Dec 252018
 
 December 25, 2018  Posted by at 10:28 am Finance Tagged with: , , , , , , , , , , , ,  5 Responses »


Caravaggio Nativity with St. Francis and St. Lawrence 1600

 

The Stock Market Just Booked Its Ugliest Christmas Eve Plunge — Ever (MW)
Japan’s Nikkei Drops 5% After Wall Street Slide Deepens (CNBC)
US Crude Plunges 6.7%, Settling At 18-Month Low At $42.53 (CNBC)
‘The Worst Is Yet To Come’: Experts Say Global Bear Market Coming (CNBC)
In Defense of the Fed (Stephen S. Roach)
Trump, Annoyed By Resignation Letter, Pushes Out Mattis Early (R.)
Mnuchin Holds Calls With Heads Of America’s 6 Biggest Banks Amid Shutdown (F.)
Facebook Is The ‘Biggest Concern’ Among The FAANGs (CNBC)
China Won’t Resort To Massive Monetary Stimulus Next Year – PBOC (CNBC)
Gatwick Drones Pair ‘No Longer Suspects’ (BBC)
Gatwick Police Say They Cannot Discount Possibility There Was No Drone (Ind.)
‘Home Alone’: Bored Trump Tweets Up Storm During Christmas Shutdown (RT)

 

 


Bette Davis and Joan Crawford were not each other’s biggest fans

 

 

I kid you not: plenty people are blaming this on Trump, too.

The Stock Market Just Booked Its Ugliest Christmas Eve Plunge — Ever (MW)

Never mind finding coal in your stocking for the holidays. Wall Street investors scored a rare — and unwanted — gift this year. The S&P 500 index fell by 2.7% Monday, marking the first session before Christmas that the broad-market benchmark has booked a loss of 1% or greater — ever. That statistic has been confirmed by Dow Jones Market Data, which said the largest decline in the index on the trading day before Christmas was Dec. 23 in 1933.

The Dow Jones Industrial Average finished down 653 points, or 2.9%, representing its worst decline on the session prior to Christmas in the 122-year-old blue-chip gauge’s history. Check out the table below from Dow Jones Market Data:

U.S. stock indexes ended trading at 1 p.m. Eastern Time on Christmas Eve and will be closed on Christmas. The current dynamic in the market has it set for its worst monthly and yearly decline in about a decade, amid nagging concerns that the Federal Reserve is normalizing interest rates too rapidly, and that a continuing tariff dispute between China and the U.S. could devolve and help lead to a domestic recession, as international economies are already demonstrating signs of a slowdown. Also stoking anxiety was a tweet from Treasury Secretary Steven Mnuchin to assess the health of the banking system, which has raised some questions about liquidity among those institutions that had not previously been raised. Treasury officials insist that the calls to bank executives were just a routine checkup.

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The ongoing success of Abenomics.

Japan’s Nikkei Drops 5% After Wall Street Slide Deepens (CNBC)

Japan’s Nikkei retreated to a 20-month low on Tuesday after a slide on Wall Street deepened with a series of unnerving U.S. political developments. The Nikkei share average ended the day down 5.01 percent at 19,155.74 after brushing its lowest since late April 2017. The day’s performance put the index well into bear market territory — off more than 20 percent since its October high. Japan’s broader Topix closed 4.88 percent lower at 1,415.55 after touching 1,412.90, its weakest since November 2016.

Meanwhile, in China, the Shanghai Index posted losses of more than 2 percent by mid-day, but then gained some ground back into the afternoon. Chinese sectors lost ground across the board, led by financial shares and energy firms as oil prices slumped. So far this year, the Shanghai stock index is down about 24 percent. Those Asia moves followed Wall Street stocks extending their steep sell-off on Monday, with the S&P 500 down nearly 15 percent so far this month, as investors were rattled by the U.S. Treasury secretary’s convening of a crisis group and by other political developments.

Many financial markets in Asia, Europe and North America are closed on Tuesday for Christmas Day. “Negative sentiment has replaced logic, as is often the case during a sell-off. A third of the selling is induced by panic, another third by loss-cutting and the remaining third by speculators trying to make a profit from the market rout,” said Takashi Hiroki, chief strategist at Monex Securities in Tokyo. “The sell-off is triggered almost entirely by developments in the U.S. markets, rather than by negative factors unique to the domestic market.”

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Oil swings too much to be safe.

US Crude Plunges 6.7%, Settling At 18-Month Low At $42.53 (CNBC)

U.S. crude plunged nearly 7 percent on Monday, hitting its lowest levels in a year and half, as the oil market fell in tandem with equities amid deepening turmoil in Washington DC. The Dow Jones Industrial Average plummeted more than 600 points, while the S&P 500 closed in bear market territory. Both stock indexes were buffeted by headlines out of Washington, including a government shutdown and President Donald Trump’s reported desire to fire Federal Reserve chair Jerome Powell over the central bank’s interest rate increases.

The selling in global risk assets on Christmas Eve deepened a nearly three-month slide in oil prices. From peak to trough, U.S. crude has fallen nearly 45 percent from its 52-week high at the start of October. Brent has fallen as much as 42 percent over the same period. “For now, there’s no place to hide in any of these markets. Oil’s being taken down with the stock market and the negative sentiment that’s sweeping across really everything, and for now the downward pressure is going to persist,” John Kilduff, founding partner at energy hedge fund Again Capital told CNBC’s “Closing Bell” on Friday.

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The so-called experts see themselves as mighty smart when all they’ve done is suck from the fed’s trough. Humbug!

‘The Worst Is Yet To Come’: Experts Say Global Bear Market Coming (CNBC)

Volatility on Wall Street has led shares across the globe on a wild ride in recent months, resulting in a number of stock markets dipping into bear territory. That’s set to worsen in the new year, experts told CNBC on Monday. Bear markets — typically defined as 20 percent or more off a recent peak — are threatening investors worldwide. In the U.S., the Nasdaq Composite closed in a bear market on Friday and the S&P 500 entered one on Monday. Globally, Germany’s DAX and China’s Shanghai Composite have also entered bear market levels. Major market risks remain, experts said. The Federal Reserve is likely to continue raising interest rates and worries about a global economic slowdown — made worse by a trade war between the U.S. and China — are mounting.

“I would love to be more optimistic but i just don’t see too many positives out there. I think the worst is yet to come next year, we’re still in the first half of a global equity bear market with more to come next year,” Mark Jolley, global strategist at CCB International Securities, told CNBC’s “Squawk Box.” For Jolley, the big risk lies in the credit markets. With the Fed projecting another two interest rate hikes in 2019, companies will find it increasingly difficult to service their debt causing some to default or get downgraded, he said. Such weakness in the credit markets will spill over to stocks, noted Jolley. “My core scenario will be a credit event, which will further weigh on equity markets, which will definitely weigh on high growth sectors like tech,” he said.

More generally, investors have fewer reasons to be optimistic now because the Fed tightening monetary policy means there will be less money for investments, said Vishnu Varathan, head of economics and strategy at Mizuho Bank. “There is really no conviction for markets to buy back because they’re not sure this is the bottom, and so they are thinking this is the proverbial falling knives,” Varathan told CNBC’s “Squawk Box.”

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The Fed spent the past 10 years making sure its member banks kept on making indecent amounts of money. And now they need to be defended?

In Defense of the Fed (Stephen S. Roach)

I have not been a fan of the policies of the US Federal Reserve for many years. Despite great personal fondness for my first employer, and appreciation of all that working there gave me in terms of professional training and intellectual stimulation, the Fed had lost its way. From bubble to bubble, from crisis to crisis, there were increasingly compelling reasons to question the Fed’s stewardship of the US economy. That now appears to be changing. Notwithstanding howls of protest from market participants and rumored unconstitutional threats from an unhinged US president, the Fed should be congratulated for its steadfast commitment to policy “normalization.”

It is finally confronting the beast that former Fed Chairman Alan Greenspan unleashed over 30 years ago: the “Greenspan put” that provided asymmetric support to financial markets by easing policy aggressively during periods of market distress while condoning froth during upswings. Since the October 19, 1987 stock-market crash, investors have learned to count on the Fed’s unfailing support, which was justified as being consistent with what is widely viewed as the anchor of its dual mandate: price stability. With inflation as measured by the Consumer Price Index averaging a mandate-compliant 2.1% in the 20-year period ending in 2017, the Fed was, in effect, liberated to go for growth.

And so it did. But the problem with the growth gambit is that it was built on the quicksand of an increasingly asset-dependent and ultimately bubble- and crisis-prone US economy. Greenspan, as a market-focused disciple of Ayn Rand, set this trap. Drawing comfort from his tactical successes in addressing the 1987 crash, he upped the ante in the late 1990s, arguing that the dot-com bubble reflected a new paradigm of productivity-led growth in the US. Then, in the early 2000s, he committed a far more serious blunder, insisting that a credit-fueled housing bubble, inflated by “innovative” financial products, posed no threat to the US economy’s fundamentals. As one error compounded the other, the asset-dependent economy took on a life of its own.

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Someone better collect some pieces on Mattis from 2 years ago. Won’t look anything like the sainthood declarations he’s getting today.

Trump, Annoyed By Resignation Letter, Pushes Out Mattis Early (R.)

U.S. President Donald Trump on Sunday said he was replacing Defense Secretary Jim Mattis two months earlier than had been expected, a move officials said was driven by Trump’s anger at Mattis’ resignation letter and its rebuke of his foreign policy. On Thursday, Mattis had abruptly said he was quitting, effective Feb. 28, after falling out with Trump over his foreign policy, including surprise decisions to withdraw all troops from Syria and start planning a drawdown in Afghanistan. Trump has come under withering criticism from fellow Republicans, Democrats and international allies over his decisions about Syria and Afghanistan, against the advice of his top aides and U.S. commanders.

The exit of Mattis, highly regarded by Republicans and Democrats alike, added to concerns over what many see as Trump’s unpredictable, go-it-alone approach to global security. Trump said Deputy Defense Secretary Patrick Shanahan would take over on an acting basis from Jan. 1. In announcing his resignation, Mattis distributed a candid resignation letter addressed to Trump that laid bare the growing divide between them, and implicitly criticized Trump for failing to value America’s closest allies, who fought alongside the United States in both conflicts. Mattis said that Trump deserved to have a defense secretary more aligned with his views.

Trump, who tweeted on Thursday that Mattis was “retiring, with distinction, at the end of February,” made his displeasure clear on Saturday by tweeting that the retired Marine general had been “ingloriously fired” by former President Barack Obama and he had given Mattis a second chance.

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The only interesting question: why go public with something so ordinary?

Mnuchin Holds Calls With Heads Of America’s 6 Biggest Banks Amid Shutdown (F.)

No need to panic. That was the message Treasury Secretary Steven Mnuchin sought to convey after holding unscheduled Sunday afternoon calls with the heads of the largest banks in America, Jamie Dimon of JPMorgan, Brian Moynihan of Bank of America, Michael Corbat of Citigroup, Tim Sloan of Wells Fargo, David Solomon of Goldman Sachs and James Gorman of Morgan Stanley. In a statement released by Treasury, Mnuchin said these CEOs confirmed “markets continue to function properly.” These bankers also assured Mnuchin their firms have the liquidity to fund themselves and their lending activities, and reported no clearance or margin issues on their trades, Treasury said.

A decade ago, such calls and terse press releases were routine Sunday events as Treasury officials, the Federal Reserve, and bank heads worked together to stem the worst financial panic since the Great Depression. This time, however, Mnuchin’s unusual efforts come amid a growing economy where credit is flowing freely. Instead of a financial panic, his comments seemed aimed at market concerns coming from political turmoil in Washington.

On Monday, Mnuchin will convene a call with the President’s Working Group on financial markets “to discuss coordination efforts to ensure normal market operations,” bringing together the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Commission.

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They’re all grossly overvalued.

Facebook Is The ‘Biggest Concern’ Among The FAANGs (CNBC)

One industry analyst has sounded the alarm on Facebook, calling the company the “biggest concern” among the so-called FAANG stocks. “The digital economy operates on trust, and they’ve broken trust on so many levels,” Ray Wang, principal analyst and founder at Silicon Valley-based Constellation Research, told CNBC’s “Squawk Box” on Monday. The FAANG stocks consist of Silicon Valley tech giants Facebook, Amazon, Apple, Netflix and Google-parent Alphabet.

Wang said many of Facebook’s trust woes have been “centralized” around Chief Operating Officer Sheryl Sandberg, who was in the spotlight after a New York Times report in mid-November about the executive and the social media company’s internal operations. The Times report came on the back of a series of scandals and incidents which have mired Facebook in controversy and sent its stock sinking in 2018. As of its last close after extended hours trade on Dec. 21, the company’s stock price was more than 40 percent off its 52-week high. Asked about the possibility of Sandberg departing from Facebook, Wang said it was “in the rumor category.”

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China’s afraid of the exchange rate.

China Won’t Resort To Massive Monetary Stimulus Next Year – PBOC (CNBC)

China will not resort to “flood-like” stimulus in monetary policy next year, although it will consider more cuts as needed to reserves held at commercial banks, local media quoted a central bank adviser as saying in a report on Tuesday. The Chinese economy will face downward pressure in 2019, while the pace of growth will gradually stabilize, the 21st Century Business Herald quoted Sheng Songcheng, an advisor to the People’s Bank of China (PBOC), as saying. “Monetary policy will remain prudent and won’t be a ‘flood.’ Otherwise, funds will likely flow into the property sector again,” Sheng was quoted as saying by the state-backed newspaper.

There remains room for further cuts in banks’ reserve requirement ratios (RRRs), and Sheng does not recommend broad-based reductions in interest rates, it said. China will bolster support next year for its economy, the world’s second-largest, by cutting taxes and keeping liquidity ample, the official Xinhua news agency said after last week’s Central Economic Work Conference, an annual closed-door gathering of party leaders and policymakers. [..] On exchange rates, the central bank adviser said China should defend the yuan at the key seven-per-dollar level. “The key threshold of seven per dollar is very important. If the yuan weakens past that crucial point, the cost of stabilizing the exchange rate will be greater,” Sheng was quoted as saying.

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The level of incompetence is sobering.

Police tell BBC News they “cannot discount the possibility that there may have been no drone at all”.

Gatwick Drones Pair ‘No Longer Suspects’ (BBC)

A man and woman arrested in connection with drone sightings that grounded flights at Gatwick Airport have been released without charge. The 47-year-old man and 54-year-old woman, from Crawley, West Sussex, had been arrested on Friday night. Sussex Police said there had been 67 reports of drone sightings – having earlier cast doubt on “genuine drone activity”. Det Ch Supt Jason Tingley said no footage of a drone had been obtained. And he said there was “always a possibility” the reported sightings of drones were mistaken.

However, he later confirmed the reported sightings made by the public, police and airport staff from December 19 to 21 were being “actively investigated”. “We are interviewing those who have reported these sightings, are carrying out extensive house-to-house inquiries, and carrying out a forensic examination of a damaged drone found near the perimeter of the airport.” Det Ch Supt Tingley said it was “a working assumption” the device could be connected to their investigation, but officers were keeping “an open mind”.

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‘We are working with human beings saying they have seen something..’ Cue 150,000 ruined holidays.

Gatwick Police Say They Cannot Discount Possibility There Was No Drone (Ind.)

Detectives investigating the Gatwick drone attacks which caused three days of chaos for passengers say it is possible there never were any drones. Police do not have any footage of the flying machines at the airfield and are relying on accounts from witnesses and the discovery of a damaged device. The revelation by Detective Chief Superintendent Jason Tingley came after the couple arrested by Sussex Police on Friday night were released without charge. Asked about speculation there never was a drone, he said: “Of course, that’s a possibility. We are working with human beings saying they have seen something. “Until we’ve got more clarity around what they’ve said, the detail – the time, place, direction of travel, all those types of things – and that’s a big task.”

Mr Tingley said one of the “working theories” was that the damaged drone found close to the airport in Sussex was responsible for causing the disruption. “Always look at it with an open mind, but actually it’s very basic common sense that a damaged drone, which may have not been there at a particular point in time has now been seen by an occupier, a member of the public, and then they’ve told us, ‘we’ve found this’. “Then we go and forensically recover it and do everything we can at that location to try and get a bit more information.” [..] Gatwick Airport has offered a £50,000 reward through Crimestoppers for information leading to the arrest and conviction of those responsible for the chaos.

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It doesn’t matter what anybody does, Trump still hoards the attention.

‘Home Alone’: Bored Trump Tweets Up Storm During Christmas Shutdown (RT)

With the US government shut down due to the dispute over funding President Donald Trump’s border wall, and his family in Florida, the chief executive has chosen to spend the Christmas holiday taking potshots at critics on Twitter. Funding for about a quarter of US government services ran out on Friday at midnight, as Senate Democrats refused to endorse a House funding bill that would’ve given Trump $5.7 billion for the border wall. Trump was supposed to celebrate Christmas at Mar-a-Lago with his family, but elected to stay in the White House instead, tweeting up a storm.

