off. “Yes or no, would you support an armed faction within Venezuela that engages in war crimes, crimes against humanity or genocide, if you believe they were serving US interests as you did in Guatemala, El Salvador and Nicaragua?” “I am not going to respond to that question, I’m sorry. I don’t think this entire line of questioning is meant to be real questions, and so I will not reply.” said Abrams.

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US accuses Russia of energy blackmail, tries to blackmail Germany. Germans will never accept not being independent when it comes to energy. Moreover, their economy is teetering.

Germany Pulls Rank on Macron and Washington over Nordstream 2 (SCF)

It was billed politely as a Franco-German “compromise” when the EU balked at adopting a Gas Directive which would have undermined the Nord Stream 2 project with Russia. Nevertheless, diplomatic rhetoric aside, Berlin’s blocking last week of a bid by French President Emmanuel Macron to impose tougher regulations on the Nord Stream 2 gas project was without doubt a firm rebuff to Paris. Macron wanted to give the EU administration in Brussels greater control over the new pipeline running from Russia to Germany. But in the end the so-called “compromise” was a rejection of Macron’s proposal, reaffirming Germany in the lead role of implementing the Nord Stream 2 route, along with Russia. The $11-billion, 1,200 kilometer pipeline is due to become operational at the end of this year.

Stretching from Russian mainland under the Baltic Sea, it will double the natural gas supply from Russia to Germany. The Berlin government and German industry view the project as a vital boost to the country’s ever-robust economy. Gas supplies will also be distributed from Germany to other European states. Consumers stand to gain from lower prices for heating homes and businesses. Thus Macron’s belated bizarre meddling was rebuffed by Berlin. A rebuff was given too to the stepped-up pressure from Washington for the Nord Stream 2 project to be cancelled. Last week, US ambassador to Germany Richard Grenell and two other American envoys wrote an op-ed for Deutsche Welle in which they accused Russia of trying to use “energy blackmail” over Europe’s geopolitics.

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Why on earth is that government pushing driverless cars?

Bikes Put Spanner In Works Of Dutch Driverless Car Schemes (G.)

The Dutch government is working with Germany and Belgium on establishing “truck platooning” – where one human-driven vehicle leads a convoy of autonomous ones — on major roads. Under the plans, about 100 driverless trucks would drive the “Tulip corridors” at night – from Amsterdam to Antwerp, and from Rotterdam to the Ruhr valley – fully maximising the routes through which the Netherlands distributes its goods using 5G technology and 1,200 smart traffic lights. The Dutch infrastructure minister, Cora van Nieuwenhuizen, has announced a “driving licence” for self-driving cars, through which it would certify new autonomous models, and a framework of legislation – known as the Experimenteerwet zelfrijdende auto’s – is being prepared.

But a report by the professional service company KPMG highlights a major problem for Dutch ministers in introducing the technology to urban centres, where the bicycle is increasingly king. Driverless cars detect other road users using a variety of cameras or laser-sensing systems to ensure that they stop if an object is detected in their path. But the varying sizes and agility of cyclists, with their sudden changes in speed and loose adherence to the rules of the road, present a major challenge to the existing technology. That challenge is particularly stark in the Netherlands, where 17 million people own 22.5m bicycles. More than a quarter of all trips made by Dutch residents are by bike. Of all trips of a distance of up to five miles, a third are made by bicycle, with the rate only dropping to 15% for trips up to 10 miles in length.

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Is it that hard to understand that pesticides and herbicides are the worst idea ever? Poison kills, cut it out.

Exposure To Glyphosate Increases Risk Of Cancer By 41% – Study (G.)

A broad new scientific analysis of the cancer-causing potential of glyphosate herbicides, the most widely used weed killing products in the world, has found that people with high exposures to the popular pesticides have a 41% increased risk of developing a type of cancer called non-Hodgkin lymphoma. The evidence “supports a compelling link” between exposures to glyphosate-based herbicides and increased risk for non-Hodgkin lymphoma (NHL), the authors concluded, though they said the specific numerical risk estimates should be interpreted with caution. The findings by five US scientists contradict the US Environmental Protection Agency’s (EPA) assurances of safety over the weed killer and come as regulators in several countries consider limiting the use of glyphosate-based products in farming.

Monsanto and its German owner Bayer face more than 9,000 lawsuits in the US brought by people suffering from NHL who blame Monsanto’s glyphosate-based herbicides for their diseases. The first plaintiff to go to trial won a unanimous jury verdict against Monsanto in August, a verdict the company is appealing. The next trial, involving a separate plaintiff, is set to begin on 25 February , and several more trials are set for this year and into 2020. Monsanto maintains there is no legitimate scientific research showing a definitive association between glyphosate and NHL or any type of cancer. Company officials say the EPA’s finding that glyphosate is “not likely” to cause cancer is backed by hundreds of studies finding no such connection.

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Feb 252018
 
 February 25, 2018  Posted by at 11:51 am Finance Tagged with: , , , , , , , , , ,  


Jerome Liebling Snow, Clothes, Roof Brooklyn New York 1948

 

The US Mortgage Market Is Moving Into the Shadows (BBG)
Regulators Are Laying The Groundwork For The Next Housing Crisis (ZH)
This is What Life Without Retirement Savings Looks Like (Atlantic)
‘CalPERS Is Near Insolvency; It Needs A Bailout Soon’ (ZH)
‘We Can’t Continue to Run the World’ – Ron Paul (Sputnik)
Resist That (Jim Kunstler)
China Seeks to Repeal Term Limit, Opening Way for Xi (BBG)
Greece Creditors Return To Athens For Fourth Bailout Review (K.)
‘Greece Is Neither Iraq Nor Syria,’ FM Tells Turkey (K.)
EU Hints At Outlawing Single-Use Plastics By Summer (Ind.)

 

 

They’re simply doing it again. Anything to beep the bubble floating. Is Angelo Mozilo on the board of Quicken or something, or the FHA?

The US Mortgage Market Is Moving Into the Shadows (BBG)

The last financial crisis occurred in part because unregulated lending in the mortgage market got out of hand. Believe it or not, it’s starting to happen again, and could ultimately precipitate another disaster unless regulators get their act together. Make no mistake, regulators have done plenty to rein in the mortgage business since the 2000s. New rules require that lenders carefully assess borrowers’ ability to pay, and that mortgage servicers – which process payments and manage other relations with borrowers – give troubled customers plenty of opportunity to renegotiate their debts before resorting to foreclosure. The Federal Reserve performs regular stress tests to ensure that banks have enough capital to weather defaults. Problem is, the requirements have weighed most heavily on traditional, deposit-taking banks.

The added hand-holding required in mortgage servicing, for example, has roughly quadrupled the cost of handling delinquent loans, turning them into major loss-makers. Together with stringent capital requirements, this has all but guaranteed that banks will lend only to people with the most pristine credit. In some cases, they have given up the business entirely: Late last year, Capital One announced it was exiting mortgage origination because it was “structurally disadvantaged.” So who has the advantage? Well, much of the regulation doesn’t apply to non-bank lenders, which typically originate mortgages and quickly sell them onward to be packaged into securities for investors. These “shadow banks” don’t take deposits, don’t have much capital, and are usually overseen by state banking authorities, which tend to be less stringent. They are also considerably more aggressive than their bank counterparts.

The non-banks’ growth has been breathtaking. At the end of 2016, such unaffiliated mortgage companies accounted for more than 40% of new conventional mortgages (those eligible for sale to government-controlled guarantors Fannie Mae and Freddie Mac), twice the share they accounted for just eight years earlier. They’re also responsible for a decline in credit standards: The average FICO score at origination stood at 730 at the end of 2017, down from 750 five years earlier. For loans guaranteed by the Federal Housing Administration – an area where the non-banks’ share is greatest – the average FICO score has fallen to 680.

The shift has been even more extreme in mortgage servicing. Non-banks now service about 51% of all loans packaged into new Freddie Mac securities, according to mortgage analytics firm Recursion Co. That’s more than double the share of just five years ago. For securitized FHA loans, the share stands at a staggering 83%. Again, banks are leaving the business: Last year, CitiMortgage announced it would exit by the end of this year, transferring the servicing rights for about 780,000 mortgages.

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Tyler inserted the term ‘inadvertently’ in that headline. Really?

Regulators Are Laying The Groundwork For The Next Housing Crisis (ZH)

Only a few weeks ago, we pointed out a remarkable development in the US mortgage market that has significant implications not only for mortgage borrowers, but perhaps the broader economy as a whole: Wells Fargo, formerly America’s foremost mortgage lender, had seen its share of the market eclipsed by Quicken Loans – the Detroit-based, nonbank lending behemoth that pioneered applying for mortgages on the Internet with its now-famous Rocket Mortgage (readers will remember RM’s celebrity-packed SuperBowl spot). Many factors (aside from Wells’ own criminality, which recently drew a strong, but ultimately meaningless, rebuke from the Fed) have contributed to this shift, as Bloomberg points out.

But as it turns out, the rising dominance of nonbank lenders like Quicken could portend a massive, bad-debt fueled binge reminiscent of the circumstances that led up to the housing crisis. That is to say, a wave of bad debt could create a cascading wave of defaults with repercussions far beyond the housing market. Considering all the restrictions that Dodd-Frank and other post-crisis regulations slapped on mortgage lenders, one might wonder how this might be possible.

Of course, as Bloomberg explains, instead of making the market safer, regulators are inadvertently enabling the rise of lenders like Quicken who aren’t bound by many of the rules that restrict banks’ mortgage-lending practices. As a result, Quicken Loans is effectively free from many of the regulations that have forced some of the biggest mortgage lenders into a period of retrenchment… [..] Because they’re not FDIC-backed, the shadow (aka “nonbank”) mortgage lenders have much more latitude to approve mortgages to borrowers with lower credit scores. This is a huge advantage in a market where supply is limited, which has helped squeeze home prices to their highest levels on record – surpassing even the pre-crisis peak from June 2006.

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There is no bigger blind spot in today’s society: “Increasingly, we’re seeing folks who are becoming poor for the first time in old age.”

This is What Life Without Retirement Savings Looks Like (Atlantic)

Many people reaching retirement age don’t have the pensions that lots of workers in previous generations did, and often have not put enough money into their 401(k)s to live off of; the median savings in a 401(k) plan for people between the ages of 55 and 64 is currently just $15,000, according to the National Institute on Retirement Security, a nonprofit. Other workers did not have access to a retirement plan through their employer. That means that as people reach their mid-60s, they either have to dramatically curtail their spending or keep working to survive. “This will be the first time that we have a lot of people who find themselves downwardly mobile as they grow older,” Diane Oakley, the executive director of the National Institute on Retirement Security, told me. “They’re going to go from being near poor to poor.”

The problem is growing as more Baby Boomers reach retirement age—between 8,000 to 10,000 Americans turn 65 every day, according to Kevin Prindiville, the executive director of Justice in Aging, a nonprofit that addresses senior poverty. Older Americans were the only demographic for whom poverty rates increased in a statistically significant way between 2015 and 2016, according to Census Bureau data. While poverty fell among people 18 and under and people 18 to 64 between 2015 and 2016, it rose to 14.5% for people over 65, according to the Census Bureau’s Supplemental Poverty Measure, which is considered a more accurate measure of poverty because it takes into account health-care costs and other big expenses. “In the early decades of our work, we were serving communities that had been poor when they were younger,” Prindiville told me.

“Increasingly, we’re seeing folks who are becoming poor for the first time in old age.” This presents a worrying preview of what could befall millions of workers who will retire in the coming decades. If today’s seniors are struggling with retirement savings, what will become of the people of working age today, many of whom hold unsteady jobs and have patchwork incomes that leave little room for retirement savings? The current wave of senior poverty could just be the beginning. Two-thirds of Americans don’t contribute any money to a 401(k) or other retirement account, according to Census Bureau researchers. And this could have larger implications for the economy. If today’s middle-class households curtail their spending when they retire, the whole economy could suffer.

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And this is during the longest recovery ever.

‘CalPERS Is Near Insolvency; It Needs A Bailout Soon’ (ZH)

Two weeks ago, in the aftermath of the February 5 volocaust, we quoted David Hunt, CEO of $1.2 trillion asset manager PGIM, who said ignore the volatility spike, the real financial timebomb was and remains public pensions: “if you were going to look for what’s the possible real crack in the financial architecture for the next crisis, rather than looking in the rearview mirror, pension funds would be on our list.” In a brief discussion wondering what municipalities and states will do when local tax revenues decline and unemployment worsens, Hunt said “we’re worried about those pension obligations.” He is hardly alone: having reported over and over and over (and over, and over) again that public pensions are in deep trouble, two days ago none other than Steve Westly, former California controller and Calpers board member – manager of the largest public pension fund in the US, made a stunning admission, confirming everything:

“The pension crisis is inching closer by the day. CalPERS just voted to increase the amount cities must pay to the agency. Cities point to possible insolvency if payments keep rising but CalPERS is near insolvency itself. It may be reform or bailout soon.” Westly was referring to an editorial laying out “the essence” of California’s pension crisis, exposed last week when the $350 billion California Public Employees Retirement System (CalPERS) made a “relatively small change” in its amortization policy. Specifically, the CalPERS board voted to change the period for recouping future investment losses from 30 years to 20 years. While this may not sound like much, the bottom line is that it would require the California state government and thousands of local government agencies and school districts “to ramp up their mandatory contributions to the huge trust fund.”

As author Dan Walters observes, with client agencies – cities, particularly – already complaining that double-digit annual increases in CalPERS payments are driving some of them towards insolvency, the new policy – which kicks in next year – will raise those payments even more. “What we are trying to avoid is a situation where we have a city that is already on the brink, and applying a 20-year amortization schedule would put them over the edge,” a representative of the League of California Cities, Dane Hutchings, told the CalPERS board before its vote. CalPERS, however, has no choice because as both Walters and Westly claim, America’s largest public pension fund itself is on the brink, “and the policy change is one of several steps it has taken to avoid a complete meltdown.”

As we have reported previously, the Calpers system, once more than 100% funded, now has scarcely two-thirds of what it would need to fully cover all of the pension promises to current and future retirees. And that assumes it will hit an investment earnings target of 7% per year, that many authorities criticize as being too optimistic.

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Those pesky Russian propagandists are at it gaian.

‘We Can’t Continue to Run the World’ – Ron Paul (Sputnik)

Sputnik: Donald Trump has been in office for over a year. What is your general assessment of his job as president? Ron Paul: Mediocre; probably not worse than the other options. But I don’t think presidents really have much control. I think the deep state – the people behind the scenes and the shadow government, who control the monetary system, who control our foreign policy and the welfare state, and are connected to the media and the military-industrial complex. – I don’t think the presidency is as important as it’s made out to be. But everybody talks about it; it’s a political thing, and they keep churning the issue and directing everybody to ask ‘is Trump a good guy or a bad guy, and are we going to impeach him or what’s going to happen’, rather than [asking] what kind of philosophy do we have: why do we have this philosophy of welfare-warfare, spend money, run up debt and let the central bank print all that money.

They don’t even talk about it; the major parties, including Trump, they sign even more controls on us when it comes to FISA courts and spying on us. In spite of the fact that government officials like the FBI and others actually spy on our own president, he supports this; he passes and signs bills on that. So that really raises questions about ‘does the president really have much to say’, and I think he has much less to say than a lot of people believe. I believe that if he had stuck to his guns and had a different relationship with Russia and started bringing troops home and not aggravating things, he wouldn’t have been tolerated. Something would have happened.

[..] Sputnik: There’s an ongoing campaign in the east of Demascus in Eastern Ghouta, with media portrayals of it in the West comparing the ongoing campaign to Srebrenica and what happened in Bosnia. Why do you think this is, and how is the situation being portrayed in the West? Do Americans know what’s actually going on? Ron Paul: I think this, indirectly, may be a subtle bit of good news…You know Aleppo was seen as a return of Syrian territory, and a lot of people moved back! Everybody said that ‘it’s Assad who wants to kill his people and gas his people,’ and yet they all moved back after the fighting stopped. So maybe this is one of the last desperate stands [for the anti-Damascus forces], at least for the part of Syria where Assad is stronger…

Sputnik: The UN has been commenting on this to emphasize how bad things are in Syria, and particularly in Eastern Ghouta. But the situation was also really bad in Mosul in Iraq, with recent video footage showing the results of US airstrikes. Where do you think the UN was then? Ron Paul: Probably cheering them on. We often have a foreign policy, especially in the last several decades, of being the dominant power. We pressure people; if they do what we tell ’em, we send them more money, since we can print the world currency. And if they don’t do what we tell ’em, then we have to participate in a little aggression by bombing and doing these kinds of things. My argument from the day they started, back to 1998 – I argued don’t mess around with sanctions on Iraq, it’ll lead to war.

Someday, we’ll go broke. I don’t think that we all of a sudden will have a reasonable foreign policy. I think it’s going to be financial. I believe it was the financing of the Soviet system that brought it down as much as anything; that’s the way most authoritarian empires end, and I think that’s the way our system is going to end. Who knows when that’s going to happen, but we can’t continue to do what we’re doing. We can’t continue to run the world. Our deficit’s exploding. I think the sentiment toward the United States has started to shift too; there was a time when we were welcome, and were on the side of trying to help people, but right now it’s on the side of expanding our controls around the world.

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Ever more people are sick of the narrative.

Resist That (Jim Kunstler)

Perhaps because a weary public was underwhelmed by his indictment last week of thirteen ham sandwiches with Russian dressing, Special Prosecutor Robert Mueller has returned to an old baloney sandwich with American cheese named Paul Manafort, and slathered on some extra mayonnaise to lubricate his journey to federal prison. The additional charges specify tax evasion and money-laundering shenanigans around Manfort’s activities in Ukraine between 2006 and 2015, a period that included the USA’s active participation in the overthrow of Ukraine’s elected president, Victor Yanukovych, who had declared a desire to join the Russian Customs Union instead of being shanghaied into an expanded NATO.

Scrupulous observers may note that all this took place well in advance of the 2016 US presidential election, when Manafort was candidate Donald Trump’s campaign manager for several months before being thrown overboard for reasons still publicly unknown — but probably the awareness that Manafort’s personal financial affairs were a smoldering wreck. Meanwhile, Manafort’s business colleague, Rick Gates, has also been charged by Mueller, and this week an associate of Gates, one Alex Van Der Swaan, son-in-law of a Russian billionaire, was persuaded to plead guilty to lying to the FBI about his contacts with Gates.

All of this suggests that there were fabulous opportunities for American profiteering in the sad-sack, quasi failed state of Ukraine, and that the feckless Manafort circle will be doing Chinese fire drills in the federal courts until the cows come home, but it doesn’t say a whole lot about Russian interference in the 2016 US election. One might surmise that there is enough pressure on Manafort and company to get them to say anything now to save their asses. On the other hand, it could lead in open court to the airing of all sorts of dirty laundry about surreptitious US meddling in Ukraine, and about the corps of camp-following money-grubbing American grifters who raced in after 2014 to steal anything that wasn’t nailed down there by the homegrown kleptocrats.

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Oh man, first thing that comes to mind is Trump proposing the same thing. That would be so much fun!

China Seeks to Repeal Term Limit, Opening Way for Xi (BBG)

China’s Communist Party proposed removing from the constitution language limiting the president to two terms, the clearest sign yet that Xi Jinping intends to extend his tenure as state leader. The party’s decision-making Central Committee wants to strike language from the document that says the country’s head of state “shall serve no more than two consecutive terms,” the official Xinhua News Agency said Sunday. The announcement came a day before the committee plans to meet in Beijing to consider key personnel appointments and government-restructuring moves. The constitutional provision barring the president from serving more than 10 years is the only formal barrier keeping Xi, who also serves as party leader and commander-in-chief of the military, from ruling after 2023. Speculation that Xi, who came to power in 2012, would seek to rule for longer has intensified since he declined to line up a clear successor at a twice-a-decade party reshuffle in October.

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Can’t let the pressure slip.

Greece Creditors Return To Athens For Fourth Bailout Review (K.)

With the third bailout review still pending, the heads of the creditors’ representatives are set to arrive in Athens on Monday for the start of talks on the fourth and final review of the program, while technical discussions on the issue of lightening the Greek debt are also ongoing. Talks on the fourth review will begin with only 11 or 12 of the prior actions having been implemented to date, out of a total 88. However, there are still two milestones from the third review to be implemented, concerning the development of the Elliniko plot in southern Athens and the increase in and expansion of online auctions. Only when these are seen to have been fulfilled will the creditors approve the disbursement of the first subtranche of €5.7 billion from the third installment, to be followed by the remaining €1 billion at a later date.

Therefore discussions on the fourth review next week will, according to sources, only be of a provisional nature, with the main issues being set out and a timetable determined for the process. The heads of the creditors’ mission will leave next Saturday and return to Greece in April, probably after the spring meeting of the IMF on April 20-22. Technical talks on the easing of Greece’s debt and its association with the implementation of reforms are also continuing, as the head of the European Stability Mechanism, Klaus Regling, confirmed on Friday, reiterating his statements in an interview with Kathimerini last month.

The technical team of the eurozone is expected to present its provisional conclusions at the Euro Working Group meeting of March 1 for an early assessment, with the issue set to be revisited at the March 12 Eurogroup meeting. Eurozone sources stress that the discussion will continue in the following months and that there will be more clarity on the debt relief matter at April’s Eurogroup, adding that one should not expect an agreement before May or June, as such decisions “require more than one debate at a Eurogroup level.”

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“Greece is an organized country, it has all the means to defend its borders and its territory.”

‘Greece Is Neither Iraq Nor Syria,’ FM Tells Turkey (K.)

“Turkey must think about what I have been saying for two years, that Greece is neither Syria nor Iraq,” Greek Foreign Minister Nikos Kotzias said on Saturday, referring to recent tension emanating from Turkey. “I honor and respect these two states and do not say this in a derogatory manner,” he said in radio comments on Saturday, adding that Ankara cannot violate international law in the way it does in the Middle East. “Greece is an organized country, it has all the means to defend its borders and its territory.” Kotzias insisted that Turkey’s behavior in Cyprus’s exclusive economic zone (EEZ) will not block Nicosia’s energy plans. “I don’t think Turkey can do this. Ankara knows that Cyprus’s energy plans are linked to France and the US,” he said, adding that Turkey will not be able to display its recent bravado towards these two countries. Kotzias also described a statement on Friday by the European Union backing Greece and Cyprus as “the most powerful one yet.”

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No, it doesn’t. Bad journalism. Their conveniently far enough away date is 2030.

EU Hints At Outlawing Single-Use Plastics By Summer (Ind.)

