Mar 022016
 
 March 2, 2016  Posted by at 10:21 am Finance Tagged with: , , , , , , , , , ,  3 Responses »


Christopher Helin Flint auto, Ghirardelli Square, San Francisco 1924

China To Lay Off 5 To 6 Million Workers (Reuters)
Deflation Defeats Impotent Central Banks (A. Gary Shilling)
Smells Like Subprime (BBG)
China Credit Outlook Cut to Negative by Moody’s (BBG)
China’s Secret Weapon: Used Car Salesmen (FT)
China Reserve Ratio Cut ‘No Signal Of Impending Large-Scale Stimulus’ (Reuters)
Debts Rise At China’s Big Steel Mills, Consumption Falls (Reuters)
Natural Gas Prices Plunge To 17-Year Lows (CNBC)
Europe’s Biggest Oil Hub Fills as Ship Queue at Seven-Year High (BBG)
UAE Says Oil Collapse Will Force All Producers to Cap Volumes (BBG)
Negative Rates … Negative Outcomes (Corrigan)
Trumpocalypse Now (Guardian)
Euro Depression Is ‘Deliberate’ EU Choice, Says Mervyn King (Telegraph)
Why Austria’s Asylum Cap Is So Controversial (Economist)
EU Nations Urged To Lift Border Checks To Save Passport-Free Zone (Guardian)
Rights Groups Accuse France Of Brutality In Calais Eviction (AP)
Greece Seeks EU Aid For 100,000 Refugees (AFP)

Big risk for Xi. He must be desperate.

China To Lay Off 5 To 6 Million Workers (Reuters)

China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution, two reliable sources said, Beijing’s boldest retrenchment program in almost two decades. China’s leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years. The overall figure is likely to rise as closures spread to other industries and even more funding will be required to handle the debt left behind by “zombie” state firms. The term refers to companies that have shut down some of their operations but keep staff on their rolls since local governments are worried about the social and economic impact of bankruptcies and unemployment.

Shutting down “zombie firms” has been identified as one of the government’s priorities this year, with China’s Premier Li Keqiang promising in December that they would soon “go under the knife”.. The government plans to lay off five million workers in industries suffering from a supply glut, one source with ties to the leadership said. A second source with leadership ties put the number of layoffs at six million. Both sources requested anonymity because they were not authorized to speak to media about the politically sensitive subject for fear of sparking social unrest. The ministry of industry did not immediately respond when asked for comment on the reports. The hugely inefficient state sector employed around 37 million people in 2013 and accounts for about 40% of the country’s industrial output and nearly half of its bank lending.

It is China’s most significant nationwide retrenchment since the restructuring of state-owned enterprises from 1998 to 2003 led to around 28 million redundancies and cost the central government about 73.1 billion yuan ($11.2 billion) in resettlement funds. [..] China aims to cut capacity gluts in as many as seven sectors, including cement, glassmaking and shipbuilding, but the oversupplied solar power industry is likely to be spared any large-scale restructuring because it still has growth potential, the first source said. The government has already drawn up plans to cut as much as 150 million tonnes of crude steel capacity and 500 million tonnes of surplus coal production in the next three to five years. It has earmarked 100 billion yuan in central government funds to deal directly with the layoffs from steel and coal over the next two years, vice-industry minister Feng Fei said last week.

The Ministry of Finance said in January it would also collect 46 billion yuan from surcharges on coal-fired power over the coming three years in order to resettle workers. In addition, an assortment of local government matching funds will also be made available. However, the funds currently being offered will do little to resolve the problems of debts held by zombie firms, which could overwhelm local banks if they are not handled correctly. “They have proposed this dedicated fund only to pay the workers, but there is no money for the bad debts, and if the bad debts are too big the banks will have problems and there will be panic,” said Xu Zhongbo, head of Beijing Metal Consulting, who advises Chinese steel mills.

Read more …

Nothing they could ever do. Deflation must and will have its day.

Deflation Defeats Impotent Central Banks (A. Gary Shilling)

Central banks are deadly fearful of deflation. That’s why the Federal Reserve, the European Central Bank, the Bank of Canada, the Bank of Japan and Sweden’s Riksbank, among others, have 2% inflation targets. They don’t love rising prices, but they worry about the consequences of a general decline in consumer prices, so they want a firebreak. Unfortunately, they seem powerless to meet their targets in the current economic environment. The guardians of monetary policy are riveted by Japan, where consumer prices have declined in 48 of the last 83 quarters. This pattern of deflation long ago convinced Japanese buyers to hold off purchases in anticipation of lower prices. But the result is excess inventories and too much productive capacity, which force prices even lower.

That confirms expectations, resulting in yet more buyer restraint. The result of this deflationary spiral has been a miserable economy with an average growth in real GDP of just 0.8% at annual rates since the beginning of 1994. Central banks also fret that in a deflationary environment, debt burdens remain fixed in nominal terms, but the ability to service them drops along with falling nominal incomes and waning corporate cash flows. So bankruptcies leap, while borrowing, consumer spending and capital investment all weaken.

As I argued on Monday, deflation remains a clear and present danger. Worryingly, the remedies central bankers are using aren’t working. First, in reaction to the financial crisis, they knocked their short-term reference rates down to essentially zero, and bailed out their stricken banks and other financial institutions. That may have forestalled financial collapse but it did little to stimulate borrowing, spending, capital investment and economic activity. Creditworthy borrowers already had ample liquidity and few attractive spending and investment outlets; slashing borrowing costs to record lows stimulated asset prices such as equities, with little economic benefit.

Furthermore, banks were too scared to lend. And as they resisted attempts to break them up and eliminate the too-big-to-fail problem, regulators bereaved them of profitable activities such as proprietary trading and building and selling complex derivatives. That forced them back toward less lucrative traditional spread lending – borrowing short-term money cheaply and lending it for longer at a profit – just as the shrinking gap between short- and long-term funds made that business even less attractive. With the amount of capital banks are obliged to set aside against their trading activities also leaping, they’re now regulated to such an extent that many of them probably wish they had been broken up.

Read more …

And Beijing claims Kyle Bass is wrong?

Smells Like Subprime (BBG)

Chinese bankers often pride themselves on having studied in the U.S. or the U.K and true to form, they’re bringing home a lot of the intricate financing that helped people overseas get loans for homes, cars and education. But these financiers are taking creative structures one step further.On Monday, Bloomberg News reported that China will allow domestic banks to issue as much as 50 billion yuan ($7.6 billion) of asset-backed securities that would be paid back using the proceeds from nonperforming loans. (Yes, you read that correctly.) The structure they’re employing is similar to the method that was used to repackage subprime mortgages in the U.S. ahead of the global financial crisis. But when bankers in America were bundling those low-doc mortgages into AAA-rated bonds, they still expected most of the loans would be repaid.

In this case, the debt has already gone bad. Considering hardly any Chinese asset-backed securities have ever received a less than AA score from a local rating company to date, chances are these ones will be awarded the same grade. Of course, investors buying these bonds should be aware they’re backed with debt that’s already soured, regardless of its credit score. Yet, the move is worrying because it’s the latest in a string of revivals in China of dangerous structures that were common in the West before being all but abandoned after 2008. Many of the instruments are helping banks disguise or unload their exposure to troubled companies in the same way issuance of asset-backed securities helped U.S. and British lenders mask their exposure to souring home payments as loans became delinquent.

Ironically, China had pretty much banned asset-backed securities until 2013 because of what happened during the credit crisis. Since authorities began allowing them again, they’ve spread like wildfire. Official data indicate that 593 billion yuan of ABS were sold last year, 79% more than in 2014. Less comprehensive Chinabond data show some 678 billion yuan being issued over the past two years. The first quota of 50 billion yuan is just a test. If there’s enough demand you can bet there will be plenty more of these repackaged bad-loan bonds floating around China in coming years. The amount of debt classed as nonperforming at Chinese commercial banks jumped 51% from a year earlier to 1.27 trillion yuan as of Dec. 31, the highest since June 2006, data from the China Banking Regulatory Commission showed last month.

Read more …

CDS look very ugly.

China Credit Outlook Cut to Negative by Moody’s (BBG)

China’s credit-rating outlook was lowered to negative from stable at Moody’s Investors Service, which highlighted the country’s surging debt burden and questioned the government’s ability to enact reforms just days before leaders gather to approve a five-year road map for the economy. The government’s financial strength may come under pressure if it takes on liabilities from troubled state-owned companies, while capital outflows have limited policy makers’ scope to stimulate the weakest economy in a quarter century, the ratings company said in a statement on Wednesday. State intervention in equity and foreign-exchange markets has heightened uncertainty about the leadership’s commitment to reform, Moody’s said.

While markets shrugged off the outlook cut on Wednesday, it highlights concern among global investors that the ruling Communist Party will struggle to overhaul Asia’s largest economy at a time when capital is flowing out of the country and debt levels have climbed to an unprecedented 247% of GDP. Chinese leaders will begin nearly two weeks of policy meetings on Saturday to map out how to tackle the nation’s economic challenges and meet the government’s goal of doubling per-capita income by 2020. “The government’s ability to absorb shocks has diminished and we want to signal this in the negative outlook,” Marie Diron, a senior vice president at Moody’s, said in an interview on Bloomberg Television. Authorities “have stepped backward in their reform steps and so that is creating some uncertainty.”

Read more …

Growth market. Next up: scrapyards.

China’s Secret Weapon: Used Car Salesmen (FT)

You have probably read, in the Financial Times and elsewhere, that China is the world’s largest car market. It is not. It is the world’s largest new car market, with sales of 21.1m units last year compared with 17.4m in the US. When used cars are included, the US auto market swells to more than 40m units, against less than 30m total passenger car sales in China. In value terms, the gap between the two markets is even larger. In 2014, the overall value of US car sales was almost $1.2tn, more than twice as large as China’s $470bn. This is not surprising, considering that two-thirds of cars on Chinese roads are less than five years old and 80% of all buyers are first-time drivers. The latter fact explains why crossing an intersection in China can be a harrowing experience for pedestrians.

Put another way, an industry that most Americans, Europeans and Japanese have grown up with and now take for granted does not yet even exist in China. Dismiss a shady character as a “used car salesman” and most Chinese people will not understand the reference. As Chinese leaders gather at their annual parliamentary session later this week, it is worth bearing in mind that they are doing so in a country where one cannot very easily buy a used car. That fact should reassure Chinese politicians and multinational executives worried about the pace of growth in the world’s second-largest economy, which will be a topic of much discussion at the National People’s Congress.

Government officials insist that the rising “new economy” will balance out the declining “old economy”, allowing the country to grow at an average rate of 6.5% through 2020. The creation of entirely new industries will further support growth. The inevitable rise of what will soon be the world’s largest used car market is one such example. While its emergence will initially cannibalise some new car sales — primarily those of cheap domestic brands — the potential for growth is huge. In most developed auto markets, there are at least two used car sales for every one new car sale. In China the ratio is inverted, with roughly three new car transactions for every used car sold.

Read more …

Just a signal of panic.

China Reserve Ratio Cut ‘No Signal Of Impending Large-Scale Stimulus’ (Reuters)

China’s move to cut banks’ reserve requirement ratio (RRR) indicates a slight easing bias in China’s “prudent” monetary policy, but that is by no means a signal of any coming large-scale stimulus, the official Xinhua news agency said in a commentary late on Tuesday. The Xinhua commentary follows rising market expectations that China could implement a version of the massive stimulus it adopted during the global financial crisis, launching in late 2008 a 4 trillion yuan ($610 billion)stimulus package to boost the economy. The news agency said strong stimulus was not needed because China still had monetary policy tools available and China’s economy was growing at a reasonable rate, with no signs of chaos or crisis in the global economy. Xinhua stated that because China would stick to its prudent monetary policy, there would be no changes in the way the government adjusted liquidity, which would be kept at a reasonable and flexible level, it said.

That meant China’s lending and total social financing would grow at a steady and reasonable rate, Xinhua noted. Xinhua’s view was echoed by state-owned People’s Daily, which reported on Wednesday, citing economists, that the RRR cut was not stimulus, but only reflected increasing policy flexibility aimed at supporting economic development. Late on Monday, the People’s Bank of China announced a cut in the amount of cash that banks must hold as reserves – the reserve ratio requirement (RRR) – by 50 basis points. It frees up an estimated $100 billion in cash for new lending. Hong Hao at BOCOM International said the RRR cut was largely liquidity neutral, because the move was intended to offset the decline in China’s foreign currency reserves and to accommodate more than 1 trillion yuan of open market operations facilities due this week.

Read more …

So they can’t go broke, right?!

Debts Rise At China’s Big Steel Mills, Consumption Falls (Reuters)

China’s major steel mills added to their debt pile in 2015 while consumption of steel products fell for the first time in two decades, a senior official said on Wednesday, adding to the industry’s difficulties as it tries to tackle a crippling glut. The debt ratio of major steel mills rose 1.6 %age points to 70.1% from a year ago, taking the big mills’ debt to 3.27 trillion yuan ($499 billion), Li Xinchuang, the vice secretary general of the China Iron & Steel Association (CISA), told a conference. At the same time, steel product consumption in China fell 5.4% to 664 million tonnes in 2015 from a year ago, the first drop since 1996, said Li, who is also head of the China Metallurgical Industry Planning and Research Institute.

China is trying to rein in its bloated steel sector, and aims to cut crude steel capacity by 100 million to 150 million tonnes within the next five years, as well as ban new steel projects and eliminate so-called “zombie” mills. However, slower demand and rising debt will put further pressure on the industry, with prices already at multi-year lows. China’s major steel mills produced a combined 601 million tonnes of steel last year, accounting for nearly three-quarters of the country’s total output, Li said. CISA earlier said the country’s total annual crude steel capacity now stands at 1.2 billion tonnes. Total production reached 803.8 million tonnes last year, down 2.3%, the first drop since 1981. The drive to cut industrial capacity will force China to lay off probably 1.8 million workers from coal and steel sectors, and the central government will allocate 100 billion yuan to deal with job losses and tackle debt.

Read more …

“..Australian LNG production is expected to grow 50% in the five years through to 2020..”

Natural Gas Prices Plunge To 17-Year Lows (CNBC)

Natural gas prices have crashed to 17-year-lows in the past week, underscoring burgeoning supply in the global market just as U.S. exports its first ever shale gas cargo. On Monday, natural gas prices on the New York Mercantile Exchange settled 4.5% lower to their lowest level since 1999 after U.S. weather forecasts signaled warmer weather in the weeks ahead, curbing demand for natural gas used for heating. The decline brought February losses in natural gas to 26%. Prices recovered on Tuesday but the outlook remains depressed. Japan, the world’s largest importer of natural gas, is restarting its nuclear reactors six years after the 2011 Fukushima disaster, with three out of 43 nuclear reactors brought back online since August and more expected to come.

Japan is likely to bring back more reactors online, which will make the country less dependent on LNG for electricity generation. In January, shipments of LNG into Japan fell the most in more than six years, according to Bloomberg calculations. This does not bode well for Australia, which has pumped more than $160 billion in LNG investments just before the commodities rout that has taken oil prices down 70% since the summer of 2014. Australian LNG production is expected to grow 50% in the five years through to 2020 even as certain producers cut capital expenditures and reduce spending on upstream activities, said Fitch Group unit BMI Research in a note last week.

Read more …

“..people will be filling up their “swimming pools” with it this year.”

Europe’s Biggest Oil Hub Fills as Ship Queue at Seven-Year High (BBG)

The queue of ships waiting outside Europe’s biggest port and oil-trading hub of Rotterdam has grown to the longest in seven years as a global supply glut fills storage capacity. As many as 50 oil tankers, twice as many as normal, are waiting outside Rotterdam because storage sites are almost full, the port’s spokesman Tie Schellekens said by phone on Tuesday. “This is a clear sign of the oversupply filling up storage to the brim,” Gerrit Zambo, an oil trader at Bayerische Landesbank in Munich, said by phone. “People are preferring to store oil rather than cut production. These are bearish signs.” The world is so awash with oil that BP CEO Bob Dudley said last month people will be filling up their “swimming pools” with it this year.

Traders are taking advantage of a market contango, where forward prices are higher than current prices, by buying oil cheap, storing it and selling the commodity later. As onshore storage fills up, companies could start stockpiling at sea in a repeat of a strategy last seen in 2008 and 2009. Crude oil in storage tanks in Rotterdam stood at 51.3 million barrels on Feb. 19, the highest for the time of year in data starting in 2013, according to Genscape, which monitors inventories. Royal Vopak NV, the world’s largest oil-storage company, last week reported a fourth-quarter occupancy rate of 96% at its 11 terminals in the Netherlands compared with 85% a year earlier. The situation in Rotterdam mirrors that in the biggest U.S. storage hub of Cushing in Oklahoma, where stockpiles are at a record high.

“In Cushing and probably Rotterdam storage is filling up very quickly,” said Giovanni Staunovo at UBS in Zurich, Switzerland. “In China, given high oil imports, there are too many ships and the infrastructure seems not be able to handle that.” Saudi Arabia, the world’s biggest oil exporter, said last month it won’t cut production to ease global oversupply, while Iran has pledged to increase output after sanctions were lifted in January. Still, oil climbed on Tuesday from the highest close in more than seven weeks on speculation that monetary stimulus in China could help revive flagging economic growth in the world’s second-biggest fuel consumer.