Trump tweeted twenty times on Thursday, as the shutdown loomed. He continued posting on Friday (ten), Saturday (seven) and Sunday (eight), then ramped up the schedule on Monday, with ten tweets by the early afternoon. In addition to his usual complaints about “Fake News” and Democrats, Trump has also taken aim at the Federal Reserve, praised Saudi Arabia, and dismissed Washington’s envoy to the anti-ISIS coalition as an “Obama appointee” who gave Iran $1.8 billion “in CASH” as part of the “horrific” nuclear deal. He also complained, tongue firmly in cheek, about being “all alone (poor me) in the White House waiting for the Democrats to come back and make a deal on desperately needed Border Security.”

Though Trump’s Twitter tirades usually trigger the trolls, that last one brought up a multitude of call-backs to the president’s cameo in 1992’s Christmas comedy ‘Home Alone 2: Lost in New York.’

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Aug 172016
 
 August 17, 2016  Posted by at 9:15 am Finance Tagged with: , , , , , , , , , ,  1 Response »


Harris&Ewing Buying Army surplus food sold at fish market 1919

Global Central Banks Dump US Debt At Record Pace (CNN)
The $6 Trillion US Public Pension Sinkhole (MW)
UK Dividends at Risk as Pension Holes Deepen (BBG)
Japan Official Threatens Action If Yen Rises Too Sharply (WSJ)
Bank Of Japan Buying Sends Nikkei 225 To Highest In 18 Years (ZH)
The “Housing Crisis” in San Francisco Strangles Demand (WS)
Chinese Investors Are Largest International Buyers Of US Real Estate (Forbes)
Australia Central Bank Governor In Complete Bubble Denial (BI)
“Racketeering Is Ruining Us” (Kunstler)
Iceland Prepares To End Currency Controls (Tel.)
‘I Want You Back,’ Cries East Europe as Emigrant Tide Erodes GDP (BBG)
Tsipras Revives Greek Bid To Seek Wartime Reparations From Berlin (Kath.)
Turkey To Free 38,000 From Prisons To Make Space For Alleged Coup Plotters (AP)
German Officials Say Erdogan Supports Militants (DW)

 

 

Concerted effort to relieve the USD?

Global Central Banks Dump US Debt At Record Pace (CNN)

Global central banks are unloading America’s debt. In the first six months of this year, foreign central banks sold a net $192 billion of U.S. Treasury bonds, more than double the pace in the same period last year, when they sold $83 billion. China, Japan, France, Brazil and Colombia led the pack of countries dumping U.S. debt. It’s the largest selloff of U.S. debt since at least 1978, according to Treasury Department data. “Net selling of U.S. notes and bonds year to date thru June is historic,” says Peter Boockvar, chief market analyst at the Lindsey Group, an investing firm in Virginia. U.S. Treasurys are considered one of the safest assets in the world. A lot of countries keep their cash holdings in U.S. government bonds.

Many countries have been selling their holdings of U.S. Treasuries so they can get cash to help prop up their currencies if they’re losing value. The selloff is a sign of pockets of weakness in the global economy. Low oil prices, China’s economic slowdown and currencies losing value are all weighing down global growth, which the IMF described as “fragile” earlier in the year. Despite all the selling by these countries, private demand for the bonds has sky rocketed. Demand is so high that the U.S. can afford to pay historically low interest rates. The 10-year U.S. Treasury hit a record low of 1.34% earlier this year, before bouncing back to about 1.58%, currently.

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Nice try, but I’m not so sure a different way of accounting would make the hole itself any smaller.

The $6 Trillion US Public Pension Sinkhole (MW)

U.S. state and local employee pension plans are in trouble — and much of it is because of flaws in the actuarial science used to manage their finances. Making it worse, standard actuarial practice masks the true extent of the problem by ignoring the best financial science — which shows the plans are even more underfunded than taxpayers and plan beneficiaries have been told. The bad news is we are facing a gap of $6 trillion in benefits already earned and not yet paid for, several times more than the official tally. Pension actuaries estimate the cost, accumulating liabilities and required funding for pension plans based on longevity and numerous other factors that will affect benefit payments owed decades into the future.

But today’s actuarial model for calculating what a pension plan owes its current and future pensioners is ignoring the long-term market risk of investments (such as stocks, junk bonds, hedge funds and private equity). Rather, it counts “expected” (hoped for) returns on risky assets before they are earned and before their risk has been borne. Since market risk has a price — one that investors must pay to avoid and are paid to accept — failure to include it means official public pension liabilities and costs are understated. The current approach calculates liabilities by discounting pension funds cash flows using expected returns on risky plan assets. But Finance 101 says that liability discounting should be based on the riskiness of the liabilities, not on the riskiness of the assets.

With pension promises intended to be paid in full, the science calls for discounting at default-free rates, such as those offered by Treasurys. Here’s the problem: 10-year and 30-year Treasurys now yield 1.5% and 2.25%, respectively. Pension funds on average assume a 7.5% return on their investments – and that’s not just for stocks. To do that, they have to take on a lot more risk – and risk falling short. Much debate focuses on whether 7.5% is too optimistic and should be replaced by a lower estimate of returns on risky assets, such as 6%. This amounts to arguing about how accurate is the measuring stick. But financial economists widely agree that the riskiness of most public pension plans liabilities requires a different measuring stick, and that is default-free rates.

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“It’s happening to pension schemes but will feel like it’s happening to the whole company.”

If these companies cut dividends, investors will sell their shares. But they also will if and when true pensions deficits become public. Can’t win.

UK Dividends at Risk as Pension Holes Deepen (BBG)

Workers have long fretted about funding gaps in U.K. companies’ retirement plans. Now investors are starting to join them. Since the U.K.’s June 23 vote to leave the European Union, pension deficits have swelled as record-low U.K. government bond yields have reduced returns on fund investments. That has added to pressure on companies facing gaps in their retirement funding, including telecommunications provider BT, grocer Tesco and military contractor BAE. With little prospect of higher returns after the Bank of England cut interest rates this month, companies may have to reduce dividend payments to raise pension contributions and close funding gaps. That means investors, who have been insulated from the U.K.’s pension crisis, could feel the effects.

“There is no doubt that shareholders of companies with major pension deficits will be concerned,” said Raj Mody, who heads PricewaterhouseCoopers’ pension consulting group. “It’s happening to pension schemes but will feel like it’s happening to the whole company.” Companies in the FTSE 100 paid around five times as much in dividends as they provided in contributions to defined-benefit pension plans last year, a report published Tuesday by consultant Lane Clark & Peacock showed. Through July 31 the FTSE 100 companies’ combined pension deficits – the amount by which liabilities outstrip assets – increased to £46 billion ($59.7 billion) from £25 billion a year earlier, Lane Clark said. Total pension liabilities of the 350 largest U.K. companies as a percentage of market capitalization rose to 40% in June, the highest level in the last 10 years except during the global financial crisis, according to Citigroup.

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Like what? QE?

Japan Official Threatens Action If Yen Rises Too Sharply (WSJ)

Japan’s top currency bureaucrat issued a fresh warning Wednesday over the soaring yen, saying the government would have to act should it rise too sharply. “If there are excessively sharp movements, we will have to take action,” Vice Finance Minister for International Affairs Masatsugu Asakawa told reporters at the ministry’s headquarters. The comment was likely a veiled threat of direct intervention in the currency market to force lower the yen — a step increasingly seen as undesirable manipulation among wealthy economies. The remark followed the yen’s surge Tuesday beyond the 100 mark against the dollar. A higher yen reduces Japanese manufacturers’ repatriated profits and undermines a positive growth cycle sought by Prime Minister Shinzo Abe. The dollar rose against the yen following Asakawa’s remark. Japan last intervened to undercut the yen in 2011.

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Abe and Kuroda are a success story.

Bank Of Japan Buying Sends Nikkei 225 To Highest In 18 Years (ZH)

Having noted the farcical share ownership of The Bank of Japan (biggest shareholder in 55 companies) as Kuroda's ETF-buying goes to '11', we thought it interesting that the distortion caused by these "pick a winner" purchases has sent Japan's Nikkei 225 to its richest relative to Japan's Topix index in 17 years. As Bloomberg notes, Japan’s two major equity benchmarks have moved mostly together over the years. That changed this month following the latest meeting by the Bank of Japan, which boosted its purchases of exchange-traded funds as part of its easing program.

The BOJ’s heavier allocation to ETFs tracking the Nikkei 225 has helped push the gauge to its highest level versus the Topix index in 18 years.

 

Which – as we noted previously – leaves one big question… just how will the BOJ ever unwind its unprecedented holdings of not only bonds, which are now roughly 100% of Japan's GDP, but also of stocks, without crashing both the bond and the stock market. And then we remember, that the BOJ will simply never unwind any of its "emergency" opertions just because nobody actually thought that far, plus the whole point of the exercise is hyperinflation or bust, as the sheer lunacy of Japan's authorities is exposed for the entire world to see, leading to the terminal collapse of faith in the local currency. With every passing day, we get that much closer to said terminal moment.

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Time for a hole new approach to housing. It should be a basic right, not some financial bet.

The “Housing Crisis” in San Francisco Strangles Demand (WS)

Here’s the other side of central-bank engineered asset price inflation, or “healing the housing market,” as it’s called in a more politically correct manner: San Francisco Unified school district, which employs about 3,300 teachers, has been hobbled by a teacher shortage. Despite intense efforts this year – including a signing bonus – to bring in 619 new teachers to fill the gaps left behind by those who’d retired or resigned, the district is short 38 teachers as of Monday, when the school year started. Others school districts in the Bay Area have similar problems. For teachers, the math doesn’t work out. Average teacher pay for the 2014-15 school year was $65,000. And less after taxes. But the median annual rent was $42,000 for something close to a one-bedroom apartment.

After taxes and utilities, there’s hardly any money left for anything else. A teacher who has lived in the same rent-controlled apartment for umpteen years may still be OK. But teachers who need to find a place, such as new teachers or those who’ve been subject of a no-fault eviction, are having trouble finding anything they can afford in the city. So they pack up and leave in the middle of the school year, leaving classes without teachers. It has gotten so bad that the Board of Supervisors decided in April to ban no-fault evictions of teachers during the school year. Yet renting, as expensive as it is in San Francisco, is the cheaper option. Teachers trying to buy a home in San Francisco are in even more trouble at current prices. And it’s not just teachers!

This aspect of Ben Bernanke’s and now Janet Yellen’s asset price inflation – and consumer price inflation for those who have to pay for housing – is what everyone here calls “The Housing Crisis.” As if to drive home the point, so to speak, the California Association of Realtors just released its Housing Affordability Index (HAI) for the second quarter. It is based on the median house price (only houses, not condos), prevailing mortgage interest rate, household income, and a 20% down payment. In San Francisco, the median house price – half sell for more, half sell for less – is $1.37 million. According to Paragon Real Estate, if condos were included, the median price would drop to $1.2 million.

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Wonder what Trump thinks about this.

Chinese Investors Are Largest International Buyers Of US Real Estate (Forbes)

Over the past five years, Chinese buyers spent about $17 billion on U.S. commercial real estate while spending roughly $93 billion on homes in the U.S. over the same period. Last year they paid about $832,000 per U.S. home in high profile cities like New York, Chicago, Miami, Los Angeles, Las Vegas and San Francisco. The Society indicated that Chinese purchase of residential property is primarily motivated by a desire for second homes; primary residences for those moving to the U.S. on EB-5 investor visas or as rental or resale investments. Concerns about the stability of the renminbi exchange rate have accelerated the pace of Chinese commercial investment abroad since the middle of 2015.

Motivations aside, China’s interest in investing in the U.S. has legs that carry implications for our enterprises and communities alike. When coupled with the 100 million mainland Chinese travelers expected to visit the U.S. annually by 2020 it’s clear the U.S. travel and hospitality industry and business community at large need to prepare for a changing landscape. For the travel and hospitality industry, it won’t be long before we see mainland Chinese hoteliers exporting their national lodging brands to the U.S. and other countries to complement the high-profile global brands in which they’ve invested. As their countrymen increasingly travel the world, just like generations of Americans and Europeans before them, they will want to stay in hotels with which they’re familiar back home.

Soon, it will be commonplace to find hotel brands developed by hoteliers like Jinling Hotels & Resorts or Jin Jiang International Holdings sitting side by side U.S. brands like Hilton, Sheraton, Hyatt or Marriott in cities throughout the U.S. Across the country, already more than 100,000 Americans get their weekly paychecks from a company based in China. That number will grow exponentially in coming years. As mainland Chinese investors continue to buy U.S. companies and brands and establish their own enterprises here, they will be eager to become members and leaders of the local chamber of commerce, to join the neighborhood PTA, represent their companies on area social and charitable boards and so on—just as our nationals who work and live abroad do in the countries in which they reside.

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And so is the author of this piece. Stunning. The heading is mine.

Australia Central Bank Governor In Complete Bubble Denial (BI)

The surge in property prices, especially in Sydney and Melbourne has made home owners extremely wealthy but cruelled the prospect of home ownership for many who aren’t already in the market. That’s especially true for younger Australians. That is causing some intergenerational issues in housing, which is a bigger question than “is there a housing bubble or not” according to RBA governor Glenn Stevens in the full transcript of his interview with the Australian and Wall Street Journal. Stevens acknowledged “it’s always been hard to be that cohort that’s trying to enter the market. There’s always been a hurdle. It may be getting worse, though part of this is – I mean, there’s a lot of things happening here”.

One of things that’s happening, Stevens believes, is that a chunk of the wealth home owners think they are sitting on in their house will prove ephemeral. That’s because if they want their children to own a home then they are going to have to give them some of that cash to do so. Here’s Stevens: “I think that a lot of people of my generation are actually going to find themselves, if they haven’t already, helping their children into the housing market because that may be almost the only way that their children can enter the Sydney market, anyway, and be not too far from mum and dad. And I suspect that will happen a lot, and that, of course, means that for people of my age, that the wealth we think we have in our house, actually, we don’t have quite as much as we thought because we’re going to have to give some of it to the next generation.”

He acknowledged that for renters locked out of the property market this could mean the issue perpetuates into the next generation. But his point about the shared wealth of families is also an important one for the future. It suggests for many children of those with property, who feel locked out of the market, the problem of home ownership can be self-curing. That’s because, as Stevens notes, older Australians can share their wealth now. [..] With the nuclear family shrinking, and the number of children and grandchildren on average reduced from a generation or two ago, there is likely to be a large number of younger Australians coming into some serious wealth when their parents or grandparents pass on. It could take a decade or two, but ultimately younger Australians could end up the longest living and richest generation in the nation’s history.

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“..oil priced at over $75 a barrel in today’s dollars tends to crush economies, and oil priced under $75 a barrel in today’s dollars tends to crush oil companies.”

“Racketeering Is Ruining Us” (Kunstler)

The disorders in politics that we’re seeing now are really expressions of the larger disorders in our economic life and our financial life. That just happens to be the avenue that the expression is coming out of. Another point I’d like to make is that the reason that people are against Hillary or dumping on Hillary or don’t like her, is because she’s a poster child for racketeering. I encourage people who are talking about our circumstances and people who are interested in the news and election, to use the word racketeering to describe what’s going on in this country. You really need the right vocabulary to understand exactly what’s going on.

Racketeering is just pervasive in all of our activities. Not just in politics but in things even like medicine and education. Obviously the college loan scheme is an example of racketeering. Anybody who has to go to an emergency room with a child whose broken their finger or something, is going to end up with a bill for $20,000. You know why? Because of medical racketeering. And so, these are really efforts to money-grub by any means necessary, often in ways that are unethical and probably illegal. Let’s use that word racketeering to describe our national situation. And let’s remember by the way, the activities of the central banks is just another form of racketeering. Using debt issuance and attempting to control interest rates in order to conceal our inability to generate the kind of real wealth that we need to continue as a techno-industrial society.

Societies have a really hard time understanding what they’re doing, articulating the problems that they face and coming up with a coherent consensus about what’s happening, and coming up with a coherent consensus about what to do about it. Combine that with another quandary, the relationships between energy and the dead racket for concealing real capital formation. I like to reduce it to one particular formula that is pretty easy for people to understand. It’s a classic quandary: that oil priced at over $75 a barrel in today’s dollars tends to crush economies, and oil priced under $75 a barrel in today’s dollars tends to crush oil companies. There is no real sweet spot between those two places. We’re ratcheting between them and each one of them entails a lot of destruction. That’s a terrible quandary that we’re in and it’s being expressed in banking and finance…and the people in charge of those things don’t really know what else to do except continue the deformation of institutions and instruments.

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Strong.

Iceland Prepares To End Currency Controls (Tel.)