The European Commission has hinted the EU could ban single-use plastics after Michael Gove said there was “some concern” Europe may prevent the UK from outlawing plastic straws. Frans Timmermans, vice president of the EU’s executive cabinet, told Mr Gove on Twitter: “One step ahead of you. EU legislation on single-use plastics coming before the summer. Maybe you can align with us?” The announcement came shortly after the Environment Secretary announced he was looking into the legal basis for ditching single-use straws. Mr Gove told Sky News: “Plastic straws are a scourge. They’re just one example of the ways in which we pollute the oceans and damage marine wildlife. I want to do everything we can to restrict the use of plastic straws and we’re exploring at the moment if we can ban them.”

He added: “There is some concern that EU laws mean that we can’t ban straws at moment, but I’m doing everything I can to ensure that we end this scourge and I hope to make an announcement shortly. “Straws are not just another example of plastic waste – they can be lethal… I believe we need to act and I’m exploring now what we can do as quick as possible within the law.” But Dr Viviane Gravey, lecturer in European politics at Queens University Belfast, told The Independent Mr Gove’s comments were “basically nonsense”. “It is especially nonsense for just that example of plastic straws,” she said. ”We know that the Scottish government – within the EU – is saying that they are going to ban them by the end of 2019. That means during the transition or implementation period… still while being bound by all EU law.”

The move comes just a day after official figures revealed the number of straws purchased by Parliament has doubled in the last three years. [..] On Wednesday, Mr Timmermans told a conference there is “urgent work to do” following China’s decision to limit imports of plastic waste. “We will find ways to reuse and recycle more plastic and avoid microplastic leakage,” he said. During an announcement on EU plans to ensure all plastic is recyclable or reusable by 2030, Mr Timmermans specifically mentioned plastic straws as something that needed to be outlawed. “If children knew what the effects are of using single-use plastic straws for drinking sodas, or whatever, they might reconsider and use paper straws or no straws at all,” he told The Guardian.

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Apr 272017
 
 April 27, 2017  Posted by at 8:41 am Finance Tagged with: , , , , , , , , , ,  


Pablo Picasso Self portrait with palette 1906

 

The Destruction Of Greece – “Only A Down Payment” According To The IMF (Bilbo)
Greek Supermarkets Report Dramatic Recession (K.)
US Student Loan Implosion (PolCal)
If Mortgage Rates Rise, What Happens to Canada’s House Price Bubble? (WS)
Canada’s Housing Bubble Explodes As Biggest Lender Crashes (ZH)
Canada’s Housing Watchdog Warns of ‘Problematic Conditions’ (BI)
It’s Tough Being Canada These Days (BBG)
Trump Tells Canada, Mexico, He Won’t Terminate NAFTA Treaty Yet (R.)
Trump Tax Plan Would Raise US Debt by $5.5 Trillion, 20% of 2027 GDP (CRFB)
What Happened Last Time US Companies Got A Break On Overseas Profits (CNBC)
New Zealand Plans Spending Splurge to Keep ‘Growing Like Sydney’ (BBG)
Russian Spokeswoman On ‘Ridiculous’ Airstrikes In Syria, Fake News (Y!)
German Court Upholds Greek Teacher’s Case Against Pay Cut (AP)

 

 

Excellent lenghty takedown by Bill Mitchell.

The Destruction Of Greece – “Only A Down Payment” According To The IMF (Bilbo)

With Greece still wallowing in the depths of recession, it is clear that the IMF hasn’t finished with the destruction of that formerly independent nation. The destruction to date (27% contraction and increased poverty) are considered by the IMF to be “only a down payment” on what Greece has to do so satisfy the Troika. At what point do people start to realise that the on-going costs of this austerity dwarf the significant costs that would accompany exit? And the Troika is not done with Greece yet. They intend to screw it down even further. And the costs of remaining in the dysfunctional monetary union escalate by the day. At some point, the Greeks will realise they have been dudded. What is left is anyone’s guess – but it won’t be pretty. The destruction of Greece is “only a down payment” according to the IMF – keep that mentality in mind when you are working out whether Greece should remain obedient or tell them all to f*ck off and regain their currency independence and restore prosperity.

[..] The ‘event’ that brought Greece to heal in June 2015 was the ECB decision to starve the Greek banks of liquidity – in total violation of its charter to maintain financial stability within its jurisdiction. How many Greek people lost income over that blackmail? How many took their own lives? How many plunged into mental illness? Did the IMF come up with a measure of their sordid part in all that? And now Thomsen is back – threatening and haranguing a subservient polity in Greece who call themselves Socialists but have done more damage to their own nation by taking the obedience option that the conservatives could have ever dreamed of doing. The Troika are now claiming (largely at the behest of the IMF) that if Greece cuts further it will receive debt relief.

Why the Greeks are worried about their external debt is beyond me. Why not just refuse to pay it and let the debtors (largely the ECB these days as a result of the deals done with the previous bailouts (which insulated the private German and French banks from exposure) sort out the implications of that? Why not threaten Brussels with default (redenomination) and exit if they don’t allow the Greek government to expand its fiscal deficit to stimulate growth – along the lines of Spain, which only is growing because its fiscal position is in violation with the fiscal rules – conveniently ignored by Brussels as it wanted the PP government returned? Why not demand that the ECB include Greek government debt in its QE program – thereby ‘funding’ the deficit. If not, we leave!

Then the bullies would be on call and the compromises would come thick and fast. But the spinelessness of the Greek polity combined with the sociopathological joy of the Troika in bringing this rogue nation to heel will ensure no such confrontation occurs and Greece will continue to wallow at the bottom of the Eurozone. It is forecast that Greece currently needs an injection of around “€100 billion in emergency bailout cash” to stay afloat for a while. This would further add to its “already massive debt burden, that could also deepen the budget cuts and economic overhauls required to get Athens’ balance sheets back into the black and prolong what has already been a near decadelong ordeal for the country.” And the costs of staying in – huge and getting bigger.

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A “dramatic drop in consumption of basic commodities such as milk and bread..”

Greek Supermarkets Report Dramatic Recession (K.)

The supermarket sector in Greece is experiencing a deep recession ranging from 8 to 15% year-on-year across its categories, according to the marketing and strategic planning director of AB Vassilopoulos, Zeta Cheimonidou. Her statements at a corporate event confirmed the general mood in the industry and data compiled by researchers surveying the sector. Cheimonidou went on to estimate that 2017 will see a 4 to 5% decline in supermarket turnover compared with 2016. “The market is experiencing a much steeper decline than last year. There is a very deep recession,” Cheimonidou stated, although she added that it would be safer to wait and see how demand evolves up until the end of May before drawing any conclusions for the entire year.

If proven correct, her estimate for a 4% drop in turnover will come on the back of a major decline in 2016 compared to 2015, which, depending on the surveying company, ranges from 4.5 to 6.5%. In its recent annual general meeting, the Hellenic Food Industry Federation (SEVT) noted the dramatic drop in consumption of basic commodities such as milk and bread, while a senior market research company official told Kathimerini that “our clients, suppliers and retailers, were crying in the first quarter.”

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Congress wil have to address this soon.

US Student Loan Implosion (PolCal)

The Consumer Federation of America recently put out a press release that reports that they’ve found that 1.1 million student loan borrowers in the United States have gone 270 or more days without making payments on their Federal Direct Student Loans, with more than $137 billion worth of the loans issued by the U.S. government now qualifying as being in default by that standard. Data from the CFA’s press release has made the rounds among multiple news outlets, but we have a pretty basic question: Are those big numbers? They certainly seem like big numbers, what with all the millions and billions being thrown about, but how do these numbers fit into the bigger U.S. government-issued student loan story? Let’s start with the biggest numbers, where we discover that $137 billion worth of Federal Direct Student Loans are in default, against the larger total of $1.3 trillion worth of Federal Direct Student Loans that have been issued through the end of December 2016.

Here, we calculate that the percentage of student loans that have gone 270 or more days without having had a payment made upon them represents about 11% of the total amount borrowed. That means that some 1.1 million people whose student loans require that they make some sort of scheduled payment went more than 9 months without making any. To tell if that’s a big number or not requires that we put that number into some kind of context. Here, we’ll draw on the U.S. Federal Reserve’s data for the delinquency rates on loans and leases issued by all commercial banks in the U.S., where for the fourth quarter of 2016, we find that the total delinquency rate is 2.04%. That value had previously peaked at 7.4% back in the first quarter of 2010, following the bottoming of the Great Recession.

But another important thing to consider is that delinquency rate would include all private-sector issued loans and leases that have payments that are past due, including those that have gone without payment for much less than 270 days. That figure tells us that the default rate of 11% for Federal Direct Student Loans is, to put it in Trumpian terms, “Yuge!” [..] The average student loan balance in the U.S. is $30,650. For Americans who haven’t defaulted on their student loans, that average figure drops to $28,150. But for Americans who have defaulted on their payments to their U.S. government creditor, the average balance on their Federal Direct Student Loan is $124,545.

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If you were not scared yet…

If Mortgage Rates Rise, What Happens to Canada’s House Price Bubble? (WS)

Housing affordability is a function of down payment, monthly payment, and household income. With home prices skyrocketing while household incomes were lagging far behind, low mortgage rates were the grease that kept it going. But what happens when mortgage rates begin to tick up? A “payment shock.” “An increase in interest rates of 100 bps [1 percentage point] on a 5 year term would represent a rise of C$388 for the monthly mortgage payment in the Vancouver market (+9% to C$4,669) and C$239 in Toronto (+7% to C$3,692). With housing affordability problem in these markets being already acute, we doubt current home prices could resist such an interest rate hike.”

This chart via NBF Economics and Strategy shows by how much monthly mortgage payments would rise if mortgage rates ticked up just 1 percentage point. Note the impact on monthly payments for homes in Toronto (Ontario) and Victoria and Vancouver (British Columbia):

So just how big is the Canadian housing bubble? The chart below by NBF Economics and Strategy compares US home prices (Case-Shiller 20-City index) to Canadian home prices (Teranet-National Bank 26-city index). Both indices are based on similar methodologies of comparing pairs of sales of the same home over time. The shaded areas denote recessions in Canada. The brief dip during the last recession in Canada pales against the multi-year housing bust in the US:

Like so many other assets classes in central-bank nirvana, this one too has reached ludicrous levels. But there’s a difference. People don’t live in stocks, bonds, classic cars, or art, and these asset bubbles have less impact on the real economy. But people do have to live in homes. Now that the results are clearer than daylight, central banks and governments worry about the consequences: Bubbles don’t just plateau. Now they wonder, belatedly, how to get out of it without bringing the whole construct down. The fact that a 1-percentage point increase in mortgage rates poses existential questions for some of the hottest markets shows how far policy makers have painted themselves into a corner.

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“Home Capital shares dropped by 61% in Toronto..”

Canada’s Housing Bubble Explodes As Biggest Lender Crashes (ZH)

Call it Canada’s “New Century” moment. We first introduced readers to the company we said was the “tip of the iceberg in Canada’s magnificent housing bubble” nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada’s largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices – most prominently noted short-seller Marc Cohodes – would constantly remind traders and investors about the threat posed by HCG.

Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice. As part of this inevitable outcome, one which presages the company’s eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday.

Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable fell 17%, Street Capital fell 13%, while First National declined 7.6%. In short, the Canadian mortgage bubble has finally burst. refundable commitment fee of C$100 million, while standby fee on undrawn funds is 2.5%. The initial draw must be C$1 billion. The loan has an effective – and very much distressed – interest rate of 22.5% on the first C$1 billion, declining to 15% if fully utilized, according to a note from Jaeme Gloyn, an analyst at National Bank of Canada. Home Capital said the credit line is intended to “mitigate” a sharp drop in Home Trust’s high-interest savings account balances, which sank by $591 million from March 28 to April 24, at which point the total balance was $1.4 billion. Home Capital warned on Wednesday that further outflows are anticipated. Translated: what until last night was a depositor bank jog just became a sprint.

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Dangerous shoptalk: “..overvaluation has been downgraded to moderate from a previously strong assessment..”

Canada’s Housing Watchdog Warns of ‘Problematic Conditions’ (BI)

Canada’s housing watchdog maintained its view that there is “strong evidence of problematic conditions” in the market that some economists have classified as being in a bubble. The market is characterized by imbalances, defined as when demand and prices are far from their historical averages, Canada Mortgage and Housing Corporation said in second-quarter report. “While the overall assessment of problematic conditions remains strong for Canada, overvaluation has been downgraded to moderate from a previously strong assessment,” CMHC said.

“Careful analysis by geography shows that local differences continue to divide the Canadian housing market into several markets: centers in the East are showing weak evidence of overvaluation, while centres in Southern Ontario and the West are showing moderate to strong evidence of overvaluation,” it added. In Victoria, for example, the CMHC determined that overvaluation had accelerated from “moderate” to “strong.” The Teranet and National Bank of Canada house-price index showed a 24.8% gain year-on-year in March. It jumped 12.2% for Vancouver. Separately on Wednesday, shares of Canada’s home lenders fell after Home Capital Group said it obtained a $1.5 billion credit line to cope with falling deposits. Home Capital shares plunged by more than 60%.

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“George Washington used to complain about British lumber coming in from Canada..”

It’s Tough Being Canada These Days (BBG)

It’s tough being Canada these days. There’s no other way, really, to explain why the Trump administration announced on Tuesday that it was imposing tariffs on exports of Canadian softwood lumber – tariffs that will cost the Canadian lumber industry $1 billion annually. The Canadian dairy industry is also in Trump’s crosshairs, as he made plain in a threatening tweet Tuesday morning. Trump spent much of his campaign railing about China’s “unfair” trade practices, and all the “American jobs” that have migrated to Mexico. But now that he’s president, he’s apparently been made to understand that slapping tariffs on Chinese goods could lead to a catastrophic trade war. And any moves that might destabilize Mexico would have negative consequences for the U.S.

Ah, but hit Canada with a tariff, and you get all of the political upside of looking tough with no downside. This is not just because Canadians are nice. It’s because the Canadian economy is more U.S.-dependent than any other. “20% of Canada’s GDP relies on the U.S.,” said Laura Dawson, the director of the Canada Institute at the Wilson Center. “And 70% of Canada’s exports go to the U.S.” Even if Canada wanted to retaliate, what exactly could it do? Stop the Ford plants in Canada from shipping cars to Ford in Detroit? A rational administration would never let these minor disputes get in the way of a smooth-functioning economic relationship with Canada. To start with, there’s the fact that Canada is the staunchest U.S. ally, which you would think would count for something.

And the U.S. benefits enormously from trade with Canada, which buys 18% of all American exports, more than any other country. Last year, Canada’s trade surplus with the U.S. was a minuscule $11.2 billion. The integration of the two economies has been beneficial to both. Nor are the two disputes anything new. The American lumber industry has been complaining about Canadian softwood lumber since pretty much forever. “George Washington used to complain about British lumber coming in from Canada,” Dawson said with a chuckle. The basic allegation is that most timberland in Canada is owned by its provinces, which sell logging rights at below-market prices. The U.S. views this as a government subsidy, a notion Canada rejects. Although Americans and the Canadians have never been able to put this dispute to rest, they have been able to negotiate a truce on three separate occasions since the early 1980s.

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Advisers can’t agree.

Trump Tells Canada, Mexico, He Won’t Terminate NAFTA Treaty Yet (R.)

U.S. President Donald Trump told the leaders of Canada and Mexico on Wednesday that he will not terminate the NAFTA treaty at this stage, but will move quickly to begin renegotiating it with them, a White House said. The announcement came after White House officials disclosed that Trump and his advisers had been considering issuing an executive order to withdraw the United States from the trade pact with Canada and Mexico, one of the world’s biggest trading blocs. The White House said Trump spoke by telephone with Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau and that he would hold back from a speedy termination of NAFTA, in what was described as a “pleasant and productive” conversation.

“President Trump agreed not to terminate NAFTA at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the NAFTA deal to the benefit of all three countries,” a White House statement said. “It is my privilege to bring NAFTA up to date through renegotiation. It is an honor to deal with both President Peña Nieto and Prime Minister Trudeau, and I believe that the end result will make all three countries stronger and better,” Trump was quoted as saying in the statement. The Mexican and Canadian currencies rebounded in Asian trading after Trump said the U.S. would stay in NAFTA for now. The U.S. dollar dropped 0.6% on its Canadian counterpart and 1% on the peso.

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This is not going to be easy to pass.

Trump Tax Plan Would Raise US Debt by $5.5 Trillion, 20% of 2027 GDP (CRFB)

The White House released principles and a framework for tax reform today. We applaud the President’s focus on tax reform, but the plan includes far more detail on how the Administration would cut taxes than on how they would pay for those cuts. Based on what we know so far, the plan could cost $3 to $7 trillion over a decade– our base-case estimate is $5.5 trillion in revenue loss over a decade. Without adequate offsets, tax reform could drive up the federal debt, harming economic growth instead of boosting it. The framework proposes a number of specific changes including: consolidating and reducing individual income tax rates to 10, 25, and 35%; doubling the standard deduction; cutting the business tax rate to 15% on both corporations and pass-through businesses; repealing the Alternative Minimum Tax (AMT) and estate tax; repealing the 3.8% investment surtax from the Affordable Care Act (“Obamacare”); moving to a territorial tax system; and imposing a one-time tax on money held overseas.

The plan also includes some vaguer proposals, including “providing tax relief for families with child and dependent care expenses” and eliminating “targeted tax breaks that mainly benefit the wealthiest taxpayers.” Although the framework itself is vague on the latter, at their press conference Secretary of the Treasury Steven Mnuchin and National Economic Director Gary Cohn seemed to imply it meant repealing all individual deductions unrelated to savings, charitable giving, or mortgage interest (revenue would come mostly from repealing the state and local tax deduction). Even with the detailed portions of the plan, there are not enough parameters specified to provide a certain revenue estimate of the tax plan. But making some assumptions based on prior proposals, our best rough estimate suggests the specified parts of the plan would cost $5.5 trillion. Assuming tax break limits only apply only to higher earners, that cost could be as high as $7 trillion; assuming credits and exclusions are eliminated as well as deductions, it would cost $3 trillion.

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“..as much as 91 cents on the dollar went to share repurchases, even though that, along with compensation increases, was an expressly prohibited use by Congress.”

What Happened Last Time US Companies Got A Break On Overseas Profits (CNBC)

The Trump administration wants to give companies a break on profits earned overseas and brought back to the United States — a program that’s been tried before to little effect. Current estimates put the total stockpile that U.S firms are holding abroad so as to avoid U.S. taxes at somewhere in the $2.5 trillion range. Back in 2004, Congress approved a plan to “repatriate” such overseas funds that companies could bring back home at a reduced rate. The program was part of the American Jobs Creation Act. The hope then, as now, was that companies would shovel that money back into the economy in the form of investment and job creation. It didn’t quite work out that way. Contrary to the intent, the benefits skewed toward a select few companies in a select few industries.

Rather than use the money for hiring and capital purchases, companies plowed the cash into share buybacks and dividends, and many of the biggest beneficiaries actually cut American jobs in the years after the repatriation. “While empirical evidence is clear that this provision resulted in a significant increase in repatriated earnings, empirical evidence is unable to show a corresponding increase in domestic investment or employment,” the Congressional Research Service, Congress’ nonpartisan think tank, said in a report. The CRS cited a series of reports into the benefits of repatriation, with a common theme that the 2004 program was “an ineffective means of increasing economic growth.” In the 2004 case, 9,700 companies were eligible to take part in a tax holiday that would bring the overseas cash back at a rate of 5.25%, well below the 35% rate for profits earned abroad.

Of that group, 843 firms participated. They brought home $312 billion in qualified earnings, or about one-third of the total cash held overseas, according to the CRS. That translated into total deductions of $265 billion. [..] In the 2005-06 time frame, Pfizer, which repatriated $37 billion, slashed 10,000 jobs. Merck, which brought back $15.9 billion, cut 7,000 jobs, and HP pared its employment rolls by 14,500 after repatriating $14.5 billion. Most of the money went to repairing balance sheets and rewarding shareholders, according to the CRS. According to one study cited, as much as 91 cents on the dollar went to share repurchases, even though that, along with compensation increases, was an expressly prohibited use by Congress.

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Once was a nice country.

New Zealand Plans Spending Splurge to Keep ‘Growing Like Sydney’ (BBG)

New Zealand’s government announced plans to substantially increase infrastructure spending to help sustain economic growth and cope with a swelling population. In its May 25 budget, the government will allocate NZ$11 billion ($7.6 billion) in additional spending on infrastructure like schools, roads, hospitals and housing between 2017 and 2020, Finance Minister Steven Joyce said in a speech in Wellington Thursday. When added to already-planned investments, a total of around NZ$23 billion would be spent over the four-year period, representing “the biggest addition to the government’s capital stock in decades,” he said. New Zealand’s economy is among the fastest-growing in the developed world, expanding at around 3% a year, and the government predicts rising budget surpluses.

Growth is being driven in part by record immigration and fewer New Zealanders seeking work abroad, which is straining infrastructure. “As a country we are now growing a bit like South-East Queensland or Sydney, when in the past we were used to growing in fits and starts,” Joyce said. “That’s great because we used to send our kids to South-East Queensland and Sydney to work, and now they come back here.” Details of the first tranche of spending would be unveiled in the budget, and Joyce said the government wants to make greater use of public-private partnerships and joint ventures to boost infrastructure further.

[..] The government will aim to cut net debt to 10-15% of GDP by 2025, from an estimated 24.3% at June 30 this year. Its current target is to reduce net debt to 20% of GDP by 2020. Joyce said the government borrowed heavily to help the country through the global financial crisis and a devastating earthquake in Christchurch in 2011. “Shocks can come along at any time, and sometimes they come in pairs,” he said. “We are a geologically young country, and we are also a small country in an often turbulent world – so there are plenty of shocks ahead of us.”

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“I just want any example of Russia spreading fake news, just show me one example.. I can present you tons, dozens, billions of examples of Western media spreading false news about Russia..”

Russian Spokeswoman On ‘Ridiculous’ Airstrikes In Syria, Fake News (Y!)

Recent U.S. airstrikes against Syria were “ridiculous,” according to Russian Foreign Ministry spokesperson Maria Zakharova. In a blunt, at times contentious, interview with Yahoo Global News Anchor Katie Couric, Zakharova called the strikes “unacceptable” and said they violated international law and made no military or political sense. “They brought the situation nowhere,” she said. She went on to say that the goal of the West to oust Syrian President Bashar Assad is “not a way out, it is a dead end.” When pressed on whether Assad was responsible for the chemical attacks that led to the U.S. military action, she said, “Our decisions should be based on real evidence,” detailing Russia’s desire to have independent investigators determine blame.

She pointed to U.S. claims in 2003 that Iraq had weapons of mass destruction, which later turned out to be false. “That was the worst thing that happened to the Security Council, to the United States, to the Middle East region,” Zakharova said. The wide-ranging, exclusive conversation began with Zakharova objecting to Couric’s characterization of the Russian government as a “regime.” “I think if a president is elected by the people of his country, it’s not about being a regime, it’s about being a democracy,” she said. Zakharova said that relations between the U.S. and Russia began to deteriorate during the Obama administration, in part because of what she called “fake news” reports about her country that were disseminated during those years.