Read more …

It will bankrupt them first.

UAE Says Oil Collapse Will Force All Producers to Cap Volumes (BBG)

The oil-price collapse will compel all producers to freeze output and no early OPEC meeting can take place without such a move, the United Arab Emirates’ energy minister said. “This is the reality,” Suhail Al Mazrouei said Tuesday in Abu Dhabi. “Current prices will force everyone to freeze production; stubbornness doesn’t make sense.” Saudi Arabia – the world’s largest crude exporter – Russia, Venezuela and Qatar have proposed that producers cap production at January levels to bolster prices that have tumbled almost 70% in two years. OPEC member Iran, which is ramping up output following the removal of sanctions in January, has said the plan is “ridiculous” and saddles it with “unrealistic demands.”

Venezuela is among members of the Organization of Petroleum Exporting Countries to call for a meeting of oil producers this month, while Saudi Arabian Oil Minister Ali al-Naimi has said he hopes for such a gathering. The group’s next scheduled meeting is in June. Mazrouei said he hasn’t received an invitation for an early meeting and a summit won’t be necessary if producers don’t agree in advance to freeze output. That runs counter to Iran’s plans to increase volumes by 1 million barrels a day this year. “The idea of bringing a lot of production in a short period is not practical,” Mazrouei said.

Read more …

Laws of nature.

Negative Rates … Negative Outcomes (Corrigan)

There has been much head-scratching of late as to why, with interest rates lower than they have been since the Universe first exploded out of the Void, businesses are not undertaking any where near as much investment as that hoped for beforehand by the academic cabal whose ‘effective demand’ and ‘transmission channel’ fixations have helped drive rates to today’s mind-boggling levels. This is obviously a complex topic in which there are many different factors at work – not the least of which is that the prevalence of overly-low interest rates for much of the recent past has meant that all too much of such investment as is now desired has not only already been done, but done in what has turned out to be so misguided a fashion, that there is less appetite – as well as fewer means, in many cases – to undertake much more of it today.

If the cure for higher prices – as the saying in commodity markets goes – is higher prices, then the cause of lower rates is almost certainly lower rates! Be that as it may, on a more fundamental level, it might also be possible to tease out at least one aspect of the answer to the conundrum with the aid of a little straightforward logic, as we shall now attempt to do here. In theory, positive interest rates reflect the primal truth that goods fit for our enjoyment today are worth more to their potential consumer than those same goods which are only available tomorrow. Moreover, since producer goods are otherwise inedible, unwearable, uninhabitable, etc., in their present form, they only derive their value in respect of their quality of being innate consumer goods-to-be.

Hence, the means of producing the day’s goods for some future date are always to be discounted back using that same ratio (which is none other than the natural rate) as the one which prevails between consumables-now and consumables-then. Doing so gives us a positive IRR (or, if you prefer, assuring that NPV>0) for the process. Here it goes without saying that since the natural rate is inherently unobservable, the market interest rate will be used in its place – an unavoidable substitution which demands that this latter quantity be subject to as few falsifications as possible (a vexed topic suitable for a forthcoming, much deeper treatment).

Read more …

Oh, wait, Drumpfocalypse.

Trumpocalypse Now (Guardian)

There will be those in the Republican and conservative establishment who will try to spin the Super Tuesday results. Some among the GOP chattering classes will tell you that Trump didn’t get the knock-out punch he wanted – that there is still a chance to restore order. Don’t believe it. The numbers make it clear that, for the Republican party, it’s Trumpocalypse Now. While Ted Cruz won his home state of Texas as well as Oklahoma, and Rubio ran him close in Virginia and actually managed to win Minnesota, Trump dominated elsewhere. His success extended from Massachusetts to Georgia to Alabama to Tennessee to Oklahoma. He won in Ted Cruz’s south, and he won in the north-east, where a more establishment-friendly candidate like Marco Rubio was supposed to prevail.

Trump is winning with men and women, moderates and conservatives, with the young and the old. Trump is winning despite a weekend of unforced errors – after failing to repudiate former Klu Klux Klan Grand Wizard David Duke. Trump is winning even after taking political napalm from Marco Rubio since last week’s debate – with Rubio ridiculing his rival on the trail for days. Trump is winning despite the fact that the Republican speaker of the House and majority whip in the Senate both criticized him this week. He is winning in spite of the fact that almost every big name Republican officer-holder and mega-donor is lined up behind his opponents. The race is not technically over. While Trump will win the lion’s share of delegates tonight, both Cruz and Rubio will pick up delegates and spend the next couple of weeks trying to convince voters and donors that they can stop the frontrunner – that they have a path to the nomination.

Whether or not either of these men can really achieve that at this point – and I remain highly skeptical, despite Cruz’s two-state win – the day of reckoning for the Republican party has arrived. Whatever happens, what neither Cruz nor Rubio nor anyone else can do is to stop the forces that Trump’s candidacy has unleashed. It’s no longer possible to say the Republican party is a conservative party. You can’t even say the Republican party’s base is conservative. It appears that a new, populist-nationalist wing has wrested control of the of the GOP away from its familiar constituency. This is no longer the party of William F Buckley and Jack Kemp. It’s now the party of Pat Buchanan and Ross Perot.

Read more …

“I never imagined that we would ever again in an industrialised country have a depression deeper than the United States experienced in the 1930s and that’s what’s happened in Greece.”

Euro Depression Is ‘Deliberate’ EU Choice, Says Mervyn King (Telegraph)

Europe’s deep economic malaise is the result of “deliberate” policy choices made by EU elites, according to the former governor of the Bank of England. Lord Mervyn King continued his scathing assault on Europe’s economic and monetary union, having predicted the beleaguered currency zone will need to be dismantled to free its weakest members from unremitting austerity and record levels of unemployment. Speaking at the launch of his new book, Lord King said he could never have envisaged an economic collapse of the depths of the 1930s returning to Europe’s shores in the modern age. But the fate of Greece since 2009 – which has suffered a contraction eclipsing the US depression in the inter-war years – was an “appalling” example of economic policy failure, he told an audience at the London School of Economics.

“In the euro area, the countries in the periphery have nothing at all to offset austerity. They are simply being asked to cut total spending without any form of demand to compensate. I think that is a serious problem. “I never imagined that we would ever again in an industrialised country have a depression deeper than the United States experienced in the 1930s and that’s what’s happened in Greece. “It is appalling and it has happened almost as a deliberate act of policy which makes it even worse”. Lord King – who spent a decade fighting the worst financial crisis in history at the Bank of England – has said the weakest eurozone members face little choice but to return to their national currencies as “the only way to plot a route back to economic growth and full employment”.

“The long-term benefits outweigh the short-term costs,” he writes in The End of Alchemy. The former Bank governor has said popular disillusion with EU economic policies are likely to lead to disintegration of the single currency rather than a move towards “completing” monetary union. Two of the eurozone’s debtor nations – Ireland and Spain – are currently locked in electoral stalemate after their pro-bail-out governments failed to win the backing of voters. But the European Commission has defended itself against claims that punishing austerity measures have made incumbent European regimes unelectable, arguing that Brussels’ economic policy represents a “virtuous triangle” of austerity, structural reforms and investment.

Read more …

Nobody cares about the laws they signed up for.

Why Austria’s Asylum Cap Is So Controversial (Economist)

Europe is divided on how to handle the largest number of refugees since the second world war. Still, Austria’s move to cap asylum claims at 80 per day at its southern border and limit the daily number of people travelling through Austria to seek asylum in Germany to 3,200 has sparked outrage. After Austria, which lies on the migrant route from the Balkans into Germany, announced its plan, Dimitris Avramopoulos, European Commissioner for migration, home affairs and citizenship, wrote to Austria’s interior minister to protest. The move, he said, was “plainly incompatible” with EU law. The minister replied, on television: “they have their legal adviser and I have legal advisers.” The Geneva Convention and the EU Charter of Fundamental Rights clearly state that asylum is a right.

Human-rights activists argue that a cap runs counter to the spirit of these texts; lawyers know that, as fundamental as they are, rights are never absolute. But Austria would seem to be flouting some EU directives. One (which was voted for by Austria) says that asylum applications must be officially registered (that is, given a number) no more than ten days after they have been lodged; a daily limit would seem to make following that difficult. Last year, around 700,000 migrants entered Austria and around 90,000 applied for asylum. According to another rule, refugees are supposed to apply for asylum in the first “safe country” they are in, rather than moving on to another. EU rules have been woefully stretched by Europe’s immigration crisis already of course. In 2011, European judges criticised Greece for failing to register asylum applications at the border.

All applications, they said, were being made on one day a week at one police station in Athens. More recently, the European Commission criticised Greece for not being able to control its border and letting people hike up north. In 2011, Italy issued thousands of temporary residency permits, which allow immigrants to travel around Europe, to Tunisians who had arrived on its shores. In response, France closed its border with Italy. No action was taken. Mr Avramopoulos is adamant that Austria’s measures are unlawful, but it is not clear what he intends to do about it. The European Commission’s legal services are building up their case but judges might never hear it. Further angry exchanges seem more likely than legal action. Meanwhile, Austria’s move has led to border slowdowns for migrants across the Balkans. EU leaders have announced they will hold a summit in early March with Turkey to attempt to seek fresh solutions to the crisis.

Read more …

Never mind. Schengen’s long dead.

EU Nations Urged To Lift Border Checks To Save Passport-Free Zone (Guardian)

European Union countries are being urged to lift internal border controls before the end of the year, to save the “crowning achievement” of the passport-free travel zone from total collapse, according to a draft report by the European commission. Walls, fences and border checks have returned across Europe as the EU struggles to cope with the biggest inflow of refugees since the end of the second world war. Since September 2015, eight countries in the 26-nation passport-free Schengen zone have re-instated border checks. These controls “place into question the proper functioning of the Schengen area of free movement”, according to the draft report seen by the Guardian, which will be published on Friday. “It is now time for member states to pull together in the common interest to safeguard one of the union’s crowning achievements.”

Separately, the European commissioner for humanitarian aid is expected to announce on Wednesday that €700m (£544m) will be spent over three years in helping refugees in the western Balkans. Much of the money is destined for Greece, as EU leaders scramble to help Athens deal with its own crisis. 24,000 refugees are in need of permanent shelter and 2,000 people are arriving on Greek shores each day. EC president Donald Tusk has described helping Greece as “a test of our Europeanness”. The passport-free travel zone, which stretches from Iceland to Greece but does not include the UK or Ireland, has been under unprecedented pressure; its collapse could unravel decades of European integration. The commission wants member states to lift border controls “as quickly as possible” and with “a clear target date of November 2016”. But Brussels also wants tighter control of the EU’s external border and will repeat warnings that Greece could be kicked out of Schengen if it fails to improve border management by May.

[..] Greece is under growing pressure to hand over management of its borders to the EU, as it struggles to cope with the numbers. According to this latest plan, EU authorities will carry out an inspection of Greece’s borders in mid April to determine whether controls are adequate, with a final decision on Greece’s place in Schengen to be taken in May. The EU executive also reaffirms its intention to overhaul rules governing asylum claims. Under the current rules, known as the Dublin system, asylum seekers have to lodge their claim in the first country they enter. The Dublin regime was effectively finished last year when the chancellor, Angela Merkel, opened Germany’s borders to any Syrian who wanted to claim asylum there, regardless of where they arrived in the EU. In mid-March the commission will set out a list of options for reforming EU asylum policy. The favoured idea is a permanent system of relocation, where refugees are shared out around the union, depending on the wealth and size of a country.

Read more …

Second hand citizens.

Rights Groups Accuse France Of Brutality In Calais Eviction (AP)

More than a dozen humanitarian organizations on Tuesday accused authorities of brutally evicting migrants from their makeshift dwellings in a sprawling camp in northern France, as fiery protests of the demolition continued. Thousands of migrants fleeing war and misery in their homelands use the port city of Calais as a springboard to try to get to Britain on the other side of the English Channel. However, authorities are moving to cut short that dream by closing a large swath of the slum camp in the port city of Calais. In the stinging accusation at the close of the second day of a state-ordered mass eviction and demolition operation, the organizations charged that authorities have failed to respect their promise of a humane and progressive operation based on persuading migrants to vacate their tents and tarp-covered homes.

“Refugees, under threats and disinformation, were given one hour to 10 minutes to leave their homes,” a statement said. Police pulled out some who refused, making arrests in certain cases, while others were not allowed to gather their belongings or identity papers, the statement charged. Migrants and pro-migrant activists protested against the eviction Tuesday, some climbing onto shanty rooftops to briefly stall the tear-down, and others by starting a night fire. Tents and tarp-covered lean-tos were also set afire on Monday and earlier Tuesday. The protesting organizations alleged that police aimed flash-balls at the roof protesters, then clubbed them and made some arrests. Tear gas, water cannons and other tactics have been used excessively, the statement charged.

Organizations respected for their humanitarian work with migrants, such as Auberge des Migrants (Migrants’ Shelter), GISTI and Secours Catholique were among the 14 who signed the list of charges. The mass evictions from the southern sector of the camp were announced Feb. 12 with promises by Interior Minister Bernard Cazeneuve that there would be no brutality. However, the Monday start of operations came as a surprise. The regional prefecture in charge of the demolition says the hundreds of police present are needed to protect workers in the tear-down and state employees advising migrants of their options. France’s government has offered to relocate uprooted migrants into heated containers nearby or to centers around France where they can decide whether to apply for asylum. Officials have blamed activists from the group No Borders for the ongoing unrest. But many migrants resist French offers of help, afraid of hurting their chances of reaching Britain.

Officials say the evictions concern 800-1,000 migrants, but organizations working in the camp say the real number is more than 3,000.

Read more …

Crazy they even have to ask.

Greece Seeks EU Aid For 100,000 Refugees (AFP)

Greece has asked the EU for €480 million ($534 million) in emergency funds to help shelter 100,000 refugees, the government said Tuesday, warning that the migrant influx threatened to overwhelm its crisis-hit resources. “Greece has submitted an emergency plan to the European Commission .. corresponding to around 100,000 refugees,” government spokeswoman Olga Gerovassili told reporters. “We cannot bear the strain of all the refugees coming here… these are temporary measures, there needs to be a permanent solution on where the refugees will be relocated,” she added. “Greece has made it clear that it will use every diplomatic means available to find the best possible solution,” Gerovassili said.

With Austria and Balkan states capping the numbers of migrants entering their soil, there has been a swift build-up along the Greek border with Former Yugoslav Republic of Macedonia (FYROM). Athens had previously warned that it could be stuck with up to 70,000 people trapped on its territory. Gerovassili said there were 25,000 migrants and refugees currently in the country and that FYROM was only allowing “a few dozen” through every day. Over 7,000 people – many of them stranded in near the Idomeni border crossing for days – spent a freezing night and awoke under wet canvas among sodden wheat fields.

Read more …

Dec 182015
 
 December 18, 2015  Posted by at 10:15 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »


James F. Gibson Tent of A. Foulke, Horse Artillery, Brandy Station, Virginia 1864

Sell The Bonds, Sell The Stocks, Sell The House – Dread The Fed! (Stockman)
Oil Below $35, Set For Third Weekly Loss As Supply Glut Seen Relentless (BBG)
Natural Gas Falls to All-Time Inflation-Adjusted Low (WSJ)
This Year’s Worst Commodity Is One You Probably Can’t Pronounce (BBG)
Slowing Boats From China Provide Clue to Health of World Trade (BBG)
Fed Will Have To Reverse Gears Fast If Anything Goes Wrong (AEP)
The ‘Rate Hike’ Means More Looting By The 1% (Paul Craig Roberts)
Japan To Craft $27 Billion Extra Stimulus Budget To Spur Growth (Reuters)
Beijing Probes Architects of Stock-Market Rescue (WSJ)
China Beige Book Shows ‘Disturbing’ Economic Deterioration (BBG)
IMF’s Lagarde to Face Trial for ‘Negligence’ in Tapie Case (BBG)
IMF Admits Mistakes Over Greece’s Bailout Program (GR)
Beijing Grinds To Halt As Second Ever ‘Red Smog Alert’ Issued (Reuters)
EU Puts Blame On Greece, Turkey At Refugee Summit (Kath.)
EU To Fast-Track Border Control Plans (RTE)
Greece Risks Becoming A ‘Black Box’ For Stranded Migrants (FT)

Got to love it when Stockman gets mad.

Sell The Bonds, Sell The Stocks, Sell The House – Dread The Fed! (Stockman)

There is going to be carnage in the casino, and the proof lies in the transcript of Janet Yellen’s press conference. She did not say one word about the real world; it was all about the hypothecated world embedded in the Fed’s tinker toy model of the US economy. Yes, tinker toys are what kids used to play with back in the 1950s and 1960s, and that’s when Janet acquired her school-girl model of the nation’s economy. But since that model is so frightfully primitive, mechanical, incomplete, stylized and obsolete, it tells almost nothing of relevance about where the markets and economy now stand; or what forces are driving them; or where they are headed in the period just ahead. In fact, Yellen’s tinker toy model is so deficient as to confirm that she and her posse are essentially flying blind.