Iceland plans to significantly ease capital controls for individuals and companies, marking the end of a regime that was described as the crutch for the Icelandic economy following the 2008 crisis. The Finance Ministry plans to put forward legislation on Wednesday to pave the way for the removal of capital controls for Icelanders who have been living with the restriction for eight years. The recommendations will mean that outward foreign direct investment will be unrestricted, but still subject to confirmation by the central bank.

Investment in foreign currency financial instruments will also be allowed and individuals will be authorised to buy one piece of property abroad each calendar year, irrespective of purchase price. Requirements, under penalty of law, to repatriate any foreign currency obtained abroad will also be eased and individual households will be given authorisation to buy foreign currency for travel. Iceland’s finance ministry said that next January the current ceiling on foreign investments will be raised. It is estimated that the changes in the bill will lead to a reduction of about 50-65pc in the number of requests for exemptions from the Foreign Exchange Act, which will speed up the processing time.

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The flipside of Soros.

‘I Want You Back,’ Cries East Europe as Emigrant Tide Erodes GDP (BBG)

Eastern Europe is borrowing a line from the Jackson 5 as it bids to turn a tide of emigration that’s eroding its economic prospects and compounding an already-gloomy demographic outlook. “I want you back” is the slogan Latvia has chosen to lure home citizens who’ve upped sticks to Europe’s west in search of more job opportunities and higher salaries. Poland’s Return program offers tips on jobs, housing and health care, while Romania is teaming up with private business, offering scholarships and hosting employment fairs to tempt back talented citizens. The campaigns have gained fresh impetus after the Brexit vote threw into doubt the future status of foreign workers in the U.K.

“The diaspora living abroad represent a huge untapped potential for their countries of origin,” said Rokas Grajauskas, an economist at Danske Bank who’s based in the Lithuanian capital of Vilnius. Stints abroad can be beneficial, instilling new skills and ways of thinking, he said. The hunt for greener pastures isn’t new. The Soviet collapse prompted an unprecedented outflow of eastern Europeans to the wealthier west, with EU membership and the 2008 financial crisis triggering further waves. The Baltic region suffered most over the past decade, the latest Eurostat data show. Making matters worse, much of the continent is grappling with low birth rates and aging populations.

Losing workers to other countries has already cost 21 central and eastern Europe nations an average of about 7 percentage points of GDP, according to the IMF, which predicts a hit of as much as 9 percentage points over the next 14 years should current trends continue. It recommends the EU maintain funding to ease migration pressures, and that countries improve labor-market conditions and engage with their diaspora abroad. As governments belatedly heed that last piece of advice, they may well recall other lines from the Jackson 5’s 1969 hit song. “I was blind to let you go,” the group sang. “I need one more chance.”

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Report due in 3 weeks.

Tsipras Revives Greek Bid To Seek Wartime Reparations From Berlin (Kath.)

Greece’s leftwing Prime Minister Alexis Tsipras on Tuesday revived the country’s bid to seek war reparations over Nazi atrocities in Greece. “We will go all the way, first diplomatically and then legally, if necessary,” Tsipras said during events marking the World War II massacre in the village of Kommeno, in Arta, northwestern Greece. More than 300 people were executed on August 16, 1943 at the village which was then torched by German forces. The findings of an intra-party committee which was set up to look into Greek claims for German war reparations are expected to be submitted to Parliament in early September. The committee wrapped up its probe on July 27.

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I bet you there are coup plotters among those 38,000.

Turkey To Free 38,000 From Prisons To Make Space For Alleged Coup Plotters (AP)

Turkey has issued a decree paving the way for the conditional release of 38,000 prisoners in an apparent move to make jail space for thousands of people who have been arrested after last month’s failed coup. The decree allows the release of inmates who have two years or less to serve of their prison terms and makes convicts who have served half of their term eligible for parole. Some prisoners are excluded: people convicted of murder, domestic violence, sexual abuse or terrorism and other crimes against the state. The measures would not apply for crimes committed after 1 July.

The justice minister, Bekir Bozdag, said the move would lead to the release of 38,000 people, adding it was not a pardon or an amnesty but a conditional release of prisoners. The government says the coup attempt on 15 July, which led to at least 270 deaths, was carried out by followers of the movement led by the US-based Muslim cleric Fethullah Gülen who have infiltrated the military and other state institutions. Gülen has denied any prior knowledge or involvement in the coup but Turkey is demanding that the US extradite him.

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Greece lives in fear. Because Merkel can’t give Turkey visa-free travel amid reports like this.

German Officials Say Erdogan Supports Militants (DW)

Citing a classified document from the Interior Ministry to representatives of the Left party on Tuesday the German public broadcaster ARD reported, that members of the government consider Turkey’s regime a supporter of militant groups in the Middle East. German officials appear to have publicly acknowledged, if in a classified document, President Recep Tayyip Erdogan’s weapons support for militants fighting the regime of Bashar al-Assad in Syria, which Turkish journalists have reported in the past. “Especially since the year 2011 as a result of its incrementally Islamized internal and foreign policy, Turkey has become a central platform for action for Islamist groups in the Middle East,” the German officials said, according to ARD.

German security officials also said Erdogan had an “ideological affinity” with Egypt’s Muslim Brotherhood, ARD reported. Suppressed under Hosni Mubarak’s dictatorship, the movement went on to produce Egypt’s first democratically elected president, Mohammed Morsi. Despite the “affinity,” Erdogan has been publicly at odds with the Muslim Brotherhood in the past though he has since also criticized current Egyptian President Abdel-Fattah el-Sissi, who overthrew Morsi in a 2013 coup. Neither the United States nor the EU considers the Muslim Brotherhood a terror organization. The German officials also said Erdogan supported Hamas, the democratically elected governing party in the Gaza Strip.

Turkey’s president has said as much in the past, having told the US news host Charlie Rose, that “I don’t see Hamas as a terror organization.” Though the United States and EU do list Hamas as a prohibited group, nations such as Norway, Switzerland and Brazil do not. “It is a resistance movement trying to protect its country under occupation,” Erdogan added in the 2011 interview, referring to the Israeli state, with which Turkey also enjoys diplomatic ties.

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May 022016
 


NPC Walker Hill Dairy, Washington, DC 1921

Japanese Stocks Fall Sharply in the Morning (WSJ)
Asian Economies Stay Sluggish, Stimulus Lacks Traction (R.)
World’s Longest NIRP Experiment Shows Perverse Effects (BBG)
Leaked TTIP Documents Cast Doubt On EU-US Trade Deal (G.)
‘The Fed Is Afraid Of Its Own Shadow’ (CNBC)
Fed May Need More Powers To Support Securities Firms During Crises: Dudley (R.)
Puerto Rico To Default On Government Development Bank Debt Monday (CNBC)
Banks Told To Stop Pushing Own Funds (FT)
Halliburton and Baker Hughes Scrap $34.6 Billion Merger (R.)
Will Australia’s Ever-Growing Debt Pile Peak In Six Years? (BBG)
Europe’s Liberal Illusions Shatter As Greek Tragedy Plays On (G.)
Bank Of England Busy Preparing For Brexit Vote (FT)
Nearly Half Of British Parents Raid Children’s Piggy Banks To Pay Bills (PA)
‘Bitcoin Creator Reveals Identity’ (BBC)
Storm Clouds Gathering Over Kansas Farms (WE)
NATO Moves Ever Closer To Russia’s Borders (RT)
Austria, Germany Press EU To Prolong Border Controls (AFP)
Newborn Baby Among 99 Dead After Shipwrecks In Mediterranean (G.)

The yen keeps rising. Pressure is building. Relentlessly.

Japanese Stocks Fall Sharply in the Morning (WSJ)

Japanese stocks fell sharply early Monday, leading declines in the rest of Asia, on the yen’s surge to a new 1 1/2-year high against the dollar, weak earnings results from several firms and selling after the Bank of Japan’s inaction on Thursday. The Nikkei Stock Average was down 3.6% at the lunch break in Tokyo. Japanese markets were closed on Friday for a national holiday. Australia’s ASX 200 was 1.3% lower, New Zealand’s NZX-50 was down 0.2% and South Korea’s Kospi was 0.5% lower. Many markets in Asia were closed for national holidays, including China, Hong Kong and Singapore. Japanese stocks are extending falls following the BOJ’s decision to keep its policies unchanged despite slowing inflation and previous expectations for a boost for its asset-purchase program, particularly in exchange-traded funds.

The yen’s surge against the dollar is also hitting Japanese exporters. The dollar was at ¥106.48 after falling to as low as ¥106.14, the lowest level since October 2014, according to EBS. “Bad news takes place all at once,” said Katsunori Kitakura, strategist at Sumitomo Mitsui Trust Bank. He said market turbulence around the BOJ policy meetings suggests the central bank’s communication with markets isn’t as smooth as it should be.“Westpac’s miss on headline expectations has set the tone for a nervous market this morning,” CMC Markets chief market analyst Ric Spooner said. He adds while Westpac’s first-half earnings were only marginally below expectations and there doesn’t appear to be anything seriously alarming, investors are concerned it is struggling to get cost growth down. Westpac is down 4.1%.

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There’s only one thing to keep the BAU facade going in China and Japan: debt. And more debt.

Asian Economies Stay Sluggish, Stimulus Lacks Traction (R.)

Japanese manufacturing activity shrank in April at the fastest pace in more than three years as deadly earthquakes disrupted production, while output in China and the rest of Asia remained lukewarm at best. Even the former bright spot of India took a turn for the worse as both domestic and foreign orders dwindled, pulling its industry barometer to a four-month trough. Surveys due later on Monday are expected to show only sluggish activity in Europe and the US as the world’s factories are dogged by insufficient demand and excess supply. “The backdrop remains one of sub-trend growth, inflation that is below target, difficulty in increasing revenue as margins are sacrificed to win modest volume gains, slow wage growth cramping spending and central banks that have used up much of their policy ammunition,” said Alan Oster at National Australia Bank.

That is exactly why the U.S. Federal Reserve has been dragging its feet on a follow-up to its December rate hike, leaving the markets in a sweat in case they move in June. Doubts about policy ammunition mounted last week when the Bank of Japan refrained from offering any hint of more stimulus, sending stocks reeling as the yen surged to 18-month highs. The Nikkei was down another 3.6% on Monday while the yen raced as far as 106.14 to the dollar and squeezed the country’s giant export sector. Industry was already struggling to recover from the April earthquakes that halted production in the southern manufacturing hub of Kumamoto. The impact was all too clear in the Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) which fell to a seasonally adjusted 48.2 in April, from 49.1 in March.

The index stayed below the 50 threshold that separates contraction from expansion for the second straight month. The news was only a little better in China where the official PMI was barely positive at 50.1 in April, a cold shower for those hoping fresh fiscal and monetary stimulus from Beijing would enable a speedy pick up. The findings were “a little bit disappointing”, Zhou Hao, senior emerging market economist at Commerzbank in Singapore, wrote in a note. “To some extent, this hints that recent China enthusiasm has been a bit overpriced and the data improvement in March is short-lived.”

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Negative rates lead to the exact opposite of what they’re allegedly intended for. And that’s predictable.

World’s Longest NIRP Experiment Shows Perverse Effects (BBG)

When interest rates are high, people borrow less and save more. When they’re low, savings go down and borrowing goes up. But what happens when rates stay negative? In Denmark, where rates have been below zero longer than anywhere else on the planet, the private sector is saving more than it did when rates were positive (before 2012). Private investment is down and the economy is in a “low-growth crisis,” to quote Handelsbanken. The latest inflation data show prices have stagnated. As the Danes head even further down their negative-rate tunnel, the experiences of the Scandinavian economy may provide a glimpse of what lies ahead for other countries choosing the lesser known side of zero. Denmark has about $600 billion in pension and investment savings.

The people who help oversee those funds say the logic of cheap money fueling investment doesn’t hold once rates drop below zero. That’s because consumers and businesses interpret such extreme policy as a sign of crisis with no predictable outcome. “Negative rates are counter-productive,” said Kasper Ullegaard at Sampension in Copenhagen. The policy “makes people save more to protect future purchasing power and even opt for less risky assets because there’s so little transparency on future returns and risks.” The macro data bear out the theory. The Danish government estimates that investment in the private sector will be equivalent to 16.1% of GDP this year, compared with 18.1% between 1990 and 2012. Meanwhile, the savings rate in the private sector will reach 26% of GDP this year, versus 21.3% in the roughly two decades until Danish rates went negative, Finance Ministry estimates show.

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From ZH: “..55% of Germans and 53% of Americans thought the TTIP deals was beneficial for the two respective countries as recently as 2014; a recent YouGov poll found that support for the deal had tumbled to just 17% and 15% respectively…”

Leaked TTIP Documents Cast Doubt On EU-US Trade Deal (G.)

Talks for a free trade deal between Europe and the US face a serious impasse with “irreconcilable” differences in some areas, according to leaked negotiating texts. The two sides are also at odds over US demands that would require the EU to break promises it has made on environmental protection. President Obama said last week he was confident a deal could be reached. But the leaked negotiating drafts and internal positions, which were obtained by Greenpeace and seen by the Guardian, paint a very different picture. “Discussions on cosmetics remain very difficult and the scope of common objectives fairly limited,” says one internal note by EU trade negotiators. Because of a European ban on animal testing, “the EU and US approaches remain irreconcilable and EU market access problems will therefore remain,” the note says.

Talks on engineering were also “characterised by continuous reluctance on the part of the US to engage in this sector,” the confidential briefing says. These problems are not mentioned in a separate report on the state of the talks, also leaked, which the European commission has prepared for scrutiny by the European parliament. These outline the positions exchanged between EU and US negotiators between the 12th and the 13th round of TTIP talks, which took place in New York last week. The public document offers a robust defence of the EU’s right to regulate and create a court-like system for disputes, unlike the internal note, which does not mention them.

Jorgo Riss, the director of Greenpeace EU, said: “These leaked documents give us an unparalleled look at the scope of US demands to lower or circumvent EU protections for environment and public health as part of TTIP. The EU position is very bad, and the US position is terrible. The prospect of a TTIP compromising within that range is an awful one. The way is being cleared for a race to the bottom in environmental, consumer protection and public health standards.” US proposals include an obligation on the EU to inform its industries of any planned regulations in advance, and to allow them the same input into EU regulatory processes as European firms.

American firms could influence the content of EU laws at several points along the regulatory line, including through a plethora of proposed technical working groups and committees. “Before the EU could even pass a regulation, it would have to go through a gruelling impact assessment process in which the bloc would have to show interested US parties that no voluntary measures, or less exacting regulatory ones, were possible,” Riss said.

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“In a world that’s already choking on too much debt, the cost of money really isn’t an important variable and it is not a binding constraint on anybody’s decision making.”

‘The Fed Is Afraid Of Its Own Shadow’ (CNBC)

The Federal Reserve surprised few last week when it keep interest rates unchanged, noting that it “continues to closely monitor inflation indicators and global economic and financial developments.” However, one market watcher has a blunt message for Fed chair Janet Yellen: You’re placing your hope in a fairy tale. On a recent CNBC’s “Futures Now,” Lindsey Group chief market analyst Peter Boockvar made the case that the Fed will never get the “perfect” conditions they seek before increasing short-term rates once again. The Fed’s mandate “isn’t to have a perfect world. That only exists in fairy tales, dreams and in your econometric models,” Boockvar said in a recent note to clients. He believes that the Fed’s monetary has been far too accommodative under Yellen as well as under Ben Bernanke.

Boockvar argued that the Fed has been taking cues from shaky international banks, and that doing so will always offer a reason to keep interest rates low. In Wednesday’s statement, the strategist noted new suggestions that the Fed is shifting its focus to concerns over international development. In its March statement, the Fed said that “global economic and financial developments continue to post risks,” a line that does not appear in the more recent language. “It’s been excuse, after excuse, after excuse,” Boockvar said. “This is why, eight years into an expansion, they’ve only raised interest rates once. They’re afraid of their own shadow. They’re in a terrible hole that they’re not going to be able to get out of.”

Whether looking at the Fed, the Bank of Japan, or the European Central Bank, Boockvar sees a landscape littered with policy errors. “They all believe that, by making money cheaper, you can somehow generate faster growth,” Boockvar said. Based on this, Boockvar said that central bankers are losing their credibility and their ability to generate higher asset prices, putting the stock market in a precarious position. “In a world that’s already choking on too much debt, the cost of money really isn’t an important variable and it is not a binding constraint on anybody’s decision making.”

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The Fed wants to hold investors’ hands at the crap table.

Fed May Need More Powers To Support Securities Firms During Crises: Dudley (R.)