“What I’m facing today is, the main role of the media is to separate people (in order) to divide the world into separate parts. I think it’s dangerous.” She dismissed claims from American and European intelligence officials that, in actuality, Russia is disseminating fake news to achieve its geopolitical goals. “I just want any example of Russia spreading fake news, just show me one example,” she said. “I can present you tons, dozens, billions of examples of Western media spreading false news about Russia,” she told Couric.

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Germany forces Greece to take measures that are illegal under German law. Both are -equal- members of an economic union.

German Court Upholds Greek Teacher’s Case Against Pay Cut (AP)

A German federal court has upheld a complaint by a teacher at a Greek school in Germany against a pay cut that the Greek government imposed at the height of the country’s financial crisis. The teacher, a Greek citizen, works at a Greek government-run school in Nuremberg but his contract is subject to German law. He sued after his pay was cut in 2010. A lower court granted his demand for some €20,000 ($21,780) in extra pay for Oct. 2010-Dec. 2012 — the amount by which his salary was lowered. The Federal Labor Court said Wednesday it has rejected a Greek appeal against that ruling. It ruled that Greek austerity legislation isn’t directly applicable on German territory and that Greece doesn’t have legal immunity over the labor contract.

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Nov 192016
 
 November 19, 2016  Posted by at 9:49 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle November 19 2016


Unknown Dutch Gap, Virginia. Picket station of Colored troops 1864

Financial Conditions Are Rigged Against Donald Trump (BBG)
Big Short’s Steve Eisman: ‘Europe is Screwed’ (G)
Emerging Markets Borrowers Owe $3.2 Trillion In -Rising- Dollar Debt (BBG)
Dollar’s Rapid Gain Triggers Angst in Emerging Markets (WSJ)
Global Bonds Post Biggest Two-Week Loss in 26 Years (BBG)
Bond Carnage hits Mortgage Rates. But This Time, it’s Real (WS)
US Dollar Sees Steepest 2-Week Gain Against Yen Since January 1988 (R.)
Bank of Japan Surprises With Plan to Buy Unlimited JGBs at Fixed Rates (WSJ)
US Banks Close Rupee Exchanges After Large Bills Ruled Illegal (BBG)
Lobbyists Leave Trump Transition Team After New Ethics Rule (Pol.)
The Rise Of The ‘Un-Lobbyist’ (Mother Jones)
UK Approves ‘Most Extreme Surveillance In History Of Western Democracy’ (AFP)
Far-Right Group Attacks Refugee Camp On Greek Island Of Chios (G.)

 

 

Just as I wrote on election day in America is The Poisoned Chalice.

Financial Conditions Are Rigged Against Donald Trump (BBG)

The reaction in financial markets to Trump’s election victory – much like the win itself – has defied conventional wisdom, with U.S. equities surging following a sharp drop as the results came in. But if you’re an occasional real estate developer — a self-professed “low interest rate guy” who wants to fix America’s trade deficit while bringing factories back from overseas – it might seem as though markets have been rigged against you. The U.S. dollar spot index (DXY) touched levels not seen since the Clinton administration on Friday morning, and the yield on the 10-year U.S. Treasury has increased by more than 50 basis points since Nov. 9.

This rise in the greenback and borrowing costs for the U.S. constitutes a tightening of financial conditions — a potential obstacle to U.S. growth, as servicing new debt has become more expensive and goods produced domestically are now less attractive to foreigners. Earlier this week, the Goldman Sachs Financial Conditions Index rose above 100 to hit levels not seen since March, when the financial backdrop was trending in a more accommodative direction following the market turmoil that started 2016. The index tracks changes in interest rates, credit spreads, equity prices, and the value of the U.S. dollar: a rise indicates that financial conditions have tightened. “A stronger USD implies lower domestic inflation and higher real rates, a headwind to U.S. growth,” writes Neil Dutta at Renaissance Macro Research.

In her testimony before Congress on Thursday, Federal Reserve Chair Janet Yellen highlighted this rise in the U.S. dollar as well as interest rates since the election — but not the gains in the stock market. This may serve as an implicit nod at what’s reflected in many financial conditions indexes: There’s a certain degree of asymmetry at play, with the rise in the greenback and U.S. Treasury yields far outweighing the tightening of credit spreads and rise in stock values. That asymmetry perhaps speaks to an unintentional and counterintuitive overlap between how the president-elect and the Federal Reserve interpret how changes in financial conditions affect real economic activity.

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“What is very negative is that in every country in Europe, the largest owner of that country’s sovereign bonds are that country’s banks..”

Big Short’s Steve Eisman: ‘Europe is Screwed’ (G)

In the Oscar-winning The Big Short, Steve Carell plays the angry Wall Street outsider who predicts (and hugely profits from) the great financial crash of 2007-08. [..] In real life he is Steve Eisman, he is still on Wall Street, and he is still shorting stocks he thinks are going to plummet. And while he’s tight-lipped about which ones (unless you have $1m to spare for him to manage) it is evident he has one major target in mind: continental Europe’s banks – and Italy’s are probably the worst. Why Italy? Because, he says, the banks there are stuffed with “non-performing loans” (NPLs). That’s jargon for loans handed out to companies and households where the borrower has fallen behind with repayments, or is barely paying at all. But the Italian banks have not written off these loans as duds, he says.

Instead, billions upon billions are still on the books, written down as worth about 45% to 50% of their original value. The big problem, says Eisman, is that they are not worth anywhere near that much. In The Big Short, Eisman’s staff head to Florida to speak to the owners of newly built homes bundled up in “mortgage-backed securities” rated as AAA by the investment banks. What they find are strippers with loans against multiple homes but almost no income, the mortgages arranged by sharp-suited brokers who know they won’t be repaid, and don’t care. Visiting the housing estates that these triple-A mortgages are secured against, they find foreclosures and dereliction. In a mix of moral outrage at the banks – and investing acumen – Eisman and his colleagues bought as many “swaps” as possible to profit from the inevitable collapse of the mortgage-backed securities, making a $1bn profit along the way.

This time around, Eisman is not padding around the plains of Lombardy because he says the evidence is in plain sight. When financiers look to buy the NPLs off the Italian banks, they value the loans at what they are really worth – in other words, how many of the holders are really able to repay, and how much money will be recovered. What they find is that the NPLs should be valued at just 20% of their original price. Trouble is, if the Italian banks recognise their loans at their true value, it wipes out their capital, and they go bust overnight. “Europe is screwed. You guys are still screwed,” says Eisman. “In the Italian system, the banks say they are worth 45-50 cents in the dollar. But the bid price is 20 cents. If they were to mark them down, they would be insolvent.”

[..] Trump’s victory has sent the bond markets into disarray, with the yield on government bonds rising steeply. While this sounds good for savers – interest rates could rise – it is bad news for the holders of government bonds, which fall in value when the yield rises. Eisman sees that as another woe for Europe’s banks, who hold vast amounts of “sovereign bonds”. “What is very negative is that in every country in Europe, the largest owner of that country’s sovereign bonds are that country’s banks,” he says. As the bonds decline in value, then the capital base of the banks deteriorates.

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The usual victims.

Emerging Markets Borrowers Owe $3.2 Trillion In -Rising- Dollar Debt (BBG)

[..] Companies in these more-vulnerable economies have $340 billion of debt coming due through 2018, and they are going to have a hard time paying all that back if investors keep withdrawing their cash. [..] After the election of Donald Trump as the next U.S. president, many expect his infrastructure spending programs and trade policies to lead to higher consumer prices in the world’s biggest economy. Bonds tend to do poorly when inflation accelerates, especially because such an environment would prompt the Fed to raise benchmark interest rates faster than many expect. That would bad for all types of debt but particularly for notes in emerging markets. That’s because investors will migrate back to higher-rated bonds in developed economies instead of those in less-proven nations.

Also, more U.S. growth typically means a stronger dollar, which is a significant problem for emerging-market nonbank borrowers, which have accumulated more than $3 trillion in dollar-denominated debt, according to BIS data. The higher the dollar rises, the more expensive it becomes to pay back the debt. And already this week, the currency has surged because of the sudden prospect of tighter Fed policies and faster U.S. growth. The sheer scale of leverage in the economy, including “the large increase of emerging-market debt, much of it denominated in dollars,” is one of the biggest risks in the financial system right now, Adair Turner, former U.K. Financial Services Authority chairman, said in a Bloomberg Television interview Friday. All that money is owed to somebody, and a failure to pay it back will cause big ripple effects.

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if the US doesn’t manipulate its currency lower soon, it’s going to lose export markets.

Dollar’s Rapid Gain Triggers Angst in Emerging Markets (WSJ)

The dollar extended its powerful rally, spurring central banks in developing countries to take steps to stabilize their own currencies and threatening to create headwinds for the long-running U.S. expansion. The US currency moved closer to parity with the euro after rising for the 10th straight day, the dollar’s longest winning streak against the euro since the European currency’s inception in 1999. The dollar also moved higher against the yen, which fell to its weakest levels against the U.S. currency since May 30. The gains are even greater against many emerging-market currencies, prompting central banks in a number of countries to intervene to slow the slide. The Mexican peso has fallen 11% against the dollar to record lows since the election, while the Brazilian real has tumbled 6.3%.

The currency’s gains make foreign goods and travel cheaper for U.S. consumers and could give a boost to exports from Japan and Europe. But they also are reigniting fears that the dollar’s strength could slow U.S. corporate profit growth and intensify capital flight from the developing world, which would complicate the prospects for economic growth. “The strong dollar is destabilizing for markets, for foreign assets, for emerging-market nations that pay back their debt in dollars,” said Jonathan Lewis, chief investment officer Fiera Capital. “That’s pretty significant.” The dollar’s gains have been driven by bets that fiscal spending and tax cuts proposed by President-elect Donald Trump will spur U.S. economic growth, as well as by the rising probability that the Federal Reserve will raise interest rates next month.

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Too much is moving in the same direction. Sheep don’t make for healthy markets.

Global Bonds Post Biggest Two-Week Loss in 26 Years (BBG)

Bonds around the world had their steepest two-week loss in at least 26 years as President-elect Donald Trump sends inflation expectations surging. The Bloomberg Barclays Global Aggregate Index has fallen 4% since Nov. 4. It’s the biggest two-week rout in data going back to 1990. Federal Reserve Chair Janet Yellen contributed to the decline by saying Thursday an interest-rate hike could come “relatively soon.” “We’ve seen a sharp and swift move since the election, which is pricing in the potential future policies of Trump,” said Sean Simko at SEI Investments in Oaks, Pennsylvania. “The big question is to what extent these policies are going to be implemented, and how quickly are they going to be implemented.”

Treasury 10-year note yields climbed five basis points, or 0.05 percentage point, to 2.35% as of 5 p.m. in New York, reaching the highest since November 2015, according to Bloomberg Bond Trader data. The 2% security due in November 2026 closed at 96 27/32. “Trump is a game changer,” Park Sung-jin at Mirae Asset Securities. “I was bearish, but the current level is more than I expected.” The selloff has gone fast enough that it’ll probably pause before yields press higher in 2017, Park said. Yellen, addressing U.S. lawmakers Thursday, signaled the U.S. central bank is close to lifting interest rates as the economy continues to create jobs at a healthy clip and inflation inches higher.

The president-elect’s pledges include tax cuts and spending $500 billion or more over a decade on infrastructure, a combination that’s seen as spurring quicker growth and price gains in the world’s biggest economy. Trump has also blamed China and Mexico for American job losses and threatened punitive tariffs on imports, a move that may spur inflation. The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, rose to as much as 1.97 percentage points this week, the highest since April 2015.

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It’s not just global markets being hit, the US ‘homeowner’ will also pay the price.

Bond Carnage hits Mortgage Rates. But This Time, it’s Real (WS)

The carnage in bonds has consequences. The average interest rate of the a conforming 30-year fixed mortgage as of Friday was quoted at 4.125% for top credit scores. That’s up about 0.5 percentage point from just before the election, according to Mortgage News Daily. It put the month “on a short list of 4 worst months in more than a decade.” One of the other three months on that short list occurred at the end of 2010 and two “back to back amid the 2013 Taper Tantrum,” when the Fed let it slip that it might taper QE Infinity out of existence. Investors were not amused. From the day after the election through November 16, they yanked $8.2 billion out of bond funds, the largest weekly outflow since Taper-Tantrum June.

The 10-year Treasury yield today jumped to 2.36% in late trading the highest since December 2015, up 66 basis point since the election, and up one full percentage point since July! The 10-year yield is at a critical juncture. In terms of reality, the first thing that might happen is a rate increase by the Fed in December, after a year of flip-flopping. A slew of post-election pronouncements by Fed heads – including Yellen’s “relatively soon” – have pushed the odds of a rate hike to 98%. [..] I still think that pullback in yields is going to happen any day now. As I said, nothing goes to heck in a straight line. In terms of dollars and cents, this move has wiped out a lot of wealth. Bond prices fall when yields rise. This chart shows the CBOT Price Index for the 10-year note. It’s down 5.6% since July:

The 30-year Treasury bond went through a similar drubbing. The yield spiked to 3.01%. The mid-week pullback was a little more pronounced. Since the election, the yield has spiked by 44 basis points and since early July by 91 basis points (via StockCharts.com). Folks who have this “risk free” bond in their portfolios: note that in terms of dollars and cents, the CBOT Price Index for the 30-year bond has plunged 13.8% since early July!

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This will now be scaring Abe and Kuroda.

US Dollar Sees Steepest 2-Week Gain Against Yen Since January 1988 (R.)

The dollar rose to its highest level since April 2003 against a basket of currencies on Friday, marking its biggest two-week increase since March 2015 as traders piled bets on a massive dose of fiscal stimulus under a Trump U.S. presidency. Also stoking the dollar rally were growing expectations the Fed would raise interest rates next month on signs of rising inflation and improved economic growth. The greenback has climbed 7.3% against the yen in two weeks, its steepest such gain since January 1988 and its second-strongest performance in the era of floating exchange rates. The dollar has been on a tear following Donald Trump’s Nov. 8 victory over Hillary Clinton, tracking surging U.S. Treasury yields amid concerns government borrowing to fund possible stimulus programs could stoke inflation.

Traders have seized on the tax cuts, deregulation and infrastructure spending that Trump campaigned on as negatives for bonds and positives for the dollar. “It has caused a wave of dollar buying across the board,” said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago. To be sure, it remained unclear how many, if any, of the policy proposals would materialize. Trump’s stance on immigration and trade, if they become law, could hurt the dollar, analysts said. “The dollar is the wild card,” said Richard Bernstein, CEO of Richard Bernstein Advisors. The dollar index, hit 101.48, its highest since early April 2003 before paring gains to 101.25, up 0.4% on the day.

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Yeah, like that’s in your power… “’Interest rates may have risen in the U.S., but that doesn’t mean that we have to automatically allow Japanese interest rates to increase in tandem’, Mr. Kuroda said.”

Bank of Japan Surprises With Plan to Buy Unlimited JGBs at Fixed Rates (WSJ)

The Bank of Japan on Thursday offered to buy an unlimited amount of Japanese government bonds at fixed rates for the first time since the introduction of a new policy framework—a sign of its concerns over recent rises in yields. The move is the first clear sign from the central bank that it intends to take action to keep a lid on rising yields, and took market participants by surprise. “I thought there was still a lot more room left” before the BOJ took action, said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management. The BOJ’s move followed a sharp rise in government bond yields globally, sparked by expectations that the presidency of Donald Trump would lift inflation and growth.

Japanese government bond yields have risen as well, but not as sharply. The 10-year yield rose to its highest level since March on Wednesday. Yields on two-year and five-year Japanese government bonds fell Thursday after the BOJ’s announcement. The 10-year yield also briefly fell to 0.010% after hitting as high as 0.025% earlier in the morning. Speaking in parliament, Bank of Japan Gov. Haruhiko Kuroda said he wouldn’t allow market pressure from abroad to dictate the course of Japanese government bond yields, highlighting his resolve to hold interest rates down. “Interest rates may have risen in the U.S., but that doesn’t mean that we have to automatically allow Japanese interest rates to increase in tandem,” Mr. Kuroda said.

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And the winner is … plastic.

US Banks Close Rupee Exchanges After Large Bills Ruled Illegal (BBG)

Aruna Desai has a problem with the thousands of Indian rupees she has with her in the U.S. – she can’t find a bank to exchange her funds and couldn’t give the money away if she tried. Since Indian PM Narendra Modi removed 500- and 1,000-rupee notes from circulation, currency exchange providers in the U.S. have been unable to take the outlawed bills. Some of the country’s biggest banks, including JPMorgan and Citigroup work with vendors to provide rupees to clients and those vendors have made the bills unavailable, spokesmen for the banks said. Wells Fargo also said it can’t supply rupees at this time, while Bank of America said it has never accepted the currency for exchange. “If you have a euro, you can go to a bank and exchange it,” Desai, 76, of Cliffside Park, New Jersey, said. “For an Indian rupee, I don’t think there’s any bank that does that here.”

Five-hundred rupee ($7.34) and 1,000-rupee notes ceased to be legal tender Nov. 9, Modi said last week in a surprise announcement, sweeping away 86% of the total currency in circulation. The move has been seen as an attempt to fulfill his election promise of curbing tax evasion and recovering illegal income, locally known as black money, stashed overseas. The notes will have to be deposited in banks by the end of December, Modi said. “For our clients, it’s very hard,” Nandita Chandra, head of Great Indian Travel’s New York office, said in a telephone interview while visiting New Delhi. “A lot of people are affected and we don’t have a culture that is credit-card friendly, it’s a cash-based economy.”

Mastercard, the second-largest payment network, heralded the move as one that will reduce crime and drive growth in the Indian economy. Modi’s “bold action and leadership is a critical step in positioning India to be a leader in the global cashless and digital economy movement,” Porush Singh, the firm’s president for South Asia, said in a statement. “Mastercard is committed to working with the government to provide the cashless solutions that combat corruption and create growth, and inclusion for all members of society.”

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Will Washington fall apart without the lobbyists who keep it standing up?

Lobbyists Leave Trump Transition Team After New Ethics Rule (Pol.)

At least three lobbyists have left President-elect Donald Trump’s presidential transition operation after the team imposed a new ethics policy that would have required them to drop all their clients. CGCN’s Michael Catanzaro, who was responsible for energy independence; Michael Torrey, who was running the handoff at the Department of Agriculture; and Michael McKenna of MWR Strategies, who was focused on the Energy Department, are no longer part of the transition, POLITICO has learned. Lobbyists who piled into the transition when it was being run by New Jersey Gov. Chris Christie were caught off-guard Wednesday by a new ethics policy requiring them to terminate their clients.

“Throughout my time assisting the transition effort, I have adhered closely to the code of ethical conduct and confidentiality agreement that was provided to me,” Torrey said in a statement. “When asked recently to terminate lobbying registration for clients whom I serve in order to continue my role with the transition, I respectfully resigned from my role.” Torrey represents the American Beverage Association, Dean Foods and pizza franchise Little Caesars. Before founding Michael Torrey & Associates in 2005, he was Agriculture Secretary Ann Veneman’s deputy chief of staff, advised Kansas Sen. Bob Dole and worked at the Commodity Futures Trading Commission. Catanzaro lobbies for the American Fuel and Petrochemical Manufacturers, a refining group, as well as Hess, Encana, Noble Energy and Devon Energy.

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Let’s see how many will be left come January 20.

The Rise Of The ‘Un-Lobbyist’ (Mother Jones)

On Wednesday, Donald Trump’s transition team announced one phase of the president-elect’s plan to “drain the swamp” of corruption—a prohibition on registered lobbyists serving in his administration and a five-year lobbying ban for Trump officials who return to the private sector. Trump’s plan effectively doubles down on a policy that the Obama administration already has in place—one that many good government groups and lobbyists alike believe may have created a new problem: un-lobbyists—that is, influence-peddlers who avoid registering as lobbyists to skirt the administration’s rules.

Obama, like Trump, campaigned on a platform of aggressively rooting out the influence of lobbyists. After taking office, he put in place several major good-government initiatives, including a ban on lobbyists serving in his administration and a two-year cooling-off period before ex-administration officials could register to lobby. Once Obama’s lobbying rules took effect, there was a sharp decline in the number of registered lobbyists. Industry insiders and watchdog groups that track the influence game noted that the decrease was not due to lobbyists hanging up their spurs as hired guns for corporations and special interests. Rather it appeared that lobbyists were finding creative ways to avoid officially registering as such. There was no less influence-peddling going on, but now there was less disclosure of the lobbying that was taking place.

The problem lies with the definition of who is a lobbyist. The federal government requires anyone who spends more than 20% of their time on behalf of a client while making “lobbying contacts”—an elaborate and specifically defined type of contact with certain types of federal officials—to register as a lobbyist and file quarterly paperwork disclosing their clients and the bills or agencies he or she sought to sway. But by avoiding too many official “lobbying contacts” and limiting how much income that kind of work accounts for, lobbyists can shed the scarlet L, describing themselves as government affairs consultants or experts in advocacy and public policy.

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All governments will use all new technology to encroach ever more on all people’s lives.

UK Approves ‘Most Extreme Surveillance In History Of Western Democracy’ (AFP)

The British parliament this week gave the green light to new bulk surveillance powers for police and intelligence services that critics have denounced as the most far-reaching of any western democracy. The Investigatory Powers Bill would, among other measures, require websites to keep customers’ browsing history for up to a year and allow law enforcement agencies to access them to help with investigations. Edward Snowden, the former US National Security Agency contractor turned whistleblower, said the powers “went further than many autocracies”. “The UK has just legalised the most extreme surveillance in the history of western democracy,” he tweeted.

The bill, the first major update of British surveillance laws for 15 years, was passed by the House of Lords and now only needs rubber-stamping by Queen Elizabeth II. Prime Minister Theresa May introduced the bill in March when she was still interior minister, describing it as “world-leading” legislation intended to reflect the change in online communications. It gives legal footing to existing but murky powers such as the hacking of computers and mobile phones, while introducing new safeguards such as the need for a judge to authorise interception warrants. But critics have dubbed it the “snooper’s charter” and say that, in authorising the blanket retention and access by authorities of records of emails, calls, texts and web activity, it breaches fundamental rights of privacy.

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The EU needs to act to stop this. But instead it still hardly resettles refugees at all, and won’t even allow for the refugees to be hosted in mainland Greece. Ugliness guaranteed. Couldn’t have been more effective if they planned it.

Far-Right Group Attacks Refugee Camp On Greek Island Of Chios (G.)