That alone should give investors pause – especially because Yellen confessed explicitly that “monetary policy is an exercise in forecasting”. Accordingly, her answers were riddled with ritualistic reminders about all the dashboards, incoming data and economic system telemetry that the Fed is vigilantly monitoring. But all that minding of everybody else’s business is not a virtue – its proof that Yellen is the ultimate Keynesian catechumen. This stupendously naïve old school marm still believes the received Keynesian scriptures as penned by the 1960s-era apostles James (Tobin), John (Galbraith), Paul (Samuelson) and Walter (Heller). But c’mon.Those ancient texts have no relevance to the debt-saturated, state-dominated, hideously over-capacitated global economy of 2015.

They just convey a stupid little paint-by-the-numbers simulacrum of what a purportedly closed domestic economy looked like even back then. That is, before Richard Nixon had finally destroyed Bretton Woods and turned over the Fed’s printing presses to power aggrandizing PhDs; and before Mr. Deng had thrown out Mao’s little red book in favor of a central bank based credit Ponzi. As you listened to Yellen babble on about the purported cyclical “slack” remaining in the US economy, the current unusually low “natural rate” of federal funds, all the numerous and sundry “transient” factors affecting the outlook, and the Fed’s fetishly literal quest for 2.00% inflation (yes, these fools apparently think the can hit their inflation target to the second decimal place), only one conclusion was possible. To wit, sell the bonds, sell the stocks, sell the house, dread the Fed!

Read more …

“Crude stockpiles surged to 490.7 million barrels, the highest for this time of year since 1930..”

Oil Below $35, Set For Third Weekly Loss As Supply Glut Seen Relentless (BBG)

Oil traded below $35 a barrel and headed for a third weekly decline amid a worsening U.S. supply glut and the first interest rate increase by the Federal Reserve in almost a decade. Futures held losses in New York after closing Thursday at the lowest in almost seven years, and were down 2.2% this week. Crude stockpiles surged to 490.7 million barrels, the highest for this time of year since 1930, according to the Energy Information Administration. Goldman Sachs warned of “high risks” that prices may sink further as supplies swell. The Fed decision bolstered the dollar, diminishing the investment appeal of commodities.

Oil is trading near levels last seen during the global financial crisis on signs the surplus will be exacerbated. OPEC abandoned output limits at a Dec. 4 meeting while the White House announced its support Wednesday for a deal reached by congressional leaders that would end the nation’s 40-year restrictions on crude exports. “The major driver this week has been U.S. dollar strength against a backdrop of ongoing refusal to respond rationally to the current market surplus on the supply side,” Michael McCarthy, a chief markets strategist at CMC Markets in Sydney, said by phone. “We’re just not seeing the normal production cuts we’d expect given the plummet in prices.”

Read more …

Blame it on the weather.

Natural Gas Falls to All-Time Inflation-Adjusted Low (WSJ)

Natural-gas fell to the lowest ever inflation-adjusted price in its history of Nymex trading on Wednesday as extremely warm weather continues to limit demand. Prices for the front-month January contract settled down 3.2 cents, or 1.8%, at $1.79 a million British thermal units on the New York Mercantile Exchange. That is the lowest settlement since March 24, 1999. Gas prices have been falling precipitously in recent weeks because of the combination of record-high stockpiles and a December that could be the worst for heating demand in history. Prices have fallen 25% in just one month and have dropped 39% from their high in August. Wednesday settlement put gas below the inflation-adjusted low of $1.801 that had been in place since January 1992.

Gas did make a move up to small gains in after-hours trading, but many traders and brokers had little explanation for that rebound. The trader Marc Kerrest said he noticed prices and spreads moving higher for months far away, a sign front-month prices could follow. He closed out some of his bearish bets before settlement, he said. “But in no way would I consider going [bullish on] gas just because of what it’s done,” in recent weeks, said Mr. Kerrest, who manages his own gas-focused fund, Cornice Trading. Warm weather in the U.S. caused by the El Niño weather phenomenon has sharply limited demand for the heating fuel this year. The natural-gas market is oversupplied, and some traders and analysts say the industry could run out of storage space for gas by mid-2016.

Production was so high and demand was so soft that storage levels likely shrank by just 41 billion cubic feet last week, according to the average forecast of 17 analysts, brokers and traders surveyed by The Wall Street Journal. That is only a third of their five-year average drawdown for the week. If the forecast is correct, stockpiles on Dec. 11 would have been 16% above levels from a year ago and 8.9% above the five-year average for the same week.

Read more …

We’re just getting started.

This Year’s Worst Commodity Is One You Probably Can’t Pronounce (BBG)

An obscure metal used to make steel has become this year’s worst-performing commodity, after China’s stumbling economy and a collapse in the energy industry drove outsized losses. Molybdenum – that’s mo.lyb.de.num for the uninitiated – is used in many steel building materials and to help harden the drills used to extract oil and natural gas from deep underground. Prices plunged 49%, the most among 79 raw materials tracked by Bloomberg, as the white metal was undermined by the flagging demand and oversupply that plagued global commodity markets throughout 2015. Use of the metal tumbled 5.1% this year, the biggest contraction since 2009, driven by a slowdown in China, the world’s biggest metals and energy consumer, according to Macquarie.

Prices have dropped for eight straight months, the longest slump since 2011, weighing on returns for mining companies including Freeport-McMoRan Inc., the world’s top producer. “It’s like a poster child for the commodity bear market,” said Paul Christopher atWells Fargo Investment Institute. “We don’t have a positive outlook on metals, including molybdenum, because they’ve been overproduced. They will continue to do the worst, not just because China’s demand is slipping still, but also because there’s not been enough supply adjustment.” Prices for molybdenum oxide tumbled to a 12-year low of $4.616 a pound in November, according to monthly data from Metal Bulletin. The drop exceeded the 34% decline for crude oil and the 27% slide in the Bloomberg Commodity Index, a gauge of returns from 22 items that is headed for its biggest annual decline since the recession in 2008.

Molybdenum for immediate delivery traded on the London Metal Exchange slumped 43% this year to $11,628 a metric ton ($5.27 a pound). About half of molybdenum is produced as a byproduct of extracting other metals, mainly copper. Because it makes up a small portion of revenue for mining companies, suppliers are slower to respond with output cuts when prices tumble, said Mu Li at CPM Group in New York. Production topped demand by 40.9 million pounds in 2015, the biggest surplus since at least 2002, according to Bank of America. The market will remain oversupplied through 2020, the bank estimates.

Read more …

No hurries, mate.

Slowing Boats From China Provide Clue to Health of World Trade (BBG)

If you want to know how China’s economy is doing, take a slow boat from one of its ports. Even with fuel at its cheapest price in almost a decade, the ships that carry goods around the world have been reducing speed in line with the slowdown in China, the biggest exporter. Shipping companies have been “slow steaming” since the global financial crisis in 2008, as a way to save costs and keep as many ships active as possible. Vessels are now operating at an average of 9.69 knots, compared with 13.06 knots seven years ago, according to data compiled by Bloomberg. That means Nike sneakers and Barbie dolls made in China can now take two weeks to arrive in Los Angeles and a month to reach Le Havre, France – a week longer than if the ships were moving at full speed.

And there’s scope for ships to go even slower, according to A.P. Moeller-Maersk. “This is the new norm,” said Rahul Kapoor at Drewry Maritime Services. “The overall speed of the industry has gone down and there’s no going back.” In the boom years before the 2008 financial crisis, shipping lines expanded fleets and ran ships as fast as they could to keep up with the surging demand for goods manufactured half a world away. As demand dropped, the lines were left with too many vessels, and customers eager to reduce inventory, who would rather pay a lower rate to receive goods than guarantee quick delivery. “In 2003, if you were on a tanker, container ships would zoom past and in a matter of a few minutes you couldn’t see them on the horizon,” Kapoor said.

“Since 2008, it’s been a different story.” Fuel costs are the biggest expense for shipping lines and the drop in oil has given them some relief from plunging freight rates driven lower by overcapacity and sluggish global growth. Reducing a ship’s speed by 10% can cut fuel consumption by as much as 30%, according to ship assessor Det Norske Veritas.

Read more …

Lots of things will go wrong.

Fed Will Have To Reverse Gears Fast If Anything Goes Wrong (AEP)

The global policy graveyard is littered with central bankers who raised interest rates too soon, only to retreat after tipping their economies back into recession or after having misjudged the powerful deflationary forces in the post-Lehman world. The European Central Bank raised rates twice in 2011, before the economy had achieved “escape velocity” and just as the Club Med states embarked on drastic fiscal austerity. The result was the near-collapse of monetary union. Sweden, Denmark, Korea, Canada, Australia, New Zealand, Israel and Chile, among others, were all forced to reverse course, and some have since swung into negative territory to compensate for the damage. The US Federal Reserve has waited longer before pulling the trigger, and circumstances are, in many ways, more propitious.

Four years of budget cuts and fiscal drag are finally over. State and local spending will add stimulus worth 0.5pc of GDP this year. The unemployment rate has dropped to 5pc. Payrolls have risen by 509,000 over the past two months. The rate of job openings is the highest since the peak of the dotcom boom in 2000. The M1 and M2 money supply figures have switched from green to amber but are not flashing the sort of stress warnings so clearly visible in mid-2008. Yet it is a very murky picture. This is the first time the Fed has ever embarked on tightening cycle when the ISM gauge of manufacturing is below the boom-bust line of 50. Nominal GDP growth in the US has been trending down from 5pc in mid-2014 to barely 3pc. Danny Blanchflower, a Dartmouth professor and a former UK rate-setter, said the US labour market is not as tight as it looks.

Inflation is nowhere near its 2pc target and the world economy is still gasping for air. He sees a 50/50 chance that the Fed will have to pirouette and go back to the drawing board. “All it will take is one shock,” said Lars Christensen, from Markets and Money Advisory. “It is really weird that they are raising rates at all. Capacity utilization in industry has been falling for five months.” Mr Christensen said the rate rise in itself is relatively harmless. The real tightening kicked off two years ago when the Fed began to slow its $85bn of bond purchases each month. This squeezed liquidity through the classic quantity of money effect. Fed tapering slowly turned off the spigot for a global financial system running on a “dollar standard”, with an estimated $9 trillion of foreign debt in US currency.

China imported US tightening through its dollar-peg, compounding the slowdown already under way. It was the delayed effect of this crunch that has caused the “broad” dollar index to rocket by 19pc since July 2014, the steepest dollar rise in modern times. It is a key cause of the bloodbath for commodities and emerging markets. Mr Christensen said the saving grace this time is that Fed has given clear assurances – like the Bank of England – that it will roll over its $4.5 trillion balance sheet for a long time to come, rather than winding back quantitative easing and risking monetary contraction.

Read more …

The big banks will be alright.

The ‘Rate Hike’ Means More Looting By The 1% (Paul Craig Roberts)

The Federal Reserve raised the interbank borrowing rate today by one quarter of one% or 25 basis points. Readers are asking, “what does that mean?” It means that the Fed has had time to figure out that the effect of the small “rate hike” would essentially be zero. In other words, the small increase in the target rate from a range of 0 to 0.25% to 0.25 to 0.50% is insufficient to set off problems in the interest-rate derivatives market or to send stock and bond prices into decline. Prior to today’s Fed announcement, the interbank borrowing rate was averaging 0.13% over the period since the beginning of Quantitative Easing. In other words, there has not been enough demand from banks for the available liquidity to push the rate up to the 0.25% limit.

Similarly, after today’s announced “rate hike,” the rate might settle at 0.25%, the max of the previous rate and the bottom range of the new rate. However, the fact of the matter is that the available liquidity exceeded demand in the old rate range. The purpose of raising interest rates is to choke off credit demand, but there was no need to choke off credit demand when the demand for credit was only sufficient to keep the average rate in the midpoint of the old range. This “rate hike” is a fraud. It is only for the idiots in the financial media who have been going on about a rate hike forever and the need for the Fed to protect its credibility by raising interest rates.

Look at it this way. The banking system as a whole does not need to borrow as it is sitting on $2.42 trillion in excess reserves. The negative impact of the “rate hike” affects only smaller banks that are lending to businesses and consumers. If these banks find themselves fully loaned up and in need of overnight reserves to meet their reserve requirements, they will need to borrow from a bank with excess reserves. Thus, the rate hike has the effect of making smaller banks pay higher interest expense to the mega-banks favored by the Federal Reserve. A different way of putting it is that the “rate hike” favors banks sitting on excess reserves over banks who are lending to businesses and consumers in their community. In other words, the rate hike just facilitates more looting by the One%.

Read more …

Their debt is not high enough yet.

Japan To Craft $27 Billion Extra Stimulus Budget To Spur Growth (Reuters)

Japan’s cabinet is set to approve on Friday an extra budget worth $27 billion to fund stimulus spending for the current fiscal year ending in March to rev up the flagging economy, government sources told Reuters. The 3.3213 trillion yen ($27.14 billion) extra stimulus budget includes spending for steps to support elderly pensioners with cash benefits and farmers seen hit by the Trans-Pacific Partnership (TPP) trade deal, the sources said on condition of anonymity because the plan has not been finalised. In a show of efforts to fix dire public finances, the government will fund the stimulus without resorting to fresh borrowing, while tapping cash reserves left from the previous year’s budget and higher-than-expected tax revenue, they said.

These funding sources will allow the government to reduce its plans to issue new bonds by 444.7 billion yen from the initially planned 36.9 trillion yen, they said. The government revised up the tax revenue estimate for this fiscal year by 1.899 trillion yen to a 24-year high of 56.4 trillion yen, reflecting increase in corporate tax payments on the back of rising profits. Non-tax revenue was cut by 346.6 billion yen from an initial estimate of 4.95 trillion yen, due to expected cuts in the Bank of Japan’s payment into the government’s coffers because of the bank’s plan to replenish its reserves. The extra budget will be sent to parliament for approval early next year, along with an annual budget for the coming fiscal year that starts in April.

Read more …

“..investigating whether officials inside the China Securities Regulatory Commission used their knowledge of the rescue effort to enrich their friends or themselves..”

Beijing Probes Architects of Stock-Market Rescue (WSJ)

Having already investigated investors and brokerages in connection with a bungled summer stock-market rescue totaling more than $200 billion, Beijing is now probing the rescuers. Communist Party graft busters are investigating whether officials inside the China Securities Regulatory Commission used their knowledge of the rescue effort to enrich their friends or themselves, say agency officials familiar with the probe. In recent weeks, they have been taking officials, one by one, to a hotel close to the agency’s headquarters to press them to come clean or report on others, the officials say. The investigators also have set up shop on the top floor of the agency’s 22-story headquarters in downtown Beijing, banned agency officials from leaving China and set up a hotline and red mailbox in the lobby for anonymous tips, the officials say.

Already two top CSRC officials have been removed from their posts and placed under investigation on suspicion of leaking the government’s moves to private investors who used it to reap profits, according to officials with knowledge of the probe. The officials familiar with the probe told The Wall Street Journal that one focus is suspected chummy ties between the regulators and those they regulate. “They’re trying to determine what went wrong with the action to save the market this summer,” one of the officials said. “Was there anyone who inappropriately profited from the action?” [..]

The investigation was sparked by a stock-market rescue effort that called into question China’s ability to manage a market-driven economy, a stated national goal. That effort included a massive government-led buying binge, with a state lender plowing 1.2 trillion yuan ($188 billion) into the stock market and brokerages vowing to spend 120 billion yuan more, while other state-backed companies spent an undisclosed amount. Chinese officials have said those unprecedented measures were necessary to preventing the stock rout from spreading to other parts of China’s financial system.

Read more …

The not-official numbers.

China Beige Book Shows ‘Disturbing’ Economic Deterioration (BBG)

China’s economic conditions deteriorated across the board in the fourth quarter, according to a private survey from a New York-based research group that contrasted with recent official indicators that signaled some stabilization in the country’s slowdown. National sales revenue, volumes, output, prices, profits, hiring, borrowing, and capital expenditure were all weaker than the prior three months, according to the fourth-quarter China Beige Book, published by CBB International. The indicator is modeled on the survey compiled by the Federal Reserve on the U.S. economy, and was first published in 2012. The world’s second-largest economy lacks the kind of comprehensive data available on developed nations, making it harder for investors to get a clear read – particularly as China transitions from reliance on manufacturing and investment toward services and consumption.

Official data on industrial production, retail sales and fixed-asset investment all exceeded forecasts for November, while consumer inflation perked up and a slide in imports moderated. The Beige Book’s profit reading is “particularly disturbing,” with the share of firms reporting earnings gains slipping to the lowest level recorded, CBB President Leland Miller wrote in the release. While retail and real estate held up reasonably well, manufacturing and services performed poorly, with revenues, employment, capital expenditure and profits weakening. The survey shows “pervasive weakness,” Miller wrote in the report. “The popular rush to find a successful manufacturing-to-services transition will have to be put on hold for a bit. Only the part about struggling manufacturing held true.”