The U.S. Federal Reserve may need more powers to provide emergency funding to securities firms in times of extreme stress in order to deal with a liquidity crunch, New York Federal Reserve President William Dudley said on Sunday. “Providing these firms with access to the discount window might be worth exploring,” Dudley said in prepared remarks at a financial markets conference in Amelia Island, Florida organized by the Atlanta Fed. The discount window is a credit facility through which banks borrow directly from the U.S. central bank in order to cope with liquidity shortages. The Fed currently has limited ability to provide funding to securities firms in such situations, with the discount window only available to depository institutions.

But the transformation of securities firms since the financial crisis, Dudley said, with the major ones now part of bank holding companies and subject to capital and liquidity stress tests, meant the environment has now changed. “To me, this is a more reasonable proposition now than it was prior to the crisis when the major dealers weren’t subject to those safeguards,” he said. Other “significant gaps” remain in the lender-of-last-resort function, Dudley added. On this, he cited work being done on a global level by the Bank of International Settlements, which is studying deficiencies with respect to systemically important firms that operate across countries. Dudley called for greater attention in order to determine which country would be the lender-of-last-resort for such companies during another crisis. “Expectations about who will be the lender-of-last-resort need to be well understood in both the home and host countries,” he said.

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The perhaps most interesting part: How will this spread to other states? Are we seeing a blueprint emerge?

Puerto Rico To Default On Government Development Bank Debt Monday (CNBC)

Puerto Rico will miss a major debt payment due to creditors Monday, registering the largest default to date for the fiscally struggling U.S. territory. Governor Alejandro Garcia Padilla announced on Sunday the “very difficult decision” to declare a moratorium on the $389 million debt service payment due to bondholders of the island’s Government Development Bank (GDB), which acts as the island’s primary fiscal agent and lender of last resort. “We would have preferred to have had a legal framework to restructure our debts in an orderly manner,” Gov. Garcia Padilla said via a televised address in Spanish.

“But faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice … I decided that essential services for the 3.5 million American citizens in Puerto Rico came first,” he said. This will not be the first default for Puerto Rico — according to Moody’s Investors Services, the government has failed to make about $143 million in debt obligation payments since its historic default in August on subject-to-appropriation bonds issued by the Public Finance Corporation (PFC). The commonwealth will pay the approximately $22 million in interest due on the GDB bonds, as well as the nearly $50 million owed to creditors on a handful of other securities that have payments slated for Monday, according to a source familiar with the situation.

Late on Friday, the bank announced it was able to come to an agreement with credit unions that hold approximately $33 million of the bonds due Monday. Under the deal, these bondholders will swap existing securities with new debt that matures in May, 2017. Gov. Garcia Padilla reiterated his plea to Congress to give the commonwealth the legal tools necessary to address Puerto Rico’s $70 billion debt pile and ensure the sustainability of the island. “Puerto Rico needs Speaker Paul Ryan to exercise his leadership and honor his word…we need this restructuring mechanism now,” he said.

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Stupid games resulting from unconditional TBTF central bank support.

Banks Told To Stop Pushing Own Funds (FT)

Brussels has moved to stamp out the practice of large banks funnelling clients towards poorly performing in-house asset management products under new rules designed to improve investor protection across Europe. Over the past two years, independent asset managers and investor rights groups have raised concerns that bank advisers are increasingly recommending in-house funds to clients when investors might be better off in external products. These concerns have been fuelled by the rapid growth of banks’ asset management divisions. Seven of the 10 bestselling asset management companies in Europe last year were subsidiaries of banks. But under new EU legislation known as Mifid II, bank advisers who want to continue receiving commission payments will have to offer funds from external investment companies.

Guidelines on how the rules will apply, released last month, state that advisers can only receive commissions if they offer a “number of instruments from third-party product providers having no close links with the investment firm”. Commentators said the new rules would be a big change for the market. Sean Tuffy, head of regulatory affairs at BBH, the financial services company, said the additional Mifid II guidelines were “unexpected”. He added: “Asset managers would welcome that provision. One of their biggest concerns is the ever-closed architecture world [where banks only push their own funds].” James Hughes at lobby group Cicero said: “When the new rules come into force in 2018] banks won’t be able to only offer their own products. This will be monitored by national [regulators] through a mixture of mystery shopping tests and customer service panels.”

Under the existing system, many banks solely recommend internal products to investors. This keeps fees and commission payments in-house and boosts the parent company’s profitability. Some banks, such as UBS, say they offer a small number of external funds to clients. Others — including Goldman Sachs, Deutsche Bank, Credit Suisse and Morgan Stanley — say they offer a high proportion of external funds to clients, a model known in the industry as “open architecture”. None of the banks mentioned are willing to provide a breakdown of the level of external funds sold versus internal products. The push to make banks recommend more external products can be circumvented if an adviser agrees to assess the suitability of a client’s investments on at least an annual basis.

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“..Baker Hughes, which was valued at $34.6 billion when it was announced in November 2014, and is now worth about $28 billion..”

Halliburton and Baker Hughes Scrap $34.6 Billion Merger (R.)

Oilfield services provider Halliburton and smaller rival Baker Hughes announced the termination of their $28 billion merger deal on Sunday after opposition from U.S. and European antitrust regulators. The tie-up would have brought together the world’s No. 2 and No. 3 oil services companies, raising concerns it would result in higher prices in the sector. It is the latest example of a large merger deal failing to make it to the finish line because of antitrust hurdles. “Challenges in obtaining remaining regulatory approvals and general industry conditions that severely damaged deal economics led to the conclusion that termination is the best course of action,” said Dave Lesar, chief executive of Halliburton.

The contract governing Halliburton’s cash-and-stock acquisition of Baker Hughes, which was valued at $34.6 billion when it was announced in November 2014, and is now worth about $28 billion, expired on Saturday without an agreement by the companies to extend it, Reuters reported earlier on Sunday, citing a person familiar with the matter. Halliburton will pay Baker Hughes a $3.5 billion breakup fee by Wednesday as a result of the deal falling apart. The U.S. Justice Department filed a lawsuit last month to stop the merger, arguing it would leave only two dominant suppliers in 20 business lines in the global well drilling and oil construction services industry, with Schlumberger being the other. “The companies’ decision to abandon this transaction – which would have left many oilfield service markets in the hands of a duopoly – is a victory for the U.S. economy and for all Americans,” U.S. Attorney General Loretta Lynch said in a statement on Sunday.

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One thing only is sure: the debt is growing. All the rest is somewhere between propaganda and wishful thinking. If more debt is projected to provide more votes, what do you think will happen?

Will Australia’s Ever-Growing Debt Pile Peak In Six Years? (BBG)

Australia’s drive to balance the books will see the federal government’s debt pile top out within about five or six years and then start to shrink again, according to Treasurer Scott Morrison. Speaking in Canberra just ahead of his first budget on Tuesday, Morrison said he expects the fiscal deficit to narrow over the government’s four-year forecast horizon and pledged to keep expenditure under control. “To start reducing the debt you’ve got to get the deficit down. To get the deficit down you’ve got to get your spending down,” Morrison said in a Channel Nine television interview on Sunday. “The deficit will decrease over the budget and forward estimates and we will see both gross and net debt peak over about the next five or six years, and then it will start to fall.”

The Australian budget was last in surplus in 2007-08 and attempts to rein in the deficit have been stymied by a slump in revenue as commodity prices fell. Morrison’s challenge is to maintain Australia’s public finances on a sound footing without increasing risks to the economy as it reduces its reliance on mining. He must also contend with the prospect of an upcoming election, which Prime Minister Malcolm Turnbull is expected to call for July 2. Total outstanding federal debt is now more than seven times larger than it was before the 2008 global crisis and net debt is predicted to increase to 18.5% of GDP in 2016-17, according to a Bloomberg survey of economists. The underlying cash deficit is expected to reach A$35 billion ($27 billion) next fiscal year, A$1.3 billion more than the government had forecast in its December fiscal update.

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“It will then be punished further for being unable to do what was impossible in the first place.”

Europe’s Liberal Illusions Shatter As Greek Tragedy Plays On (G.)

Greece is running out of money. The government in Athens is raiding the budgets of the health service and public utilities to pay salaries and pensions. Without fresh financial support it will struggle to make a debt payment due in July. No, this is not a piece from the summer of 2015 reprinted by mistake. Greece, after a spell out of the limelight, is back. Another summer of threats, brinkmanship and all-night summits looms. The problem is a relatively simple one. Greece is bridling at the unrealistic demands of the EC and the IMF to agree to fresh austerity measures when, as the IMF itself accepts, hospitals are running out of syringes and buses don’t run because of a lack of spare parts. Athens has already pushed through a package of austerity measures worth €5.4bn as the price of receiving an €86bn bailout agreed at the culmination of last summer’s protracted crisis and expected the deal to be finalised last October.

Disbursements of the loan have been held up, however, because neither the commission or the IMF believe that Greece will make the promised savings. So they are demanding that Alexis Tsipras’s government legislate for additional “contingency measures” worth €3.6bn to be triggered in the event that Greece fails to meet its fiscal targets. This is almost inevitable, given that the target is for the country to run a primary budget surplus of 3.5% of GDP by 2018 and in every year thereafter. This means that once Greece’s debt payments are excluded, tax receipts have to exceed public spending by 3.5% of GDP. The exceptionally onerous terms are supposed to whittle away Greece’s debt mountain, currently just shy of 200% of GDP. If this all sounds like Alice in Wonderland economics, then that’s because it is.

Greece is being set budgetary targets that the IMF knows are unrealistic and is being set up to fail. It will then be punished further for being unable to do what was impossible in the first place. Predictably enough, the government in Athens is not especially taken with this idea. It has described the idea as outlandish and unconstitutional, but is in a weak position because it desperately needs the bailout loan and threw away its only real bargaining chip last year by making it clear that it would stay in the single currency whatever the price. So Tsipras is doing what he did last year. He is playing for time, hopeful that by hanging tough and threatening another summer of chaos he can force Europe’s leaders to offer him a better deal – less onerous deficit reduction measures coupled with a decent slug of debt relief. For the time being though, the matter is being handled by the eurozone’s finance ministers, who want their full pound of flesh.

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Not preparing to assist people, only banks.

Bank Of England Busy Preparing For Brexit Vote (FT)

The Bank of England is consumed with preparing contingency plans for Britain to leave the EU, with staff across its financial stability, monetary policy and regulatory wings ready to calm any turmoil. In the days leading up to the June 23 poll, the Bank will hold additional auctions of sterling to ensure the banking system has sufficient funds to operate in a potentially chaotic moment. Three exceptional auctions of cash have already been planned for June 14, 21 and 28. But stuffing the banks full of cash will not prevent foreigners and UK households and companies dumping sterling in the event of a Brexit vote. Michael Saunders, the new member of the bank’s Monetary Policy Committee, expects the pound to come under severe pressure.

While still at Citi, he wrote that Brexit risks were “nowhere near priced yet”, adding that Britain should expect a 15 to 20% depreciation of sterling against Britain’s main trading partners. If such a decision to flee sterling leads British banks to become short of foreign currency, the BoE will rapidly offer foreign currency loans to the financial system, using swap lines with other central banks still in existence from the financial crisis. Philip Shaw of Investec said that using such swap lines would be needed only in “fairly extreme circumstances” and the BoE would also need to “make reassuring noises about the soundness of the financial system” to help shore up confidence.

Officials are already pointing to the 2014 stress test of banks, which assumed a reassessment of the health of the UK economy led to a “depreciation of sterling”, to suggest that the banking system would cope. “Unless any UK financial institutions have bet their shirt on an early recovery of sterling it is hard to see what Brexit would do in immediate terms,” said Stephen Wright, a professor at Birkbeck College, London University. The week after the referendum, the Financial Policy Committee will have an opportunity to loosen the requirements for banks to hold capital if there is a financial panic, putting in place the new regime of measures to counter the credit cycle. But even if the BoE could cope with immediate market gyrations from Brexit, it would soon face what Mr Saunders called “a major policy dilemma” over interest rates.

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UK 2016. Lovely. And Cameron’s not done.

Nearly Half Of British Parents Raid Children’s Piggy Banks To Pay Bills (PA)

Nearly half of parents admit to being “piggy bank raiders” who occasionally dip into their children’s cash to cover costs such as parking, takeaways, taxis, school trips and paying the window cleaner. Some 46% of parents of children aged between four and 16 years old said they have taken money from their child’s savings, a survey by Nationwide Building Society has found. The average amount taken over the past year was £21.41, while one in 10 parents had taken £50 or more during that period. Mums are more likely to raid their child’s savings than dads, but dads tend to swipe larger amounts the survey found. The months after Christmas, when many families are getting their finances back on track, also appear to be the time when piggy bank raiders are most prolific.

The survey of 2,000 parents found those in Yorkshire and the Humber, north-east England and south-west England were the most likely to use children’s savings, with those in London, Wales and north-west England the least likely. About 15% of piggy bank raiding parents said they used the cash to pay school lunch money, while the same proportion also use it to pay a bill; 11% used the money for school trips and 11% used it as loose change for parking. One in 12 took the money to tide themselves over as they were broke. A further 12% used the cash for other purposes, including bus fares, hair cuts, petrol costs, takeaways, paying the window cleaner and for the “tooth fairy”.

The vast majority of parents (93%) said they put the money back afterwards – and only 39% of children noticed the money had disappeared. Nearly a third of parents who took money said they had confessed to their child, while 23% sneaked the money back into their child’s piggy bank. One in seven added interest to the amount they had borrowed. Andrew Baddeley-Chappell, Nationwide’s head of savings and mortgage policy, said: “Despite being in charge of instilling a good approach to finance, almost half of parents have been caught in spring raids on their kid’s piggy bank stash. While liberating change for parking or to pay school lunch money could be viewed as excusable, one in 10 parents borrowed more than £50 in the last year, including for paying bills.

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And the media are overflowing with questions.

‘Bitcoin Creator Reveals Identity’ (BBC)

Australian entrepreneur Craig Wright has publicly identified himself as Bitcoin creator Satoshi Nakamoto. His admission ends years of speculation about who came up with the original ideas underlying the digital cash system. Mr Wright has provided technical proof to back up his claim using coins known to be owned by Bitcoin’s creator. Prominent members of the Bitcoin community and its core development team have also confirmed Mr Wright’s claim. Mr Wright has revealed his identity to three media organisations – the BBC, the Economist and GQ.

At the meeting with the BBC, Mr Wright digitally signed messages using cryptographic keys created during the early days of Bitcoin’s development. The keys are inextricably linked to blocks of bitcoins known to have been created or “mined” by Satoshi Nakamoto. “These are the blocks used to send 10 bitcoins to Hal Finney in January [2009] as the first bitcoin transaction,” said Mr Wright during his demonstration. Renowned cryptographer Hal Finney was one of the engineers who helped turn Mr Wright’s ideas into the Bitcoin protocol, he said.

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Meanwhile below the radar….

Storm Clouds Gathering Over Kansas Farms (WE)

While the lush green sea of wheat filling Kansas fields will turn gold in a few weeks, beneath the comforting cycle of planting and harvest lies big trouble for the state’s farmers and rural communities. The value of farm ground here and across the country is beginning to fall. That drop can cause havoc for the farmers and ranchers who have borrowed a record amount of debt, as well as the banks that made loans to them and the governments that tax them. It will almost certainly lead to more farm foreclosures and ownership consolidation across Kansas and the country. How much is impossible to know, because it is just starting to unfold. But, so far, no one is saying that a return to the mass foreclosures of the 1980s farm crisis is likely. The state’s farm economy produced about $8.5 billion in 2015, about 6% of the state economy, according to the U.S. Bureau of Economic Analysis.

At the moment, farm foreclosures, loan delinquency and debt-to-asset ratios are near record lows, but conditions are eroding. A recent forecast by Mykel Taylor, a farm economist at Kansas State University, calls for a drop of 30 to 50% from the peak as land prices return to their long-term trend. Others are predicting somewhat less of a drop. Brokers say the decline has already started, with the price for prime Kansas crop ground down about 10% from its peak, while marginal crop land has fallen twice or three times that. Pasture land has not fallen yet, although it is expected to. How fast prices deflate will dictate the level of pain, Taylor said. “People keep asking: ‘Is this like the ’80s? Is this like the ’80s?’ ” she said. “I don’t know, but it’s going to be bad.”

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NATO is an increasingly dangerous entity. It’ll take us to war. That’s its reason to exist.

NATO Moves Ever Closer To Russia’s Borders (RT)

NATO is deploying an additional four battalions of 4,000 troops in Poland and the three Baltic States, according to a report citing US Deputy Secretary of Defense Robert Work. Work confirmed the number of troops to be sent to the border with Russia, the Wall Street Journal reports. He said the reason for the deployment is Russia’s multiple snap military exercises near the Baltics States. “The Russians have been doing a lot of snap exercises right up against the borders, with a lot of troops,” Work said. “From our perspective, we could argue this is extraordinarily provocative behavior.” Although there have already been talks about German troops to be deployed to Lithuania, Berlin is still mulling its participation.