Dozens of people have been driven out of a refugee camp on the Greek island of Chios after two successive nights of attacks by a far-right group. At least two people were wounded after attackers threw Molotov cocktails and rocks as big as boulders from elevated areas surrounding the Souda camp, activists said. Three tents were burned down and three others were hit by rocks. A 42-year-old Syrian man was assaulted, while a Nigerian boy was hit by a rock. Fearing a third attack on Friday night, about 100 former occupants refused to re-enter the camp, instead taking shelter in a nearby car park. “We do not have any kind of protection,” Mostafa al-Khatib, a Syrian refugee, told the Guardian. “No one cares about us.” Gabrielle Tan, an aid worker with Action From Switzerland, a grassroots organisation working on Chios, said those sheltering in the car park included families with babies and toddlers.

“They’d rather sleep outside in the cold than go back inside,” said Tan. The mayor of Chios said the attackers were thought to be affiliated with Greece’s main far-right party, Golden Dawn. “Of course Golden Dawn supporters are suspected to have participated,” Manolis Vournous told the Guardian. Activists and camp occupants said the rocks appeared to have been thrown with the intention of killing people. Tan said: “These rocks were probably the size of a shoebox, weighing approximately 15kg. Some of them I can’t even lift.” There were conflicting reports about who started the clashes on Wednesday. According to Vournous, the unrest began after Algerians and Moroccans stole alcohol and fireworks from a shop, frightening local residents. But some activists claimed the events escalated after a planned assault by Golden Dawn.

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Nov 172016
 
 November 17, 2016  Posted by at 9:46 am Finance Tagged with: , , , , , , , ,  


Dorothea Lange Salvation Army, San Francisco, California. Unemployed young men 1939

Who’ll Get Hit by Fallout of $11 Trillion US Commercial Property Bubble? (WS)
US Mortgage Applications Crash 30% As Borrowing Rates Surge (ZH)
Congressional Panel Urges Ban On China State Firms Buying US Companies (R.)
Foreign Central Banks Liquidate Record $375 Billion In US Paper (ZH)
Panic In India As Gold Price Skyrockets After Currency Ban (AM)
Modi May Need Six More Months to Replace India’s Junk Banknotes (BBG)
NATO Prepares for Trump Presidency (Spiegel)
Singapore’s Recession Risk Rises As October Exports Show 12% Decline (R.)
China Civil War Is the Real Black Swan (RV)
You Are Still Crying Wolf (Scott Alexander)
One In Three UK Working Families Struggle To Pay Energy Bills (G.)
Canadian Province To Give Every Citizen $1,320 Basic Income (Ind.)
Obama Defends Globalization On Germany Visit (BBC)
Athens Clings To Obama’s Words As Focus Shifts To Berlin (Kath.)
Schaeuble Crushes Greek Debt Relief Hopes that Obama May Have Sowed (GR)
37.8% of Greek Children At Risk Of Poverty (Kath.)
Drowning Deaths In Mediterranean Already 20% Higher Than All Of Last Year (G.)

 

 

“The Green Street Commercial Property Price Index has soared 107% from the trough in May 2009 and now exceeds the peak of the totally crazy bubble in 2007 by 26%“.

Who’ll Get Hit by Fallout of $11 Trillion US Commercial Property Bubble? (WS)

Warnings about the loans, bonds, and commercial-mortgage-backed securities (CMBS) tied to the vast $11-trillion commercial property sector in the US have been hailing down for months. Moody’s Investor Services just warned about the rising delinquency rate of some $360 billion in CMBS it rates. Delinquencies of 60+ days jumped from 4.6% last year to 5.6% in September. Fitch Ratings has been fretting about valuations in the sector, and CMBS, for months. “Valuation and lending trends are not sustainable in the medium term,” it said most recently in its November report. It pinpointed debt backed by apartment buildings as a particular trouble spot. But now it’s also fretting about construction loans, which “experienced the highest loss severity in the last crisis, and we expect a similar trend in the next downturn,” it said.

It’s worried about the banks, whose commercial real estate (CRE) lending has reached “record levels”: “All of the most concentrated banks – those with more than 300% of risk-based capital in CRE – have less than $50 billion in assets and most have assets below $10 billion. These smaller banks also have varying degrees of sophistication in their risk management practices.” Fitch laments that the “timing and severity of this softening is uncertain and depends on factors including interest rates and overall economic conditions.” Alas, since the report was released on Election Day, interest rates have alread jumped. This comes at the worst possible moment, at the peak of the most gigantic CRE price bubble the US has ever seen. The Green Street Commercial Property Price Index has soared 107% from the trough in May 2009 and now exceeds the peak of the totally crazy bubble in 2007 by 26%:

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Let’s see if a normal economy can still work.

US Mortgage Applications Crash 30% As Borrowing Rates Surge (ZH)

Dear Janet…In the last few months, as The Fed has jawboned a rate hike into markets, mortgage applications in America have collapsed 30% to 10-month lows – plunging over 9% in the last week as mortgage rates approach 4.00%.

 

We suspect the divergent surge in homebuilders is overdone…

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“We don’t want the U.S. government purchasing companies in the United States, why would we want the Chinese Communist government purchasing companies in the United States?”

Congressional Panel Urges Ban On China State Firms Buying US Companies (R.)

U.S. lawmakers should take action to ban China’s state-owned firms from acquiring U.S. companies, a congressional panel charged with monitoring security and trade links between Washington and Beijing said on Wednesday. In its annual report to Congress, the U.S.-China Economic and Security Review Commission said the Chinese Communist Party has used state-backed enterprises as the primary economic tool to advance and achieve its national security objectives. The report recommended Congress prohibit U.S. acquisitions by such entities by changing the mandate of CFIUS, the U.S. government body that conducts security reviews of proposed acquisitions by foreign firms.

“The Commission recommends Congress amend the statute authorizing the Committee on Foreign Investment in the United States (CFIUS) to bar Chinese state-owned enterprises from acquiring or otherwise gaining effective control of U.S. companies,” the report said. CFIUS, led by the U.S. Treasury and with representatives from eight other agencies, including the departments of Defense, State and Homeland Security, now has veto power over acquisitions from foreign private and state-controlled firms if it finds that a deal would threaten U.S. national security or critical infrastructure. If enacted, the panel’s recommendation would essentially create a blanket ban on U.S. purchases by Chinese state-owned enterprises.

The panel’s report is purely advisory, but could carry extra weight this year because they come as President-elect Donald Trump’s transition team is formulating its trade and foreign policy agenda and vetting candidates for key economic and security positions. Congress also could be more receptive, after U.S. voter sentiment against job losses to China and Mexico helped Republicans retain control of both the House and the Senate in last week’s election. Trump strongly criticized China throughout the U.S. election campaign, grabbing headlines with his pledges to slap 45 percent tariffs on imported Chinese goods and to label the country a currency manipulator on his first day in office. “Chinese state owned enterprises are arms of the Chinese state,” Dennis Shea, chairman of the U.S.-China Economic and Security Review Commission, told a news conference. “We don’t want the U.S. government purchasing companies in the United States, why would we want the Chinese Communist government purchasing companies in the United States?”

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Normalization?

Foreign Central Banks Liquidate Record $375 Billion In US Paper (ZH)

One month ago, when we last looked at the Fed’s update of Treasuries held in custody, we noted something troubling: the number had dropped sharply, declining by over $22 billion in one week, one of the the biggest weekly declines since January 2015, pushing the total amount of custodial paper to $2.805 trillion, the lowest since 2012. One month later, we refresh this chart and find that in last week’s update, foreign central banks continued their relentless liquidation of US paper held in the Fed’s custody account, which tumbled by another $14 billion over the course of a week, pushing the total amount of custodial paper to $2.788 trillion, a new post-2012 low.

Today, to corroborate the disturbing weekly slide in the Fed’s custody data, we also got the latest monthly Treasury International Capital data for the month of September, which showed that the troubling trend presented one month ago, has accelerated to an unprecedented degree. Recall that a month ago,  we reported that in the latest 12 months we have observed a not so stealthy, actually make that a massive $343 billion in Treasury selling by foreign central banks in the period July 2015- August 2016, something unprecedented in size. Fast forward to today when in the latest monthly update for the month of September, we find that what until a month ago was “merely” a record $346.4 billion in offshore central bank sales in the LTM period ending  August 31 has – one month later – risen to a new all time high $374.7 billion, or well over a third of a trillion in Treasuries sold in the past 12 months. 

Among the biggest sellers – on a market-price basis – not surprisingly was China, which in August “sold” $28 billion in US paper (the actual underlying number while different, as this particular series is adjusted for Mark to Market variations, will be similar), bringing its total to $1.157 trillion, the lowest amount of US paper held by Beijing since 2012.

It wasn’t just China: Saudi Arabia also continued to sell its TSY holdings, and in August its stated holdings (which again have to be adjusted for MTM), dropped from $93Bn to $89Bn, the lowest since the summer of 2014. This was the 8th consecutive month of Treasury sales by the Kingdom, which held $124 billion in TSYs in January, and has since sold nearly 30% of its US paper holdings.

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Eyewitness: “97% of the Indian economy is cash-based. With 88% of all outstanding currency no longer usable, the economy is coming to a standstill.”

Panic In India As Gold Price Skyrockets After Currency Ban (AM)

I went to convert my banned banknotes into new ones. The largest amount one can have converted is Rs 4,000 ($60), until further notice. There was a huge rush of people at the bank. Arguments were erupting, as people refused to stand in queues and the banks gave no explanation of what needed to be done. Fights were breaking out. Amid the chaos I finally learned that there were three queues I had to go through in a sequence. I had to get a form from one counter, which I had to fill in with my name and address, my ID card details, the serial numbers of all the bills I wanted to exchange, and my cell-phone number. At the second counter, I then had to present the completed form along with a photocopy of my ID card. I had to sign on the photocopy which an official then stamped.

With my banknotes, the form and the photocopy of my ID card, I then went to the next queue to get my currency converted at a third counter. The whole process took about two hours. For most people in the busier parts of the cities, it took much longer.Anyone who thinks that a country which wastes two hours of every citizen’s life to convert his own $60 can ever hope to be an economic power is drinking too much Kool-Aid and cannot do primary level math. Forget any possibility of removing unaccounted for money or reducing corruption, what Modi is doing is a recipe for the destruction of whatever legitimate economy there is. That same afternoon, I went to the post office with a friend who wanted to get his money converted. After waiting a long time there, we found out that the post office had run out of cash.

Since then most ATMs have had limited amounts of cash available and banks keep running out of cash as well. The queues have continued to grow. People start lining up late into the night waiting for banks to open and still have to go back home with no cash. What started with two hours of queuing is becoming an endless slog now. Half of India’s citizens do not have a bank account and around 25% do not even have an ID card. These are the country’s poorest people, who have no way of converting their money – even if they learn how to do it, which is already a nigh insurmountable hurdle. Also, those who are old, disabled or sick have no choice but to suffer, for without personally visiting a bank branch office, one cannot convert one’s banknotes. 97% of the Indian economy is cash-based. With 88% of all outstanding currency no longer usable, the economy is coming to a standstill.

The daily-wage laborer, who leads a hand-to-mouth existence in a country with GDP per capita of a mere $1,600, no longer has work, as his employer has no cash to pay his wages. His life is in utter chaos. He is not as smart as Modi — despite the fact that Modi has no real life experience except as a bully and perhaps in his early days as a tea-seller at a train-station. He has no clue where his life is headed from here. These people are going hungry, and some have begun to raid food shops. People are dying for lack of treatment at hospitals. Old people are dying in the endless queues. Some are killing themselves, as they are unable to comprehend the situation and simply don’t know what to do. There are now hundreds of such stories in the media.

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There are now voices that claim Modi used the measure to deprive oppositon parties of their campaign cash. Elections coming up in a key state.

Modi May Need Six More Months to Replace India’s Junk Banknotes (BBG)

For Indians expecting respite from the government’s clampdown on cash, here’s a reality check: it probably won’t come soon. Prime Minister Narendra Modi’s administration may need until May 2017 to replenish the stock of now worthless bills, according to Saumitra Chaudhuri, an economist who advised Modi’s predecessor. The government on Nov. 8 banned 500 ($7.5) and 1,000 rupee notes in a surprise move against graft and tax evasion. Delays in replacing the currency risk prolonging the pain in the $2 trillion economy, where about 98 percent of consumer payments are made in cash. Deutsche Bank predicts the crunch could easily shave off a half-point from India’s growth in October-December, which could imperil its position as the world’s fastest-growing major market.

This is how Chaudhuri reached his conclusion, which he published in a blog post on the Economic Times’ website: Extrapolating from central bank data, he estimates that Modi’s move sucked out about 16.6 billion notes of the 500-denomination, and 6.7 billion 1,000-rupee bills. That means more than 23 billion notes totaling 15 trillion rupees. Modi intends to replace these with new 2,000-rupee and 500-rupee bills. However, Bharatiya Reserve Bank Note Mudran Pvt., which prints the higher denomination currency, has a stated capacity of just 1.3 billion notes a month. That’s with working double shifts. Raise this to triple shifts and it becomes 2 billion bills, which means it will need until the end of 2016 to replenish in value the 1,000-rupee notes.

Security Printing & Minting Corporation of India Ltd., whose capacity Chaudhuri estimates at 1 billion pieces a month, will need several more months to meet the 500-rupee target, even if it joins forces with BRBNM, he said. “Ergo, currency shortages will remain with us for many months and economic contraction will rule this period,” he wrote. “At the end of the period, confidence will be at new lows and recovery will take time.” In what could make matters worse, the presses – busy with the new bills – have almost completely stopped printing 100-rupee notes, Bloomberg Quint reported Wednesday citing central bank sources it didn’t name. These bills are the bread-and-butter of India’s $780 billion informal economy, which employs more than 90 percent of the workforce.

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“..at the next NATO summit, in the spring of 2017, and Secretary General Jens Stoltenberg had planned to extend a hearty welcome to the new US president, Hillary Clinton.” “..even the female English pronouns “she” and “her” had crept into internal written correspondence..”

NATO Prepares for Trump Presidency (Spiegel)

Everything had been so perfectly planned. Construction of the new NATO headquarters building near the Brussels Airport, a giant glass-and-steel structure to house the world’s most powerful military alliance in the future, will have cost more than €1 billion ($1.07 billion) by the time it opens next year. The mammoth building was supposed to be officially dedicated at the next NATO summit, in the spring of 2017, and Secretary General Jens Stoltenberg had planned to extend a hearty welcome to the new US president, Hillary Clinton. At least that’s how officials at NATO headquarters planned it. Anything else seemed unthinkable. So unthinkable that even the female English pronouns “she” and “her” had crept into internal written correspondence to refer to the future occupant of the White House.

But there will be no female president. Instead of Clinton, a reliable partner and good, old acquaintance in many trans-Atlantic circles, Donald Trump will be coming to Brussels – the same man who described the alliance as “obsolete” in his campaign. If he even comes, that is. Fearing that Trump won’t even attend the NATO summit, only a few weeks after his inauguration, the alliance has postponed the event. A meeting of NATO leaders without the presence of the American president, after all, would be a signal of its decline. Now organizers are envisioning a date next summer, in the hope that, by then, Trump will have recognized that the United States will also need NATO in the future. There are enormous doubts that this will happen. Consternation over the election of Donald Trump as the next US president is especially great within the Brussels alliance.

[..] In their most favorable scenario, the NATO strategists assumed that the new US president would only strictly insist that the Europeans spend more money on their security. During the campaign, after all, Trump left no doubt that he intends to radically change burden sharing within the Western alliance. One of Trump’s closest advisers, General Mike Flynn, the former head of US military intelligence, told SPIEGEL in an interview in July that, when it comes to money, Trump will pay little attention to the carefully tended harmony in the alliance. “We have to have these alliances going forward and see who’s going to pay for them,” Flynn said. He added that “NATO as a political alliance does need to be relooked at in terms of everything, (including) resourcing and capabilities,” soon after Trump’s administration takes office.

At the 2014 NATO summit in Wales, the member states agreed to a goal of spending 2% of their national GDP on defense. But few countries are currently meeting that goal. Germany, the second-strongest economy in the alliance, next to the United States, spends only 1.19% of its GDP on defense. Trump is now threatening to make the mutual defense commitment under Article 5 dependent on fulfilling this goal, or even to increase the%age. For Germany, 2% would already signify a dramatic increase in the defense budget, from about €34 billion today to roughly €65 billion. In any case, NATO officials are preparing themselves for growing demands on the Europeans. “Europe has no other choice: It has to strengthen the European column in NATO,” says EU foreign policy expert Alexander Graf Lambsdorff, a member of the pro-business Free Democratic Party.

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Global trade again. Plummeting exports and imports across Asia.

Singapore’s Recession Risk Rises As October Exports Show 12% Decline (R.)

Singapore’s exports in October shrank more than expected as sales to major markets fell, with those to Europe contracting sharply and raising risks of a recession in the trade-dependent economy. Non-oil domestic exports (NODX) skidded 12% last month from a year earlier, the trade agency International Enterprise Singapore said in a statement on Thursday, far worse than the median forecast of a 3.5% decline in a Reuters poll. In September, overseas shipments slumped a revised 5% on-year though the decline in sales to China slowed. On a month-on-month, seasonally adjusted basis, exports decreased 3.7% in October, missing a forecast of a 1% slide in the survey. Exports to the EU contracted 28.6% last month from a year earlier, compared with 9.9% growth in September. Contraction in sales of pharmaceuticals, non-electric engines & motors, as well as personal computers led the decline in October.

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It’s not even a black swan. I’ve warned of this risk for a long time. Without constructing bubble upon bubble, and without the shadow system that finances them, China has a long way to fall.

China Civil War Is the Real Black Swan (RV)

TL Tsim has studied the Chinese political scene since the 1980s, with a background in journalism, including the South China Morning Post and Hong Kong Economic Journal before starting his own consultancy. In an interview with Real Vision TV he said the greatest misconception among its people is that Chinese dynasties are super stable structures that last a long time. That’s not really the case, he argued, because none of them lasted longer than the Habsburgs in Austria, who ruled for over 800 years. The last one in China – the Qing dynasty – lasted 260 years, which is much shorter in comparison. People also underestimate the length of the civil wars between Chinese dynasties, which can last for 150 years, he adds. “That is something most Chinese people do not understand. And it has a bearing on the way we go forward,” Tsim said.

“In spite of all of the intelligence, the learning, and the experience of the Chinese people over 5,000 years, they have not come up with a system of government which can deal with the effective and peaceful transfer of power. In the West, you do it through the ballot box. So Brexit is Brexit. You accept it. But in China, the fight goes on.” The shortest dynasty of any size and power in Chinese history was the Yuan dynasty, which lasted just less than 100 years, Tsim said. “This government, this administration, the Chinese Communist Party, came to power in 1949. And so it’s been around for 67 years. “We don’t know when something like the Russian collapse, the implosion of the former Soviet Union might take place. We don’t know whether this is going to be the Yugoslavian model, when the country broke up into six or seven parts. So to speculate on the timing of it is something I do not do.“

But it is not idle to speculate on how this is going to happen. The most likely scenario is a power struggle over-spilling into a coup d’etat and then over-spilling into civil war. That would be the trajectory.” The real concern for Tsim – and he said for the Chinese leaders as well– is that if you look at the breakup of the former Soviet Union, the problem was internal, arising out of disagreements within the center of the party itself. [..] “And sadly, I think we’re not going to see a Yugoslavian model either, because there they did have a civil war. But the civil war– the war was small, in terms of size and scale, and didn’t last very long. That is not the Chinese model either. The Chinese model is a bitter, long-standing civil war– very destructive, very divisive. This is the real black swan.”

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I know many people won’t like to, but I would recommend reading at least part of this very long expose. How racist is Trump? And how do you know?

You Are Still Crying Wolf (Scott Alexander)

Back in October 2015, I wrote that the media narrative of Trump as “the white power candidate” and “the first openly white supremacist candidate to have a shot at the Presidency in the modern era” were being fabricated out of thin air. I said that “the media narrative that Trump is doing some kind of special appeal-to-white-voters voodoo is unsupported by any polling data”, and predicted that: “If Trump were the Republican nominee, he could probably count on equal or greater support from minorities as Romney or McCain before him.” Well, guess what? The votes are in, and Trump got greater support from minorities than Romney or McCain before him. You can read the Washington Post article, Trump Got More Votes From People Of Color Than Romney Did, or look at the raw data.

Trump made big gains among blacks. He made big gains among Latinos. He made big gains among Asians. The only major racial group where he didn’t get a gain of greater than 5% was white people. I want to repeat that: the group where Trump’s message resonated least over what we would predict from a generic Republican was the white population. Nor was there some surge in white turnout. I don’t think we have official numbers yet, but by eyeballing what data we have it looks very much like whites turned out in equal or lesser numbers this year than in 2012, 2008, and so on. The media responded to all of this freely available data with articles like White Flight From Reality: Inside The Racist Panic That Fueled Donald Trump’s Victory and Make No Mistake: Donald Trump’s Win Represents A Racist “Whitelash”.

I stick to my thesis from October 2015. There is no evidence that Donald Trump is more racist than any past Republican candidate (or any other 70 year old white guy, for that matter). All this stuff about how he’s “the candidate of the KKK” and “the vanguard of a new white supremacist movement” is made up. It’s a catastrophic distraction from the dozens of other undeniable problems with Trump that could have convinced voters to abandon him. That it came to dominate the election cycle should be considered a horrifying indictment of our political discourse, in the same way that it would be a horrifying indictment of our political discourse if the entire Republican campaign had been based around the theory that Hillary Clinton was a secret Satanist. Yes, calling Romney a racist was crying wolf. But you are still crying wolf.

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But today’s headlines are all about unemployment reaching 11-year lows. Makes you wonder, doesn’t it?!

One In Three UK Working Families Struggle To Pay Energy Bills (G.)

One in three working families struggle to pay their energy bills, it has been claimed, as pressure mounts on suppliers to do more to help poorer households move on to the cheapest deals. 29% of families do not put on the heating even when the house is cold, said comparison website uSwitch, while two-thirds fear cutting their energy use to save money will affect their family’s health. “It’s appalling that even families in work are struggling to pay their energy bills,” said uSwitch’s energy expert, Claire Osborne. “Suppliers must play their part by doing all they can to help their customers move to their best deal.” The energy regulator, Ofgem, backed calls for suppliers to alert customers to cost-saving schemes such as the warm home discount (WHD).

The initiative forces firms with more than 250,000 customers to offer a £140 discount to low-income pensioners and other vulnerable groups, though it has been criticised for long delays in delivering the reduction. “We want suppliers to engage more actively with customers, particularly those on standard variable tariffs, to help them get a better deal,” said an Ofgem spokesperson. This week the business minister criticised energy companies amid claims they were profiteering from deals that do not offer good value. “Customers who are loyal to their energy supplier should be treated well, not taken for a ride, and it’s high time the big companies recognised this,” Greg Clark said. “I have made clear to the big firms that this can’t go on and they must treat customers properly or be made to do so.”