After efforts including six interest-rate cuts since late 2014 failed to revive growth, policy makers are switching focus to fix problems like overcapacity on the supply side. President Xi Jinping – seeking to keep growth at a minimum 6.5% a year through 2020 – is juggling short-term stimulus with long-term prescriptions to avoid the middle-income trap that has ensnared developing nations after bouts of rapid growth before they became wealthy. China’s leaders convene their annual economic work meeting Friday, according to the People’s Daily. Officials typically set the growth target for the coming year at the conference, which lasts a few days.

Read more …

“She shares the prosecutors’ view that there is no basis for any charge against her.”

IMF’s Lagarde to Face Trial for ‘Negligence’ in Tapie Case (BBG)

IMF Managing Director Christine Lagarde will be tried for “negligence” in relation to a settlement the French government reached with businessman Bernard Tapie during her time as finance minister, a French court said Thursday. Lagarde, 59, has repeatedly denied wrongdoing and will appeal the decision to put her on trial, her lawyer said. The decision was made by a special commission of the court against the advice of the prosecutor, a court official said. The trial concerns Lagarde’s 2008 decision to allow an arbitration process to end a dispute between Tapie, a supporter of then-French President Nicolas Sarkozy, and former state-owned bank Credit Lyonnais. The court has been looking into whether she erred in agreeing to the arbitration, which resulted in the tycoon being awarded about €403 million.

Having to face trial in France could have serious implications for Lagarde’s future at the helm of the IMF, though her job may not be in any immediate danger. Her five-year term as managing director expires in July. At the fund’s annual meeting in Lima in October, Lagarde said she’d be open to serving another term. “I assume this would probably go quickly, if only to remove the cloud of suspicion over her,” said Christopher Mesnooh, a Paris-based lawyer at Field Fisher Waterhouse, who isn’t involved in the Lagarde case. “Everyone knows the importance of Christine Lagarde to the world economy. They won’t want to leave this unresolved.”

Lagarde reaffirms that she “acted in the best interest of the French State and in full compliance with the law,” according to an e-mailed statement from her attorney Yves Repiquet. “She shares the prosecutors’ view that there is no basis for any charge against her.” The IMF board said Thursday that it sees Lagarde as still able to do her job. “The Executive Board continues to express its confidence in the managing director’s ability to effectively carry out her duties,” IMF spokesman Gerry Rice said in an e-mailed statement. “The board will continue to be briefed on this matter.”

Read more …

Banks are more important than countries.

IMF Admits Mistakes Over Greece’s Bailout Program (GR)

The IMF acknowledged that it made mistakes and omissions in the Greek bailout program approved in May 2010, as it did not include debt restructuring. The IMF Board of Directors approved the evaluation report on the programs during the economic crisis. An independent committee will examine the issue, especially on debt restructuring, which, as highlighted on the report, multiplied difficulties in Greece. According to a Mega television report, the Board expects the report of the Independent Office Fund Evaluation on the role played by its members on the Eurozone crisis. However, the report will be delayed at the request of Poul Thomsen, on the grounds that “the program is still running.”

Regarding the restructuring of the Greek debt, the report states that there was no restructuring because of the fear that the crisis would spread to other Eurozone countries. There was also the fear of exposure of European banks to the Greek debt. Only when the ECB intervened to protect the Eurozone and two years of uncertainty passed, then the Eurozone was secure, the report says. When it was decided to restructure private debt (PSI) the “haircut” was great for the creditors compared to others, but at the same time chances that it would prove insufficient to restore debt sustainability were increased, the report says, according to Mega.

Regarding restructuring of the Greek debt, it is implicitly admitted in the report that it was absolutely necessary in 2010. It is also admitted that for the 2010 and 2012 programs, internal devaluation through reforms in labor and product markets was the main goal. To this end, they decided measures such as reducing nominal wages and benefits in the public sector, reducing minimum wages, the reform of the collective bargaining system, promoting privatization, reducing bureaucracy and promoting competition.

Read more …

This can not end well. A revolt is building.

Beijing Grinds To Halt As Second Ever ‘Red Smog Alert’ Issued (Reuters)

China’s capital city issued a “red alert” for pollution on Friday, hard on the heels of its first-ever such warning earlier in December, as Beijing’s leadership vowed to crack down on often hazardous levels of smog. Authorities in the Chinese capital warned the city would be shrouded by heavy pollution from Saturday until next Tuesday, prompting the highest-level warning that leads to emergency responses such as limiting car use and closing schools. After decades of unbridled economic growth, China’s leadership has vowed to tackle heavy air, water and soil pollution, including the thick smog that often blankets major cities. Beijing’s second red alert comes after a landmark climate agreement was reached in Paris in December, setting a course to move away from a fossil fuel-driven economy within decades in a bid to arrest global warming.

The city’s first red alert was issued on 7 December, restricting traffic and halting outdoor construction. The Beijing Meteorological Service said in a statement vehicle use would be severely restricted, and that fireworks and outdoor barbecues would be banned. It also recommended schools cancel classes. City residents have previously criticised authorities for being too slow to issue red alerts for heavy smog, which often exceeds hazardous levels on pollution indices. The environmental protection minister, Chen Jining, vowed in December to punish agencies and officials for any failure to implement a pollution emergency response plan quickly, the state-run Global Times tabloid said. Many cities around China suffer high levels of pollution, with Shanghai schools banning outdoor activities and authorities limiting work at construction sites and factories earlier this week.

Read more …

In the eyes of the richer Europeans, they are the victims, not the refugees or Greece.

EU Puts Blame On Greece, Turkey At Refugee Summit (Kath.)

EU leaders meeting in Brussels on Thursday pressed Turkey to curb the flow of migrants entering the bloc via Greece and urged Athens to speed up its efforts to accommodate and repatriate migrants. Prime Minister Alexis Tsipras met his Turkish counterpart Ahmet Davutoglu on the sidelines of the mini-summit in Brussels which brought together 11 EU leaders and Davutoglu. According to sources, Tsipras urged European officials to ensure that a recent agreement between the EU and Turkey to stem migrant flows is being observed. Tsipras repeated Greece’s position that refugees should be transferred directly from Turkey to other EU member-states. But, according to sources, several EU leaders made it clear to Davutoglu that refugee relocations from Turkey would not begun until Ankara makes good on commitments to the EU to curb the flow of migrants to the EU via Greece.

Turkey was not the only country to come under pressure at the summit, which is to continue on Friday. Greece was criticized, chiefly by German Chancellor Angela Merkel, for delays in completing a series of screening centers for migrants on Aegean islands, dubbed hot spots. Merkel also complained about the slow rate of repatriations of migrants from Greece. Tsipras countered that Greek authorities face problems in returning migrants to countries such as Pakistan where authorities are not always cooperative. As for a proposal for the creation of an EU border force with stronger powers, the majority of leaders present, including Tsipras, backed the idea in principle. The leaders of Hungary, Malta and Poland were the most cautious while Tsipras insisted that any upgraded border force should not compromise national sovereignty. Meanwhile back in Athens, Greek authorities continued their efforts to accommodate hundreds of migrants in temporary accommodation centers.

But many appeared reluctant to stay in the designated facilities. Of some 1,300 migrants who have been staying in the Tae Kwo Do Stadium in Palaio Faliro, only 235 were at the old Olympic hockey venue in nearby Elliniko following a relocation on Thursday night. It is unclear where the rest of the migrants went though large numbers have been gathering in squares in central Athens since the Former Yugoslav Republic of Macedonia tightened its border with Greece. Athens Mayor Giorgos Kaminis on Thursday expressed concern at the presence of thousands of migrants who do not merit refugee status, from countries such as Morocco, Algeria and Pakistan, stuck in the capital and other Greek cities. “We do not want these people to be wandering around unable to survive, with no prospects,” he said, adding that he had called on authorities to make use of abandoned military facilities as temporary accommodation.

Read more …

This can only end badly. Someone get a good lawyer before this mess gets any bigger.

EU To Fast-Track Border Control Plans (RTE)

EU leaders have pledged to fast-track the establishment of an EU border and coast guard force. At a summit in Brussels, they last night urged each other to implement measures agreed this year to curb migration across the Mediterranean. By the middle of next year, they decided, they would agree the details of the new border force which was proposed by the EU executive earlier this week. Some leaders, including Greek PM Alexis Tsipras, made clear, however, that they wanted to strike out a controversial element of the proposal which would give Brussels power to send in EU border guards without a country’s consent. Summing up the three-hour discussion, European Council President Donald Tusk, said leaders had agreed there was a “delivery deficit” in making good on a series of measures agreed over recent months to stem chaotic movements that have put Europe’s Schengen open-borders area in jeopardy.

“Over the past months, the European Council has developed a strategy aimed at stemming the unprecedented migratory flows Europe is facing,” the final agreement read. “However, implementation is insufficient and has to be speeded up. “For the integrity of Schengen to be safeguarded it is indispensable to regain control over the external borders.” Greece and Italy are under pressure to do more to manage and identify those arriving, a million or more so far this year, while governments in general have yet to make good on promises to help take in asylum seekers and deport unwanted migrants. There are only two fully operational “hotspots” for screening of migrants arriving to Italy and Greece from 11 that are supposed to be set up.

Read more …

Exactly what Berlin and brussels hope to achieve.

Greece Risks Becoming A ‘Black Box’ For Stranded Migrants (FT)

Greece risks becoming a vast holding pen for tens of thousands of migrants arriving by boat from Turkey as neighbouring countries close their borders, prime minister Alexis Tsipras has warned. Mr Tsipras also expressed frustration with plans to create a new EU border force that could be deployed to the bloc’s external borders even against the objections of the relevant national government. “Greece stands accused of not being able to protect its border but they [other EU countries] don’t tell us what they expect us to do,” Mr Tsipras told the FT. “We have to rescue people in danger of losing their lives [at sea crossing from Turkey]. If they want us to carry out pushbacks, they must say so,” he added.

He was speaking as the European Commission unveiled its proposal for the new border force, which is widely viewed as a means to address a porous Greek frontier that has become an entry point for hundreds of thousands of migrants seeking to reach Germany and other, more prosperous parts of the EU. Greece only reluctantly accepted 400 officials from the EU’s current border agency, Frontex, to help police its frontier with Macedonia, and the issue of sovereignty cuts deep in a nation that has lost control of much of its economic policymaking as a consequence of its international bailouts. Crossings to Greece’s eastern islands have slowed somewhat of late – possibly because of bad weather – but still averaged about 3,400 per day this month.

According to a EU report on Turkey’s efforts to stem the flow, sent to national capitals on Wednesday, Brussels remains unconvinced the reduction was owing to any new efforts by Ankara following a pledge last month to crack down in exchange for €3bn in EU aid. The report comes ahead of a meeting between Turkey’s prime minister and a group of EU prime ministers on the sidelines of a two-day Brussels summit. That meeting, hosted by Austria and including Mr Tsipras and Angela Merkel, the German chancellor, concerns a voluntary programme in which refugees currently in Turkey would be resettled among willing member states. While Berlin had hoped the scheme would total as many as 500,000 refugees, it is likely to include only about 50,000, according to estimates from officials involved in the talks. They also made clear the scheme will not go ahead unless Turkey manages to cut the number of people entering Europe.

Athens has become increasingly concerned that it will be stuck in the middle – with Ankara failing to stop the influx and countries to the north blocking those migrants they believe are motivated by economic despair and therefore would not qualify as war refugees. For the past four weeks, only migrants fleeing wars and violence in Syria, Iraq and Afghanistan have been allowed to cross Greece’s northern border into Macedonia and continue the journey to central Europe. “Greece is in danger of becoming a black box [for refugees] if these flows don’t decrease,” Mr Tsipras said. “Slovenia, Croatia, the former Yugoslav Republic of Macedonia, all took the decision to filter people by nationality, for example, not accepting those from north African countries and Iran. This is not correct,” he added.

Read more …

Dec 272014
 
 December 27, 2014  Posted by at 12:42 pm Finance Tagged with: , , , , , , ,  2 Responses »


John Vachon Billie Holiday at the Newport Jazz Festival Jul 1954

Natural Gas Drops Below $3 for First Time Since 2012 (Bloomberg)
Oil Caps Fifth Weekly Loss on Global Supply Glut Concern (Bloomberg)
Saudi Arabia Maintains Spending Plans in 2015 Despite Oil Slide (WSJ)
Saudis To Hit ‘Panic Button’ At $40 Oil: Energy CEO (CNBC)
Drilling Cutbacks Mean Service Companies Forced to Scrap Rigs (Oilprice.com)
Gartman: Get Ready For Oil Bankruptcies (CNBC)
China November Industrial Profits Suffer Sharpest Fall In 27 Months (Reuters)
China’s Shadow-Banking Boom Is Over (WSJ)
Game Over Japan: Real Wages Crash, Savings Rate Turns Negative (Zero Hedge)
Brazilian Oil Company Petrobras Sued By US City In Corruption Scandal (BBC)
Nicaragua Canal A Potential Threat To The US And Western Powers (RT)
The Cradle of Democracy Rocks the Autocrats (StealthFlation)
A Capitalist Christmas (Mises Inst.)
60 Prominent Germans Appeal Against Another War In Europe (Zero Hedge)
Gorbachev: Putin Saved Russia From Disintegration (RT)
Putin: It Is Time to Play Your Ace in the Hole (Daily Bell)
Google Further Crapifies Search, Exploiting Both Users and Advertisers (NC)
Apple Spent $56 Billion On Buybacks In 2014 (MarketWatch)
Strange Predictions For The Future From 1930 (BBC)

“We don’t see anything scary in the forecast ..”

Natural Gas Drops Below $3 for First Time Since 2012 (Bloomberg)

Natural gas slumped below $3 per million British thermal units in New York for the first time since 2012 on speculation that record production will overwhelm demand for the heating fuel. Futures settled at the lowest in 27 months and have plunged 26% in December, heading for the biggest one-month drop since July 2008, as mild weather and record production erased a surplus to year-ago levels for the first time in two years. Temperatures will be mostly above average in the eastern half of the U.S. through Dec. 30, according to Commodity Weather Group LLC. “We don’t see anything scary in the forecast,” said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Pennsylvania.

“You had this psyche where people were worried about a polar vortex; we had a cold October and a cold early November, and boom, if you were long you are wrong.” Natural gas for January delivery fell 2.3 cents, or 0.8%, to settle at $3.007 per million Btu on the New York Mercantile Exchange. Futures touched $2.973, the lowest intraday price since Sept. 26, 2012. Volume was 54% below the 100-day average for the time of day at 2:32 p.m. Gas dropped 13% this week, a fifth straight weekly decline. Prices broke below several technical support levels, including $3.046 and then $3, and may be headed toward $2.80 or lower, said Schork. “I am playing this market short,” he said. “Anyone who is selling now is trying to trigger a panic selloff.”

Read more …

Why insist on talking about “OPEC’s refusal to cut production”, and not America’s?

Oil Caps Fifth Weekly Loss on Global Supply Glut Concern (Bloomberg)

Oil fell, capping a fifth weekly loss on concern that OPEC’s refusal to cut production will worsen a global supply glut. Brent and West Texas Intermediate extended their annual declines of more than 40%, the biggest since 2008, as the Organization of Petroleum Exporting Countries resisted supply cuts to defend market share while the highest U.S. production in three decades exacerbated a global glut. Trading volume headed for the lowest this year. “The market is still reeling from oversupply,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s really hard to muster a substantial rally until we figure out how we are going to use all this oil.”

Brent for February settlement slipped 79 cents, or 1.3%, to $59.45 a barrel on the London-based ICE Futures Europe exchange, down 3.1% this week. The volume of all futures was 84% below the 100-day average as of 3:10 p.m., with much of Europe on holiday after Christmas. West Texas Intermediate crude for February delivery fell $1.11, or 2%, to $54.73 on the New York Mercantile Exchange with volume 68% below average. Prices were down 3.2% this week. Trading reached 174,562 contracts at 2:49 p.m. The previous lowest volume this year was 244,240 on Aug. 25. Brent traded at a premium of $4.72 to WTI on the ICE.

Read more …

They have zero choice.

Saudi Arabia Maintains Spending Plans in 2015 Despite Oil Slide (WSJ)

The Saudi government unveiled a 2015 budget on Thursday that signaled a continuation of a high level of spending despite pressures from a steep fall in oil prices in recent months. The kingdom, the world’s top oil exporter, depends on oil revenue to fund social spending, helping head off the kind of unrest that has roiled Middle Eastern countries since 2011. A prolonged oil-price slump could threaten such policies here and in other Gulf monarchies. Saudi King Abdullah struck a note of caution in the budget announcement, instructing officials to consider the developments that led to oil’s decline by “rationalizing the expenditure.” Riyadh has chosen not to cut output in an effort to push up prices, despite its dependence on oil exports.