“We are currently reviewing how we can continue or strengthen our engagement on the alliance’s eastern periphery,” Chancellor Angela Merkel said on Friday, in light of a recent poll from the Bertelsmann Foundation that found only 31% of Germans would welcome the idea of German troops defending Poland and the Baltic States. London has not made its mind either, yet is expected to do so before the upcoming NATO summit in Warsaw in July. Ahead of the deployment, NATO officials are also discussing the possibility of making the battalions multinational, combining troops from different countries under the joint NATO command and control system. Moscow has been unhappy with the NATO military buildup at Russia’s borders for some time now.

“NATO military infrastructure is inching closer and closer to Russia’s borders. But when Russia takes action to ensure its security, we are told that Russia is engaging in dangerous maneuvers near NATO borders. In fact, NATO borders are getting closer to Russia, not the opposite,” Russian Foreign Minister Sergey Lavrov told Sweden’s Dagens Nyheter daily. Poland and the Baltic States of Lithuania, Latvia and Estonia have regularly pressed NATO headquarters to beef up the alliance’s presence on their territory. According to the 1997 NATO-Russia Founding Act, the permanent presence of large NATO formations at the Russian border is prohibited. Yet some voices in Brussels are saying that since the NATO troops stationed next to Russia are going to rotate, this kind of military buildup cannot be regarded as a permanent presence.

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How to kill a union in a few easy steps. They don’t even know that’s what they’re doing.

Austria, Germany Press EU To Prolong Border Controls (AFP)

Austria and Germany said on Saturday they were in talks with the European Union’s executive body to extend temporary border controls brought in last year to help stem the migrant flow. The measures – triggered in case of “a serious threat to public policy or internal security” – are due to expire on May 12. “I can confirm that we are having discussions with the EU Commission and our European partners about this,” Austrian interior ministry spokesman Karl-Heinz Grundboeck told AFP. Member states must “be able to continue carrying out controls on their borders,” German Interior Minister Thomas de Maiziere said in a written statement to AFP. “Even if the situation along the Balkan route is currently calm, we are observing the evolution of the situation on the external borders with worry”.

His Austrian counterpart, Wolfgang Sobotka, said checkpoints along the Hungarian border had been reinforced in late April after “a rise in people-smuggling activity”. “The introduction of a coordinated border management system with our neighbouring countries after the [May 12] deadline expires would be the first step in the direction of a joint European solution,” Sobotka said. The remarks came after German media had reported that several EU states were urging Brussels to extend the temporary controls inside the passport-free Schengen zone for at least six months. The EU allowed bloc members to introduce the restrictions after hundreds of thousands of migrants and refugees began trekking up the Balkans from Greece towards western and northern Europe last September.

Austria, Belgium, Denmark, France, Germany and Sweden have all clamped down on their frontiers as the continent battles its biggest migration crisis since the end of World War II. “We request that you put forward a proposal, which will allow those member states who consider it necessary to either extend or introduce the temporary border controls inside Schengen as of May 13,” the six countries said in a letter addressed to the EU, according to German newspaper Die Welt. A source close to the German government told AFP the letter would be sent on Monday.

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Doesn’t anybody have any decency left? Where is the UN?

Newborn Baby Among 99 Dead After Shipwrecks In Mediterranean (G.)

A newborn baby is among 99 people believed to have drowned in two separate shipwrecks off the Libyan coast this weekend, according to survivors who arrived in Italy. Twenty-six survivors were rescued by a commercial vessel after a rubber dinghy in which they were travelling sank in the Mediterranean on Friday, a few hours after departing from Sabratha in Libya. They were transferred to Italian coastguard ships before being brought ashore in Lampedusa, Italy’s southernmost island, according to the International Organization for Migration (IOM). The baby was among 84 people still missing on Saturday..

“The dinghy was taking on water, in very bad conditions. Many people had already fallen in the sea and drowned,” said Flavio Di Giacomo, IOM spokesman in Italy. “They are all very shocked,” Di Giacomo said, adding they would receive psychological support in Lampedusa. The UN refugee agency, UNHCR, said that after taking on water the boat broke into two pieces and 26 people were saved from the sea. Survivors from a second shipwreck arrived in the Sicilian port of Pozzallo on Sunday, after an accident during a search-and-rescue operation the day before. Two bodies were recovered and brought ashore along with eight of about 105 people saved, who were taken to hospital in serious condition.

The shipwrecks are the latest incidents in which hundreds of people have lost their lives in the Mediterranean. Last week, up to 500 people were feared dead after a shipping boat hoping to reach Italy from eastern Libya sank. Forty-one survivors told UNHCR that smugglers had taken them out to sea and tried to move them to a larger, overcrowded boat that then capsized. So far this year, at least 1,360 people have been reported dead or missing after trying to cross the Mediterranean, including the latest two shipwrecks, while more than 182,800 have reached European shores.

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Feb 152016
 
 February 15, 2016  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  8 Responses »


John M. Fox Garcia Grande newsstand, New York 1946

Japan’s Economy Shrinks 1.4% As Abenomics Is Blown Off Course (Guardian)
China Imports Plunge -18.8% YoY In January, Exports Fall -11.2% (FT)
Yuan Rises Most Since 2005 as PBOC Voices Support, Raises Fixing (BBG)
PBoC Governor Zhou Breaks Long Silence (BBG)
Chinese Start to Lose Confidence in Their Currency (NY Times)
China Markets Brace for Wild Swings in Year of the Monkey (WSJ)
Selloff Plus A Market Holiday Make China Stocks Look Even More Expensive (BBG)
Hong Kong Land Price Plunges Nearly 70% in Government Tender (BBG)
Pakistan Default Risk Surges as $50 Billion Debt Bill Coming Due (BBG)
ECB In Talks With Italy Over Buying Bundles Of Bad Loans (Reuters)
Italy’s Banking Crisis Spirals Elegantly out of Control (WS)
Nuclear Fuel Storage in South Australia Seen as Economic Boon (BBG)
Oil Resumes Drop as Iran Loads Europe Cargo (BBG)
Condensate Vs Crude Oil: What’s Actually in Those Storage Tanks? (Westexas)
Renewables: The Next Fracking? (JMG)

So Nikkei up 7%, more mad stimulus expected.

Japan’s Economy Shrinks 1.4% As Abenomics Is Blown Off Course (Guardian)

Japan’s economy shrank at an annualised rate of 1.4% in the last quarter of 2015, new figures showed on Monday, dealing a further blow to attempts by the prime minister, Shinzo Abe, to lift the country out of stagnation. Last quarter’s contraction in the world’s third largest economy was bigger than the 1.2% decline that had been forecast, as slow exports to emerging markets failed to pick up the slack created by weak demand at home. The economy shrank 0.4% in October-December from the previous quarter, according to cabinet office figures. Slower exports and weak domestic demand were largely to blame for the contraction – a sign that Abe’s attempts to boost spending is failing to deliver.

Private consumption, the driving force behind 60% of GDP, slumped by 0.8% between October and December last year, a bigger fall than the median market forecast of 0.6%. Some analysts, though, expect domestic spending to pick up ahead of a planned rise on the consumption (sales) tax, from 8% to 10%, in April 2017. “However, this should be short-lived, as activity will almost certainly slump once the tax has been raised,” said Marcel Thieliant of Capital Economics. “The upshot is that the Bank of Japan still has plenty of work to do to boost price pressures.” The Nikkei benchmark index opened sharply higher on Monday, gaining more than 3% off the back of gains on Wall Street and in Europe on Friday, as well as encouraging US retail sales figures.

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Not much in imports left after 15 months in a row. Do note difference between dollar- and yuan terms.

China Imports Plunge -18.8% YoY In January, Exports Fall -11.2% (FT)

China’s exports and imports suffered larger-than-expected drops in the first month of this year in both renminbi- and dollar-denominated terms. Exports fell 6.6% year-on-year in January to Rmb1.14tn, following a 2.3% gain in December. Economists expected a gain of 3.6%. It was the biggest fall in exports since an 8.9% drop in July last year. The drop was even more pronounced measured in US dollars, with exports crashing 11.2% year-on-year last month to $177.48bn. That was from a 1.4% drop in December, and versus expectations for a 1.8% slide. It was the biggest drop since a 15% fall in March last year. The import side of the equation fared worse in both renminbi- and dollar-terms. Shipments to China cratered by 14.4% year-on-year to Rmb737.5bn in January. That’s from a 4% drop in December, and versus expectations for a 1.8% rise.

In dollar terms, imports plunged 18.8% last month to $114.19, from a 7.6% drop in January and versus an expected drop of 3.6%. This was the biggest monthly drop in imports since last September and also means shipments have contracted year-on-year for the past 15 months straight. The general weakness in the renminbi, which fell 1.3% in January and had weakened by 2.2% in the final quarter of 2015, is likely playing a part, by making overseas goods more expensive. However, exports have yet to receive a boost from the currency’s depreciation. China’s trade surplus grew to Rmb496.2bn last month from Rmb382.1bn in December. Economists expected it to inch higher to Rmb389bn. In dollar terms, China’s trade surplus rose to $63.29bn from $60.09 in December and versus expectations of $60.6bn.

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Whatever it takes revisited.

Yuan Rises Most Since 2005 as PBOC Voices Support, Raises Fixing (BBG)

China’s yuan surged by the most in more than a decade, catching up with dollar declines during a week-long holiday, after the central bank chief voiced support for the exchange rate and set its fixing at a one-month high. The currency advanced 0.9%, the most since the nation scrapped a peg to the dollar in July 2005, to 6.5170 a dollar as of 10:50 a.m. in Shanghai. The offshore yuan fell 0.16% to 6.5186 to almost match the onshore rate, compared with a 1% premium last week when mainland Chinese markets were shut for the Lunar New Year holidays. The People’s Bank of China on Monday raised its daily fixing against the greenback, which restricts onshore moves to a maximum 2% on either side, by 0.3%, the most since November, to 6.5118. A gauge of dollar strength declined 0.8% last week, while the yen rose 3% and the euro advanced 0.9%.

China’s balance of payments position is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, PBOC Governor Zhou Xiaochuan said in an interview published Saturday in Caixin magazine. The nation’s foreign-exchange reserves shrank by $99.5 billion in January, the second-biggest decline on record, as the central bank sold dollars to fight off yuan depreciation pressure. An estimated $1 trillion of capital left China last year. “In the near term, the stronger fixing and Zhou’s comments reflect the PBOC’s consistent view of stabilizing the yuan,” said Ken Cheung at Mizuho. “Containing yuan depreciation expectations and capital outflows remain top-priority tasks. Mild depreciation could be allowed, but that would be done only after stabilizing depreciation expectations.”

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What is this, some sort of reverse psychology? By now nobody trusts him anymore.

PBoC Governor Zhou Breaks Long Silence (BBG)

China’s central bank has stepped up efforts to restore stability to the nation’s currency and economy, with Governor Zhou Xiaochuan breaking his long silence to argue there’s no basis for continued yuan depreciation. The nation’s balance of payments is good, capital outflows are normal and the exchange rate is basically stable against a basket of currencies, Zhou said in an interview published Saturday in Caixin magazine. That’s an escalation in verbal support after such comments have been left in recent months to deputies and the central bank research department’s chief economist. Zhou dismissed speculation that China plans to tighten capital controls and said there’s no need to worry about a short-term decline in foreign-exchange reserves. The country has ample holdings for payments and to defend stability, he said.

“He’s desperately trying to make sure that all of his work in the past few years on capital liberalization does not go to waste,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. “He’s trying hard to instill investor confidence in the renminbi so that the Chinese government does not have to resort to the extreme measure of unwinding all of the progress on offshore renminbi in the past few years.” The comments come as Chinese financial markets prepare to reopen Monday after the week-long Lunar New Year holiday. The weakening exchange rate and declining Chinese share markets have fueled global turmoil and helped send world stocks to their lowest levels in more than two years. The PBoC set the daily fixing against the dollar, which restricts onshore moves to a maximum 2% on either side, 0.3% higher at 6.5118, the strongest since Jan. 4. The Shanghai Composite Index dropped 2.3% as of 9:39 a.m. local time.

Lost amid the angst over China’s stocks, currency and sliding foreign exchange reserves is the flush liquidity situation at home. The People’s Bank of China has been putting its money where its mouth is, pumping cash into the financial system to offset record capital outflows amid fears the yuan could weaken further. Data that could come as soon as Monday is expected to show China’s broadest measure of new credit surged in January on a seasonal uptick in lending, and as companies borrowed to pay off foreign debt. Aggregate financing likely grew 2.2 trillion yuan ($335 billion), according to the median forecast of a Bloomberg survey of economists. [..] Even as foreign exchange reserves have declined since mid 2014 – to a four-year low of $3.23 trillion in January – M1 money supply has continued to rise.

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No-one has a clue where it’ll be in a week, a month.

Chinese Start to Lose Confidence in Their Currency (NY Times)

As the Chinese economy stumbles, wealthy families are increasingly trying to move large sums of money out of the country, worried that the value of the currency will fall and their savings will be worth less. To get around the country’s cash controls, individuals are asking friends or family members to carry or transfer out $50,000 apiece, the annual legal limit in China. A group of 100 people can move $5 million overseas. The practice is called Smurfing, named after the blue, mushroom-dwelling cartoon characters, and it is part of an exodus of capital that is casting doubt on China’s economic prospects and shaking global markets. Over the last year, companies and individuals have moved nearly $1 trillion from China.

Some methods are perfectly legal, like investing in real estate elsewhere, buying businesses overseas and paying off debts owed in dollars. Others, like Smurfing, are more dubious, and in certain cases, outright illegal. Chinese customs officials caught a woman last year trying to leave the mainland with $250,000 strapped to her chest and thighs and hidden inside her shoes. If the government cannot keep citizens from rushing to the financial exits, China’s outlook could darken. The swell of outflows is a destabilizing force in China’s slowing economy, threatening to undermine confidence and hurt a banking system that is struggling to deal with a decade-long lending binge. The capital flight is already putting significant pressure on the country’s currency, the renminbi.

The government is trying to prevent a free fall in the currency by stepping into the markets and tapping its huge cash hoard to shore up the renminbi. But a deep erosion of those reserves may set off further outflows and create turbulence in the markets. China is also trying to put the brakes on outflows, by tightening its grip on the country’s links to the global financial system. The government, for example, just started to clamp down on people’s use of bank cards to buy overseas life insurance policies. Such moves have trade-offs. The limits create concerns that the government is pulling back on reform efforts that China needs to keep growth humming in the decades to come. But the near-term pressure also requires serious attention, given the global shock waves.

“The currency has become a very near-term threat to financial stability,” said Charlene Chu, an economist at Autonomous Research. Navigating such problems is fairly new for China. For years, China soaked up much of the world’s investment money, as the economy grew at annual rates in the double digits. A largely closed financial system kept China’s own money corralled inside the country. Now, with growth slowing, money is gushing out of the country. And the government has a looser grip on the spigot, because China dismantled some currency restrictions to open up its economy in recent years. “Companies don’t want renminbi and individuals don’t want renminbi,” said Shaun Rein, the founder of the China Market Research Group. “The renminbi was a sure bet for a long time, but now that it’s not, a lot of people want to get out.”

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Huh? What is that?: “There will be an incredible amount of strong psychological pessimism in China this week..”

China Markets Brace for Wild Swings in Year of the Monkey (WSJ)

Investors in Chinese stocks are facing a tumultuous return to action Monday after a weeklong holiday in mainland markets for the Lunar New Year shielded them from the global market turmoil. Chinese shares are already among the world’s worst-performing this year, with the main benchmark Shanghai Composite Index down 21.9% at 2763.49. The market has almost halved in value since its peak last June, dropping some 47% since then. But analysts say both the Shanghai and Shenzhen stock exchanges could face further sharp losses at Monday’s open, as they catch up with the past week’s mostly gloomy global markets. Japanese stocks sank 11% last week and the yen shot up, defying a recent move by the Bank of Japan to introduce negative interest rates, partly designed to keep the local currency weaker and help Japanese exporters.

Markets in Europe and the U.S. whipsawed as investors lost faith in banking stocks, while Australian shares entered bear market territory, having fallen more than 20% since their most recent peak in late April. Meanwhile, Chinese stocks trading in Hong Kong lost 6.8% and the city’s benchmark Hang Seng Index fell 5% in the two days markets were open here at the end of last week. “There will be an incredible amount of strong psychological pessimism in China this week,” said Richard Kang at Emerging Global Advisors. “[Global assets] are going up and down together, it’s very macro-driven right now.” China was at the epicenter of market mayhem at the start of 2016, as shares fell sharply and the country’s currency, the yuan, dipped in value. Before last summer, Chinese market slumps had little impact beyond the country’s borders, mainly because stock-buying there remains largely driven by local retail investors.