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I’ll keep saying that a basic income for only parts of a society -as the pilot is set up- is doomed to fail.

Canadian Province To Give Every Citizen $1,320 Basic Income (Ind.)

A Canadian province is to run a pilot project aimed at providing every citizen a minimum basic income of $1,320 a month. The provincial government of Ontario confirmed it is holding public consultations on the $25m (£15m) project over the next two months, which could replace social assistance payments administered by the province for people aged 18 to 65. People with disabilities will receive $500 more under the scheme, and individuals who earn less than $22,000 (£13,000) a year after tax will have their incomes topped up to reach that threshold. The pilot report was submitted by Conservative ex-senator Hugh Segal, who suggested the project should be tested on three distinct sites: in the north, south and among the indigenous community of Ontario.

Areas with high levels of poverty and food insecurity should be chosen for the test project, Mr Segal recommended. “It is in fact the precinct of rational people when looking to encourage work and community engagement and give people a floor beneath which they’re not allowed to fall,” he said. “We can do this for seniors without having to add any more bureaucrats or civil servants, we respect their freedom to choose, we give them the money, they decide what’s important. Why would we treat other poor people differently? “What Ontario is doing is saying let’s have a pilot project, let’s calculate the costs, let’s calculate the positive and the nudge effects behaviourally.” Mr Segal confirmed that participation in the project, which is due to launch in spring 2017, will be voluntary and promised “no one would be financially worse off as a result of the pilot”.

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he can defend it all he wants, but defending the past shows you are blind to the present.

Obama Defends Globalization On Germany Visit (BBC)

US President Barack Obama has made a strong defence of globalisation as he arrived in Germany on his final visit to Europe before leaving office. In a joint article, Mr Obama and German Chancellor Angela Merkel said that with the global economy developing faster than ever, co-operation was vital. Mr Obama arrived in Germany from Athens where he had warned of threats to modern democracy. He is seeking to calm unease following the election of Donald Trump. In the article in the business magazine, Wirtschaftswoche (in German), he and Mrs Merkel made a strong case for international trade in contrast to Mr Trump’s more protectionist stance. “There will be no return to a world before globalisation,” they wrote. “We owe it to our companies and our citizens, indeed to the entire world community, to broaden and deepen our co-operation.”

The two leaders voiced support for the proposed Trans-Atlantic Trade and Investment Partnership (TTIP) between the US and the EU. By contrast, Mr Trump is a fierce critic of global free trade agreements and welcomed the UK’s decision in June to leave the EU. In Athens, Mr Obama acknowledged that globalisation had created a “sense of injustice” and a “course correction” was needed to address growing inequality. “When we see people, global elites, wealthy corporations seemingly living by a different set of rules, avoiding taxes, manipulating loopholes… this feeds a profound sense of injustice,” he told Greek leaders. Mr Obama’s visit to Greece was marked by street protests by leftist groups which denounced US “imperialism”. Police used tear gas against about 2,500 demonstrators who had tried to reach the city centre on Tuesday. The US president will stay in Germany until Friday and then head to Peru.

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But the words were again empty.

Athens Clings To Obama’s Words As Focus Shifts To Berlin (Kath.)

Greece on Wednesday hailed the support expressed by outgoing US President Barack Obama for debt relief for the country even as the latter arrived in Berlin for talks with German Chancellor Angela Merkel, whose country has consistently resisted restructuring Greece’s debt burden. Government spokesman Dimitris Tzanakopoulos expressed “satisfaction” with Obama’s references to the crucial issues of debt, the refugee crisis and Cyprus. “The US president made clear that austerity cannot lead to economic prosperity,” he said. Asked why an intervention by Obama in favor of Greek debt relief now that he is on his way out of the presidency should make a difference, Tzanakopoulos said that the situation in Europe is now very different and there is a shift against austerity.

“There is a very good possibility that by the end of the year we will have very positive developments as regards the Greek debt,” Tzanakopoulos said, noting that Athens was on course for a Eurogroup meeting on December 5. The spokesman described Obama’s visit as “an event of global significance” while sources indicated that the outgoing president had been “very friendly” to Prime Minister Alexis Tsipras. Earlier in the day, Obama delivered a stirring speech at the Stavros Niarchos Foundation Cultural Center, exalting the virtues of democracy and ancient Greece’s contribution to the modern world. “I came here with gratitude for all that Greece – ‘this small, great world’ – has given to humanity through the ages,” Obama said, referring to Aeschylus, Euripides, Herodotus, Thucydides, Socrates and Aristotle.

Obama took advantage of the speech to highlight the democratic values he sought to honor while in office and implicitly prodded his Republic successor Donald Trump to do the same. He also emphasized his respect for Greece’s efforts to respond to Europe’s refugee crisis despite its own problems. “Because our democracies are inclusive, we’re able to welcome people and refugees in need to our countries. And nowhere have we seen that compassion more evident than here in Greece,” he said.

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“Whoever says ‘we will relieve your debts’ is doing Greece a disservice..”

Schaeuble Crushes Greek Debt Relief Hopes that Obama May Have Sowed (GR)

U.S. President Barack Obama’s visit to Greece raised fresh hopes for debt relief that German Finance Minister Wolfgang Schaeuble rushed to quash. He said late on Tuesday that granting Greece its debt relief would not be helping the country, describing such a move as a “disservice.” A German Finance Ministry spokesman confirmed that Schaeuble had indeed made this statement, but that it was not in direct response to Obama’s visit to Greece. “Whoever says ‘we will relieve your debts’ is doing Greece a disservice,” said Schaeuble, according to the report by the daily newspaper, Passauer Neue Presse. His comments are not surprising bearing in mind that Germany has long supported the notion that no immediate debt relief is needed for Greece as this would discourage structural reforms.

“We have noted that President Obama has pointed to the importance of debt relief. The euro group agreed in May on a timetable on exactly that subject, regarding measures for the short term, and later in 2018 for mid-term measures,” said German government spokesman Steffen Seibert at a news conference. He added that Obama’s visit had not changed Germany’s position on the matter, during a government news conference. Seibert added that Obama’s view that austerity on its own does not create growth is a viewpoint that reflects that of the German government, adding that two things needed for long-term growth are a sustainable budget and the need for structural reforms.

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Think Obama went to see them?

Share of Greek Children At Risk Of Poverty Rises To 37.8% (Kath.)

More than a third, or 37.8%, of children aged up to 17 in Greece were at risk of poverty and social exclusion in 2015, compared to 28.7% in 2010, according to a report published by the European Statistics Agency (Eurostat). This means that they were living in households with at least one of the following characteristics: at-risk-of-poverty after social transfers (income poverty), severely materially deprived or with very low work intensity. The increase, which took the total number of children at risk of poverty and social exclusion in Greece to 710,000, is the largest in the European Union since 2010. After Greece, Cyprus was the country with the highest rise since 2010, with 7.1%.

At the same time, the EU average dropped from 27.5% in 2010 to 26.9% in 2015, which corresponds to the alarming figure of approximately 25.26 million children. Greece was third in the EU in the total number of children faced with such a predicament, behind Romania at 46.8% and Bulgaria at 43.7%. Hungary was fourth at 36.1%, ahead of Spain at 34.4% and Italy at 33.5%. The lowest rates were recorded in the Scandinavian countries, with Sweden at 14%, ahead of Finland and Denmark, with 14.9% and 15.7% respectively.

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At some point you may want to wonder if it’s a bug or a feature of the system.

Drowning Deaths In Mediterranean Already 20% Higher Than All Of Last Year (G.)

About 240 people are suspected to have drowned this week in four separate incidents in the Mediterranean, raising the total annual death toll to an unprecedented 4,500. Deaths in the Mediterranean are now nearly 20% higher than last year’s total of 3,771, which was the previous annual record. About 130 asylum seekers are missing after a rubber boat capsized on Sunday night, while another 100 are thought to have drowned on Tuesday night in a separate incident, the UN refugee agency said. Up to 10 people died in two further tragedies in recent days, bringing the death toll this week to at least 240.

In the accident on Sunday 15 survivors were left in the water for 10 hours, clinging on to a piece of a capsized boat, before being rescued by an oil tanker. Nine are still in hospital, Iosto Ibba, a spokesman for UNHCR, said in a phone call. Migration between Turkey and Greece has lessened significantly since March, after Turkey agreed to re-admit people deported from Greece. But crossings between Libya and Italy continue unabated. More than 165,000 people have reached Italy so far this year from north Africa, and the final annual total is likely to surpass the previous record of 170,000.

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 December 31, 2015  Posted by at 9:59 am Finance Tagged with: , , , , , , , , ,  


DPC Market Street from Montgomery Street, San Francisco, after the earthquake 1906

The Deadly Truth About the Great Boom and This “Recovery” (Dent)
Asia’s Top Commodity Trader Ends a Turbulent Year With Cut To Junk (BBG)
Mom And Pop Are The Greater Fools (ZH)
Oil Ends 2015 In Downbeat Mood; Hangover To Be Long, Painful (Reuters)
Impact Of Low Crude Prices On Oil Powers (Guardian)
China’s Yuan Posts Biggest Annual Loss In 21 Years (BBG)
China Fires a Warning Shot at Yuan Speculators With Bank Bans (BBG)
China’s Financial Growing Pains Caused World of Hurt in 2015 (WSJ)
Hong Kong Retail Slows as Mainland Tourists Stay Away (WSJ)
Fannie and Freddie Give Birth to New Mortgage Bond (WSJ)
The World’s Political And Economic Order Is Stronger Than It Looks (AEP)
Derivatives vs Bank Deposits: Let the Bail-Ins Begin (Ellen Brown)
It’s Every Snitch For Himself In Brazil’s Petrobras Scandal (BBG)
For the Wealthiest, a Private Tax System That Saves Them Billions (NY Times)
China Says Consulted Widely On Army Reform, Xi Closely Involved (Reuters)
Turkey ‘One Step Away From A Civil War’ (NY Times)
Greek Pension Cuts Back On The Table (Kath.)
Greek House Price Drop Second To Worst In The World (Kath.)
Merkel Urges Germans To See Refugee Arrivals As ‘An Opportunity’ (AFP)

“My forecast today: the stock market will start to crash by early February, if not sooner..”

The Deadly Truth About the Great Boom and This “Recovery” (Dent)

Below is a chart that shows the office space per worker in square feet. It shows a rise into the height of the financial crisis, after which it’s fallen like a rock! At first this could seem counterintuitive. Why did the square footage per worker go up into the worst of the recession into mid- to late-2009? That’s because companies were laying off workers going into that recession, meaning there were more workers per square feet. But the real story comes in the recovery from late 2009 forward.

Square footage per worker has declined very sharply from 371 square feet to 270, down a whopping one-third in just over six years as businesses have rehired a large portion of the laid-off workers – which means largely NOT creating new jobs. You should not look at this chart and assume that because less square footage per worker means more workers than in the past that everything is hunky dory. What’s more important is that the sharp decrease in square footage implies a lack of demand in commercial real estate. And that’s because commercial real estate is already way over-expanded! We overbuilt it in the great boom of 1983 to 2007, so even these hires have not filled up the available space.

Which means businesses aren’t expanding their office or industrial space! So while hiring more workers sounds fine out of context… it’s masking much more severe, deeper-set issues in our capacity to build for the future. This is the hard truth that no one is looking at: businesses are merely re-employing their past capacity, and not creating new plants and offices for future employment. All the 200,000-plus jobs numbers per month, if they are even fully real, are just catching up with the past. And we shouldn’t be investing in such new work space as we already have all we need for decades ahead. This is the reality of demographics that clueless economists just don’t get.

[..] Folks, this “recovery” isn’t working! And no one has expected it to given the over-expansion in the greatest debt bubble in U.S. history from 1983 to 2008. Inflation hasn’t risen due to excess capacity here and around the world, especially China… Money velocity continues to drop without lending and productive investment to expand it… Businesses are struggling with stagnant earnings because we already hit the peak of debt capacity and demographic spending growth in the great boom that finally peaked in late 2007, as I forecast two decades before. Debt was running at 2.54 times GDP for 26 years. It doesn’t take a rocket scientist or nuclear physicist to tell you that pretty much guarantees a massive period of deleveraging and depression – not continued expansion.

So since growth is all but impossible, corporations have resorted to financial engineering to keep the wagon rolling – all courtesy of the Fed, with near-zero short- and long-term interest rates. They’ve had two options: either increase stock buybacks to leverage their stagnant earnings with rising earnings-per-share on fewer shares, or increase dividends to compete with lower and lower yielding bonds (also courtesy of the Fed). And they’ve been milking both options for all they’re worth! But financial engineering does not result in real growth. And speculation does not expand the money supply. It is only a sign of decreasing money velocity, and a bubble that will only burst – like in 1929, 2000, and now again! [..] My forecast today: the stock market will start to crash by early February, if not sooner [..].

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There will be no recovery in commodities until the overcapacity is drained.

Asia’s Top Commodity Trader Ends a Turbulent Year With Cut To Junk (BBG)

Asia’s top commodity trader exits 2015 in very different shape to how it began the year. Noble Group has lost almost two-thirds of its value, with its stock trading near the lowest since 2008, after a year of attacks on its finances by critics including the anonymous Iceberg Research and short-seller Muddy Waters LLC. The latest blow, amid a rout in raw materials, was the cut in its credit rating to junk by Moody’s Investors Service on concerns over its liquidity. It’s a downgrade that will test Chief Executive Officer Yusuf Alireza’s view that while an investment-grade rating is desirable, it isn’t required for the business, as Standard & Poor’s also reviews its assessment. Moody’s decision comes a week after the Hong Kong-based company agreed to sell the rest of its agriculture unit to Cofco for at least $750 million.

While the deal may help the company to cut debt, its liquidity will remain constrained, according to Moody’s, which expects a prolonged commodity slump. “They have had a really difficult year, not only fighting the commodity slump but also various allegations,” Bernard Aw at IG Asia said by e-mail. “Entering 2016, the performance of Noble will clearly hinge on the recovery in the commodity complex. Noble may continue to offload non-profitable assets, to improve its balance sheet and creditworthiness. These should help it better navigate the challenging landscape.” Noble Group stock fell 9.1% to end at 40 Singapore cents on Wednesday, and traded unchanged early Thursday. The shares are 65% lower this year and are the biggest losers in the Straits Times Index.

The company’s dollar bonds due in 2020, its most liquid, dropped on Wednesday to the lowest since they were issued in 2009. After the Noble Agri deal closes, Noble Group’s rating metrics will substantially exceed those required of an investment-grade credit, the company said in a statement on Tuesday. Noble Group still has its investment-grade ratings from S&P and Fitch Ratings, spokesman Stephen Brown said, referring to comments made on the company’s last earnings call. He added that its bank covenants aren’t ratings-dependent. “We are confident that the deal will be approved by our shareholders and will close before the end of February,” Noble Group said in a statement to the Singapore Exchange late on Wednesday. “The current environment is opportunity-rich and plays to our strengths.”

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Question is, what keeps markets at their high levels?

Mom And Pop Are The Greater Fools (ZH)

[..] while the market was surging last week, the smart money was selling. This comes at the same time as ICI reported major redemptions from both stock ($3.9 billion) and bond ($4.5 billion) mutual funds, even as corporate buybacks were decelerating, leading to the question of just who was buying stocks during the Santa rally of the past two weeks. But something even more surprising emerged when looking at the detailed breakdown of how the “smart money” has been flowing. As Bank of America clarifies, when explaining where its $0.7 billion in weekly outflows came from, “net sales were chiefly due to institutional clients last week” and adds that institutionals “have sold stocks for eight consecutive weeks”!

And then something even more surprising emerges when looking at the YTD breakdown of flows: while hedge funds and private clients (retail) have largely offset each other over the past year, the former selling $2.8BN and the latter buying $2.2BN in 2015, something odd has taken place at the institutional level: starting in early January, the largest financial institutions – mutual funds and various other asset managers – have unleashed an unprecedented selling spree for 11 consecutive months, which has brought their total outflow to $26.8 billion. Which leads to another question: if institutions are actively dumping stocks, perhaps mom and pop investors should show the following chart to their financial advisors, who directly or indirectly work for these institutions, and ask them: why should they be buying, when the counterparty they are buying from is, most likely, this very same financial advisor?

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“..global crude production exceeds demand by anywhere between half a million and 2 million barrels every day..”

Oil Ends 2015 In Downbeat Mood; Hangover To Be Long, Painful (Reuters)

Oil prices remained in a downbeat mood during their final Asian-hours trading session of 2015 after record U.S. crude inventories reinforced concerns about a global supply glut that has pulled down prices by a third over the past year. Crude inventories in the United States rose 2.6 million barrels last week, the U.S. Energy Information Administration said. Analysts polled by Reuters had expected a draw of 2.5 million barrels. Crude prices held losses after falling more than 3% in the previous session, with U.S. West Texas Intermediate (WTI) crude futures trading around $36.70 per barrel at 0300 GMT on Thursday and Brent around $36.60 per barrel. Both benchmarks are down by around a third over 2015.

The immediate outlook for oil prices remains bleak, with some analysts like Goldman Sachs saying prices as low as $20 per barrel might be necessary to push enough production out of business and allow a rebalancing of the market. U.S. bank Morgan Stanley said in its outlook for next year that “headwinds (are) growing for 2016 oil.” The bank cites ongoing increases in available global supplies, despite some cuts by U.S. shale drillers in particular, as well as a slowdown in demand as the main reasons. “The imbalance in the global oil market has been diminishing in 2H15, but the hope for a rebalancing in 2016 continues to suffer serious setbacks,” the bank said, reflecting a market consensus that meaningfully higher prices are not expected before late 2016.

Traders expect some U.S. oil to be taken out of America and supplied into global markets, following the surprise lifting of a decades-old U.S. crude export ban in December, which ended a years-old discount in U.S. crude prices to international Brent. “At a time when U.S. shale is facing headwinds due to the collapse in crude oil prices… U.S. crude oil exports are likely to help reduce congestion concerns in the U.S.,” ING bank said. [..] Analysts estimate global crude production exceeds demand by anywhere between half a million and 2 million barrels every day. This means that even the most aggressive estimates of expected U.S. production cuts of 500,000 bpd for 2016 would be unlikely to fully rebalance the market.

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A painful graph. We smell unrest.

Impact Of Low Crude Prices On Oil Powers (Guardian)

A glut of oil, the demise of Opec and weakening global demand combined to make 2015 the year of crashing oil prices. The cost of crude fell to levels not seen for 11 years – and the decline may have further to go. There have been four sharp increases in the price of oil in the past four decades – in 1973, 1979, 1990 and 2008 – and each has led to a global recession. By that measure, a lower oil price should be positive for the world economy, with lower fuel costs for consumers and businesses in those countries that import crude outweighing the losses to producing nations. But the evidence since oil prices started falling from their peak of $115 a barrel in August 2014 has not supported that thesis – or not yet.

Oil producers have certainly felt the impact of the lower prices on their growth rates, their trade figures and their public finances butthere has been no surge in consumer spending or business investment elsewhere. Economist still reckon there will be a boost from a lower oil price particularly if it looks as if the lower cost of crude will be sustained. Dhaval Joshi, an economist at BCA, a London-based research company, said: “A commodity bubble has deflated three times in the past 100 years: the first was after world war one; the second was after the 1980s oil shock; the third is happening right now.” For the big producer countries, this is a major headache, the ramifications of which are only starting to be felt. Oil powers base their spending plans on an assumed crude price. The graphic below shows just how far below water their budgets are.

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How long before IMF starts complaining on behalf of US?

China’s Yuan Posts Biggest Annual Loss In 21 Years (BBG)

There’s no need to panic, according to the yuan’s top forecaster, even as the currency posted the biggest annual loss in more than two decades and a majority of economists predicted a further depreciation in 2016. “While a weaker yuan could create fear initially, the market will realize it’s a natural consequence of a more flexible yuan and divergent U.S.-China monetary policy,” said Ju Wang at HSBC, which had the best estimates for the onshore yuan over the last four quarters as measured by Bloomberg Rankings. A more adjustable policy will allow for swift reactions to domestic conditions, which “would be structurally positive for China’s economy,” she said. The nation overhauled its foreign-exchange system in 2015, giving market forces greater say in setting the yuan’s reference rate, allowing more foreign participants onshore and doubling trading hours.

The central bank kept investors guessing as it supported the exchange rate from March to August, shocked global markets with an Aug. 11 devaluation, and then spent billions of dollars to prop up the yuan before winning reserve status at the IMF on Nov. 30. The currency tumbled 4.5% in 2015 to close at 6.4936 a dollar in Shanghai on Dec. 31, according to China Foreign Exchange Trade System prices. That’s the biggest decline in data going back to 1994. The central bank cut its daily fixing, which limits onshore moves to a maximum 2% on either side, by 6.1% for the year. The reduction was the most since 2005, when China unpegged its currency from the greenback and allowed it to fluctuate against a basket of exchange rates.

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Beijing is feeding speculation with its constant manipulations.

China Fires a Warning Shot at Yuan Speculators With Bank Bans (BBG)

China has a message for currency speculators: the free lunch is over. The People’s Bank of China has suspended at least two foreign banks from conducting some cross-border yuan business until late March, according to people with direct knowledge of the matter. The clampdown comes as the growing offshore-onshore spread makes it profitable for those who skirt capital controls to buy the currency at a discount in Hong Kong and sell it in Shanghai. By closing loopholes in its regulations, China is trying to stabilize the yuan after a surprising revamp of its currency-valuation system in August led to capital outflows and prompted policy makers to tap $213 billion of foreign reserves to support the yuan. The risk is that discouraging arbitrage will cause the exchange rates to diverge further, undermining the goal of unifying the two markets.

“The market should see this as a warning shot across the bow,” said Douglas Borthwick at Chapdelaine, a unit of the British inter-dealer brokerage Tullet Prebon. Chinese regulators don’t want onshore trades to be speculative in nature and “in the short term this will likely lead to further widening of the spread,” he said. A three-month ban on settling offshore clients’ yuan transactions in the onshore market was imposed Tuesday, the people said. The central bank didn’t immediately respond to questions on the matter, and it was unclear how widely the ban has applied among foreign banks or which institutions are suspended. Spokespeople for Citigroup, HSBC and Standard Chartered, which are among the largest foreign dealers allowed in China’s interbank foreign-exchange markets, declined to comment on the ban and whether their operations were affected.