The Saudi oil minister, Ali al-Naimi—secretary-general of OPEC – on Sunday blamed a lack of coordination among non-OPEC producers, along with speculators and misleading information, for the fall in the oil price. In an indication of the government’s confidence that it can weather the market volatility, Mr. al-Naimi described the slump as “a temporary situation.” The kingdom didn’t say on what price of oil it based its 2015 budget. The International Monetary Fund and others estimate a Saudi Arabia’s fiscal break-even price for oil at well above $90 a barrel—it has been trading recently under $60 – underlining the country’s vulnerability to changes in the energy market.

“It is worrying when the expanding government expenditure begins to erode the financial surpluses built over the last few years,” Saudi economist Fadhil Albuainain said. Saudi Arabia said on Thursday that it projects total expenditure in 2015 to reach 860 billion Saudi riyals ($229.3 billion), an increase of nearly 1% from the last budget, a record. It will likely use cash from its reserves to spend ondevelopment projects in sectors such as health care and education. The kingdom expects to run a wider deficit of 145 billion riyals to continue with its spending plans, as projected revenue falls by nearly a third to 715 billion riyals, according to a finance ministry statement.

Read more …

Really?

Saudis To Hit ‘Panic Button’ At $40 Oil: Energy CEO (CNBC)

Saudi Arabia has insisted that OPEC will keep oil production at 30 million barrels per day no matter the cost of crude, but even the world’s biggest oil exporter has a limit, the CEO of Breitling Energy told CNBC on Friday. “I think the panic button is at $40,” Chris Faulkner said in a “Squawk Box” interview. “They can say whatever they want, but at the end of the day, they can’t just bleed out money forever.” With the Saudis’ deficit for 2015 projected to reach $50 billion—the official figure is $39 billion—the country’s leaders will face challenges in maintaining its subsidies, he said. Young people will not stand for planned wage cuts, either, he added.

That said, Faulkner expects oil prices to rebound to the low $70s by the end of 2015, after initially sliding further into the low $50s and possibly recovering in the second quarter. With oil prices at current levels, Venezuela will likely default on its debt payments due in March and October, Faulkner said. Brent crude for February delivery traded below $61 in morning trade on Friday. Faulkner sees natural gas remaining below $5 until 2020, as the supply and demand fundamentals are unlikely to change significantly. Natural gas dipped below $3 on Friday for the first time since Sept. 24, 2012.

Read more …

A bit of hurt for Halliburton is always welcome.

Drilling Cutbacks Mean Service Companies Forced to Scrap Rigs (Oilprice.com)

Offshore oil contractors such as Halliburton or Transocean have seen their share prices tank worse than exploration companies because their revenue comes from being paid to drill, not necessarily from oil production after wells are completed. That means that when drilling slumps, their profits take an immediate hit. Even worse, exploration companies may see rising profits from existing production as oil prices rebound, but drilling service companies don’t benefit if their drilling contracts had been put on hold or cancelled. The problem is compounded by the fact that a slew of new offshore oil rigs are set to come into operation – an estimated 200 over the next six years. As Bloomberg reports, these new rigs will mean there could be a surplus of about 140 rigs, meaning offshore oil contractors will have to scrap that many to bring new ones online.

If oil prices stay where they are now – in the neighborhood of $60 per barrel – a deep contraction in shipping rig supply will be inevitable. In 2015, spending on offshore exploration may be slashed by 15%, which will mean taking a deep knife to companies providing rigs and contracting. Transocean has already announced that it is idling seven deepwater rigs, along with several other drillships. However the shakeout may take some time because offshore contractors can resort to using older rigs in order to bring down the rates they are charging, essential to maintaining market share. In order to entice exploration companies to keep up the drilling frenzy, older ships can keep costs lower. But that may not be a tenable prospect since offshore contractors will feel compelled to put the new and more state-of-the-art rigs into operation. That will force companies with older fleets to start discarding the most dated drilling rigs.

Transocean already took a $2.6 billion impairment charge in the third quarter of this year, due to a “decline in the market valuation of the company’s contract drilling services business.” By scrapping more ships, it expects to write down at least $240 million in the fourth quarter. More may be in the offing – Transocean released an update on the status of its fleet in mid-December, confirming its plans to scrap 11 ships. The statement also added that “additional rigs may be identified as candidates for scrapping.” Perhaps it is Seadrill, another offshore drilling services company, that has taking the worst of the oil price downturn. The company decided to cancel its dividend in November amid falling oil prices, a move that sent its share price tumbling downwards. Seadrill has seen its shares lose almost 75% of their value since July.

Read more …

Lots of ’em if the price doesn’t start rising soon.

Gartman: Get Ready For Oil Bankruptcies (CNBC)

Shale oil firms in the U.S. will suffer in the next two years due to the dramatic fall in the price of the commodity, according to Dennis Gartman, the founder and editor of the Gartman Letter, who expects a further fall in prices in the near term. The commodities investor has turned slightly more bearish on oil since last week, telling CNBC Tuesday that “crude oil prices haven’t seen their lows yet.” “I’m afraid we’re going to see demonstrably lower prices still,” he said. “Demand is weak and that price is going to continue to go down more.” The U.S. has seen a revolution in gas and oil production in the U.S. with new technology unlocking new shale resources.

This oil and gas boom has spurred economic activity and giving industry a competitive edge with less expensive fuel prices. However, the recent drop in prices – with Brent crude and WTI crude both down around 47% since mid-June – is set to impact the blossoming sector over the next two years, Gartman fears. “There will clearly be bankruptcies,” Gartman said, name checking oil production sites like the Permian Basin and the Marcellus Shale. U.S. oil production is a private-sector venture and differs wildly from the state-run companies in the Gulf states and South America.

These countries are able to extract oil from the ground at a cheaper cost than U.S. shale firms and there has been speculation that the two different industries could be playing a “game of chicken” over the price of oil before cutting back to ease the oversupply. A brief rally for oil on Monday was cut short with Saudi Arabian Oil Minister Ali al-Naimi stating that Organization of the Petroleum Exporting Countries would not cut production at any price, according to Reuters. Oil majors in Europe also received a stark warning this week with credit ratings agency Standard & Poor’s (S&P) placing BP, Total and Shell all on a negative watch. The change now means that the three firms are more likely to have their debt rating downgraded in the next three months.

Read more …

The “major unexpected headwinds” keep on coming.

China November Industrial Profits Suffer Sharpest Fall In 27 Months (Reuters)

Chinese industrial profits dropped 4.2% in November to 676.12 billion yuan ($108.85 billion), official data showed on Saturday, the biggest annual decline since August 2012 as the economy hit major unexpected headwinds in the second half. Despite last month’s drop, profits for January-November were 5.3% higher than in the first 11 months of 2013, according to the National Bureau of Statistics (NBS) data. The NBS attributed November’s profit drop to declining sales and a long-running slide in producer pricing power. “Increasing price falls shrank the space for profit,” the agency said. It said the impact of prices for coal, oil and basic materials falling to their lowest levels in years “was extremely clear”. As the NBS analysis suggested, the net slide in industrial profits was driven primarily by weakness in coal mining, and oil and gas industries, where November profits tumbled from a year earlier by 44.4% and 13.2% respectively.

Oil, coking coal and nuclear fuel processing industries saw their profits slide by 34.2%, according to the data. On the upside, Chinese technology industries saw profits grow sharply last month. Telecommunications firms saw a 20.7% increase, electronics and machinery grew 15.1% and automobile manufacturers enjoyed a 16.7% gain. “This suggests that on the one hand, in the context of weak investment demand, stable consumption demand provided a certain degree of support; on the other hand, promoting industry restructuring is having a positive effect on efficiency,” the NBS analysis said. However, the unbalanced nature of the performance highlights a quandary regulators face. They want to restructure the Chinese economy away from credit- and energy-intensive heavy industries toward lightweight technology products and services, yet they must also avoid causing a crisis in the financial system.

Read more …

Dangerous political games.

China’s Shadow-Banking Boom Is Over (WSJ)

Following years of explosive growth, China’s shadow-banking industry is experiencing a sharp slowdown after Beijing tightened its grip on the sector, which has been a key source of funding for the economy but also has added to rising debt levels and other risks in the financial system. The industry, a mélange of informal lenders such as trust companies and leasing firms, takes in money from investors and lends it to often risky projects for which traditional bank lending is unavailable. Investors have flocked to the so-called wealth-management and trust products sold by shadow lenders in recent years because they typically promise returns ranging from 4% to more than 10%, much higher than a bank account. But the sector has been hit especially hard in the second half of this year. Investors have shifted their cash into the rallying stock market.

The slowdown may become even more pronounced next year, with authorities set to increase efforts to rein in financial risks as the economy slows. “The government has realized that shadow banking has fallen off its radar screen and it carries enormous risks. The days of laissez-faire are over,” said Shen Meng, executive director of Chanson Capital, a boutique investment bank. A decline in interest rates in China and diminishing returns on property and infrastructure projects may also reduce the promised investment gains on the products issued by shadow banks. The outstanding value of shadow-banking products stood at 21.87 trillion yuan ($3.52 trillion) at the end of November, up 14.2% from the level a year earlier, according to estimates by Nomura Securities based on central-bank data. That growth is significantly slower than the 35.5% rise it registered for the whole of last year and the 33.1% gain in 2012.

The growth rate was as high as 75% in 2010, when Beijing encouraged shadow lenders to complement overstretched traditional banks and help extend a lending binge to keep the economy humming following the global financial crisis. The slowdown in the industry this year has primarily been caused by a series of tighter regulations that made it less profitable for shadow lenders to issue new products, or forced them to enhance risk controls. Shadow-lending products are usually sold through traditional banks. In July, China’s banking regulator asked banks to separate their wealth-management-product business from their retail-lending business, a move that incurred extra costs. Banks also were ordered to set up independent departments to oversee wealth-management products, and to better explain in sales documents that these products aren’t deposits and carry risks.

The result was immediate: New issuance of shadow-banking products fell by 309.6 billion yuan in July from a month earlier. That followed a month-on-month increase of 526.2 billion yuan in June and a rise of 993.2 billion yuan in January, according to estimates by Nomura Securities. There was a mild rebound in August, but issuance shrank in September and October before seeing a modest rise of 28.4 billion yuan in November. The slowdown since July coincided with a surge in China’s long-depressed stock market. Compared with the 43% gain of the Shanghai market this year, the yields on trust and wealth-management products, which have declined, no longer look as attractive.

Read more …

How much longer for Abe?

Game Over Japan: Real Wages Crash, Savings Rate Turns Negative (Zero Hedge)

When about a month ago it was revealed that Japan’s shadow economic advisor is none other than Paul Krugman, we said it was only a matter of time before the Japanese economy implodes. Terminally. We didn’t have long to wait and last night the barrage of Japanese economic data pretty much assured Japan’s transition into failed Keynesian state status. In fact, after last night’s abysmal Japanese eco data, we doubt even the most lobotomized Keynesian voodoo priests have anything favorable left to say about Abenomics: not only did core inflation miss expectations and is now clearly in slowdown mode despite Japan openly monetizing all gross Treasury issuance.

Not only did industrial production decline 0.6% missing expectations of an increase and record its first decline in 3 months with durable goods shipments crashing, not only did consumer spending plunge for the 8th straight month dropping 2.5% in November (with real spending on housing in 20% freefall), but – the punchline – both nominal and real wages imploded, when total cash wages and overtime pay declined for the first time in 9 months and 20 months, respectively. And the reason why any poll that shows a recently “re-elected” Abe has even a 1% approval rating has clearly been Diebolded beyond recognition, is that real wages cratered 4.3% compared to a year ago. This was the largest decline since the 4.8% recorded in December 1998. In other words, Abenomics has now resulted in the worst economy, if only for consumers, in the 21st century.

Read more …

The Petrobras scandal is yet to reach its climax. Brazil as a whole will be severely shaken.

Brazilian Oil Company Petrobras Sued By US City In Corruption Scandal (BBC)

The US city of Providence, Rhode Island is suing the Brazilian state-run oil company Petrobras over investor losses due to a corruption scandal. Unlike other class actions, some of the company’s senior executives have also been named as defendants. Providence alleges that Petrobras made false statements to investors that inflated the company’s value. Its lawyers say that when the corruption scandal broke, the city’s investments plummeted. So far, 39 people in Brazil have been indicted on charges that include corruption, money laundering and racketeering. They have been accused of forming a cartel to drive up the prices of major Petrobras infrastructure projects and of channelling money into a kickback scheme at Petrobras to pay politicians. The executives could face sentences of more than 20 years in jail.

The case has shaken the government of President Dilma Rousseff, who served as chair of the Petrobras board for seven years until 2010. She has denied any knowledge of the scheme. According to the Brazilian Federal Police the group under investigation moved more than $3.9bn (£2.5bn) in what police describe as “atypical” financial transactions. Brazilian courts have blocked around $270m in assets belonging to various suspects. Federal agents revealed contracts worth $22bn are regarded as suspicious. Former Petrobras director Paulo Roberto Costa, who worked at the company from 2004 to 2012, has told investigators that politicians received a 3% commission on contracts signed during this period.

Read more …

Crazy plan.

Nicaragua Canal A Potential Threat To The US And Western Powers (RT)

The Nicaragua Canal can become an alternative route through Central America for China and Russia, as well as an alternative route for potential military use right in America’s backyard, international consultant and author Adrian Salbuchi told RT. Nicaragua has begun the most ambitious construction project in Latin America – a waterway connecting the Atlantic and the Pacific oceans that is supposed to become an alternative to the Panama Canal. It is 278 km long, will cost around $50 billion and provide jobs for 50,000 people. The construction is being run by a Hong Kong company and should be completed by 2020. The project is supposed to boost Nicaragua’s GDP. Meanwhile, ecologists fear the giant ship canal will endanger Lake Nicaragua – Central America’s largest lake and Nicaragua’s largest main water source – which the waterway will run through. Locals are concerned their homes and farm lands are under threat. According to some estimates, around 30,000 people may be displaced by the waterway. RT discussed the project and protests it sparked in Nicaragua with international consultant and author Adrian Salbuchi.

RT: The residents are promised compensation. Why are they protesting? Were they misinformed about the project?
Adrian Salbuchi: It’s understandable because we are talking about a mega project that will displace many people; some estimates say as many as 30,000 farmers will be displaced. There will be an ecological impact, no doubt about it. However, I think we have to be very careful to distinguish between what is this spontaneous reaction of many of these farmers which is probably genuine, and what may also be some engineering of social convulsion from foreign powers, not only the US that had been doing that in the so-called Arab Spring and that had been doing that throughout Latin America for many decades. So I wouldn’t be surprised if some of the exaggeration or some of the future problems do come from some American agitators or Western agitators. Don’t forget this is the country which is governed by President Daniel Ortega of the Sandinista Liberation Front, who are enemies of the US for many decades.

RT: Just to push you a bit on this, do you think there may be a foreign state involved?
AS: Absolutely. And we should even take it together with what just happened with Cuba because if America is trying to bring Cuba into the fold, it might try to play a similar card with Nicaragua to try to range them away as in the case of Cuba from Russia, in the case of Nicaragua from China. We have to see not just the trade implications that are huge, and the economic implications that are also huge, as well as social and ecological, but much more so the geopolitical implications. This is a Chinese private company, but we all know that very likely behind the Chinese investment there are geopolitical factors being handled and being driven by the Chinese government quite rightly, who have an increasing interest throughout Latin America.

Read more …

People vs power.

The Cradle of Democracy Should Defy the Autocrats & Kleptocrats (Landevoisin)

On the old continent, this December 29th, a succinct political showdown is scheduled to take place which may well become a defining moment for our entirely unsettled new millenium. What is at stake is none other than the prosperity of the common man pitted against the privilege of concentrated power. Lamentably, this deliberate dogmatic divide has relentlessly defined human civilization for the ages. What is at hand isn’t so much about lofty ideals. It’s not about Socialism. It’s not about Capitalism. It’s not about Communism. It’s not about being a progressive, or a conservative or a liberal. It’s not about left vs right. Forget all those dumbed down dichotomies. It’s much more fundamental than all of that. Quite simply, it’s about People vs. Power, that’s it, nothing more. Those that have and wield institutional power, and those that do not. It’s as elementary and base as that I’m afraid.

Take a good look around, I defy you to point to a single socioeconomic construct in our supposedly enlightened and advanced society of today which is not essentially determined by that crude polarizing characterization. Whether it be our bought and paid for Political Class, our rapacious Banking Sector, our entitled Multinational Corporations, our entrenched Governmental Agencies, our marauding Military Industrial Complex, our fleecing Healthcare Providers, our muzzled Free Press, our hijacked Justice System, or our grossly overpaid CEOs, Athletes, and Entertainers, they all have one thing in common, and I assure you that it’s not the common good that they share. What they seek above all else is to expand the existing institutional dominion and their own privileges within it.

Sad to say, but at the end of the day, perhaps dog eat dog is what we humans are really best at, and the only state of being we’re actually capable of. Maybe all those exalted ideals of enlightened forms of governance are just a load of crap to make us feel better about ourselves. Judging by the overt self seeking avarice that dictates the pace of just about everything these days, it sure seems that way.

Read more …

“Menacing figures arrive at your door uninvited, demand your property, and threaten to perform an unspecified “trick” if you don’t fork over.”