Foreign investors still account for a small amount of stock ownership in China. But the Chinese selloff early this year was met with a confused response from Beijing policy makers, who flip-flopped on new measures to stem the market bleeding and were criticized for failing to communicate clearly a change in currency strategy. That contributed to a perception among global investors that Chinese leaders have lost their grip on the country’s economy. The nervousness in markets around the world has now taken on new dimensions. Central banks are struggling to boost growth, despite the Bank of Japan joining the European Central Bank in setting negative interest rates for the first time. Bank profits face a squeeze as the margin between what they pay out on deposits and what they make on lending narrows.

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Not a small detail.

Selloff Plus A Market Holiday Make China Stocks Look Even More Expensive (BBG)

For once, it wasn’t China’s fault. With the country’s markets closed for lunar new year holidays last week, global equity investors found plenty of other reasons to sell – everything from sliding oil prices to shrinking bank profits and crumbling faith in global monetary policy. The MSCI All-Country World Index plunged 2.6%, entering bear-market territory for the first time in more than four years. While the rout may help Communist Party officials counter perceptions that China is the biggest risk for global markets, investors in yuan-denominated A shares will find little to cheer about as trading resumes Monday. Valuations in the $5.3 trillion market, already inflated by a record-breaking bubble last year, now look even more expensive versus their beaten-down global peers.

The Shanghai Composite Index trades at a 34% premium to MSCI’s emerging-markets index – up from an average gap of 10% over the past five years – and equities in the tech-heavy Shenzhen market are almost four times more expensive than their developing-nation counterparts. Shares with dual listings, meanwhile, are valued at a 46% premium on the mainland relative to Hong Kong, near the widest gap since 2009. “There’s been a lot of embedded selling pressure in the A-share market,” said George Hoguet at State Street Global Advisors, which has $2.4 trillion under management. “I don’t think the market is fully cleared yet.” While the Shanghai Composite has dropped 22% in 2016, the gauge is still up 31% over the past two years, a period when the MSCI Emerging Markets Index sank 22%.

The Chinese stock measure is valued at 15 times reported earnings, versus 11 for the developing-nation gauge. Chinese markets will be volatile when they reopen as investors determine where they “sit in the global marketplace,” Garrett Roche, a global investment strategist at Bank of America Merrill Lynch, said by phone from New York. The firm oversees $2.5 trillion in client assets. “From the Chinese perspective, we are relatively nervous about it anyway, so it won’t change our view that the selloff hurts,” he said. Investors shouldn’t read too much into what happens in global markets when assessing the outlook for Chinese equities because the country still has a relatively closed financial system, said Eric Brock at Clough Capital Partners. The Shanghai Composite’s correlation with the MSCI All-Country index over the past 30 days was less than half that of the Standard & Poor’s 500 Index.

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Stick a fork in it?!

Hong Kong Land Price Plunges Nearly 70% in Government Tender (BBG)

In the latest sign that Hong Kong’s property correction is deepening, a piece of land sold by the government in the New Territories sold for nearly 70% less per square foot than a similar transaction in September. The 405,756 square foot (37,696 square meter) parcel of land in Tai Po sold for HK$2.13 billion ($274 million) or HK$1,904 per square foot, in a tender that closed on Feb. 12, according to the Hong Kong Lands Department website. The buyer was Asia Metro Investment, a subsidiary of China Overseas Land & Investment.

The plunge in the price of land comes amid weaker appetite from Hong Kong developers against the backdrop of a nearly 11% drop in housing prices since their September high, according to the Centaline Property Centa-City Leading Index. In January, sales of new and secondary homes reached their lowest monthly level since Centaline started tracking data in January 1991. Hong Kong home prices surged 370% from their 2003 trough through the September peak before the correction began, spurred by a rising supply of housing and a slowdown in China. Lower prices paid for land could eventually lead to cheaper home prices down the road, and are viewed as a leading indicator of the negative sentiment on the market.

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Asia’s troubles are sure to spread. Reporting on it is slow, that’s all.

Pakistan Default Risk Surges as $50 Billion Debt Bill Coming Due (BBG)

Bets are rising that Pakistan will default on its debt just as it starts to revive investor interest with a reduction in terrorist attacks. Credit default swaps protecting the nation’s debt against non-payment for five years surged 56 basis points over the past week amid the global market sell-off, the steepest jump after Greece, Venezuela and Portugal among more than 50 sovereigns tracked by Bloomberg. About 42% of Pakistan’s outstanding debt is due to mature in 2016 – roughly $50 billion, equivalent to the size of Slovenia’s economy. Prime Minister Nawaz Sharif has worked to make Pakistan more investor-friendly since winning a $6.6 billion IMF loan in 2013 to avert an external payments crisis. The economy is forecast to grow 4.5%, an eight-year high, as a crackdown on militant strongholds helps reduce deaths from terrorist attacks.

“Pakistan’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet their financing needs more sensitive to market conditions,” Mervyn Tang, lead analyst for Pakistan at Fitch said by e-mail. Since Sharif took the loan, Pakistan’s debt due by end-2016 has jumped about 79%. He’s also facing resistance in meeting IMF demands to privatize state-owned companies, leading to a strike this month at national carrier Pakistan International Airlines. The bulk of this year’s debt, some $30 billion, is due between July and September, and repayments will get tougher if borrowing costs rise more. The spread between Pakistan’s 10-year sovereign bond and similar-maturity U.S. Treasuries touched a one-year high on Thursday.

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Making it up as they go along. Not a confidence booster.

ECB In Talks With Italy Over Buying Bundles Of Bad Loans (Reuters)

The ECB is in talks with the Italian government about buying bundles of bad loans as part of its asset-purchase program and accepting them as collateral from banks in return for cash, the Italian Treasury said. The move could give a big boost to a recently approved Italian scheme aimed at helping banks offload some of their €200 billion ($225 billion) of soured credit and free up resources for new loans. Nonetheless, it would likely fuel a debate in other countries about whether the ECB is taking on too much risk by buying asset-backed securities (ABS) based on loans that have not been repaid for roughly three months. Italian Treasury officials told reporters the ECB may buy these securities as part of its €1.5 trillion asset-purchase program or accept them as collateral from banks in return for cash, in so called repurchase agreements.

In November last year, an ECB source said that buying rebundled non-performing loans could be an extreme option if the euro zone’s economic situation became “really bad”. The bank has been struggling to revive inflation and is likely to cut its deposit rate again next month. Italy’s high stock of bad loans has been a drag on the euro zone’s third-largest economy and is a growing concern for investors, who have been selling shares in Italian banks heavily since the start of the year. The ECB has been buying an average of €1.19 billion of ABS every month since November 2014, Datastream data showed, and prefers securities backed by performing loans. Under existing rules, the ECB can buy ABS as long as they have a credit rating above a certain threshold, thereby ensuring it only buys high-quality securities.

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Nothing stops the ECB, least of all its own rules.

Italy’s Banking Crisis Spirals Elegantly out of Control (WS)

Italy, the Eurozone’s third largest economy, is in a full-blown banking crisis. Four small banks were rescued late last year. The big ones are teetering. Their stocks have crashed. They’re saddled with non-performing loans (defined as in default or approaching default). We’re not sure that the full extent of these NPLs is even known. The number officially tossed around is €201 billion. But even the ECB seems to doubt that number. Its new bank regulator, the Single Supervisory Mechanism, is now seeking additional information about NPLs to get a handle on them. Other numbers tossed around are over €300 billion, or 18% of total loans outstanding. The IMF shed an even harsher light on this fiasco. It reported last year that over 80% of the NPLs are corporate loans. Of them, 30% were non-performing, with large regional differences, ranging from 17% in some of the northern regions to over 50% in some of the southern regions. The report:

High corporate NPLs reflect both weak profitability in a severe recession as well the heavy indebtedness of many Italian firms, especially SMEs, which are among the highest in the Euro Area. This picture is consistent with corporate survey data which shows nearly 30% of corporate debt is owed by firms whose earnings (before interest and taxes) are insufficient to cover their interest payments.

The reason these NPLs piled up over the years is because banks have been slow to, or have refused to, write them off or sell them to third parties at market rates. Recognizing the losses would have eaten up the banks’ scarce capital. Reality would have been too ugly to behold. The study found that the average time for writing off bad loans has jumped to over six years by 2014. And this:

In 2013, on average less than 10% of bad debt, despite already being in a state of insolvency, was written off or sold. The bad debt write-off rate varies significantly across the major banks, with banks with the highest NPL ratios featuring the lowest write-off rates. The slow pace of write-offs is an important factor in the rapid buildup of NPLs.

Now, to keep the banks from toppling, the ECB has an ingenious plan: it’s going to buy these toxic assets or accept them as collateral in return for cash. That’s what the Italian Treasury told reporters, according to Reuters. Oh, but the ECB is not going to buy them directly. That would violate the rules; it can only buy assets that sport a relatively high credit rating. And this stuff is toxic. So these loans are going to get bundled into structured Asset Backed Securities (ABS) and sliced into different tranches. The top tranches will be the last ones to absorb losses. A high credit rating will then be stamped on these senior tranches to make them eligible for ECB purchases, though they’re still backed by the same toxic loans, most of which won’t ever be repaid.

The ECB then buys these senior tranches of the ABS as part of its €62.4-billion per-month QE program that already includes about €2.2 billion for ABS (though it has been buying less). Alternatively, the ECB can accept these highly rated, toxic-loan-backed securities as collateral for cash via so-called repurchase agreements. But buying even these senior tranches would violate the ECB’s own rules, which specify:

At the time of inclusion in the securitisation, a loan should not be in dispute, default, or unlikely to pay. The borrower associated with the loan should not be deemed credit-impaired (as defined in IAS 36).

Hilariously, the NPLs, by definition, are either already in “default” or “unlikely to pay,” most of them have been so for years, and the borrower is already “deemed credit impaired” if the entity even still exists. But hey, this is the ECB, and no one is going to stop it. Reuters: “The move could give a big boost to a recently approved Italian scheme aimed at helping banks offload some of their €200 billion of soured credit and free up resources for new loans.” But the scheme would limit ECB purchases to only the top tranches, and thus only a portion of the toxic loans. So there too is a way around this artificial limit.

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Might as well move out now. There is no safe storage for nuclear waste.

Nuclear Fuel Storage in South Australia Seen as Economic Boon (BBG)

The storage and disposal of nuclear waste in South Australia would probably deliver significant economic benefits to the state, generating more than A$5 billion ($3.6 billion) a year in revenue, according to the preliminary findings by a royal commission. Such a facility would be commercially viable, with storage commencing in the late 2020s, the Nuclear Fuel Cycle Royal Commission said in its tentative findings released Monday. It doesn’t make economic sense to generate electricity from a nuclear power plant in the state in the “foreseeable future” due to costs and demand, the report found. “The storage and disposal of used nuclear fuel in South Australia would meet a global need and is likely to deliver substantial economic benefits to the community,” the commission said. “

Such a facility would be viable and highly profitable under a range of cost and revenue assumptions.” South Australia, where BHP Billiton operates the Olympic Dam mine, set up the commission last year to look at the role the state should play in the nuclear industry — from mining and enrichment to energy generation and waste storage. While Australia is home to the world’s largest uranium reserves, it has never had a nuclear power plant. Concerns over climate change have prompted debate about whether to reverse Australia’s nuclear policy. Longer term, “Australia’s electricity system will require low-carbon generation sources to meet future global emissions reduction targets,” the commission said in its report. “Nuclear power may be necessary, along with other low carbon generation technologies.”

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A ways to go.

Oil Resumes Drop as Iran Loads Europe Cargo (BBG)

Oil resumed its decline below $30 a barrel as Iran loaded its first cargo to Europe since international sanctions ended and Chinese crude imports dropped from a record. West Texas Intermediate futures fell 0.5% in New York after surging 12% on Friday, while Brent in London slid 0.2%. A tanker for France’s Total was being loaded Sunday at Kharg Island while vessels chartered for Chinese and Spanish companies were due to arrive later the same day, an Iranian oil ministry official said. Chinese imports in January decreased almost 20% from the previous month, according to government data. “Iran is going to add headwinds to the market,” David Lennox, an analyst at Fat Prophets in Sydney, said. “We still have 500 million barrels of U.S. inventories and shale producers are still pumping. Until there are significant cuts to output, the rally is not sustainable.”

Oil in New York is down 21% this year amid the outlook for increased Iranian exports and BP Plc predicts the market will remain “tough and choppy” in the first half as it contends with a surplus of 1 million barrels a day. Speculators’ long positions in WTI through Feb. 9 rose to the highest since June, according to data from the U.S. Commodity Futures Trading Commission. WTI for March delivery slid as much as 49 cents to $28.95 a barrel on the New York Mercantile Exchange and was at $29.28 at 2:50 p.m. Hong Kong time. The contract gained $3.23 to close at $29.44 on Friday after dropping 19% the previous six sessions. Total volume traded was about 12% above the 100-day average. WTI prices lost 4.7% last week. Brent for April settlement declined as much as 69 cents, or 2.1%, to $32.67 a barrel on the ICE Futures Europe exchange. The contract climbed $3.30 to close at $33.36 on Friday. The European benchmark crude was at a premium of $1.59 to WTI for April.

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Our old friend and oil expert Jeffrey Brown with an interesting take.

Condensate Vs Crude Oil: What’s Actually in Those Storage Tanks? (Westexas)

After examining available regional and global production data (using EIA, OPEC and BP data sources), in my opinion actual global crude oil production – generally defined as 45 API Gravity or lower crude oil – has probably been on an “Undulating Plateau” since 2005. At the same time, global natural gas production and associated liquids, condensate and natural gas liquids (NGL), have so far continued to increase. Schlumberger defines condensate as: “A low-density, high-API gravity liquid hydrocarbon phase that generally occurs in association with natural gas.” The most common dividing line between crude oil and condensate is 45 API Gravity, but note that the upper limit for WTI crude oil is 42 API Gravity. However, the critical point is that condensate is a byproduct of natural gas production.

Note that what the EIA calls “Crude oil” is actually Crude + Condensate (C+C). When we ask for the price of oil, we generally get the price of either WTI or Brent crude oil, which both have average API gravities in the high 30’s, and the maximum upper limit for WTI crude oil is 42 API Gravity. However, when we ask for the volume of oil, we get some combination of crude oil + partial substitutes, i.e., condensate, NGL and biofuels. From 2002 to 2005, as annual Brent crude oil prices approximately doubled from $25 in 2002 to $55 in 2005, global natural gas production, global NGL production and global C+C production all showed similar rates of increase. For example, from 2002 to 2005 global natural gas production increased at a rate of 3.2%/year, as global C+C production increased at a rate of 3.3%/year.

From 2005 to the 2011 to 2013 time frame, annual Brent crude oil prices doubled again, from $55 in 2005 to an average of $110 for 2011 to 2013 inclusive, remaining at $99 in 2014. From 2005 to 2014, global natural gas production increased at 2.4%/year, while global C+C production increased at only 0.6%/year. Given that condensate production is a byproduct of natural gas production, the only reasonable conclusion in my opinion is that increasing global condensate production accounted for all, or virtually all, of the post-2005 slow rate of increase in global C+C production [..]

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Haha! So glad Greer does it for us, so we don’t get the hate mail. But he’s right, obviously. Only thing is, he forgets a whole group of people. He says there are those who believe in renewables vs those who actually live with them. A third group are those who plan to make a killing off of renewables. And they drive the discussion.

Renewables: The Next Fracking? (JMG)

I’d meant this week’s Archdruid Report post to return to Retrotopia, my quirky narrative exploration of ways in which going backward might actually be a step forward, and next week’s post to turn a critical eye on a common but dysfunctional habit of thinking that explains an astonishing number of the avoidable disasters of contemporary life, from anthropogenic climate change all the way to Hillary Clinton’s presidential campaign. Still, those entertaining topics will have to wait, because something else requires a bit of immediate attention. In my new year’s predictions a little over a month ago, as my regular readers will recall, I suggested that photovoltaic solar energy would be the focus of the next big energy bubble. The first signs of that process have now begun to surface in a big way, and the sign I have in mind—the same marker that provided the first warning of previous energy bubbles—is a shift in the rhetoric surrounding renewable energy sources.

Broadly speaking, there are two groups of people who talk about renewable energy these days. The first group consists of those people who believe that of course sun and wind can replace fossil fuels and enable modern industrial society to keep on going into the far future. The second group consists of people who actually live with renewable energy on a daily basis. It’s been my repeated experience for years now that people belong to one of these groups or the other, but not to both. As a general rule, in fact, the less direct experience a given person has living with solar and wind power, the more likely that person is to buy into the sort of green cornucopianism that insists that sun, wind, and other renewable resources can provide everyone on the planet with a middle class American lifestyle.