The offshore yuan, which is freely traded overseas, touched a five-year low on Wednesday before erasing losses on speculation the government was intervening to support the currency. It traded at 6.5810 a dollar as of 12:32 p.m. in Hong Kong, leaving it about 1.3% cheaper than the rate in mainland China. The gap between the two rates has widened since August when China’s devaluation, part of the move to a more market-determined currency regime, fueled expectations among overseas investors for further yuan weakness. The divergence is undesirable because it means companies cannot use hedging tools tied to overseas rates to protect their onshore exposure. By imposing the ban, China is seeking to prevent speculators from bringing money in illegally to arbitrage, even though it helps narrow the difference.

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It’s all in the choice of words, isn’t it? Growing pains sounds so much better than bursting bubble.

China’s Financial Growing Pains Caused World of Hurt in 2015 (WSJ)

China’s long history of tempestuous trading spilled over its borders this year, signaling that a once-isolated market is moving to the center of global finance. Chinese volatility upended markets from Tokyo to London, and helped send some emerging-market currencies to their weakest levels in nearly two decades. Commodities including copper and aluminum plumbed six-year lows as China, one of the world’s biggest metals consumers, reined in buying. While a summer stock crash and the surprise devaluation of China’s yuan spooked investors world-wide, the repercussions also exposed the growing pains of a maturing financial market. With one trading day left in 2015, Shanghai’s stock market is still up 10.5% this year, despite losing more than 40% of its value over the summer.

That gain outpaces the 1% rise in the S&P 500 through Tuesday, and the 9.6% advance in Germany’s DAX and 7.35% gain in the Stoxx Europe 600 index through Wednesday. China’s smaller Shenzhen stock market is up 66%, one of the best-performing benchmarks globally. Japan’s Nikkei Stock Average is up 9.1% for the year, as the central bank’s two-year easing campaign weakened the yen. A weaker currency can help exporters by boosting profits repatriated from abroad. Meanwhile, China’s yuan is on track for its largest annual fall on record, down more than 4% so far this year. Goldman Sachs economists say China was “arguably the prime mover in global markets” this year, though foreigners hold less than 2% of the mainland’s $8 trillion stock market and less than 3% of the onshore bond market.

On Aug. 24, dubbed “Black Monday” by Chinese government media, the Shanghai Composite’s 8.5% fall sparked a global selloff that dragged U.S. stocks to an 18-month low. Yet the struggles have been felt most acutely in markets of China’s regional trading partners, where slackening demand from the world’s second-largest economy has put a chill on exports of commodities and gadgets, dimmed the corporate outlook and sent currencies into a tailspin. Investors have pulled money out of Asia’s emerging-market equities every month since July, with the exception of October, according to the Institute of International Finance. Investors put $47 billion into emerging-market Asia stocks and bonds this year through November, compared with $107.9 billion for the whole of 2014.

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Confidence in China is sagging.

Hong Kong Retail Slows as Mainland Tourists Stay Away (WSJ)

Hong Kong, once a shopping mecca for mainland Chinese seeking Swiss watches and luxury handbags, is expected to record its biggest annual decline in retail sales since the outbreak of severe acute respiratory syndrome, or SARS, in 2003. The city may also post the first annual decline in mainland tourists since visa relaxations allowed individual visitors from China, also in 2003, prompting calls for extensive diversification of tourism—a pillar of the city’s economy. Spending by Chinese tourists has been the main driver of retail and commercial property sectors in Hong Kong in recent years, as the number of mainland tourists rose. During the boom, long lines outside the city’s numerous Louis Vuitton, Chanel and Gucci shops were commonplace, as luxury goods sold in Hong Kong were up to 40% cheaper than in China.

Those lines have largely disappeared as inflows of Chinese tourists slowed. The number of Chinese tourist arrivals was 15.4% lower in November compared with a year ago, the steepest decline all year, extending the year-to-date fall in Chinese visitors. Hong Kong’s tourism commission says the city’s tourism industry has “entered a consolidation period” after a decade of growth, and says it is now targeting “high-spending overnight visitors” from other markets to help fill the city’s myriad shopping malls and hotel rooms. Meanwhile, retail sales in the formerly bustling shopping hub have fallen for eight straight months on lower tourist spending, with total retail sales down 2.7% year-over-year for the first 10 months of 2015. That is steeper than the 2.6% decline recorded in 2003, when tourists shunned Hong Kong for several months during the SARS outbreak.

In October, Hong Kong saw a 38.5% drop in sales of Swiss watches, said the Federation of the Swiss Watch Industry. Other brands, like Chanel, went the unusual route of slashing the price of an iconic bag by over 24% in Hong Kong, among other rare discount offers, in a sign of the trying times. [..] Luxury sales began to decline in late 2013 after Beijing started cracking down on corruption and conspicuous consumption. The slump spread to mass-market retailers this year as the Chinese economy slowed. Milan Station, a vendor of secondhand handbags, said revenue in its Hong Kong shops fell over 28% in the first half of the year, while cosmetic retailers Sa Sa and Bonjour reported revenue declines of 10.6% and 14.4% in the six months ended September and June, respectively.

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Washington needs to get out of the housing market.

Fannie and Freddie Give Birth to New Mortgage Bond (WSJ)

Fannie Mae and Freddie Mac are turning to crisis-era tools to reduce their exposure to mortgage losses and spark a new market for financing home buyers. Beginning in 2016, the two government-controlled housing giants will ramp up sales of a new type of security that will transfer most of the cost of defaults on all but their safest mortgages to private investors. The securities will be based on the value of a pool of underlying mortgages—but only indirectly, making them a derivative similar to those that figured in the financial crisis seven years ago. The insurance-like products are called Connecticut Avenue Securities by Fannie Mae and Structured Agency Credit Risk by Freddie Mac. Standard-issue bonds from the housing giants protect investors from the risk that home buyers will stop making payments on their loans.

With the new securities, however, investors could lose some or all of their principal if the underlying mortgages default. The effort marks a notable return to financial engineering in housing finance—elements of which served useful purposes before bloating in the years leading to the crisis. The new securities ultimately could help reduce the government’s role in mortgages by persuading investors to take on the risk of default. Right now, the U.S. housing market relies almost entirely on guarantees from Fannie, Freddie or other government-backed entities. The companies, along with government agency Ginnie Mae, back most mortgages and issued 96% of all mortgage bonds in the first 10 months of the year, according to trade publication Inside Mortgage Finance.

Banks used to issue hundreds of millions of dollars worth of mortgage bonds that didn’t carry Fannie or Freddie’s guarantees, but that market dried up after the financial crisis. Proponents hope the new securities could help restore investors’ appetite for mortgage risk. If it works, backers think the securities could become a mainstay of the bond and housing markets over time, perhaps even getting included in the major indexes tracked by bond funds.

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Ambrose’s history lesson dissolves into confusion. Still worth reading, though. “Yes, the world is a mess, but it has always been a mess, forever climbing the proverbial wall of political worry even in its halcyon days. So let us drink a new year’s toast with a glass at least half full.”

The World’s Political And Economic Order Is Stronger Than It Looks (AEP)

Readers have scolded me gently for too much optimism over the past year, wondering why I refuse to see that the world economy is in dire trouble and that the international order is coming apart at the seams. So for Christmas reading I have retreated to the “World of Yesterday”, the poignant account of Europe’s civilisational suicide in the early 20th century by the Austrian writer Stefan Zweig – the top-selling author of the inter-war years. From there it is a natural progression to Zweig’s equally poignant biography of Erasmus, who saw his own tolerant Latin civilization smothered by fanatics four centuries earlier. Zweig’s description of Europe in the years leading up to 1914 is intoxicating. Everything seemed to be getting better: wealth was spreading, people were healthier, women were breaking free.

He could travel anywhere without a passport, received with open arms in Paris, Milan or Stockholm by a fraternity of writers and artists. It was a cheerful, peaceful world that seemed almost untainted by tribal animosities. It was not an illusion, but it was only half the story. A handful of staff officers at the apex of the German high command under Helmuth von Moltke were already looking for their chance to crush France and Russia, waiting for a spark in the Balkans – it could only be the Balkans – that would lock the Austro-Hungarian empire into the fight as an ally. What is striking in Zweig’s account is that even during the slaughter of the First World War, Europe still had a moral conscience. All sides still bridled at any accusation that they were violating humanitarian principles.

Two decades later, even that had disappeared. Zweig lived to see his country amputated, cut off from its economic lifelines, and reduced to a half-starved rump. He saw Hitler take power and burn his books in Berlin’s Bebelplatz in 1933, then in stages extend the ban to France and Italy. He saw what remained of Austria extinguished in 1938, and his friends sent to concentration camps. As a Jewish refugee in England he slipped from stateless alien to enemy alien. He committed suicide with his wife in February 1942 in Brazil, too heart-broken to keep going after his spiritual homeland – Europe – had “destroyed itself”. Erasmus was also the best-selling author of his day, attaining a dominance that has probably never been challenged by any other author in history, expect perhaps Karl Marx posthumously.

More than 1m copies of his works had been printed by the early 16th century, devoured by a Latin intelligentsia in the free-thinking heyday of the Renaissance, chortling at his satires on clerical pedantry and the rent-farming of holy relics. But after lighting the fire of evangelical reform, he watched in horror as the ideologues took over and swept aside his plea that the New Testament message of love and forgiveness is the heart of Christianity. They charged headlong into the Augustinian cul-de-sac of original sin and predestination, led by Martin Luther, a rough, volcanic force of nature, or the “Goth” as Erasmus called him. Luther preferred to see the whole world burn and Christian Europe split into armed camps rather than yield an inch on abstruse points of doctrine. And burn they did. The killing did not end until the Treaty of Westphalia in 1648. By then the Thirty Years War had left a fifth of Germany dead.

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“In principle, depositors are the most senior creditors in a bank. However, that was changed in the 2005 bankruptcy law, which made derivatives liabilities most senior.”

Derivatives vs Bank Deposits: Let the Bail-Ins Begin (Ellen Brown)

Dodd-Frank states in its preamble that it will “protect the American taxpayer by ending bailouts.” But it does this under Title II by imposing the losses of insolvent financial companies on their common and preferred stockholders, debtholders, and other unsecured creditors. That includes depositors, the largest class of unsecured creditor of any bank. Title II is aimed at “ensuring that payout to claimants is at least as much as the claimants would have received under bankruptcy liquidation.” But here’s the catch: under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. The over-the-counter (OTC) derivative market (the largest market for derivatives) is made up of banks and other highly sophisticated players such as hedge funds.

OTC derivatives are the bets of these financial players against each other. Derivative claims are considered “secured” because collateral is posted by the parties. For some inexplicable reason, the hard-earned money you deposit in the bank is not considered “security” or “collateral.” It is just a loan to the bank, and you must stand in line along with the other creditors in hopes of getting it back. State and local governments must also stand in line, although their deposits are considered “secured,” since they remain junior to the derivative claims with “super-priority.” Under the old liquidation rules, an insolvent bank was actually “liquidated” – its assets were sold off to repay depositors and creditors. Under an “orderly resolution,” the accounts of depositors and creditors are emptied to keep the insolvent bank in business.

The point of an “orderly resolution” is not to make depositors and creditors whole but to prevent another system-wide “disorderly resolution” of the sort that followed the collapse of Lehman Brothers in 2008. The concern is that pulling a few of the dominoes from the fragile edifice that is our derivatives-laden global banking system will collapse the entire scheme. The sufferings of depositors and investors are just the sacrifices to be borne to maintain this highly lucrative edifice. In a May 2013 article in Forbes titled “The Cyprus Bank ‘Bail-In’ Is Another Crony Bankster Scam,” Nathan Lewis explained the scheme like this:

At first glance, the “bail-in” resembles the normal capitalist process of liabilities restructuring that should occur when a bank becomes insolvent. . . . The difference with the “bail-in” is that the order of creditor seniority is changed. In the end, it amounts to the cronies (other banks and government) and non-cronies. The cronies get 100% or more; the non-cronies, including non-interest-bearing depositors who should be super-senior, get a kick in the guts instead. . . .

In principle, depositors are the most senior creditors in a bank. However, that was changed in the 2005 bankruptcy law, which made derivatives liabilities most senior. Considering the extreme levels of derivatives liabilities that many large banks have, and the opportunity to stuff any bank with derivatives liabilities in the last moment, other creditors could easily find there is nothing left for them at all. As of September 2014, US derivatives had a notional value of nearly $280 trillion.

A study involving the cost to taxpayers of the Dodd-Frank rollback slipped by Citibank into the “cromnibus” spending bill last December found that the rule reversal allowed banks to keep $10 trillion in swaps trades on their books. This is money that taxpayers could be on the hook for in another bailout; and since Dodd-Frank replaces bailouts with bail-ins, it is money that creditors and depositors could now be on the hook for. Citibank is particularly vulnerable to swaps on the price of oil. Brent crude dropped from a high of $114 per barrel in June 2014 to a low of $36 in December 2015.

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What a story Brazil will be in 2016…

It’s Every Snitch For Himself In Brazil’s Petrobras Scandal (BBG)

[..] all hail 2015, Brazil’s year of the snitch. Investigators in the city of Curitiba, where the so-called Operation Car Wash probe into corruption at Petrobras is based, have struck 40 such plea bargains, turning criminals into strategic witnesses for the prosecution. Negotiating reduced sentences is not new in Brazil. But until recently, most criminals preferred to gamble on the feeble court system and take their secrets to jail. Everything changed after 2012, when Brazil’s Supreme Federal Court sent two dozen moguls and political bosses to jail in a sweeping vote-buying scam. A rigorous anti-corruption law followed in 2013, and now criminals and cronies are lining up to cop their pleas.

Thanks largely to dishonor among thieves — not to mention financial trackers skilled in sniffing out hidden money — prosecutors have since secured 80 convictions of seemingly untouchable moguls and politicians, whose jail sentences total 782 years. So many criminals have been repurposed as state witnesses that police are running short on ankle bracelets. Brazilians would be forgiven for thinking that little has changed. By cutting deals with prosecutors, confessed criminals have managed to convert harsh jail terms into suspended sentences and house arrest. Yes, Fernando “Baiano” Soares, a lobbyist at the heart of the Car Wash cabal, had to forfeit a bundle of cash and two fancy vacation homes as part of his plea deal.

But when he left jail in November after agreeing to finger accomplices in the Petrobras scheme, he went home to his luxury apartment in one of Rio’s toniest beach districts. Pedro Jose Barusco Filho, sentenced last year to 18 years for turning his second-tier job at Petrobras into a bribe-collection counter, quickly signed an agreement with prosecutors and promised to return $615 million he’d skimmed from supply contracts. By Christmas, he was spotted kicking back at a luxury spa in the Rio hills. Two other guests reportedly left on the spot. Then there is Alberto Youssef, a shadowy money dealer who has been in and out of custody since 2005, when he first agreed to help authorities take down a money-laundering ring at a state-owned regional bank.

But he went back on his word and left investigators empty-handed. This time, the feds were cleverer. When, in early 2014, police again caught up to Youssef – now for helping high-rolling oil company executives and politicians on the take spirit their off-books earnings to offshore tax havens – they doubled down on the man known as “the black market’s central banker.” Jailed for breaking his earlier plea bargain, and with his name popping up in testimony from other state witnesses, Youssef buckled, agreed again to speak out, and led Brazil’s sleuths to the corner offices of Petrobras and beyond.

Snitch by snitch, the Car Wash case has made its way from the oil rigs to the Brazilian capital, where 54 senior politicians, former politicians and their associates are now under investigation. All eyes are now on Delcidio do Amaral, who is not only the first sitting Brazilian senator to be arrested but also a former Petrobras bureaucrat who served as a key dealmaker to the ruling Workers’ Party for the past 13 years. So far, Amaral hasn’t named any names, but the prospect that he might sing is roiling the political corridors. If anyone knows where the bodies in Brasilia are buried, it’s Amaral.

Read more …

Money must be separated from political power, or huge trouble lies ahead.

For the Wealthiest, a Private Tax System That Saves Them Billions (NY Times)

The hedge fund magnates Daniel S. Loeb, Louis Moore Bacon and Steven A. Cohen have much in common. They have managed billions of dollars in capital, earning vast fortunes. They have invested large sums in art — and millions more in political candidates. Moreover, each has exploited an esoteric tax loophole that saved them millions in taxes. The trick? Route the money to Bermuda and back. With inequality at its highest levels in nearly a century and public debate rising over whether the government should respond to it through higher taxes on the wealthy, the very richest Americans have financed a sophisticated and astonishingly effective apparatus for shielding their fortunes. Some call it the “income defense industry,” consisting of a high-priced phalanx of lawyers, estate planners, lobbyists and anti-tax activists who exploit and defend a dizzying array of tax maneuvers, virtually none of them available to taxpayers of more modest means.

In recent years, this apparatus has become one of the most powerful avenues of influence for wealthy Americans of all political stripes, including Mr. Loeb and Mr. Cohen, who give heavily to Republicans, and the liberal billionaire George Soros, who has called for higher levies on the rich while at the same time using tax loopholes to bolster his own fortune. All are among a small group providing much of the early cash for the 2016 presidential campaign. Operating largely out of public view — in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service — the wealthy have used their influence to steadily whittle away at the government’s ability to tax them.

The effect has been to create a kind of private tax system, catering to only several thousand Americans. The impact on their own fortunes has been stark. Two decades ago, when Bill Clinton was elected president, the 400 highest-earning taxpayers in America paid nearly 27% of their income in federal taxes, according to I.R.S. data. By 2012, when President Obama was re-elected, that figure had fallen to less than 17%, which is just slightly more than the typical family making $100,000 annually, when payroll taxes are included for both groups. The ultra-wealthy “literally pay millions of dollars for these services,” said Jeffrey A. Winters, a political scientist at Northwestern University who studies economic elites, “and save in the tens or hundreds of millions in taxes.”

Read more …

Another example of why choice of words counts. Reform sounds much better than preparing for war.

China Says Consulted Widely On Army Reform, Xi Closely Involved (Reuters)

China’s military consulted widely on its sweeping reform program, with President Xi Jinping closely involved by speaking with soldiers on the frontlines and hand-writing suggestions, the army’s newspaper said on Thursday. Xi unveiled a broad-brush outline of the reforms last month, seeking further streamlining of the command structure of the world’s largest armed forces, including job losses, to better enable it to win a modern war. He is determined to modernize at the same time as China becomes more assertive in territorial disputes in the East and South China Seas. China’s navy is investing in submarines and aircraft carriers and the air force is developing stealth fighters. The reforms, kicked off in September with Xi’s announcement he would cut service personnel by 300,000, have been controversial.

The military’s newspaper has published almost daily commentaries warning of opposition to the reforms and worries about lost jobs, and warnings that reforms are needed to win wars. In a lengthy front page commentary, the People’s Liberation Army Daily outlined the steps taken to listen to everyone’s opinions on the reforms, including Xi’s involvement. “Chairman Xi went into offices and visited colleges, went to the plateaus, visited the borders, sat in driving seats and cockpits, taking the pulse of reform with soldiers,” the newspaper said. The reform commission took opinions from more than 900 current and former senior officers and experts, issued questionnaires and received thousands of online suggestions, the report said.

There were more than 800 meetings about reform from March to October this year covering almost 700 military bases and units, the newspaper said. The article was also carried in the ruling Communist Party’s official People’s Daily. Xi “found time” to attend meetings on the feedback, saying he wanted to “listen to everyone’s opinion”, it said. “Every line, every word and every character – Chairman Xi earnestly reviewed every draft, putting forward many guiding suggestions, making many important changes with this own hand,” the report said. The enthusiasm for reform and willingness to listen to all sides meant the process was “ardently participated in” by soldiers throughout the ranks, it said.

Read more …

We still label the PKK terrorists?! Why?

Turkey ‘One Step Away From A Civil War’ (NY Times)

A major Turkish military operation to eradicate Kurdish militants in Turkey’s restive southeast has turned dozens of urban districts into bloody battlefields, displacing hundreds of thousands of civilians and shattering hopes of reviving peace as an old war reaches its deadliest level in two decades. Over the past week, Turkish tanks and artillery have pounded Kurdish targets across several southeast cities, killing at least 200 militants and more than 150 civilians, according to human rights groups and local officials. Their descriptions of the fighting and mass destruction in populated areas, which are off-limits to journalists, depict war zones not unlike the scenes in neighboring Syria to the south. The Kurds are a geographically dispersed minority whose aspirations for autonomy date back decades.

The flaring of their conflict with Turkey represents a dangerous complication in a region already convulsed by the upheavals in Syria, Iraq and Yemen. About half of all Kurds live in Turkey, a NATO member and American ally. Several Turkish cities are under tight lockdown, and many residents have been trapped without food or electricity as clashes between Kurdish militants and Turkish security forces have intensified. Militants of the Kurdistan Workers’ Party have dug trenches and put up barricades and are using heavy weaponry and rocket launchers to repel the Turkish police, according to local officials. Turkey has been fighting a counterinsurgency campaign against the Kurdistan Workers’ Party since the group ended a two-year cease-fire in July.

Analysts said the renewed conflict initially appeared to have been a calculated political strategy by President Recep Tayyip Erdogan to strengthen support for his Justice and Development Party ahead of parliamentary elections in November. When Justice and Development won by a landslide – a result that Mr. Erdogan interpreted as the public’s demand for stability – many had hoped it would lead to the revival of peace talks. Instead, the violence has sharply escalated, stoking fears that it might spread. Mr. Erdogan has vowed to eliminate the Kurdistan Workers’ Party, considered a terrorist organization by Turkey, the United States and the European Union. Having carried out an insurgency against Turkey for three decades, the group, now emboldened by a radicalized youth branch inspired by the war in Syria, has declared autonomous regions and stepped up its fight for self-rule.

Read more …

One more red line fades.

Greek Pension Cuts Back On The Table (Kath.)

The government’s proposal to Greece’s creditors for reform of the country’s ailing pension system is likely to foresee 50% of the savings coming from increases to social security contributions and the other half from cuts to pensions, chiefly through supplementary pensions. Though the government has consistently resisted calls by creditors for further cuts to primary pensions, it is likely to make some small concessions. Apart from reductions to supplementary pensions, it is expected that the government’s proposal will foresee reductions to the size of lump sums paid out to retirees. Government sources on Tuesday indicated that there could be some “adjustments” to primary pensions too but that these would only comprise small reductions and would only affect monthly pensions over €2,500 and cases where retirees receive more than one pension.

Authorities are also said to be considering the use of revenue from games of chance and from the state privatization agency to bolster the pension system. Further, ther is the possibility of a tax on bank transactions of more than 1,000 euros which Economy Minister Giorgos Stathakis on Tuesday confirmed was on the table. Members of the Government Council for Economic Policy (KYSOIP) met Tuesday under Deputy Prime Minister Yiannis Dragasakis and discussed the issue of pension reform as well as plans for social welfare initiatives aimed to helping poorer citizens. Sources indicated after the meeting that the government is committed to carry out a series of actions aimed at rebuilding the welfare state and fighting unemployment as well as boosting the health and education systems.

Read more …

And then the Germans buy them all up?!