A Capitalist Christmas (Mises Inst.)

Halloween has a socialist tenor. Menacing figures arrive at your door uninvited, demand your property, and threaten to perform an unspecified “trick” if you don’t fork over. That’s the way the government works in a nutshell. Thanksgiving has been reinterpreted as the white man, after burning, raping, and pillaging the noble Indian, trying to make amends with a cheap turkey dinner. New Year’s can be ruined as the beginning of a new tax year, and the knowledge that the next five or six months will be spent working for the government. That’s why I love Christmas. To this day it remains a celebration of liberty and private life, as well as a much-needed break from the incessant politicization of modern life. It’s the most pro-capitalist of all holidays because its temporal joys are based on private property, voluntary exchange, and mutual benefit.

In Christmas shopping, we find persistent reminders of charity programs that work and little sign of those (welfare bureaucracies) that don’t. The Salvation Army, Goodwill dispensers in parking lots, and boxes filled with canned goods and toys are all elements of true charity. This giving is based on volition rather than coercion, which is the key to its success. People complain about “commercialism,” but all the buying and selling is directed toward meeting the needs of others. Even if the recipient doesn’t give gifts in return, the giver still receives satisfaction. Absent entirely is the zero or negative-sum political process that tilts property in favor of one group or another. Santa, unlike Halloween figures, comes to your home to bring gifts and goodwill, and never takes anything except milk and cookies.

You wouldn’t think of hiding your silver from him. Unlike government bureaucrats, Santa and his workers are entirely trustworthy, and even work overtime by creating goods that are desired by millions of people. If the Labor Department or OSHA ever get around to investigating the North Pole, they’ll probably find all sorts of labor violations: safety and health (too cold), unemployment insurance (does he pay it?), minimum wage (is there exploitation here?), overtime (Heaven knows they work long hours), civil rights (any non-elves employed?), and disability (is Santa accommodating these tiny men?). But the point is that everyone is there voluntarily, and no doubt considers it an honor and privilege.

Read more …

What I said yesterday, in different words: “We appeal to the media, to more scrupulously adhere to their obligation to provide unbiased reporting.”

60 Prominent Germans Appeal Against Another War In Europe (Zero Hedge)

Two weeks ago, as the S&P was preparing to surge on the latest round of all time high market-goosing algo trickery by the FOMC, 60 prominent German personalities from the realms of politics, economics, culture and the media were less concerned with blinking red and green stock quotes and were focused on something far more serious to the future of the world: the threat of war with Russia. In a letter published by Germany’s Die Zeit, numerous famous and respected Germans including a former president and former prime minister write “Wieder Krieg in Europa? Nicht in unserem Namen!”, or, roughly translated, “War in Europe Again? Not in Our Names!”

The open letter to the German government, parliament, and media, excerpted here, was signed by more than 60 prominent German personalities and published in the weekly Die Zeit on Dec. 5. The initiators were Horst Teltschik (CDU), advisor to then-Chancellor Helmut Kohl at the time German of reunification; Walther Stützle (SPD), former Secretary of State for the Ministry of Defense; and Antje Vollmer (Greens), former Bundestag Vice President. Teltschik said, in motivating the appeal, “We are giving a political signal that the justified criticism of Russia’s Ukraine policy should not wipe out all the progress that we have made in the past 25 years in relations with Russia.” Below is an excerpted translation (source) of the original letter:

“Nobody wants war. But North America, the European Union, and Russia are inevitably driving towards war if they do not finally halt the disastrous spiral of threats and counter-threats. All Europeans, including Russia, are jointly responsible for peace and security. Only those who do not lose sight of this goal can avoid fatal actions. The Ukraine conflict shows that the quest for power and domination has not been overcome. In 1990, at the end of the Cold War, we all hoped that it would be. But the success of the détente policy and the peaceful revolutions allowed people to become lethargic and careless. In both East and West. The Americans, Europeans, and Russians all lost, as their guiding principle, the idea of permanently banishing war from their relationship.

Otherwise it is impossible to explain either the West’s eastward expansion without simultaneously deepening cooperation with Moscow—a policy which Russia sees as a threat—or Putin’s annexation of Crimea in violation of international law. At this moment of great danger for the continent, Germany has a special responsibility for the maintenance of peace. Without the will for reconciliation of the people of Russia, without the foresight of Mikhail Gorbachov, without the support of our Western allies, and without the prudent action by the then-Federal government, the division of Europe would not have been overcome. To allow German unification to evolve peacefully was a great gesture, shaped by the wisdom of the victorious powers. It was a decision of historic proportions. [..]

We call upon the members of the German Bundestag, delegated by the people as their political representatives, to deal appropriately with the seriousness of the situation. . . . Whoever is constructing a bogeyman, putting the blame on only one side, is exacerbating tensions, when the signals should be for de-escalation. We appeal to the media, to more scrupulously adhere to their obligation to provide unbiased reporting.than they have hitherto done. Editorialists and leading commentators are demonizing entire nations, without fully taking their histories into account. Any journalist experienced in foreign affairs would understand the Russians’ fear, since members of NATO in 2008 invited Georgia and Ukraine to join the Alliance. It is not about Putin. Heads of state come and go. What is at stake is Europe.

Read more …

And so he did. But not everybody likes that.

Gorbachev: Putin Saved Russia From Disintegration (RT)

Russian President Vladimir Putin saved the country from falling apart, former Soviet leader Mikhail Gorbachev said during the presentation of his new book ‘After the Kremlin.’ Gorbachev also commented on the situation in Ukraine and NATO expansion. “I think all of us – Russian citizens – must remember that [Putin] saved Russia from the beginning of a collapse. A lot of the regions did not recognize our constitution. There were over a hundred local constitutional variations from that of the Russian constitution,” RIA Novosti quoted Gorbachev as saying on Friday. He added that saving Russia during that crucial period was a “historical deed.” Gorbachev remarked that he knew the Russian president before Putin took office, describing him as having good judgment and discipline.

Commenting on the situation in Ukraine, the ex-Soviet president said the armed stand-off must be immediately stopped and both sides need to come to the negotiating table. “All of us are concerned by what is happening in Ukraine – politicians and the public. And the fact that our government is supporting the people who are in trouble there, no matter how hard things are at home, it is what always distinguished us,” Gorbachev said, stressing that the conflict cannot be solved through violence. Gorbachev also noted that influential American and European politicians need to speak out against the worsening of international ties, adding that many of his old colleagues are seeing the first signs of a new Cold War and understand how crucial it is to calm things down.

He said he has received comments which include concerns on how not to miss the escalating situation, and stopping it before it “acquires an explosive nature.” In terms of Russia’s worries over NATO’s expansion, Gorbachev agrees that the US is playing a key role in the process. “[NATO] began to establish bases around the world…I think the president is mostly right when drawing the attention to the special responsibility the US has,” Gorbachev said. Meanwhile, when speaking about the domestic situation in the country, the former president of the USSR expressed confidence that Russia will get out of the crisis, adding that the only questions are “when and at what price.” “Now we need to be very careful in politics – what policy is implemented, by who, and who stands to benefit?”

Read more …

Not smart enough for my tastes.

Putin: It Is Time to Play Your Ace in the Hole (Daily Bell)

The entire world is watching Putin play poker with the Western politicians lead by Obama and followed by Washington quislings in London, Brussels and Berlin. America’s goal since the end of the Cold War has been to weaken by financial, economic and, if necessary, military means any real competition to its global financial and resource domination through the petrodollar and dollar world reserve currency status. The current trade and economic sanctions against Russia and Iran follow this time-tested action that is never successful on its own, as we know from the 50-plus-year blockade of Cuba. But this strategy can lead to opposition nations retaliating by military means, often their only alternative to end blockades etc., which are an act of war and allow the US and other democracies to bring their ultimate superior military power to bare against the offending sovereign state.

This worked for Lincoln against the Confederate States of America, by Woodrow Wilson against the Central Powers before World War One, against the Japanese Empire before World War Two, Iraq, Libya – the list is endless. Recently the US has created the oil price collapse, working closely with its client state Saudi Arabia, in order to weaken the economic power of both Iran and Russia, the two main nations opposing US hegemony, foreign policy and petrodollar policy. Yes, this will play havoc with the US shale oil industry as well as London’s North Sea oil industry but oil profits pale in comparison to the importance of maintaining Western power over Russia and China. I hope Putin realizes the US is not playing games here, as this is a financial and strategic game to the death for Washington and it’s Western allies that have foolishly followed the Goldman Sachs/central banking cartel’s deadly sovereign debt recipe and for growth and prosperity.

The time is up; the debts can never be repaid and sooner or later must be repudiated one way or the other. China is waiting in the wings as the new world economic power and while it is too big to challenge, US strategy is to take out its top two allies, Iran and Russia, to buy time for Wall Street and Washington. The strategy might be a competitive economic course of action but the risk of military consequences and even a third world war loom on the horizon and no country has ever defeated Russia in a land attack. This is risky brinkmanship just to protect our banking and Wall Street elites and their profits at the expense of the American people, I might add, but the US has done this before.

Read more …

Nice takedown.

Google Further Crapifies Search, Exploiting Both Users and Advertisers (NC)

Google is a case study of why we need antitrust enforcement. With Google at 97% market share in search, Yahoo and Bing don’t have enough of a foothold for it to be worth the gamble of trying to beat Google at search, even with Google having degraded its service so badly that there are now obvious ways that a challenger could best them. I had assumed that the ongoing crapification of Google was for a commercial purpose, namely to optimize the browser for shopping and the hell with everything else. But as we will discuss in more detail below, my experience in poking around to see about buying a new laptop demonstrates that Google has gotten worse at that too. Lambert, who I enlisted to confirm my experience, was appalled and said, “What have they been doing with all that money?”

But as we’ll see, there is an evil purpose here, just not the evil purpose we’d first assumed. It isn’t as if the degradation of Google is a new phenomenon. I used Google heavily while researching ECONNED, which was written on an insanely tight time schedule. It worked really well then. But even a mere year later, by late 2010, the search algo had been restructured in some mysterious way to make the results much less targeted, and it’s been downhill since then. The most recent appalling change came in the last few months: eliminating the ability to do date range searches. But all of this ruination was so Google could make more money by optimizing for shopping right? Apparently not. I’ve idly and actively looked for stuff on the Internet over the years.

A reliable way to do that was to type in a rough or better yet precise description of the product/product name plus the word “price”. That would usually get you a nice list of vendors selling what you wanted so you could comparison shop, and often you’d get links to sites like Nextag which would provide a list of vendors with all-in prices as well as vendro ratings. Over the last two months, I’ve been looking for an easy-to-install monochrome laser printer (I have NO time to deal with anything more demanding than plug and play, and sadly, dealing with printers on a Mac is not plug and play). I didn’t get any good answers from all my searching and would up buying a used version of my current out-of-production printer. In retrospect, it appears some of my search hassles may have been due to Google, not to having atypical requirements.

Read more …

Biggest company on the planet because they buy their own stock?

Apple Spent $56 Billion On Buybacks In 2014 (MarketWatch)

If Apple’s year had a theme, it was the year the company finally started to chip away at that colossal hoard of cash. After a little nudging by activist investor Carl Icahn, Apple boosted its share-buyback program in April to $90 billion and increased the pace of capital returns. New data from FactSet show that Apple has been the biggest buyback spender of 2014 among the S&P 500, pouring more than $56 billion into the program on a trailing 12-month basis as of the end of the third quarter. That’s nearly three times the outlay of runner-up IBM, which spent $19.2 billion. Apple bought back $17 billion in shares last quarter, a 240% year-over-year increase that marks the second-highest dollar amount spent on buybacks during a quarter by any individual company in the S&P 500 since 2005, when FactSet began tracking the data. It’s second only to Apple’s own record of $18.6 billion set in the first quarter as part of the same buyback program.

Morningstar analyst Brian Colello said that while it’s not all surprising the world’s most valuable company would top a list such as this given its enormous cash cushion, he said the buybacks have undoubtedly been a “big contributor” to the stock’s strong performance in 2014. Adjusted for a 7-for-1 stock split earlier this year, shares of Apple have climbed more than 43% over the last 12 months. Since hitting a 52-week low back on Jan. 30, they have been on the march higher — flirting with all-time highs since September. “It showed that management was confident in its upcoming product launches and helped to put a floor into the company’s valuation during times of skepticism,” said Colello. Apple is the world’s most valuable company, with a $641.7 billion market cap, almost double the market valuations of the next companies on that list, Microsoft and Exxon Mobil, both valued around $377 billion.

Read more …

Curious.

Strange Predictions For The Future From 1930 (BBC)

Shortly before he died in 1930, former cabinet minister and leading lawyer FE Smith, a friend of Winston Churchill and one of the more outspoken British politicians of his age, wrote a book predicting how the world would look in 100 years’ time. They covered science, lifestyles, politics and war. So what did he say?

Health/lifespan Smith, a former Lord Chancellor who became the Earl of Birkenhead a few years before his death, was writing in a period when tuberculosis was a major killer in the UK and around the world. He was optimistic enough to suggest the eradication of this and other epidemic diseases was “fairly certain” by 2030, as was “the discovery of cures for such scourges as cancer”. Death from old age could also be delayed, Smith thought. Scientists would create injections containing an unspecified substance bringing “rejuvenations”, which would be used to prolong the average lifespan to as much as 150 years. Smith acknowledged this would present “grave problems” from an “immense increase in population”. He also foresaw extreme inter-generational inequality, wondering “how will youths of 20 be able to compete in the professions or business against vigorous men still in their prime at 120, with a century of experience on which to draw”?

Work and leisure
Mechanisation would mean a “gradual contraction” of hours worked, Smith believed. By 2030 it was likely the “average week of the factory hand will consist of 16 or perhaps 24 hours”, which no worker could possibly “grudge”. But, with factories largely automated, work would provide little scope for self-fulfilment, becoming “supremely easy and supremely dull”, consisting largely of supervising machines. It didn’t occur to Smith, in an age before widespread use of computers, that the machines might become self-monitoring. The cut in hours hasn’t happened yet. According to figures from the OECD group of industrialised nations, the lowest average weekly hours worked in a main job in 2013 were 30, in the Netherlands. The highest figure was 47.9, in Turkey. In the UK it was 36.5, with the US among the countries for which information was not provided.

Smith believed that, despite the shortening of hours, everyone would earn enough by 2030 to afford to play football, cricket or tennis in their spare time. But one of the big winners in this more leisure-rich world would be fox-hunting, one of his own hobbies. “As wealth increases, we shall all be able to ride to hounds,” he said. Men would free up even more time with changes to sartorial rules. By 2030 they would be expected to own only two outfits, one for leisure and the other for more formal occasions. John Logie-Baird had demonstrated television in the late 1920s and Smith was excited by the idea. He said that by 2030 full “stereoscopic television in full natural colours” would be available in people’s homes, with proper loudspeaker-quality sound. This meant exiled US citizens would be able to watch any baseball match and, in cricket, “the MCC selection committee, in conclave at Lord’s, will be able to follow the fortunes of an English eleven through the days (or weeks) of an Australian Test match”.

Read more …

Dec 262014
 
 December 26, 2014  Posted by at 12:27 pm Finance Tagged with: , , , , , , , , , ,  3 Responses »


Marion Post Wolcott “Center of town. Woodstock, Vermont. Snowy night” 1940

SF Fed Warns US Stock Values Will Be Cut In Half In Next Decade (Zero Hedge)
Dipping Into Auto Equity Devastates Many US Borrowers (NY Times)
First Oil, Now US Natural Gas Plunges Off The Chart (WolfStreet)
China Eases Again, Sets Non-Bank Deposit Reserve To Zero (Zero Hedge)
Russia Says Ruble Crisis Over As Reserves Dive, Inflation Climbs (Reuters)
Reuters Objectively Sees Russia’s Options as Losing or Losing Badly (Beversdorf)
Japan No A Longer Nation Of Savers, For First Time Ever (MarketWatch)
Japan’s Savings Rate Turns Negative, Wages Fall in Abe Challenge (Bloomberg)
Japan Struggles to Escape Recession as Production Drops (Bloomberg)
Greece to the Eurozone’s Rescue (Bruegel)
Is George Osborne A Closet Keynesian? (Project Syndicate)
Ukraine Peace Talks Focus on Prisoner Swap Before New Year Break (Bloomberg)
Ukraine’s Anti-Corruption Agency Could Be Led By US Citizen (TASS)
Correcting Scrooge’s Economics (Mises Inst.)
Waiting for the Sunrise (John Michael Greer)
World War I’s Christmas Truce, 100 Years Ago (Klein)
CDC Reports Potential Ebola Exposure In Atlanta Lab (WaPo)
Sierra Leone Declares Three-Day Lockdown In North To Contain Ebola (BBC)

More virtual wealth destruction.