Conversely, those people who have the most direct knowledge of the strengths and limitations of renewable energy—those, for example, who live in homes powered by sunlight and wind, without a fossil fuel-powered grid to cover up the intermittency problems—generally have no time for the claims of green cornucopianism, and are the first to point out that relying on renewable energy means giving up a great many extravagant habits that most people in today’s industrial societies consider normal. Debates between members of these two groups have enlivened quite a few comment pages here on The Archdruid Report. Of late, though—more specifically, since the COP-21 summit last December came out with yet another round of toothless posturing masquerading as a climate agreement—the language used by the first of the two groups has taken on a new and unsettling tone.

Climate activist Naomi Oreskes helped launch that new tone with a diatribe in the mass media insisting that questioning whether renewable energy sources can power industrial society amounts to “a new form of climate denialism.” The same sort of rhetoric has begun to percolate all through the greenward end of things: an increasingly angry insistence that renewable energy sources are by definition the planet’s only hope, that of course the necessary buildout can be accomplished fast enough and on a large enough scale to matter, and that no one ought to be allowed to question these articles of faith.

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Feb 122016
 
 February 12, 2016  Posted by at 10:01 am Finance Tagged with: , , , , , , , , ,  1 Response »


NPC Ezra Meeker’s Wild West show rolls into town, Washington DC 1925

Japanese Stock Market Plunges 5% As Global Rout Gathers Pace (Guardian)
Asian Shares Slip As Bank Fears Add To Global Gloom (Reuters)
Global Assault on Banks Intensifies as Investors Punish Weakness (BBG)
Emerging Stocks Rout Deepens on Risk Aversion as Currencies Drop (BBG)
Yuan Declines Most in Two Weeks as Global Selloff Saps Sentiment (BBG)
Asia’s Rich Advised to Buy Yen as BOJ’s Negative Rates Backfire (BBG)
Who Stole The Yen Carry Trade? (CNBC)
If Credit Is Right, The S&P Is Facing A 40% Crash (ZH)
How Much Further Could Stocks Fall? (BI)
S&P Cuts Deutsche Bank’s Tier 1 Securities Rating To B+ from BB- (Reuters)
The Week When Central Bank Planning Died? (MW)
China Buys The World With State-Backed Debt (FT)
China Turns a Glut of Oil Into a Flood of Diesel (BBG)
11.5% Of Syrian Population Killed Or Injured (Guardian)
Greeks At Frontline Of Refugee Crisis Angry At Europe’s Criticism (Reuters)
The Grandmothers Of Lesvos (Kath.)

I’ve asked the question before: how much longer for Abe? He demanded the GPIF moved its pension money into stocks.

Japanese Stock Market Plunges 5% As Global Rout Gathers Pace (Guardian)

The global stock market rout has continued in Asia Pacific with Japanese stocks plunging nearly 5% as investors continued to dump risky assets amid uncertainty about the stability of the financial system. Tokyo was heading for its biggest weekly fall for more than seven years, after fears over a slowdown in the global economy and an overnight selloff in banking shares sent the Nikkei share average down by 4.84%. After 24 hours’ respite offered by a public holiday on Thursday, the Nikkei share index sank below 15,000 points for the first time in 16 months. The Nikkei has fallen 12% over the week, putting it on course for its biggest weekly drop since October 2008.

Markets across the region were caught up in the selling despite the promise of a better day when oil prices jumped 5% on comments by an Opec energy minister sparked hopes of a coordinated production cut. South Korea’s main Kospi index ended the day 1.4% while the Kosdaq index of smaller stocks was suspended after plummeting more than 8%. The Hang Seng index was off 1% in Hong Kong. In Australia, where shares entered bear territory earlier in the week, stocks closed down more than 1% led lower by the country’s huge banking sector. The sell-off came despite comments from the Reserve Bank governor Glenn Stevens that fears of global slump were “overdone” and that investors were panicking.

The sell-off on Friday prompted the value of the yen, gold and government bonds to soar as investors rushed to traditional safe-haven assets. The yen was 110.985 to the US dollar on Thursday – its lowest level since October 2014 – punishing Japanese exporters, whose overseas earnings will suffer further if the yen continues on its current trajectory. “The markets are clearly starting to price in a sharp slowdown in the world economy and even a recession in the United States,” said Tsuyoshi Shimizu, chief strategist at Mizuho Asset Management.

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Hmmm. We haven’t talked about Japanese banks much yet, have we?

Asian Shares Slip As Bank Fears Add To Global Gloom (Reuters)

Asian shares slipped on Friday as mounting concerns about the health of European banks further threatened a global economic outlook already under strain from falling oil prices and slowdown in China and other emerging markets. The prices of yen, gold and liquid government bonds of favoured countries soared as investors rushed to traditional safe-haven assets. “The markets are clearly starting to price in a sharp slowdown in the world economy and even a recession in the United States,” said Tsuyoshi Shimizu, chief strategist at Mizuho Asset Management. “I do not expect a collapse or major financial crisis like the Lehman crisis but it will take some before market sentiment will improve,” he added.

MSCI’s index of Asia-Pacific shares outside Japan fell 0.5%. Japan’s Nikkei fell 5.3% to a 15-month low as sudden spike in the yen took most investors by surprise. “It is hard to find a bottom for stocks when the yen is strengthening this much. It is hard to become bullish on the market in the near future,” said Masaki Uchida, executive director of equity investment at JPMorgan Asset Management. “But the valuation of some (Japanese) bank shares is extremely cheap. So for long-term investors, it could be a good level to buy,” he added. Financial shares led losses in Australia and Hong Kong though their declines are still modest compared to peers in Europe and the US.

The strengthening yen touched 110.985 to the dollar on Thursday, rising almost 10% from its six-week low touched on Jan 29, when the Bank of Japan introduced negative interest rates. The currency last stood at 112.22 yen, hardly showing any reaction after Japanese Finance Minister Taro Aso stepped up his verbal intervention on Friday, saying he would take appropriate action as needed. MSCI’s broadest gauge of stock markets fell 0.6% in Asia on Friday, flirting with its lowest level since June 2013. It has fallen fell more than 20% below its record high last May, confirming global stocks are in a bear market.

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Banks are bubbles.

Global Assault on Banks Intensifies as Investors Punish Weakness (BBG)

Credit Suisse Group AG shares plunged to the lowest in a generation and a one-year contract to insure Deutsche Bank debt against default surged to a record as a global rout in financial companies intensified. Theories abound as to what lies behind the selloff, with some traders fretting over falling oil prices, China’s slowing economy and negative interest rates. A pullback by some sovereign-wealth funds has also been blamed for lower asset prices. Whatever the cause, the hammering has been the worst in Europe, where concerns persist about the health of some of the biggest banks eight years after the financial crisis. “The market is aggressively penalizing banks,” said Nikhil Srinivasan at Assicurazioni Generali in Milan. “It’s going to be a challenging 2016, and I don’t see a short tunnel – this could go on for a while.”

Investors are fleeing lenders that show signs of weakness, as Societe Generale did yesterday when the Paris-based bank said it might miss its profitability goal this year. The stock plunged 13%, the most since 2011. Both Credit Suisse and Deutsche Bank published dismal fourth-quarter results in recent weeks that have sent shareholders and bondholders to the exits. U.S. lenders haven’t been spared. JPMorgan dropped to the lowest in more than two years after Federal Reserve Chair Janet Yellen said Thursday that the central bank was taking another look at negative interest rates as a potential policy tool if the U.S. economy faltered, a scenario some investors view as a possibility amid a darkening outlook for world growth.

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South Korea even halted its small cap trading for a while.

Emerging Stocks Rout Deepens on Risk Aversion as Currencies Drop (BBG)

Emerging-market equities headed for the worst weekly drop in a month and currencies retreated as anxiety over the worsening outlook for global growth sapped demand for riskier assets. South Korea’s Kospi led declines on Friday, poised for its worst week since August, as benchmark indexes in the Philippines and Indonesia fell. Chinese shares traded in Hong Kong slumped while markets in mainland China, Taiwan and Vietnam remain closed for Lunar New Year holidays. Malaysia’s ringgit and South Africa’s rand weakened the most and a gauge of 20 developing-nation currencies was set for its first five-day drop since mid-January.

World equities descended into a bear market on Thursday amid growing skepticism that central banks can arrest the slide in the world economy, and as crude oil in new York closed at the lowest level in more than 12 years. Signals from central banks in Europe and Japan that additional stimulus is likely did little to ease concerns about growth. Investors ignored a second day of testimony from Federal Reserve Chair Janet Yellen, whose indication that the U.S. won’t rush to raise interest rates failed to stem a global selloff.

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Beijing is going to have a real exciting weekend.

Yuan Declines Most in Two Weeks as Global Selloff Saps Sentiment (BBG)

The offshore yuan fell the most in two weeks, tracking Asian currencies and stocks lower as a global selloff eroded the appeal of riskier assets. Equity markets sank into bear territory amid skepticism central banks can arrest a slide in the world economy. The Bloomberg-JPMorgan Asia Dollar Index fell for a second day while stocks in Hong Kong headed for their lowest close in more than three years. Federal Reserve Chair Janet Yellen said this year’s global tumult was in response to a drop in the yuan and in oil prices, and not the U.S. central bank’s rate increase in December. A gauge of the dollar’s strength rose 0.1% on Monday, paring its decline from Feb. 5 to 0.8%.

The yuan traded in Hong Kong fell 0.16% to 6.5399 a dollar as of 11:50 a.m. local time, ending three days of gains, according to China Foreign Exchange Trade System prices. The currency is headed for a 0.4% advance for the week. China’s onshore financial markets will reopen on Monday, after a week-long holiday, with investors watching out for what the People’s Bank of China will do with the yuan’s reference rate. “There’s a tug of war right now as people are debating whether the dollar’s weakness and its effect on emerging-market currencies will be sustainable,” said Sim Moh Siong, a foreign-exchange strategist at Bank of Singapore Ltd. China’s central bank is likely to keep the yuan’s fixing stable on Monday, he added.

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The hilarious reaction to Kuroda’s, and Abenomics’, failure.

Asia’s Rich Advised to Buy Yen as BOJ’s Negative Rates Backfire (BBG)

Money managers for Asia’s wealthy families are favoring the yen as it benefits from the turmoil in global financial markets. Credit Suisse is advising its private-banking clients to buy the yen against the euro or South Korean won because the Japanese currency remains undervaluedversus the dollar. Stamford Management Pte, which oversees $250 million for Asia’s rich, told clients the yen is set to strengthen to 110 against the dollar as soon as the end of this month. Singapore-based Stephen Diggle, who runs Vulpes Investment Management, plans to add to assets in Japan where the family office already owns hotels and part of a nightclub in a ski resort. The yen has outperformed all 31 other major currencies this year as Japan’s current-account surplus makes it attractive for investors seeking a haven.

Bank of Japan Governor Haruhiko Kuroda’s Jan. 29 decision to adopt negative interest rates has failed to rein in the currency’s advance. “All existing drivers still point to more yen strength,” said Koon How Heng, senior foreign-exchange strategist at Credit Suisse’s private banking and wealth management unit in Singapore. “The BOJ will need to do more to convince the markets about the effectiveness of its negative interest-rate policy.” The yen has appreciated 7% against the dollar this year to 112.32 as of 12:10 p.m. in Tokyo Friday. It touched 110.99 Thursday, the strongest level since Oct. 31, 2014, the day the BOJ unexpectedly increased monetary stimulus for the second time during Kuroda’s tenure.

That’s a drawback for the central bank governor. He needs a weaker yen to help meet his target of boosting Japan’s inflation rate to 2% and keep exports competitive. Stamford Management has briefed some of the families whose wealth it helps to manage about the firm’s “bullish stance” on the yen, said its chief executive officer, Jason Wang. “The adoption of negative interest rates reeks of desperation to me,” Wang said. “It’s akin to an admission by the BOJ that conventional monetary policy is ineffective in hitting their 2% inflation target.”

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Abe.

Who Stole The Yen Carry Trade? (CNBC)

Japan’s descent into a negative interest rate policy should have weakened the yen, but instead it’s spurring a rally as appetite for using the currency to fund other bets wanes. The yen strengthened on Thursday to highs not seen since October of 2014, with the dollar fetching as few as 110.98 yen. That’s despite the Bank of Japan (BOJ) blindsiding global financial markets on January 29 by adopting negative interest rates for the first time ever – a move that should spur outflows of the local currency, not inflows. Instead, a confluence of factors – worries about banks’ profits, a commodities price slump and uncertainty over the Federal Reserve’s hiking path – is causing an old favorite, the yen carry trade, to fall out of fashion, which means the currency is moving in the opposite direction to that expected in the wake of the BOJ’s surprise rates move.

“The advent of negative rates is compounding concerns about underlying strains in the financial sector and bank profitability,” Ray Attrill, co-head of foreign-exchange strategy at National Australia Bank, told CNBC’s “Street Signs” on Wednesday. Japanese investors are repatriating funds in part because the BOJ’s move sparked concerns that other central banks could wage a campaign of competitive rate cuts in response. This in turn caused worries about global banks’ earnings because negative interest rates in Japan – as well as low interest rates globally – dents the banks’ net interest margins. That’s a driver of why bank shares have sold off particularly viciously in recent weeks amid a wider global market rout.

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“…and credit is always right in the end!”

If Credit Is Right, The S&P Is Facing A 40% Crash (ZH)

…and credit is always right in the end! 1,100 is the target…

High Yield bond yields and Leveraged Loan prices are at their worst since 2009 as it seems the hosepipe of QE3 liquidity (its the flow not the stock, stupid) is slowly unwound from a buybacks-are-over equity market.

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The Doug Short graph comes with a ton of caveats, but stock valuations sure look high.

How Much Further Could Stocks Fall? (BI)

A few months ago, I noted that stocks were so frighteningly expensive that they could fall more than 50%. I also noted that that would not be the worst-case scenario. Well, since then, stocks have fallen sharply, and they’re now down about 15% off their highs. So how much further could they fall? On a valuation basis, I’m sorry to say, they could fall much further. It would take at least another 30% drop from here – call it 1,200 on the S&P 500 – before stock prices reached even historically average levels. And that would by no means be the worst-case scenario. Why do I say this? Because, by many historically predictive valuation measures, even after the recent 15% haircut, stocks are still overvalued to the tune of ~60%. That’s better than the ~80% over-valuation of a few months ago.

But it’s still expensive. In the past, when stocks have been this overvalued, they have often corrected by crashing — in 1929, 1987, 2000, and 2007, for example . They have also sometimes corrected by moving sideways and down for a long, long time — in 1901-1920 and 1966-1982, for example. After long eras of over-valuation, like the period we have been in since the late 1990s (with the notable exceptions of the lows after the 2000 and 2007 crashes), stocks have also often transitioned into an era of undervaluation, often one that lasts for a decade or more. In short, stocks are still so expensive on historically predictive measures that they are priced to deliver annual returns of only about 2%-3% per year for the next decade. So a stock-market crash of ~50% from the peak would not be a surprise. It would also not be the “worst-case scenario.” The “worst-case scenario,” which has actually been a common scenario over history, is that stocks would drop by, say 75% peak to trough.

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Coco no more.

S&P Cuts Deutsche Bank’s Tier 1 Securities Rating To B+ from BB- (Reuters)

Rating agency Standard and Poors on Thursday said it cut Deutsche Bank AG’s Tier 1 securities rating to B+ from BB- and also lowered Deutsche Bank Capital Finance Trust I perpetual Tier 2 instrument rating to BB- from BB. S&P said the bank’s €4.3 billion pro forma payment capacity for 2017 should be sufficient to enable continued Tier 1 interest payments, but its German GAAP earnings prospects are difficult to foresee amidst restructuring and volatile market conditions. The rating change with a stable outlook reflects the expectation that the Frankfurt-based bank will make steady progress during the next two years towards its financial and operational targets for 2020, S&P added.

Shares of Deutsche Bank have fallen about 40% since the start of this year as shareholders expressed doubts over the management’s execution of its two-year turnaround plan, announced last October. The bank, seeking to reassure investors, said on Monday it had “sufficient” reserves to make payments due this year on AT1 securities. Deutsche Bank is also looking at buying back several billion euros worth of its debt in an effort to reverse the falling value of its securities, the Financial Times said on Tuesday. However, S&P expects the German bank’s profitability to remain relatively poor in 2016-2017, due to restructuring charges and likely further litigation provisions.

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Close, yes.

The Week When Central Bank Planning Died? (MW)

Has the “Yellen put” finally expired? Financial markets are in the grips of a global rush to safety. Central banks, whose flood of liquidity have been given much of the credit for the sharp postcrisis rise in stocks and other asset prices, seem unable to stem the tide. “This week may go down in financial history as the week when central bank planning died—the 2016 version of the fall of the Berlin Wall. It sounds worse than it is, as this was always coming,” said Steen Jakobsen, chief economist at Saxo Bank, in a Thursday note. Markets took little comfort in two days of testimony by Federal Reserve Chairwoman Janet Yellen. The S&P 500 and Dow Jones Industrial Average posted their fifth straight decline Thursday. The yen, meanwhile, has soared despite the Bank of Japan’s easing efforts.