Greek House Price Drop Second To Worst In The World (Kath.)

Greece has the unenviable distinction of having the second to worst performing residential property market in the world this year, according to data up to the end of September. A Global Property Guide survey shows that the annual price decline in Greece came to 6.03%, second only to Dubai in the United Arab Emirates (-10.4%). Compared to the second quarter of the year, Greece’s price slide amounted to 2% in Q3. Among European Union member-states, Cyprus was a distant second behind Greece, with a 2.2% annual decline in home prices, while Spain was in third after seeing a small drop of 0.45%. As Bank of Greece data also show, pressure on the market prices of residential properties continues, albeit to a lesser degree that previously.

However, an Alpha Bank analysis revealed that after seven consecutive quarters of slowdown in the annual price reduction rate, the trend reversed in the second and third quarters of this year, when the decline accelerated again to 5% and 6.1% respectively, against a drop of 3.9% in Q1 on an annual basis. Apartments in particular saw a milder decline this year, suffering a 5% drop in prices in the first nine months against an 8.1% slump in the same period of 2014 and a 7.5% decline in the whole of 2014. Apartment prices have dropped 40.9% from 2008 up to end-September 2015. The central bank forecasts that the slide is unlikely to reverse in the coming quarters, as the factors that have led to it have not been eliminated.

Read more …

The problems will come in 2016.

Merkel Urges Germans To See Refugee Arrivals As ‘An Opportunity’ (AFP)

Chancellor Angela Merkel in her New Year’s address on Thursday asked Germans to see refugee arrivals as “an opportunity for tomorrow” and urged doubters not to follow racist hate-mongers. The past year – when the country took in more than a million migrants and refugees – had been unusually challenging, she said in a pre-released text of the speech, also bracing Germans for more hardships ahead. But she stressed that in the end it would all be worth it because “countries have always benefited from successful immigration, both economically and socially”. With a view to right-wing populists and xenophobic street rallies, she said “It’s important we don’t allow ourselves to be divided.”

“It is crucial not to follow those who, with coldness or even hatred in their hearts, lay a sole claim to what it means to be German and seek to exclude others.” Merkel has earned both praise and criticism at home and abroad for her decision to open Germany to a record wave of refugees, about half from war-torn Syria. Germany took in almost 1.1 million asylum seekers this year, five times 2014’s total, the Saechsische Zeitung regional daily reported on Wednesday citing unpublished official figures. Merkel, faced with opposition in her conservative camp and popular concerns about the influx, has vowed steps to reduce numbers in 2016. Her plan involves convincing other European Union members to take in more refugees, so far with little success, and an EU deal with gateway country Turkey to better protect its borders.

Merkel said “there has rarely been a year in which we were challenged so much to follow up our words with deeds”. She thanked volunteers and police, soldiers and administrators for their “outstanding” accomplishments and “doing far, far more than their duty”. Looking to 2016, she said: “There is no question that the influx of so many people will keep demanding much of us. It will take time, effort and money.”

Read more …

Oct 272014
 
 October 27, 2014  Posted by at 8:28 pm Finance Tagged with: , , , , , , ,  


Albert Freeman Effect of gasoline shortage in Washington, DC 1942

Europe had hundreds of inspectors check 130 banks for a year in that stress test. Who do you think picked up the tab for that? And what did Europe’s taxpayers get in return? As I’m looking right now, they got falling stocks and 3 Italian banks in which trading was halted. What was the ECB’s goal with the tests again?

Oh right, to restore confidence in the markets … Well, with WTI oil falling fast below $80, I think we can now confidently say the Boys of Brussels are either not up to the job, or they’re letting the whole caboodle rapidly drift south on purpose. Probably a bit of both.

But don’t forget that if things continue on this present path, the next thing out of Draghi et al will be about the survival of the eurozone and likely the euro itself. Which means an outcome as awful as the one we’re seeing right now may be intended to be the final straw to break the Germans’ back, and make them give up their resistance to full blown outhouse paper purchases.

Meanwhile, the ECB bought a grand total of €1.7 billion in covered bonds last week, so at that pace it will take only 587 more weeks to get to the $1 trillion in purchases they aim for. Solid plan.

Sure, oil will rebound above $80 at some point today, the blows must be softened, and European stocks will cut losses on their plunge protection services, but if there was any idea of fooling the financial markets wit the tests, that went off the rails. Still, the people in the street, aka consumers, are still plenty fooled, and maybe that was all Brussels ever wanted. After all, Draghi is Goldman, so whaddaya know, right?

But I wanted to get back to some things I noticed late last week, about US housing. Though the call to not buy a home – at least one with a substantial loan attached – is a global one. Conditions in which you would own such a home, and pay for the loan, are set to change in radical ways, and the risks of the home becoming a trap are simply too high.

More importantly, you would be paying far too much. Fannie and Freddie and the rest of the US real estate five families will loosen requirements again soon, but they don’t do that because they want to do you a favor, they do it because they are looking to smoke out the last remaining greatest fools and suckers left out there. Don’t be one.

Leave the housing industry in your country alone, for five years or so, and allow for prices to come down to a level where homes become affordable again to young people. If the industry doesn’t get to that level, it has no future anyway. If the baby boomer generation can’t sell to their children at prices the latter can afford, US housing is dead. Already, a third of sales are cash only to investment companies, and that’s not a healthy development at all. Don’t go gently into that dark night.

Alexis Leondis and Clea Benson at Bloomberg had some major lamenting last Friday on how regulations stifle the US real estate business. And I’m thinking for once Washington bureaucracy has some positive side effects, but the authors don’t agree.

For me, US and many European housing industries have gone so far off track from, pick a date, 1997 to 2007, that it needs a major correction, something the industry itself, governments and central banks have only tried as hard and as expensively as they could muster, to prevent. We know that every bubble ends at a level below where it started, and housing is nowhere near that bottom yet.

Yes, builders and contractors and lenders and servicers and owners and borrowers will all be hit hard, but what’s the use of keeping up a virtual good face it that means killing off the future of the entire industry? Besides, don’t young people everywhere deserve a shot at a future, building a family etc., without having to bend over backwards just to be allowed to live somewhere?

And I don’t just mean the happy few kids, I want the 50% unemployed youth in southern Europe to be part of this as well, and the 25% or so in the US. You can’t just put out those kinds of numbers of people by the curb and expect to have a working society, let alone housing industry. Nor should you want to. Here’s that Bloomberg thing:

Lenders Facing Soaring Costs Shutting Out U.S. Homebuyers

Clem Ziroli Jr.’s mortgage firm, which has seen its costs soar to comply with new regulations, used to make about three loans a day. This year Ziroli said he’s lucky if one gets done. His First Mortgage Corp., which mostly loans to borrowers with lower FICO credit scores and thick, complicated files, must devote triple the time to ensure paperwork conforms to rules created after the housing crash.

Question no 1: what’s wrong with doing ‘only’ one mortgage a day? Is Mr. Ziroli modeling himself after Angelo Mozilo?

To ease the burden, Ziroli hired three executives a few months ago to also focus on lending to safe borrowers with simpler applications. “The biggest thing people are suffering from is the cost to manufacture a loan,” said Ziroli, president of the Ontario, California-based firm and a 22-year industry veteran. “If you have a high credit score, it’s easier. For deserving borrowers with lower scores, the cost for mistakes is prohibitive and is causing lenders to not want to make those loans.”

[..] Federal rules put in place after the 2008 financial crisis attempt to prevent such reckless lending. The Consumer Financial Protection Bureau in January began implementing the qualified mortgage rule, a 52-page document mandating that lenders must take detailed steps to prove that borrowers have the ability to repay their mortgages. The measure also cracks down on risky loan features such as balloon payments and large fees by leaving lenders exposed to legal liability if they issue such loans.

So far, nothing that upsets me. Lenders have to be more careful about loans they issue, and that costs them a bit more, but not so much that they go out of business. So is that the problem, or is the problem that until 2007 they had thrown all caution to the wind? I think I have an idea.

“The industry as a whole did a terrible job of self-policing and they should not be shocked that there’s now more oversight than there was before,” Gordon said. The CFPB has issued eight rules since 2011 governing everything from appraisals to compensation for loan officers. Six regulators including the Federal Reserve jointly issued a 553-page document this week containing instructions for when lenders must retain a stake in mortgages that they package for sale to investors. [..]

The higher costs and concerns about buybacks are driving the decline in mortgages for home purchases. It will slow to $635 billion this year, a 13% drop from 2013, according to MBA estimates. Banks have constrained home lending to many borrowers deemed creditworthy by mortgage finance companies Fannie Mae and Freddie Mac. Applicants approved for mortgages to purchase homes had an average FICO credit score of 755 in August, according to Ellie Mae, a company that makes software used to process mortgage applications. In contrast, Fannie Mae and Freddie Mac guidelines allow for credit scores as low as 620 for fixed-rate mortgages in some cases. Lenders reported a 30% median increase in compliance costs this year from 2013 …

That’s a steep fall alright, but don’t let’s forget we came from a time of complete lunacy. And that banks are more cautious than the government agencies should perhaps tell you something about the latter. But what’s the real worry? Looks to me like a pretty normal comedown from an abnormally exultant high. Which cost everyone dearly.

Banks are passing some of the costs of compliance to borrowers. Initial fees and charges paid by consumers on agency fixed-rate purchase loans have increased 10% to 1.21% as of August compared with a year earlier [..] Smaller lenders may be hurt the most by compliance costs, said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. They have fewer resources to maintain records and train employees, which is essential to protecting lenders in the new regulatory environment, he said. “There’s no question in this newer market it’s harder for smaller lenders to survive,” Cecala said.

These lenders, which have smaller balance sheets, generally can’t hold the loans on their books and have to sell them to government agencies or investors. At 1st Priority Mortgage, based outside of Buffalo, New York, one investor who buys the company’s loans requires employees to fill out a seven-page form verifying compliance with qualified mortgage standards. Other investors each require different forms, said 1st Priority’s President Brooke Anderson Tompkins.

That last bit is typical of Washington ineptitude, but as I said, for once that works out well, and besides, US screw ups on the ebola file have far more serious implications.

Then, the same day, Barry Ritholtz whined about his own difficulties in getting a mortgage. Which of course, he got anyway, because Barry’s a Wall Street man, investor man, analyst etc. Just like Ben Bernanke got his loan refinanced after some much talked about ‘trouble’. Pardon me, but I’m much more interested in the people who don’t get things done, like anything at all.

I remember Barry as an astute guy at his Big Picture blog back when the crisis hit 7 years ago, and would have liked to see quite a bit more self-criticism, but there you go. Here’s the crux of Barry’s whine:

It Shouldn’t Hurt This Much to Get a Mortgage

Under normal circumstances, approving my mortgage application should be a no-brainer: High income, no debt, good credit score. The missus also makes a good income, has an almost-perfect credit score and has been working for the same business for 28 years. But these are not normal circumstances. Let me jump to the end: Yes, we got our mortgage. We put 20% down, bought a house that appraised for more than the purchase price and got a 3.25% rate on a mortgage that resets after seven years. We moved in last month. But the process was surreal. Indeed, it was such a bizarre experience that I started hunting for explanations from people in the industry about why mortgage lending has gone astray.

I spoke to numerous experts, many of whom spoke only on background. Today’s column is about what I learned. By just about any measure, credit is tighter today than it has been in decades. Although former Federal Reserve Chairman Ben Bernanke’s inability to refinance a mortgage is merely anecdotal, consider instead the gauge CoreLogic developed. It used 1998 as a baseline and considered six quantitative measurements to evaluate how loose or easy mortgage lending is. By those metrics, this is the tightest credit market for mortgage lending in at least 16 years.

The absurdities of my experience are worthy of its own rant, but rather than do that, I wanted to focus on what went wrong. The factors that led to the financial crisis were many …

Do read the rest at the link. My take on this is that when Barry says “credit is tighter today than it has been in decades” and “this is the tightest credit market for mortgage lending in at least 16 years”, I’m thinking not long ago he would have agreed that’s a good thing. We can argue about why this has come to pass, and blame regulation, not banks, but we all agreed in 2007 that too loose lending was a problem (both Barry and the Automatic Earth warned back then that the crisis would come, before it did a year later).

And anyway, I’m not here to show compassion with Ritholtz, I’m here because of all the other people, the young who see their dreams of a decent future cut off cold because of unemployment, low wages etc., and the old who see their pensions evaporate like so much smoke. And for both young and old, a further correction and demise of real estate will, largely – though not in every case – be a blessing. So, you’re wrong, Barry, it should hurt at least this much for you and everyone else to get a loan, if only because the pendulum was that far off its equilibrium in the other direction for so long.

Which is why I’m much more partial to what David Weidner said at MarketWatch on Thursday:

It Will Soon Get Easier To Buy A Home – But Don’t Do It

After an extended drought of credit available to consumers, it’s going to get easier to buy a home. The Federal Housing Finance Agency this week polished off a new set of guidelines that will allow government backing of loans that it had shunned since the mortgage crisis. And in a surprise move, the guidelines include a provision to consider some mortgages without down payments.

The FHFA and the Obama administration are both worried about the amount of credit available to the average American. It’s an epidemic problem. About a third of housing sales were to cash buyers in the first quarter, according to the National Association of Realtors. As I’ve written before, this is extraordinarily high, indicative of a housing market that favors the wealthy. So by lowering the standards of what types of loans are acceptable to the big mortgage giants, it’s obvious that the FHFA’s effort is about encouraging banks to provide more loans. The government is essentially saying: “Go ahead and lend; we’ll hold the paper.”

But in trying to ease credit and turn a mythic housing recovery into a real one, the FHFA may be overreaching. That’s because you know exactly who’s going to be taking out those loans: people who can’t afford them. And because there will always be some people who believe that because they can borrow, they can afford these loans, you know how this new policy is going to play out.

Consider a study issued Oct. 13 by mortgage data provider HSH.com. It found that 80% of homeowners had a regret about their purchase. Surprisingly, most of the regrets weren’t about costs. They were about the size of the home, the neighbors, the schools and other gripes. Then again, this was a post-foreclosure wave survey of 2,000 homeowners. The more than 4 million borrowers who lost their homes to foreclosure since the crisis probably weren’t asked and would have different regrets.

So, while the FHFA is certainly opening the door to another mortgage problem, it’s not ultimately the one to blame. That falls to the home buyer who bites off too much. [..] borrowers can no longer depend on banks and regulators to measure creditworthiness.

Historically, it was difficult to get a home loan. And down payments weren’t an option. They were the price of admission to the lending officer’s desk. But a series of government programs, low interest rates and tax breaks along with loosening standards at banks eroded this institutional test. So today it’s incumbent on the borrower to ask himself if he can afford the American Dream.

For many, the answer is probably “no.” [..] The FHFA will, in the end, encourage more lending. And this will translate into more credit for people who have been denied. But that policy isn’t the one that matters. It’s my policy, your policy, based on what we truly can afford that does.

Before the US, and the UK, Netherlands, Ireland, Spain and many other countries can ever have a healthy housing industry again, that industry will first have to come crashing down to levels indeed not seen in decades. Hurtful for some, beneficial for many others.

So it’s not such a bad thing if regulators choke that market, and people can’t buy properties they can only ‘afford’ is they can borrow 90%+ of the purchase price. After decades of insanity, the only way to get back to health is a severely strict diet and fitness regime. The one ultimate goal must be to make homes affordable to young people, the future of every single community and nation.

Reading through these kinds of articles, I don’t get the idea that anyone at all is aware of that, or even thinking about it. Our societies face a major economic – and therefore overall – reset, and housing is a big part of that, simply because it’s a huge percentage of the real economy. And pumping it up in artificial ways is a short term ‘policy’ that can only end in tears. It’s not exactly rocket science. If you can make a cup of coffee, you can figure this one out.

Oct 252014
 
 October 25, 2014  Posted by at 12:12 pm Finance Tagged with: , , , , , , , , , , , ,  


DPC Luna Park, Coney Island 1905

An Economy Based On Property Has Much To Fear (Independent)
Lenders Facing Soaring Costs Shutting Out U.S. Homebuyers (Bloomberg)
It Shouldn’t Hurt This Much to Get a Mortgage (Ritholtz)
Paying For Bad Habits: Hookers And Drugs Lift UK’s EU Bill (Guardian)
UK Chancellor Osborne’s Choice Of Words Is Sounding Alarm Bells (Guardian)
A Mystery Bidder Offers $3 Million for 6,000 of Detroit’s Worst Homes (BW)
Spanish Accuse Goldman, Blackstone Of Hiking Rent For Poor (Independent)
EU Bank Breakup Plan Hits More Hurdles as Danes Reject Idea (Bloomberg)
Citigroup Bets ECB Will Do QE as Morgan Stanley Sees Odds at 40% (Bloomberg)
50% Of American Workers Make Less Than $28,031 A Year (Snyder)
The American Dream Is Still Possible, Just Not in the US (Daily Bell)
Rosenberg Says No Recession Until At Least 2016 (MarketWatch)
China Auto Market Growth To Shrink by 50% This Year: Industry Head (Reuters)
Blood In The Water As Amazon Magic Fades (Reuters)
Putin Accuses U.S of Blackmail, Weakening Global Order (Bloomberg)
NPR Slashes Number Of Environment Reporters To One Part-Timer (HuffPo)
Ebola Epidemic In Africa To Explode Without Rapid, Substantial Aid (Lancet)
‘Official’ Number of Ebola Cases Passes 10,000, With 5,000 Deaths (BBC)

A very smart way to look at it.

An Economy Based On Property Has Much To Fear (Independent)

Believe it or not, the Bank of England isn’t just a bunch of bowler-hatted types stuck behind desks in Threadneedle Street. It has agents up and down the country interviewing business people on how their companies are faring: what goods are selling well, whether they’re hiring or firing, that sort of thing. The monthly bulletins that result rarely get reported, but are useful because they layer anecdotal evidence on top of the regular run of dry economic stats. Superficially, October’s feedback had much to cheer – order books are swelling in most sectors, employment is expected to increase, and access to credit has improved. But it is striking how much of this positive stuff is related, directly or indirectly, to the property market.

Business services firms – accountants, lawyers and the like – are growing because of an increase in construction deals; manufacturing and retail sales are being kept afloat by sales of kitchens, bathrooms and furniture thanks to people moving house; business investment is growing as firms spend more on doing up their premises or moving to new sites. Property, property, property. Exporters, meanwhile, were gloomy, with all, from farmers to manufacturers, complaining of eurozone weakness, Russian belligerence and war in the Middle East. That means we will be reliant on the domestic economy for years to come. With this still clearly so dominated by the world of bricks and mortar, one has to wonder, what would happen if interest rates start to rise? Disaster, that’s what. The Bank’s other document release yesterday – the minutes to the Monetary Policy Committee’s last meeting on rates – show a continuing doveish slant. Good job, too.

Read more …

No, prices vs income shuts out potential buyers. So either significantly raise wages or drop prices, and stop whining.

Lenders Facing Soaring Costs Shutting Out U.S. Homebuyers (Bloomberg)

Clem Ziroli Jr.’s mortgage firm, which has seen its costs soar to comply with new regulations, used to make about three loans a day. This year Ziroli said he’s lucky if one gets done. His First Mortgage Corp., which mostly loans to borrowers with lower FICO credit scores and thick, complicated files, must devote triple the time to ensure paperwork conforms to rules created after the housing crash. To ease the burden, Ziroli hired three executives a few months ago to also focus on lending to safe borrowers with simpler applications. “The biggest thing people are suffering from is the cost to manufacture a loan,” said Ziroli, president of the Ontario, California-based firm and a 22-year industry veteran. “If you have a high credit score, it’s easier. For deserving borrowers with lower scores, the cost for mistakes is prohibitive and is causing lenders to not want to make those loans.”

Federal regulations, enacted after the collapse of the subprime market spurred the financial crisis, are boosting mortgage costs this year. Most lenders are responding by providing home loans only to borrowers with near perfect credit, shutting out creditworthy Americans whose loan files are too expensive to review and complete. If banks commit compliance errors in issuing a loan that goes bad, they have to buy it back at a loss from Fannie Mae or Freddie Mac. During the housing boom between 2004 and 2007, lenders provided about $2 trillion in subprime loans, many to unqualified borrowers. So-called liar loans didn’t require borrowers to provide pay stubs or tax returns to document earnings. Teaser rates as low as 1% offered on mortgages soared when they reset a few years later.

The share of subprime mortgages for which borrowers either provided little documentation of their assets or none at all rose to 38% in 2007 from 32% in 2003, according to a paper published by the Federal Reserve. Almost one in four of those mortgages defaulted by 2008 compared with one in five of fully documented subprime loans. Wall Street firms securitized pools of the loans called collateralized debt obligations and sold them to investors. They also created so-called synthetic CDOs that were derivative instruments designed to mirror the performance of the loan pools. “What started the crisis were these loans that were designed to fail, loans that weren’t underwritten at all,” said Julia Gordon, director of housing finance and policy at the Washington-based Center for American Progress, which has ties to the Democratic Party. “No one quite realized that these loans were then at the bottom of this giant pyramid scheme, where the Wall Street derivative products that were based off of them would just come crashing down and take the whole economy with them.”

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Sorry, Barry, but that’s as wrong as can be. It should very much be this hard, or prices will never find their ‘natural’ floor.

It Shouldn’t Hurt This Much to Get a Mortgage (Barry Ritholtz)

Under normal circumstances, approving my mortgage application should be a no-brainer: High income, no debt, good credit score. The missus also makes a good income, has an almost-perfect credit score and has been working for the same business for 28 years. But these are not normal circumstances. Let me jump to the end: Yes, we got our mortgage. We put 20% down, bought a house that appraised for more than the purchase price and got a 3.25% rate on a mortgage that resets after seven years. We moved in last month.

But the process was surreal. Indeed, it was such a bizarre experience that I started hunting for explanations from people in the industry about why mortgage lending has gone astray. I spoke to numerous experts, many of whom spoke only on background. Today’s column is about what I learned. By just about any measure, credit is tighter today than it has been in decades. Although former Federal Reserve Chairman Ben Bernanke’s inability to refinance a mortgage is merely anecdotal, consider instead the gauge CoreLogic developed. It used 1998 as a baseline and considered six quantitative measurements to evaluate how loose or easy mortgage lending is. By those metrics, this is the tightest credit market for mortgage lending in at least 16 years.

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I like my take from yesterday better: French hookers are cheaper than British ones.