SF Fed Warns US Stock Values Will Be Cut In Half In Next Decade (Zero Hedge)

When “the retirement of the baby boomers is expected to severely cut U.S. stock values in the near future,” is the ominous initial sentence from no lesser maintainer-of-the-status-quo than the San Francisco Fed’s research department, one begins to recognize the Federal Reserve’s overall need to hyper-inflate asset prices at whatever cost for fear of the ‘wealth’ destruction looming. As the following study reports, projected declines in stock values – based on the latest demographic and valuation data – have become even more severe. Our current estimate suggests that the P/E ratio of the U.S. equity market could be halved by 2025 relative to its 2013 level. Excerpted from FRBSF’s Global Aging: More Headwinds for U.S. Stocks? (Liu, Spiegel, & Wang)…

Demographic patterns have a strong historical relationship with equity values in the United States (Liu and Spiegel 2011). In particular, the ratio of those people who are the prime age to invest in stocks to those who are the prime age to sell has historically served as a strong predictor of U.S. equity values as measured by price/earnings (P/E) ratios.

Research suggests one reason for this close relationship is a person’s life-cycle pattern of investing. An individual’s financial needs and attitudes toward risk change over the years. As retirement approaches, individuals become less willing to tolerate investment risks, so they begin to sell off stocks. Thus, the aging of the baby boomers and the broader shift of age distribution in the population should have a negative effect on capital markets (Abel 2001). In theory, global demographic changes may further impact U.S. equity values. For example, Krueger and Ludwig (2007) demonstrate that U.S. returns can import the adverse impact of population aging in other countries.

Since the study by Liu and Spiegel (2011), U.S. stock values have increased markedly. Between 2010, which is the end of their sample, and 2013, the S&P 500 Index has increased by 47% and the P/E ratio has increased from around 15 to nearly 17. However, the bearish predictions in Liu and Spiegel (2011), which were based solely on projected aging of the U.S. population, have worsened. Indeed, extending the Liu-Spiegel model’s sample through 2013 suggests that the P/E ratio will decline even more, from about 17 in 2013 to 8.23 in 2025, before recovering to 9.14 in 2030.

Following Liu and Spiegel (2011), we use Bloomberg’s P/E ratio for the United States, which is the ratio of the end-of-year S&P 500 Index levels and the average earnings per share over the previous 12 months. We measure the age distribution using the ratio of “middle-age” people between 40 and 49 years—the group most likely to buy stocks—to those in the “old-age” group from 60 to 69 years—the prime age to sell. We call this measure the M/O ratio.

Read more …

Incredible that such things are allowed to exist in a supposedly civilized nation.

Dipping Into Auto Equity Devastates Many US Borrowers (NY Times)

The rusting 1994 Oldsmobile sitting in a driveway just outside St. Louis was an unlikely cash machine. That was until the car’s owner, a 30-year-old hospital lab technician, saw a television commercial describing how to get cash from just such a car, in the form of a short-term loan. The lab technician, Caroline O’Connor, who needed about $1,000 to cover her rent and electricity bills, believed she had found a financial lifeline. “It was a relief,” she said. “I did not have to beg everyone for the money.” Her loan carried an annual interest rate of 171%. More than two years and $992.78 in debt later, her car was repossessed. “These companies put people in a hole that they can’t get out of,” Ms. O’Connor said. The automobile is at the center of the biggest boom in subprime lending since the mortgage crisis. The market for loans to buy used cars is growing rapidly.

And similar to how a red-hot mortgage market once coaxed millions of borrowers into recklessly tapping the equity in their homes, the new boom is also leading people to take out risky lines of credit known as title loans. They are, roughly speaking, the home equity loans of subprime auto. In these loans, which can last as long as two years or as little as a month, borrowers turn over the title of their cars in exchange for cash — typically a%age of the cars’ estimated resale values. “Turn your car title into holiday cash,” TitleMax, a large title lender, declares in a recent television commercial, showing a Christmas stocking overflowing with money. More than 1.1 million households in the United States used auto title loans in 2013, according to a survey by the Federal Deposit Insurance Corporation — the first time the agency has included the loans in its annual survey.

Title loans are becoming an increasingly prevalent form of high-cost, short-term credit in subprime finance, as regulators in a number of states crack down on payday loans. For many borrowers, title loans, also sometimes known as motor-vehicle equity lines of credit or title pawns, are having ruinous financial consequences, causing owners to lose their vehicles and plunging them further into debt. A review by The New York Times of more than three dozen loan agreements found that after factoring in various fees, the effective interest rates ranged from nearly 80% to more than 500%. While some loans come with terms of 30 days, many borrowers, unable to pay the full loan and interest payments, say that they are forced to renew the loans at the end of each month, incurring a new round of fees.

Read more …

“None of the fancy charts natural gas drillers have shown to investors work at these prices.”

First Oil, Now US Natural Gas Plunges Off The Chart (WolfStreet)

Friday, natural gas futures plunged 6%. Monday morning, when folks were thinking about the beautiful Santa Rally, NG futures plunged nearly 10% to $3.12 per million Btu, the lowest since January 10, 2013. But the crazy day had just begun. NG bounced off and jumped nearly 4%, only to give up much of it later. Tuesday morning, as I’m finishing this up, NG continues to decline, now at $3.11/mmBtu. Down 30% from a month ago. NG demand peaks when the heating season starts. It’s a bet on the weather. Our gurus forecast warmer than normal temperatures across the country, so prices plunged. Or shorts piled into the pre-holiday session with exaggerated effect to make a quick buck. Here is what this 30-day, 30% plunge looks like (each bar = 5 hours):

Whatever the cause, NG has traded below the cost of production of many wells for years. That lofty $4.40/mmBtu on the left side in the chart above is still below the cost of production for many wells. The price simply fell from bad to terrible. To make the equation work, drillers have shifted from shale formations that produce mostly “dry” natural gas to formations that also produce a lot of liquids, such as oil, natural gasoline, propane, butane, or ethane that were fetching a much higher price. Thus, they’d be immune to the low price of NG. They pitched this strategy to investors to attract ever more money and keep the fracking treadmill going.

Much of this new money was in form of junk debt. Now energy companies account for over 15% of the Barclays U.S. Corporate High-Yield Bond Index – up from less than 5% in 2005. But there is no respite for the American oil patch. The price of oil has plunged 50% since June, the price of propane is down 50% since its recent high in mid-September, and natural gasoline is down 32% since recent high in mid-November. None of the fancy charts natural gas drillers have shown to investors work at these prices.

Read more …

“.. shadow banking is being tamed ..”

China Eases Again, Sets Non-Bank Deposit Reserve To Zero (Zero Hedge)

Four years ago, on Christmas Day in 2010, China shocked the world when, unexpectedly, hiked its lending and deposits rates by 0.25% in order to battle inflation – only its second such hike in the prior 3 years. Since then things for the global economy haven’t done exactly as expected, and certainly not for China, which as the following chart of constantly downward-revised IMF growth forecasts, has seen its growth rate tumble from double digits to just hanging on to 7%, and dropping fast.

Fast forward to last night, when in another Christmas surprise, China once again decided to adjust the cost of money, only this time instead of hiking it eased, and in an effort to shore up the world’s second-largest economy, China Business News reported that: PBOC WAIVES RESERVE REQUIREMENT FOR NON-BANK DEPOSIT. As WSJ adds, at a meeting with big financial institutions on Wednesday, the People’s Bank of China told participants that they will soon be able to add deposits from nonbank financial institutions to their calculations of their loan-to-deposit ratios, according to the executives. The move would add considerably to the banks’ deposits and allow them to lend more. Why is this a major development? Because as we reported over a month ago, “China’s Shadow Banking Grinds To A Halt As Bad Debt Surges Most In A Decade” in which we explained:

As the following chart shows the main reason for China’s relentless slowdown in its growth pace, which only two years ago was expected to rebound back into the double digits soon (at least according to the IMF), is the ongoing contraction in credit formation, which rising at 13.2% for new loans and 15.4% for TSF outstanding, was the lowest credit expansion recorded in China also since 2005.

So what is the main culprit for the contraction in China’s all important credit formation? In two words: shadow banking. As Bank of America summarizes “shadow banking is being tamed” because “the changing structure of TSF suggests that Beijing’s efforts in controlling some types of shadow banking have made some achievements. Two major drivers for the steep decline of TSF from Sept to Oct were the falling of non-discounted bills (down RMB241bn) and falling trust loans (down RMB22bn). By contrast, new corporate bonds were at RMB242bn, a sharp rise from RMB151bn in Sept.”

Read more …

Tad optimistic?!

Russia Says Ruble Crisis Over As Reserves Dive, Inflation Climbs (Reuters)

Russia said on Thursday its currency crisis was over even though its forex reserves have plunged and annual inflation has climbed above 10%, adding to the problems facing the government as it fights its worst economic crisis since 1998. The ruble plunged to all-time lows last week on heavy falls in the price of oil, the backbone of the Russian economy, and Western sanctions over the Ukraine crisis that made it near impossible for Russian firms to borrow on Western markets. But it has since rebounded sharply after authorities took steps to halt its slide and bring down inflation, which after years of stability threatens President Vladimir Putin’s reputation for ensuring the country’s prosperity. Those measures included a hike in interest rates to 17% from 10.5%, curbs on grain exports and informal capital controls.

“The key rate was raised in order to stabilise the situation on the currency market. … That period has already, in our opinion, passed. The ruble is now strengthening,” Finance Minister Anton Siluanov told the upper house of parliament on Thursday. He added that interest rates would be lowered if the situation remained stable. Standard & Poor’s said this week it could downgrade Russia to junk as soon as January due to a rapid deterioration in “monetary flexibility”. Keen to avert a downgrade, Russia said it had started talks with ratings agencies to explain the government’s actions. Siluanov said the budget deficit next year would be “significantly more” than the 0.6% of gross domestic product originally planned. The ruble slumped to 80 per dollar in mid-December from an average of 30-35 in the first half of 2014. It has strengthened in the last few days to trade as strong as 52 per dollar on Thursday, in part thanks to government pressure on exporters to sell hard currency.

Read more …

“Sometimes this is done without violence when the Alpha simply knows he is no longer top dog and he moves on. Often times it ends is horrible violence.”

Reuters Objectively Sees Russia’s Options as Losing or Losing Badly (Beversdorf)

Clearly Russia’s future has very little to do with the Western world and so they have no motive to start wars with the West. There is nothing to gain by doing so. However, they have every motive to defend themselves against Western aggression. And so if you see Russian aggression with the West it can only be defensive in nature. Nations (other than North Korea) do not act in a way that is to the detriment of its political class. Because warring with the West presents no possible upside but significant downside for Russia and her leaders, they will actually be willing to do everything in their power to prevent such a scenario. However, as we discussed above, the Western Alliance has only one option to secure its global control and that is to contain China and the only way to contain China is via Russian energy.

Thus, the Western Alliance has every reason to war with Russia. Behaviour (for rational minds) is always logical and so we can use logic to come to the truth about behaviour by looking at the logical results of actions. If an action seems to be detrimental to a particular subject nation’s political class, then the action would be illogical and thus will not be taken. If an action is the only course of survival for a nation, or more pertinently its political class, then you can be damn certain that action will be taken. Looking at the Russian conflict then from a logical context, it really becomes not up for debate that the Western Alliance must be the aggressor.

But so ok, we are doing what we need to in order to secure our dominance and perhaps there are working class folks that may agree with such a policy. Sounds simple enough according to John Lloyd. As he lays out, the two options for Putin and Russia are to either lose or lose badly. But when John pulls his head out his ass or decides to speak with some integrity rather than selling himself out as a politician’s town crier he will admit that things won’t be so simple. China’s future growth is dependent on Russian energy, and so on Russia itself. As such, China will never allow the Western Alliance to crush Russia as China understands the end objective is not a containment of Russia but China itself.

I made the point in the previous article that China will not only step in economically, which we’ve already seen by example with the signed energy deals and now explicitly stating they will back the Russian economy but, if comes to it, China will be prepared to step in militarily, they have no choice. That is a very scary WWIII proposition and one might wonder why in the hell are we headed in that direction? It is obviously not something citizens of any involved countries would want. Again the reason goes back to that very natural process of Alpha selection. It requires a final fight of the Alpha dog, the one in which he loses his reign of power to a new more impressive Alpha dog. Sometimes this is done without violence when the Alpha simply knows he is no longer top dog and he moves on. Often times it ends is horrible violence.

Read more …

A major shift. Japan’s model has been held up by savers investing in sovereign bonds.

Japan No A Longer Nation Of Savers, For First Time Ever (MarketWatch)

Japan, long held up as a model of thrift and a “nation of savers,” is no longer saving, according to data cited Friday in the Nikkei Asian Review. For the fiscal year that ended in March, Japan’s household savings rate dropped to negative 1.3%, according to Cabinet Office statistics released Thursday. The result represented “the first time the ratio entered negative territory since the government started compiling comparable data in fiscal 1955,” the Nikkei reported. Part of the drop was likely due to a spending binge ahead of the nationwide consumption-tax hike on April 1, but the report also cited a broad drawdown of savings by Japan’s elderly.

The figure has special significance for Japan, as much of the government’s huge debt is funded by the nation’s own savers. “If fewer people buy government bonds, it would feed latent upward pressures for long-term interest rates,” the report quoted Goldman Sachs Japan’s Masahiro Nishikawa as saying. On the other hand, any threat to low interest rates seemed distant Friday, with several reports noting that the yield on the benchmark 10-year Japanese government bond TMBMKJP-10Y, -3.96% had hit its lowest level in history the previous day, amid extended ultra-easy policy from the central bank.

Read more …

“The savings rate in the year through March was minus 1.3%, the first negative reading in data back to 1955 ..”

Japan’s Savings Rate Turns Negative, Wages Fall in Abe Challenge (Bloomberg)

Japanese drew down savings for the first time on record while wages adjusted for inflation dropped the most in almost five years, highlighting challenges for Prime Minister Shinzo Abe as he tries to revive the world’s third-largest economy. The savings rate in the year through March was minus 1.3%, the first negative reading in data back to 1955, the Cabinet Office said. Real earnings fell 4.3% in November from a year earlier, a 17th straight decline and the steepest tumble since December 2009, the labor ministry said today. A higher sales tax combined with the central bank’s record easing are driving up living costs, squeezing household budgets and damping consumption. Abe’s task is to convince companies to agree to higher wages in next spring’s labor talks to sustain a recovery.

“Households are suffering from a decline in real income,” said Hiromichi Shirakawa, an economist at Credit Suisse. Abe is trying to generate a virtuous cycle in the economy, where higher incomes fuel consumer spending, which in turn prompts companies to boost investment and wages. Last week he secured a pledge from business leaders to do their best to boost pay next year. The government will aim for wages to increase faster than inflation next year, Economy Minister Akira Amari said last week. BOJ Governor Haruhiko Kuroda said yesterday he’d watch the spring wage talks “with strong interest.” The savings rate, which the Cabinet Office calculates by dividing savings by the sum of disposable income and pension payments, peaked at 23.1% in fiscal 1975.

As Japan’s population ages, its growing ranks of elderly are tapping their savings, according to the Cabinet Office. Consumers also ran down savings to make purchases ahead of a sales tax-increase in April, the first since 1997. The shrinking workforce is intensifying a labor shortage that Kuroda has said will prompt an increasing number of companies to boost pay to secure workers. Today’s data showed there were 1.12 jobs available for every person seeking a position, the most since 1992. The jobless rate, at 3.5%, remained at lows unseen since 1997.

Read more …

Kuroda makes things worse, fast.

Japan Struggles to Escape Recession as Production Drops (Bloomberg)

Japan’s inflation slowed for a fourth month in November, and industrial production and retail sales unexpectedly dropped, pointing to further weakness in an economy Prime Minister Shinzo Abe is trying to revive from recession. Output fell 0.6% in November from a month earlier, the trade ministry said today, against a median estimate of a 0.8% increase in a Bloomberg News survey of economists. Retail sales slid 0.3%, while consumer prices excluding fresh food rose 2.7% from a year earlier. Real wages fell the most since 2009. With little sign of a rebound in domestic demand, the world’s third-largest economy may rely on exports to avert a third straight quarterly contraction in the final three months of the year.

Today’s reports add pressure on Abe, whose government tomorrow will unveil a stimulus package, and who pledged growth-inducing structural changes after winning re-election this month. “Companies have to see a recovery in domestic consumption before boosting production,” said Minoru Nogimori, an economist at Nomura Holdings Inc., noting any rebound in the economy in the fourth quarter “will be far from strong.” With oil prices weighing on inflation, the BOJ is likely to boost stimulus again, probably around October, he said. [..] Stripped of the effect of April’s sales-tax increase, core consumer prices – the Bank of Japan’s key measure – rose 0.7%, moving further away from the BOJ’s 2% goal. Tumbling oil prices could push Japan’s inflation as low as 0.5% by the middle of next year, according to economists.

BOJ Governor Haruhiko Kuroda said yesterday that over the longer term, cheaper oil will support the economy and spur consumer prices. Energy prices dropped 1.2% from a month earlier, according to today’s data. The price of Dubai crude oil – a benchmark for Middle East supply to Asia – has lost about a half of its value in the past year. Japan’s gasoline prices declined the most in almost six years last week. “Japan, a commodity-importing country, gains a large advantage from the decline in crude oil prices,” Kuroda said in a speech to business leaders yesterday in Tokyo. The decline “will lead to an increase in underlying prices from a somewhat longer-term perspective,” he said.