Paying For Bad Habits: Hookers And Drugs Lift UK’s EU Bill (Guardian)

Listening to EU officials describe how Britain pays its annual EU contribution brings to mind George W Bush being questioned about one of his administration’s budgets. Flicking the pages before assembled journalists he said: “There’s a lot of pages, a lot of lines and a lot of numbers.” To all but a few, the addings up and subtractings that go on in Brussels make little more sense. One of the few things that does seem clear is that Britain is paying for its bad habits. Brussels needs more cash this year to cope with overspent budgets. And while it might seem unfair to tax a country for needing a bigger crutch than others in the EU club, relatively speaking, the UK’s GDP has jumped courtesy of new estimates of the nation’s consumption of drugs and use of prostitutes. The EU applies its complex calculation of how much member states should pay into its coffers largely on GDP levels. The bigger the national income, the bigger the contribution. So far, so simple.

However, earlier this year the UK’s GDP was given a £10bn boost after officials calculated that sex work generated £5.3bn for the economy in 2013, with another £4.4bn coming from the sale of cannabis, heroin, powder cocaine, crack cocaine, ecstasy and amphetamines. Other countries have been affected too after the EU calculated how much of their hidden economies should be brought on the books. Greece faces a larger contribution despite losing a fifth of is national income since 2009. Italy is another victim, though arguably it has only included a fraction of the mafia’s business in its GDP calculations. More importantly, Britain is paying more because this year it is simply bigger than 18 months ago while other countries have stood still or contracted. Like soldiers in a lineup who find themselves volunteering for toilet duty after everyone else has taken a step back, the UK Treasury is paying for being one of the few among the EU’s 27 economies to strengthen this year.

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A glitch in the posturing process?!

UK Chancellor Osborne’s Choice Of Words Is Sounding Alarm Bells (Guardian)

George Osborne is clearly worried. Going into a pre-election war-gaming huddle with his advisers, the economic numbers that once sang a happy tune and are so crucial to victory, now sound a little discordant. It seems churlish to strain for the bum notes in the latest GDP figures. All parts of the economy are growing, with the exception of agriculture. And growing more strongly than they are in any of the major European economies. But it is the chancellor’s words that set off the alarm bells. He said: “If we want to avoid a return to the chaos and instability of the past, then we need to carry on working through our economic plan that is delivering stability and security.” Adopting the word “chaos” is at once interesting and alarming. He seems to be saying that any other path than the one he has chosen will bring with it a swirling storm of instability. Billing himself as Lord Protector, Osborne risks overstating his case, especially when the GDP numbers are so strong.

Growth is moderating, but most surveys report that businesses remain confident about the recovery and continue to hire more staff. As a result, unemployment continues to fall. So what can he be worried about? There is the three months of restrained housing market activity. If it’s true, and we don’t fully understand the link, that much of the recovery is connected to the increase in property buying, then any slowdown is a cause for concern. Except the chancellor wanted the housing market to cool. And his policies are largely the reason banks are refusing to dole out loans after he gave regulators instructions in April to clampdown on risky mortgage lending. A slowdown in housebuilding was also a logical knock-on effect, given that a majority of homes are constructed by a private building sector keen to maintain its extraordinary profit levels.

We know he is worried about the slowdown in exports, which didn’t take off four years ago, as he had expected. The eurozone’s impending recession is largely to blame, but a lack of support to exporters, particularly multimillion-pound credit insurance, has also proved a barrier. However, the crucial issue is the government’s finances, which have worsened this year despite the strong recovery. For a man with the electoral cycle stamped on his DNA, it is tragic that businesses and workers are not paying much extra tax.

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What do Detroiters think of this?

A Mystery Bidder Offers $3 Million for 6,000 of Detroit’s Worst Homes (BW)

Three million dollars can barely buy a new townhouse in Brooklyn these days, but it could be enough to purchase a bundle of more than 6,000 foreclosures up for auction in Detroit. The cost of dealing with the many blighted buildings included in the Detroit mega-auction means a $3.2 million bid received last week—roughly the minimum allowable bid of $500 per property—will likely prove too high to turn a profit. “I can’t imagine that you are going to make money on this,” says David Szymanski, chief deputy treasurer of Wayne County, which is selling the properties. So it’s all the more mysterious that the auction, opened with little fanfare earlier this month, has attracted any bidder at all. Still, at least one unidentified party is willing to pay $3.2 million to take control—and responsibility—for scores of dilapidated homes. In fact, winning the bid could cost the lucky winner a small fortune beyond the auction price.

Finding a way to deal with Detroit’s blight is critical for the city’s future. A task force has already called for immediately tearing down 10% of all structures. The group surveyed the condition of every Detroit property and identified neighborhoods at a tipping point at which stripping them of blight could keep certain areas from slipping away entirely. “I had cancer 12 years ago, and this is exactly like cancer,” Szymanski says. “If you don’t get it all, it’s going to come back.” Wayne County has become a major owner of blighted properties, which it can seize when owners fall behind on taxes. The scale of its distressed holdings is unprecedented. When Szymanski joined the treasurer’s office four years ago, he called the treasurer of Cuyahoga County in Ohio to compare notes. His counterpart, whose domain includes Cleveland and was a bellwether during the housing crisis, asked: “Are you sitting down? We are foreclosing on 4,500 properties.” Szymanski says he replied: “I hope you’re laying down.” At the time, Wayne County had 42,000 properties in foreclosure.

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Throw ’em out!

Spanish Accuse Goldman, Blackstone Of Hiking Rent For Poor (Independent)

The London investment arms of Goldman Sachs and Blackstone were accused last night of jacking up the rents of Madrid’s poorest people after they bought thousands of the city’s council flats. Many, unable to afford their new terms, have now been threatened with eviction or moved out. During the financial crisis, the city was advised by the accountants PwC to sell off swathes of its social housing in order to raise desperately needed funds. It sold 5,000 flats to investors including Goldman and Blackstone. Nothing changed in the tenants’ rents until their leases ran out, when, in many cases, the charges shot up dramatically. Reuters interviewed over 40 households who have been thrown into difficulties by the rent rises. They include Jamila Bouzelmat, a mother of six who lives in a four-bed flat now owned by Goldman and a Spanish property firm. She said her family had been paying €58 (£46) a month rent from her husband’s €500 unemployment benefit. But in April, her new landlords suddenly took €436 from her account.

Ms Bouzelmat said she only discovered the problem when she tried to pay an electricity bill: “We went to take money out and there wasn’t a cent left in the bank,” she explained. 1 in 5 adults in Madrid are unemployed. Goldman and Blackstone are entirely within their rights to charge market-price rents. However, a number of lawsuits have now been launched by local politicians against the councils that sold the homes. The problem is particularly bad in Spain because it already had one of the smallest stocks of social housing in Europe. Now 15 per cent of it has been sold off to London banks and private equity firms, there is even less. Goldman’s properties had about 400 households on reduced rents, often negotiated individually with the council and set for up to two years. Goldman referred inquiries to Encasa Cibeles, the local firm set up to manage the flats. A spokesperson said: “Evictions occur in an extremely small number of cases.”

Blackstone’s tenants have been on longer leases but most have been paying below-market rents. As leases approach expiry, rates have risen 40%. Blackstone referred inquiries to Fidere, the local estate management company, which said “some people have lost the public subsidy they received from the council”. It is negotiating with the 2% of its tenants in that situation.

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There’s always another politician to put on the payroll.

Bank Breakup Plan Hits More EU Hurdles as Danes Reject Idea (Bloomberg)

Denmark won’t back a proposal to split Europe’s biggest banks as the region’s first country to enforce bail-in rules questions the value of more regulation. “With all the legislation now in place there really shouldn’t be more worries,” Business Minister Henrik Sass Larsen said in an interview yesterday at the parliament in Copenhagen. A proposal by Michel Barnier, the European Union’s financial services chief, to break up systemically important banks has resurfaced with local regulators trying to defend national interests, according to a document obtained by Bloomberg News. Italy, which holds the EU’s rotating presidency, said it was looking for “concrete options for the way forward” after registering “strong concerns” among member states, the document showed. “With the regulation we’ve put in place, we’re fully covered,” Larsen said, characterizing the notion that more may be needed as obsolete. The proposal for reforming bank structures has come under attack on multiple fronts since Barnier presented it in January.

In addition to a narrowly defined proprietary-trading ban, Barnier set out EU-wide standards for splitting up the most systemically important banks that would push certain kinds of derivatives and other trading activities into separately capitalized units. Barnier’s plans require approval from national governments and the European Parliament to take effect, with talks set to continue into next year. Britain’s Jonathan Hill, who will replace Barnier as financial services commissioner on Nov. 1, has said he will “take forward work” on the proposal. Larsen’s position shows some EU nations back industry efforts to block further regulation. Christian Clausen, the president of the European Banking Federation and the chief executive of Nordea Bank AB, said this week plans to add rules to the existing framework are “going beyond reason.” Clausen said he plans to have a “serious talk” with the European Commission and parliament to prevent further regulatory tightening.

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Think Berlin.

Citigroup Bets ECB Will Do QE as Morgan Stanley Sees Odds at 40% (Bloomberg)

Economists are at odds over whether the European Central Bank will do “whatever it takes” to revive inflation in the euro area. More than two years after President Mario Draghi promised to pull out all the stops to protect the euro from a swirling debt crisis, ECB-watchers are split over whether the central bank will buy government bonds to aid the struggling economy. In making forecasts for the possible deployment of full-blown quantitative easing, the pressures of weak growth and sliding inflation are being balanced against Germany’s aversion to purchasing sovereign debt and practical considerations such as how and whether it would work. Draghi said earlier this month that the ECB will use further unconventional monetary policy instruments if needed to support recovery. Goldman Sachs sees one-in-three odds of QE, Morgan Stanley views the chances at 40% and JPMorgan is at 50-50. By contrast, HSBC, Barclays and Bank of Americahave sovereign QE as part of their central scenarios. Citigroup even says it could happen before the end of this year.

Here then is a handy round-up, gleaned from reports and interviews, of where economists at major banks stand. Huw Pill, Goldman Sachs: “Sovereign QE is not part of our baseline scenario, which is for economic activity to go sideways and inflation to remain low. We think the current gloom and doom about the euro area outlook is overdone.” Joerg Kraemer, Commerzbank: “We were one of the first banks to predict at the end of August that the ECB would buy government bonds on a generous scale, envisaging this happening at the start of next year rather than this year.” “It has become far more likely that the bank will act before the end of this year. Concerns about the economy that have triggered the drop in equity prices make it ever more likely that the ECB will have to lower its optimistic growth forecast for 2015 of 1.6%.” “This fact plays into the hands of those on the ECB Council in favour of relaxing the reins, as does our expectation that the end of the bank stress test will not in fact sound the all-clear for weak lending. Long-term inflation expectations have dropped sharply.”

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Gutted like a fish.

50% Of American Workers Make Less Than $28,031 A Year (Snyder)

The Social Security Administration has just released wage statistics for 2013, and the numbers are startling. Last year, 50% of all American workers made less than $28,031, and 39% of all American workers made less than $20,000. If you worked a full-time job at $10 an hour all year long with two weeks off, you would make $20,000. So the fact that 39% of all workers made less than that amount is rather telling. This is more evidence of the declining quality of the jobs in this country. In many homes in America today, both parents are working multiple jobs in a desperate attempt to make ends meet. Our paychecks are stagnant while the cost of living just continues to soar.

And the jobs that are being added to the economy pay a lot less than the jobs lost in the last recession. In fact, it has been estimated that the jobs that have been created since the last recession pay an average of 23% less than the jobs that were lost. We are witnessing the slow-motion destruction of the middle class, and very few of our leaders seem to care. The “average” yearly wage in America last year was just $43,041. But after accounting for inflation, that was actually worse than the year before… American paychecks shrank last year, just-released data show, further eroding the public’s purchasing power, which is so vital to economic growth.

Average pay for 2013 was $43,041 — down $79 from the previous year when measured in 2013 dollars. Worse, average pay fell $508 below the 2007 level, my analysis of the new Social Security Administration data shows. Flat or declining average pay is a major reason so many Americans feel that the Great Recession never ended for them. A severe job shortage compounds that misery not just for workers but also for businesses trying to profit from selling goods and services. Average pay declined in 59 of the 60 levels of worker pay the government reports each October.

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In Canada? Really? What part of the dream is that?

The American Dream Is Still Possible, Just Not in the US (Daily Bell)

Although there are no firm statistics on the number of Americans living outside the US, the US State Department estimates that somewhere between 3 and 6 million Americans now live offshore. I think this is a low estimate and the number is clearly growing. I now live in Canada but often travel back to the United States. Driving through Customs near Buffalo is usually not a big ordeal but it does involve a time-wasting delay much like visiting the post office or any other US government bureaucracy. But governments should police their borders, as this is one of the few legitimate functions of a central government. Still, whenever I’m there I do notice the America I grew up in and once knew has really changed since 9/11. The trend toward a more militarized and aggressive police force continues to quicken. I know most Americans accept this as part of the consequences of the War on Terror just as they do the loss of financial privacy, increased fines and asset seizures.

The Canadian government recently warned citizens to be careful when taking cash to the US because of the risk of police taking their cash for hyped-up offenses. Did you know that in the last 13 years, over $2.5 billion has been stolen by law enforcement in almost 62,000 cash seizures? I have to say that as an American, I’m outraged at the situation and always on guard when in the USSA. I fear many Americans who don’t travel internationally might have become somewhat immune to the intrusive, arbitrary nature of today’s American government and its institutions. Here in Canada, law enforcement is almost always professional and courteous and even the bureaucrats are friendly and helpful, which simply amazes me. So to my American family, friends and business associates, I want you to know it is still possible to achieve the American Dream of a simple life with opportunity for wealth creation, fun, freedom and good times without an overly intrusive, threatening government … just not in the United States.

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Rosy’s started living up to his nickname.

Rosenberg Says No Recession Until At Least 2016 (MarketWatch)

It’s going to take a little bit more than Ebola, eurozone pessimism and a rising U.S. dollar to turn David Rosenberg into a bear. The chief economist and strategist at Gluskin Sheff, in his economic commentary, points out the leading economic indicator released Thursday showed a 0.8% monthly advance and a 6.3% year-over-year gain in September. This rate, he says, is consistent with annual real GDP just under 4.5%. Plus, the one-month diffusion index jumped to a four-year high of 90%. Usually, within six months of a recession, the year-over-year trend turns negative while the diffusion index falls below 30%.

“Looking at the situation another way, based on where both the YoY LEI trend and the diffusion indices are now, and tracing them through the classic business cycle, we are at least two years away from the next recession,” he says. What does that mean for stocks? “The reality is that bear markets do not just pop out of the air,” he said. “They are caused by tight money, recessions, or both. These conditions do not apply, nor will they until 2016 at the earliest.”

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That’s a lot of cars planned for and produced, that are not going to be sold.

China Auto Market Growth To Shrink by 50% This Year: Industry Head (Reuters)

Growth in China’s auto market, the world’s biggest, will halve to 7% this year weighed down by a slowing economy, the head of an industry body said on Saturday. “Personally, I think growth this year can reach 7%,” Dong Yang, secretary general of the China Association of Automobile Manufacturers (CAAM), told reporters on the sidelines of an industry conference in Shanghai. “The economy is slowing. The auto industry would reflect that but typically lags the economic cycle by a bit.” CAAM had forecast China’s auto market, which grew by 13.9% last year, to expand at 8.3% in 2014. Dong said CAAM will not make any official revisions to its forecast. [..] Nissan has said its China sales fell by 20% in September from a year earlier, the third straight month of decline, due to sluggish sales of light commercial vehicles and increased competition in the passenger car segment. During the first nine months of the year, overall vehicle sales in China rose 7% from the same period a year earlier, according to CAAM data.

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Jeff Bezos has issues.

Blood In The Water As Amazon Magic Fades (Reuters)

Amazon.com’s once fairy-tale ride on Wall Street has hit its most jarring bump yet. The company that for years enthralled investors with improbable growth and earned one of the technology sector’s highest valuations drew widespread ire after a spectacular results letdown on Thursday. Amazon missed expectations across the board – on margins, on its net loss and on revenue. An unaccountably poor 7% to 18% revenue growth forecast for the typically strongest holiday quarter was the final straw for some. Coming just three months after a big letdown in July, the warning may represent a tipping point for investors who are already wary of a triple-digit price-earnings ratio and a persistent unwillingness to throttle back spending.

“They’re becoming much too distracted in all these other efforts” outside core businesses like online retailing and web services, said Matthew Benkendorf, portfolio manager at Vontobel Asset Management. Benkendorf unloaded his Amazon holdings a year ago and said he would be skeptical of future involvement even if the stock falls further. “They are their own worst enemy to success,” he said. “They really need to do some soul searching and get focused.”

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Not a bad analysis.

Putin Accuses U.S of Blackmail, Weakening Global Order (Bloomberg)

The U.S. is behaving like “Big Brother” and blackmailing world leaders, while making imbalances in global relations worse, Russia’s president said. Current conflicts risk bringing world order to collapse, Vladimir Putin told the annual Valdai Club in the Black Sea resort of Sochi. The Cold War’s “victors” are dismantling established international laws and relations, while the global security system has become weak and deformed, with the U.S. acting like the “nouveau riche” as global leader, he said. “The Cold War has ended,” Putin said. “But it ended without peace being achieved, without clear and transparent agreements on the new rules and standards.” Russia has clashed with the U.S. over conflicts from Syria to Ukraine, sending relations between the two countries to levels not seen since Soviet times. Putin, whose nation is on the brink of recession because of U.S. and European sanctions over Ukraine, also offered asylum to fugitive American government intelligence contractor Edward Snowden in 2013.

“Global anarchy” will grow unless clear mechanisms are established for resolving crises, Putin told the invited group of foreign and Russian academics and analysts. The U.S.’s “self-appointed” leadership has brought no good for other nations and a unipolar world amounts to a dictatorship, he said. “The United States does not seek confrontation with Russia, but we cannot and will not compromise on the principles on which security in Europe and North America rests,” State Department spokeswoman Jen Psaki said in response today in Washington. Psaki said the U.S. was committed to upholding Ukraine’s sovereignty and territorial integrity while continuing to cooperate with Russia on other issues, including destroying nuclear stockpiles and Syria’s chemical weapons cache.

“Our focus is on continuing to engage with Russia on areas of mutual concern, and we’re hopeful that we’ll be able to continue to do that,” Psaki said, “while we still certainly have disagreements on some issues.” Putin also attacked globalization, which he said has “disillusioned” many countries and risks hurting trust in the U.S. and its allies. More nations are trying to escape dependence on the dollar as a reserve currency by forming alternative financial systems, according to the Russian leader. Russia doesn’t want to restore its empire or have a special place in the world, Putin said. While it’s not seeking superpower status in international relations, it wants its interests to be respected, he said.

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Progress!

NPR Slashes Number Of Environment Reporters To One Part-Timer (HuffPo)

National Public Radio is down to just one environment reporter, and he’s only covering the beat part time, InsideClimate News reported Friday. As of early 2014, NPR had three reporters and an editor on the environment beat. Now they have one person, science reporter Christopher Joyce, holding down coverage of the issue, and his stories span a broad range of issues beyond the environment. The other three environment staffers have left NPR or moved to other beats. While other reporters could, of course, fill in with environment coverage, as needed, InsideClimate’s analysis of NPR’s archives finds that the number of environment stories has declined:

The number of content pieces tagged “environment” that NPR publishes (which include things like Q&As and breaking news snippets) has declined since January, according to an analysis by InsideClimate News, dropping from the low 60s to mid-40s every month. A year-to-year comparison shows that the outlet published 68 environment stories in September 2013 and 43 in September 2014. Last month, about 40% of that content was climate-related due to NPR’s cities project, as well as the media-intensive People’s Climate March and the UN climate summit in New York City. The rest was a mix of stories on agriculture and food, land conservation, wildlife, pollution and global health.

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Key line: “90,122 deaths in Montserrado alone by Dec. 15. Of these, the authors estimate 42,669 cases and 27,175 deaths will have been reported by that time.” Less than a third of deaths to be reported.

Ebola Epidemic In Africa To Explode Without Rapid, Substantial Aid (Lancet)

The Ebola virus disease epidemic already devastating swaths of West Africa will likely get far worse in the coming weeks and months unless international commitments are significantly and immediately increased, new research led by Yale researchers predicts. The findings are published in the Oct. 24 issue of The Lancet Infectious Diseases. A team of seven scientists from Yale’s Schools of Public Health and Medicine and the Ministry of Health and Social Welfare in Liberia developed a mathematical transmission model of the viral disease and applied it to Liberia’s most populous county, Montserrado, an area already hard hit. The researchers determined that tens of thousands of new Ebola cases — and deaths — are likely by Dec. 15 if the epidemic continues on its present course. “Our predictions highlight the rapidly closing window of opportunity for controlling the outbreak and averting a catastrophic toll of new Ebola cases and deaths in the coming months,” said Alison Galvani, professor of epidemiology at the School of Public Health and the paper’s senior author.

“Although we might still be within the midst of what will ultimately be viewed as the early phase of the current outbreak, the possibility of averting calamitous repercussions from an initially delayed and insufficient response is quickly eroding.” The model developed by Galvani and colleagues projects as many as 170,996 total reported and unreported cases of the disease, representing 12% of the overall population of some 1.38 million people, and 90,122 deaths in Montserrado alone by Dec. 15. Of these, the authors estimate 42,669 cases and 27,175 deaths will have been reported by that time.

Much of this suffering — some 97,940 cases of the disease — could be averted if the international community steps up control measures immediately, starting Oct. 31, the model predicts. This would require additional Ebola treatment center beds, a fivefold increase in the speed with which cases are detected, and allocation of protective kits to households of patients awaiting treatment center admission. The study predicts that, at best, just over half as many cases (53,957) can be averted if the interventions are delayed to Nov. 15. Had all of these measures been in place by Oct. 15, the model calculates that 137,432 cases in Montserrado could have been avoided. There have been approximately 9,000 reported cases and 4,500 deaths from the disease in Liberia, Sierra Leone, and Guinea since the latest outbreak began with a case in a toddler in rural Guinea in December 2013.

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Reality is likely three times worse here as well.

‘Official’ Number of Ebola Cases Passes 10,000, With 5,000 Deaths (BBC)

The number of cases in the Ebola outbreak has exceeded 10,000, with 4,922 deaths, the World Health Organization says in its latest report. Only 27 of the cases have occurred outside the three worst-hit countries, Sierra Leone, Liberia and Guinea. Those three countries account for all but 10 of the fatalities. Mali became the latest nation to record a death, a two-year-old girl. More than 40 people known to have come into contact with her have been quarantined. The latest WHO situation report says that Liberia remains the worst affected country, with 2,705 deaths. Sierra Leone has had 1,281 fatalities and there have been 926 in Guinea.

Nigeria has recorded eight deaths and there has been one in Mali and one in the United States. The WHO said the number of cases was now 10,141 but that the figure could be much higher, as many families were keeping relatives at home rather than taking them to treatment centres. It said many of the centres were overcrowded. And the latest report also shows no change in the number of cases and deaths in Liberia from the WHO’s previous report, three days ago.

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