Read more …

“Today, the only right way forward is for the troika to allow Greece to repay its official creditors in, say, 100 years.”

Greece to the Eurozone’s Rescue (Bruegel)

The European Commissioner for Economic and Financial Affairs, Pierre Moscovici’s unnecessary—and unseemly—visit to Athens served to spotlight Europe’s corrosive politics. Mr. Moscovici chose to all but endorse Antonio Samaras, the beleaguered Greek Prime Minister, who promises to play by the European Union’s dysfunctional rules. And the Commissioner described as “suicidal” the positions held by the opposition party Syrzia, which may well lead the next government and correctly deems the EU’s rules to be intolerant. His boss, European Commission President Jean-Claude Juncker, weighed in by expressing his preference for Greece to be led by “known” faces. Greece should not have been a member of the eurozone. But after the German Chancellor Helmut Kohl ensured Italy’s inclusion in May 1998, Spain and Portugal were waived in. So, the inevitable Greek entry came in 2002.

By then, any vestige of economic good sense in the euro’s construction had been abandoned in the name of peace and friendship, a cause that Moscovici and Juncker presumably seek to promote. From October 2009, when Greek authorities acknowledged that they had lied about their fiscal accounts, to May 2010, the claim was that the problem would go away without external help. When eventually the troika—the European Commission, the European Central Bank, and the International Monetary Fund—put together a large bailout fund, the manifestly untenable claim was that Greece would repay its private creditors in full. In July 2011, the repayment terms on the troika’s debt were eased, but it was too little too late. Large losses were eventually imposed on private Greek creditors but not before harsh austerity caused an extraordinary slump in growth and lasting misery.

Pretty much every time there was a choice between the right and wrong decision, the wrong one was taken. Today, the only right way forward is for the troika to allow Greece to repay its official creditors in, say, 100 years. This will effectively mean debt forgiveness but the cosmetics may help German leaders tell their citizens that they will be repaid. But, of course, the system fights back all rational thinking. Ireland and Portugal will yelp that they also deserve more relief on their troika borrowings. More fundamentally, the forgiveness will directly contravene the Lisbon Treaty’s no-bailout provision, which prevents one member state from paying another’s debts. That would call into question the constitutionality of the European Stability Mechanism, which was approved by the European Court of Justice on the basis that the loans from the facility would be repaid with an “appropriate margin.”

Read more …

“There is a school of thought that holds that commitment, not achievement, gives a policy credibility.”

Is George Osborne A Closet Keynesian? (Project Syndicate)

There is a growing apprehension among Britain’s financial pundits that chancellor George Osborne is not nearly as determined to cut public spending as he pretends to be. He sets himself deadlines to balance the books, but when the date arrives, with the books still unbalanced, he simply sets another. Consider some fiscal arithmetic. When Osborne became chancellor in 2010, the budget deficit – spending minus revenue – was £153bn, or 10.2% of GDP. He promised that by 2015 the deficit would stand at only £37bn, or 2.1% of GDP – equivalent to balancing current spending and revenue. Instead, the deficit for 2014-2015 is expected to be £97bn. The conclusion of Osborne’s balancing act has been postponed until the 2019-2020 budget. Osborne talks about the need to cut spending, but his actions say otherwise.

Though he vowed to reduce spending by more than £100bn by now, he has cut less than half of that, simply extending his five-year rolling programme of cuts for another few years. As a result, Osborne, the poster child for British austerity, is starting to look like a closet Keynesian. There is a school of thought that holds that commitment, not achievement, gives a policy credibility. For example, the Bank of England is committed to achieve 2% inflation “in the medium term”. Annual inflation has not been 2% at any time in the last six years, but it is possible that the BoE’s commitment has had some effect in lowering interest rates. Osborne’s defenders might make the same argument for his fiscal policy. A credible policy of fiscal consolidation, they might say, will have the same exhilarating effect on confidence as fiscal consolidation itself.

Economists call this the “signalling effect”. If you announce that you intend to balance the books over five years and pencil in a lot of spending cuts, consumers, relieved of their fears of future tax increases, will start spending more freely. This will cause national income to rise, and, with luck, the budget deficit will start shrinking, more or less according to plan, without requiring any, or much, retrenchment. In its emphasis on the importance of the signal, economics enters postmodernist territory. The signal – in this case the promise to balance the books – creates the reality. People start behaving as though the books were balanced, ignoring the fact that they are not. When one believes the narrative, one acts in ways that make it come true.

Read more …

Can the west screw this up too?

Ukraine Peace Talks Focus on Prisoner Swap Before New Year Break (Bloomberg)

Envoys to Ukraine peace talks are discussing an exchange of prisoners before the New Year, according to a separatist leader, as Russia criticized the country for having “NATO ambitions.” The talks may continue for about two days and no agreements have been reached yet, Alexander Zakharchenko, leader of the self-proclaimed Donetsk People’s Republic, told the pro-Russian rebels’ news website. Ukraine, Russia and the Organization for Security and Cooperation in Europe sent representatives to Minsk, Belarus, yesterday to hold the first of two planned rounds of talks. The participants, including separatist negotiators, left the venue without commenting to reporters.

“The main task at the moment is to stop the violence,” Alexei Panin, deputy director of the Center for Political Information, a Moscow-based research group, said by phone. A two-week truce has tempered the bloodshed in a conflict that has killed more than 4,700 people since April in fighting between government forces and separatists in Ukraine’s eastern Donetsk and Luhansk regions. The talks cleared the last objections to a swap of 150 prisoners for 225, Zakharchenko said. Ukraine’s Security Service reiterated commitment to an “all-for-all” exchange, RIA Novosti reported.

Read more …

The insanity continues.

Ukraine’s Anti-Corruption Agency Could Be Led By US Citizen (TASS)

A former US federal prosecutor Bohdan Vitvitsky, who has Ukrainian roots, could be appointed as the director of Ukraine’s newly-created Anti-Corruption Bureau, local media reported on Friday. Officials from the Ukrainian presidential administration are currently in talks with Vitvitsky, who has not yet made a final decision saying that he “still has no guarantees that the position is independent.” Another candidate for the top post is former Georgian President Mikheil Saakashvili, the reports say. The candidacy has been proposed by a member of a tender commission, Yury Butusov. The ex-Georgian leader, who is now on the run and has recently failed to receive a US working visa, has not yet taken a decision, saying that he is waiting for “a more specific proposal.” Saakashvili will have to take Ukraine’s citizenship and in line with an anti-corruption law to settle the issues over closing criminal cases against him in his home country, including on abuse of power.

In October, Ukrainian President Petro Poroshenko signed a package of anti-corruption laws, including on creating the National Anti-Corruption Bureau in Ukraine. The agency will be charged with exposing, preventing and investigating corruption cases in the country. Poroshenko also suggested that a foreigner could lead the newly-created agency. Foreigners have been already appointed as ministers in the Ukrainian government. President Poroshenko earlier signed a law on granting Ukrainian citizenship to US national Natalya Yaresko, Lithuanian Aivaras Abromavichus and Georgian Alexander Kvitashvili, who head the country’s finance, health and economic development ministries, respectively. Ukraine’s Opposition Bloc and Yulia Tymoshenko’s Batkivshchyna party are against the work of foreigners in the Ukrainian government, saying that Kiev wants to absolve itself of the responsibility for what is happening in the country.

Read more …

“What right have you to be merry? What reason have you to be merry? You’re poor enough.” To this Fred replies, “What right have you to be dismal? What reason have you to be morose? You’re rich enough.”

Correcting Scrooge’s Economics (Mises Inst.)

As Charles Dickens himself admits, Ebenezer Scrooge is a thoroughly peaceful man, guilty of no true crime, who has robbed no one. Therefore, we must conclude that his wealth is a sign of his ability to please at least some people, and as Michael Levin notes: “Dickens doesn’t mention Scrooge’s satisfied customers, but there must have been plenty of them for Scrooge to have gotten so rich.” But as he is a person with bad manners and a disagreeable personality, many have conflated Scrooge’s personality traits with his business practices, although the two are unrelated phenomena. As a miser and businessman, Scrooge provides numerous valuable services to the community including, as Walter Block has shown, driving down prices and making liquidity available to those who, unlike the wrongly maligned misers, have been either unwilling or unable to save in comparable amounts.

His business prowess notwithstanding, however, a closer look at Scrooge’s economics suggests some significant blind spots in several areas. Scrooge, as displayed in many of his comments and observations, misunderstands some key economics concepts. Indeed, Scrooge’s ignorance in these areas may contribute to his bad habit of assuming that others are taking advantage of him, or are too foolish or lazy to attain what Scrooge has. As Carl Menger demonstrated long ago, value is subjective and different persons value goods differently depending on the person’s goals in life. Does the person want to raise a family? Perhaps he wishes to be an independent scholar who devotes all his time to reading and research. Perhaps he wishes to be a hermit who prays most of the day. Money prices reflect these goals, and a hermit will value a video game console differently from a gamer. But of course not everything can be calculated in terms of money prices. A like or dislike of Christmas, for example, cannot be calculated this way.

Scrooge, who is apparently not a Christmas enthusiast, greatly values money, and likes to have plenty of it handy. But why? If we accept the analysis of Scrooge’s former fiancée, (a fairly reliable source on that period in his life) she suggests that Scrooge “fear[s] the world too much” and that all his other hopes “have merged into the hope of being beyond the chance of its sordid reproach.” So here we see the real root of Scrooge’s fondness of money. In Human Action, Ludwig von Mises explained that human action stems from a desire to “remove unease” about one’s present situation. With Scrooge we see (if his fiancée is to be believed) that the thought of being destitute is a source of constant unease for him. Thus, he desires to build as much wealth as possible in the hope of being beyond the possibility of poverty.

As Scrooge’s primary goals is poverty avoidance, this colors how he views all economic action. His peers tend to not recognize this in him, either dismissing his as simply “odious,” as Mrs. Cratchit does, or as unhappy. In fact, as Levin demonstrates, Scrooge appears rather content with his situation at this point, although, unfortunately — just as Scrooge’s colleagues and family members do not appreciate his ranking of values — Scrooge does not seem to appreciate that others might value money for different reasons. This is demonstrated in an early exchange with Scrooge’s nephew. When wished a merry Christmas by his nephew Fred, Scrooge retorts “What right have you to be merry? What reason have you to be merry? You’re poor enough.” To this Fred replies, “What right have you to be dismal? What reason have you to be morose? You’re rich enough.”

Read more …

“.. political and business interests responded to the peak by redefining what counts as crude oil, pouring just about any flammable liquid they could find into the world’s fuel tank ..”

Waiting for the Sunrise (John Michael Greer)

… the coming of 2015 marks a full decade since production of conventional petroleum worldwide hit its all-time peak and began to decline. Those who were around in the early days of the peak oil scene, as I was, will doubtless recall how often and eagerly the more optimistic members of that scene insisted that once the peak arrived, political and business interests everywhere would be forced to come to terms with the end of the age of cheap abundant energy. Once that harsh but necessary awakening took place, they argued, the transition to sustainable societies capable of living within the Earth’s annual budget of sunlight would finally get under way.

Of course that’s not what happened. Instead, political and business interests responded to the peak by redefining what counts as crude oil, pouring just about any flammable liquid they could find into the world’s fuel tank—ethanol, vegetable oil, natural gas liquids, “dilbit” (diluted bitumen) from tar sands, you name it—while scraping the bottom of the barrel for petroleum via hydrofracturing, ultradeep offshore wells, and other extreme extraction methods. All of those require much higher inputs of fossil fuel energy per barrel produced than conventional crude does, so that a growing fraction of the world’s fossil fuel supply has had to be burned just to produce more fossil fuel. Did any whisper of this far from minor difficulty find its way into the cheery charts of “all liquids” and the extravagantly rose-colored projections of future production?

Did, for example, any of the official agencies tasked with tracking fossil fuel production consider subtracting an estimate for barrels of oil equivalent used in extraction from the production figures, so that we would have at least a rough idea of the world’s net petroleum production? Surely you jest. The need to redirect an appreciable fraction of the world’s fossil fuel supply into fossil fuel production, in turn, had significant economic costs. Those were shown by the simultaneous presence of prolonged economic dysfunction and sky-high oil prices: a combination, please note, that last appeared during the energy crises of the 1970s, and should have served as a warning sign that something similar was afoot. Instead of paying attention, political and business interests around the world treated the abrupt fraying of the economy as a puzzling anomaly to be drowned in a vat of cheap credit—when, that is, they didn’t treat it as a public relations problem that could be solved by proclaiming a recovery that didn’t happen to exist.

Economic imbalances accordingly spun out of control; paper wealth flowed away from those who actually produce goods and service into the hands of those who manipulate fiscal abstractions; the global economy was whipsawed by convulsive fiscal crisis in 2009 and 2009, and shows every sign of plunging into a comparable round of turmoil right now.

Read more …

Another story on the theme, after yesterday’s long one.

World War I’s Christmas Truce, 100 Years Ago (Klein)

Five months into World War I, the Christmas spirit took hold in the most unlikely of places—the bloody Western Front. In a series of spontaneous ceasefires, soldiers laid down their arms to sing carols, exchange gifts and even play soccer with the enemy. On the centennial of the Christmas Truce of 1914, look back at the sudden outbreak of peace that brought a brief moment of cheer to a grim war. Charles Brewer never expected to be spending Christmas Eve nearly knee-deep in the mud of northern France. Stationed on the front lines, the 19-year-old British lieutenant with the Bedfordshire Regiment of the 2nd Battalion shivered in a trench with his fellow soldiers. After Great Britain entered World War I in August 1914, many of them had expected that they would make quick work of the enemy and be home in time for Christmas.

Nearly five months and 1 million lives later, however, the Great War had bogged down in intractable trench warfare with no end in sight. Although disappointed to be far from home on Christmas Eve, Brewer at least took solace in the fact that the perpetual rain, which made moving through the trenches as much of a slog as the war itself, had finally abated on the moonlit night. All was jarringly quiet on the Western Front when a British sentry suddenly spied a glistening light on the German parapet, less than 100 yards away. Warned that it might be a trap, Brewer slowly raised his head over the soaked sandbags protecting his position and through the maze of barbed wire saw a sparkling Christmas tree.

As the lieutenant gazed down the line of the German trenches, a whole string of small conifers glimmered like beads on a necklace. Brewer then noticed the rising of a faint sound that he had never before heard on the battlefield – a Christmas carol. The German words to “Stille Nacht” were not familiar, but the tune—“Silent Night”—certainly was. When the German soldiers finished singing, their foes broke out in cheers. Used to returning fire, the British now replied in song with the English version of the carol.

Read more …

Better be careful.

CDC Reports Potential Ebola Exposure In Atlanta Lab (WaPo)

Researchers studying Ebola in a highly secure laboratory mistakenly allowed potentially lethal samples of the virus to be handled in a much less secure laboratory at the Centers for Disease Control and Prevention in Atlanta, agency officials said Wednesday. One technician in the second laboratory may have been exposed to the virus and about a dozen other people have been assessed after entering the facility unaware that potentially hazardous samples of Ebola had been handled there. The technician has no symptoms of illness and is being monitored for 21 days. Agency officials said it is unlikely that any of the others who entered the lab face potential exposure. Some entered the lab after it had been decontaminated.

Officials said there is no possible exposure outside the secure laboratory at CDC and no exposure or risk to the public. “At this time, we know of only the one potential exposure,” CDC Director Tom Frieden said in a telephone interview. The mistake took place Monday afternoon. It was discovered by laboratory scientists Tuesday and within an hour reported to agency leaders. The error, which is under internal investigation, was reported to Secretary of Health and Human Services Sylvia Mathews Burwell and to a program that has oversight over pathogens such as Ebola and anthrax.

Read more …

Nothing has been solved.

Sierra Leone Declares Three-Day Lockdown In North To Contain Ebola (BBC)

Sierra Leone has declared lockdown of at least three days in the north of the country to try to contain the Ebola epidemic. Shops, markets and non-Ebola related travel services will be shut down, officials said. Sierra Leone has already banned many public Christmas celebrations. More than 7,500 people have died from the outbreak in West Africa so far, the Word Health Organization (WHO) says, with Sierra Leone the worst hit. Sierra Leone has the highest number of Ebola cases in West Africa, with more than 9,000 cases and more than 2,400 deaths since the start of the outbreak. The other countries at the centre of the outbreak are Liberia and Guinea.

Alie Kamara, resident minister for the Northern Region, told AFP news agency that most public gatherings would be cancelled. “Muslims and Christians are not allowed to hold services in mosques and churches throughout the lockdown except for Christians on Christmas Day”, he said. No unauthorised vehicles would be allowed to operate “except those officially assigned to Ebola-related assignments” he added. The lockdown would operate for at least three days but this could be extended if deemed necessary, officials said. Sierra Leone has been in a state of emergency since July. The outbreak began a year ago in the West African country of Guinea, but only gained international attention in early 2014.

Read more …