It was the Bank of Japan’s surprise decision in late January to impose a negative rate on some deposits that appeared to rock investor faith. As MarketWatch noted at the time, the move was viewed by many economists as desperate. Moreover, with central banks continually undershooting inflation targets despite extraordinarily loose policy, there are growing fears that the ability of monetary policy to affect the real economy has been impaired. The ability of central banks to steer the market—or vice versa—was first dubbed the “Greenspan put,” then renamed the “Bernanke put,” and, finally, the “Yellen put.” A put option gives an investor the right to sell the underlying security at a preset strike price. In other words, bullish stock investors could count on central bankers to keep a floor under the market. That’s what some think is finally coming to an end.

“We have relied on central bankers to fix the world’s economic woes, when all they could really do was to get the global financial system back on an even keel,” said Kit Juckes, global macro strategist at Société Générale, in a note. “Keeping policy too easy, for too long and boosting asset markets in the vain hope that this would deliver a sustainable pickup in demand has meant that even a timid attempt at normalizing Fed policy has caused two months of mayhem.” Now, amid a growing realization that central banks’ powers are on the wane, investors are rushing for havens, he said. The Bank of Japan wasn’t the first major central bank to go negative. It joined the European Central Bank and the Swiss National Bank, as well as the Swedish and Danish central banks. But there are fears that negative rates will prove counterproductive.

Central banks have implemented negative rates in an effort to halt the hoarding of cash in a bid to fuel spending and push up inflation. But skeptics fear the strategy could backfire. “The increasing number of central banks adopting [negative interest rate policies] is weighing on the profit outlook for financial companies that now must pay to hold some of their reserves at the central bank and hurting the performance of the global financial sector.,” wrote Jeffrey Kleintop, global chief investment strategist at Charles Schwab, in a blog post. A main worry is that banks might have to push up lending rates to cover the cost of holding some reserves at the central bank. As a result, it’s the financial sector, not falling oil, that has been the leading driver of the fall in global stocks in 2016, Kleintop said (see chart).

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Now combine this with Kyle Bass’ assertion that FX reserves are already depleted. What exactly are they buying foreign companies with then?

China Buys The World With State-Backed Debt (FT)

The warnings are clear for ChemChina. The company behind China Inc’s biggest outward investment bid will be hoping to avoid the unhappy experiences suffered by some of the country’s earlier trailblazers. The state-owned oil company Cnooc , for example, ran into problems after it paid a record $15bn in 2013 for Nexen, one of Canada’s largest oil firms. Cnooc began with good intentions, paying a 60% premium to Nexen’s share price, only to suffer from the prolonged slump in global oil prices. A huge pipeline spill and a retreat from promises to safeguard Canadian jobs — it fired senior Nexen executives and laid off hundreds of staff — have further dented goodwill around the deal. Investments by other Chinese stalwarts have also hit turbulence, falling at regulatory hurdles or unravelling for commercial reasons.

“Chinese investment overseas is a double-edged sword,” says Derek Scissors, of the American Enterprise Institute. The outward embrace of China Inc raises a series of challenges for target companies and countries, he adds. Common problems arise from a mismatch of regulatory systems, a clash of corporate cultures and commercial miscalculations. China is not alone in having deals that hit problems — it happens to US and European companies also. But increasingly the issue for Chinese deals is debt. Analysts say that a surge in the indebtedness of corporate China since 2009 has meant that many of its largest companies are looking for acquisitions abroad while dragging behind them mountains of unpaid loans and bonds. ChemChina, which is offering $44bn for Syngenta, the Swiss agrichemical giant, is a case in point.

Its total debt is 9.5 times its annual earnings before interest, tax, depreciation and amortisation (ebitda), putting it into the “highly-leveraged” category as defined by Standard & Poor’s, the rating agency. This, say analysts, highlights the nature of ChemChina’s planned acquisition before even a cent has been paid. The proposed deal is not between two commercial businesses but between the Chinese state and a Swiss company. “Bids like that by ChemChina are backed by the state,” Mr Scissors says. “There is no chance a company as heavily leveraged as this would be able to secure this level of financing on a commercial basis. “If your financials are out of whack with every commercial company on the planet then you can call yourself commercial but you are not,” he adds. The issue with debt is by no means confined to ChemChina.

The median debt multiple of the 54 Chinese companies that publish financial figures and did deals overseas last year was 5.4, according to data from S&P Global Market Intelligence. Many would be regarded as “highly leveraged”. Some companies are almost off the chart. Zoomlion, a lossmaking and partially state-owned Chinese machinery company that is bidding for US rival Terex, has a debt multiple of 83; by comparison Terex’s is 3.6. China Cosco, a state-owned shipping company, is seven times more indebted than Piraeus Port Authority in Greece, which it bought for €368.5m last month . The state-owned Cofco Corporation, which recently reached an agreement with Noble Group, the commodities trader, under which its subsidiary Cofco International would acquire a stake in Noble Agri for $750m, has debts equivalent to 52 times its ebitda.

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Wiping out the entire region’s oil processing industry.

China Turns a Glut of Oil Into a Flood of Diesel (BBG)

Fuel producers from India to South Korea are finding that rising refined products from China are cutting the profit margins they’ve enjoyed from cheap oil to the lowest in more than a year. Worse may be coming. China’s total net exports of oil products – a measure that strips out imports – will rise 31% this year to 25 million metric tons, China National Petroleum Corp., the country’s biggest energy company, said in its annual research report last month. That comes after diesel exports jumped almost 75% last year.

“If China dumps more fuel into the market, international prices will crash,” said B.K. Namdeo, director of refineries at India’s state-run Hindustan Petroleum. “It will be similar to what happened to crude prices due to the oversupply. If international prices of oil products come down, then it will hurt margins of all refiners.” A common measure of refining profitability in Asia – the margin from turning Middle East benchmark Dubai grade into fuels including diesel and gasoline in the regional trading hub of Singapore – slid this week to the lowest level since October 2014, adding to mounting evidence that China’s exports are weighing on Asian processors.

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Let’s blame Russia.

11.5% Of Syrian Population Killed Or Injured (Guardian)

Syria’s national wealth, infrastructure and institutions have been “almost obliterated” by the “catastrophic impact” of nearly five years of conflict, a new report has found. Fatalities caused by war, directly and indirectly, amount to 470,000, according to the Syrian Centre for Policy Research (SCPR) – a far higher total than the figure of 250,000 used by the United Nations until it stopped collecting statistics 18 months ago. In all, 11.5% of the country’s population have been killed or injured since the crisis erupted in March 2011, the report estimates. The number of wounded is put at 1.9 million. Life expectancy has dropped from 70 in 2010 to 55.4 in 2015. Overall economic losses are estimated at $255bn (£175bn).

The stark account of the war’s toll came as warnings multiplied about Aleppo, Syria’s largest city, which is in danger of being cut off by a government advance aided by Russian airstrikes and Iranian militiamen. The Syrian opposition is demanding urgent action to relieve the suffering of tens of thousands of civilians. The International Red Cross said on Wednesday that 50,000 people had fled the upsurge in fighting in the north, requiring urgent deliveries of food and water. Talks in Munich on Thursday between the US secretary of state, John Kerry, and his Russian counterpart, Sergei Lavrov, will be closely watched for any sign of an end to the deadly impasse. UN-brokered peace talks in Geneva are scheduled to resume in two weeks but are unlikely to do so without a significant shift of policy.

Of the 470,000 war dead counted by the SCPR, about 400,000 were directly due to violence, while the remaining 70,000 fell victim to lack of adequate health services, medicine, especially for chronic diseases, lack of food, clean water, sanitation and proper housing, especially for those displaced within conflict zones. “We use very rigorous research methods and we are sure of this figure,” Rabie Nasser, the report’s author, told the Guardian. “Indirect deaths will be greater in the future, though most NGOs [non-governmental organisations] and the UN ignore them. “We think that the UN documentation and informal estimation underestimated the casualties due to lack of access to information during the crisis,” he said. In statistical terms, Syria’s mortality rate increased from 4.4 per thousand in 2010 to 10.9 per thousand in 2015.

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“Beyond commands, we’re human. We’ll lose heart, we’ll cry, we’ll feel sad if something doesn’t go well. There isn’t a person who won’t be moved by this..”

Greeks At Frontline Of Refugee Crisis Angry At Europe’s Criticism (Reuters)

Some EU members have suggested Greece should be suspended from Schengen if it does not improve. But the criticism and threats have been met with anger in Greece. Prime Minister Alexis Tsipras on Wednesday said the EU was “confused and bewildered” by the migrant crisis and said the bloc should take responsibility like Greece has done, despite being crash-strapped. Most Greeks, including the coast guard, the army, the police were “setting an example of humanity to the world,” Tsipras said. For those at the frontline, foreign criticism is even more painful. “We’re giving 150%,” said Lieutenant Commander Antonis Sofiadelis, head of coast guard operations on Lesvos. Once a dinghy enters Greek territorial waters, the coast guard is obliged to rescue it and transport its passengers to the port.

”The sea is not like land. You’re dealing with a boat with 60 people in constant danger. It could sink, they could go overboard,” he said. More than a million people, many fleeing war-ravaged countries and poverty in the Middle East and Africa, reached Europe in the past year, most of them arriving in Greece. For the crews plying a 250-km-long coastline between Lesvvos and Turkey, the numbers attempting the crossing are simply too big to handle. It is but a fraction of a coastline thousands of kilometers long between Greece and Turkish shores. ”The flow is unreal,” Sofiadelis said. Lesvos has long been a stopover for refugees. Locals recall when people fleeing the Iraqi-Kurdish civil war in the mid-1990s swam across from Turkey. Yet those numbers do not compare to what has become Europe’s biggest migration crisis since WWII and which has continued unabated despite the winter making the Aegean Sea even more treacherous.

After days of gale force winds and freezing temperatures, more than 2,400 people arrived on Greece’s outlying islands on Monday, nearly double the daily average for February, according to United Nations data. Sofiadelis, the Lesvos commander, said controls should be stepped up on the Turkish side, while Europe should provide assistance with more boats, more staff and better monitoring systems such as radars and night-vision cameras. Greek boats, assisted by EU border control agency Frontex, already scan the waters night and day. By late morning on Monday, Captain Frangoulis and his crew – including a seafaring dog picked up at a port years ago – have been at sea for more than 24 hours. Each time his crew spot a boat that could be carrying migrants “our stomach is tied up in knots,” Frangoulis said.

”There’s this fear that everything must go well, everyone boards safely, no child falls in the sea, no one’s injured.” Though fewer than 10 nautical miles separate Lesvos from Turkish shores, hundreds of people have drowned trying to make it across. Patrol boats, as well as local fishermen, have often fished out corpses from the many shipwrecks of the past months, the bodies blackened and bruised from days at sea. After every rescue operation, a sense of relief fills the crews. Once the Agios Efstratios docked at the Lesvos harbour on Monday, Frangoulis’ beaming crew helped passengers disembark, holding up crying babies in their arms. ”There’s no room for sentimentalism. We execute commands,” Frangoulis said of the rescue operations. “Beyond commands, we’re human. We’ll lose heart, we’ll cry, we’ll feel sad if something doesn’t go well. There isn’t a person who won’t be moved by this,” he said.

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Real people.

The Grandmothers Of Lesvos (Kath.)

Even as the high winds whip up the sea they still come. I spot two black dots far away on the horizon: rubber dinghies that have set off from the Turkish coast, overladen with men, women and children. If she could, 85-year-old Maritsa Mavrapidi would walk down the road from her front gate to the beach of Skala Sykamias and wait – as she has done so many times in the past – for the boats to land. After all, she knows exactly what it means to be refugee. “Our mothers came here as refugees from Turkey, just across the way, and they were just girls at the time. They came without clothes, with nothing,” she says. “That’s why we feel sorry for the migrants.” Maritsa prefers not to go out on cold days. Her cousins would also have liked to be at the beach to help the newcomers but they also avoid bad weather.

Efstratia Mavrapidi is 89 and Militsa (Emilia) Kamvisi 83. The latter was recently nominated for a Nobel Peace Prize along with a Lesvos fisherman as representatives of the islanders who have taken the refugees into their hearts and their homes. “Dear Lord, we never expected this: people coming through the storm,” says Maritsa. “As soon as they step off the boat they say prayers and kiss the ground; it’s unbelievable. They’re to be pitied. And there are so many babies, tiny little things. It breaks your heart to see the babies in such a sorry state, trembling with cold.” I sit with the three women in Militsa’s home. The village’s olive grove starts at the back of the house and from the front there’s a view to the sea. “I’ve moved downstairs because I have volunteers who help the refugees staying upstairs,” she says.

[..] They share roots and a hard life. Their mothers arrived on Lesvos on fishing boats from Asia Minor in 1922. They are reminded every time they see refugees landing on the island’s shores of the scenes of exodus their mothers had described. “My mother had three babies when she came from Turkey,” remembers Efstratia. “She had no clothes for the youngest and had to tear her underskirt to wrap it in.” Back in Turkey Militsas’s father had been engaged to a different woman. “He packed up his sewing machine and a trunk of clothes as they prepared to leave, but his fiancee and her mother were killed. He came to Lesvos alone and later met my mother.” They know from the stories they were told that the islanders were not particularly welcoming to the new arrivals from Asia Minor.

“The locals were scared that the refugees would settle here,” says Maritsa. “Eventually they did. They bought land and got married.” One of the places where many of the refugees put down roots was Skala Sykamias. Here, in this spot that was the birthplace of celebrated novelist Stratis Myrivilis, the refugees experienced poverty and suffering. “They led very sad lives and had many children, like the migrants that coming today,” says Militsa. “They made their homes in olive storage sheds. Four families could live in one room, separated by hanging carpets,” adds Efstratia.

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Apr 122015
 
 April 12, 2015  Posted by at 9:14 pm Finance Tagged with: , , , , , , , ,  3 Responses »


Byron Street haberdashery, New York 1900

Top 20% of US Earners Pay 84% of Income Tax (WSJ)
Stocks Surge: Nikkei Tops 20,000, Europe Hits 15-Year High (Reuters)
Eurozone Officials Shocked By Greece’s Stance, Says German Newspaper (Reuters)
Yanis Varoufakis and Joseph Stiglitz (INET)
ECB Sees Risks In Greece’s Planned Home Foreclosure Law (Reuters)
Druckenmiller: This Could End ‘Very Badly’ (CNBC)
GE Plan Opens Escape Path From Fed Too-Big-To-Fail Label (Bloomberg)
New Zealand Rock Star Economy Takes Centre Stage As Currency Climbs (Guardian)
Italy Rescues 978 Migrants Attempting to Cross the Mediterranean (Bloomberg)
China-Led Infrastructure Bank to Welcome U.S. ‘Anytime’ (Bloomberg)
Anonymous Declares Cyber War On ISIS Twitter Users (RT)
China Said to Use Powerful New Weapon to Censor Internet (NY Times)
The Universe May Not Be Expanding As Fast As We Thought (NatMon)

And get 99% of income?!

Top 20% of US Earners Pay 84% of Income Tax (WSJ)

Who pays what in income taxes? With April 15 just around the corner, filers may be curious about where they fit into the system as a whole. The individual income tax remains the most important levy in the U.S., providing nearly half of federal revenue. This is unusual: On average, developed nations get only one-third of their revenue from income taxes. Typically they also impose national consumption taxes, such as a value-added tax, that raise as much revenue as their income tax. The pressure on the U.S. income tax has prompted lawmakers on both sides of the aisle to seriously consider a national consumption tax. But liberals worry that such a levy could unduly burden the poor, while conservatives fear it would be too easy to dial up the rate and collect more revenue.

As a result, experts say, there is little chance of tax overhaul this year. The data come from estimates by the nonpartisan Tax Policy Center, a Washington-based research group, as Internal Revenue Service data for 2014 won’t be available for at least two years. Unlike IRS data, it includes information about nonfilers—both people who didn’t need to file and people who should have filed but didn’t. The total also includes Americans living overseas and others, which is why it is greater than the U.S. Census estimate of 319 million. Another important difference: The income cited in the tables includes untaxed amounts for employer-provided health coverage, tax-exempt interest and retirement-plan contributions and growth, among other things. This can be significant.

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When this bubble bursts, an awful lot of ‘money’ will be lost.

Stocks Surge: Nikkei Tops 20,000, Europe Hits 15-Year High (Reuters)

World equity markets tested record highs on Friday on hopes of more stimulus from top central banks, while the dollar strengthened on favorable government debt yields compared to those of most other developed countries. Wall Street scored solid gains after U.S. conglomerate General Electric said it plans to sell assets and buy back up to $50 billion of its stock. This propelled GE shares to their highest since September 2008, ending up 10.8% at $28.51 in heavy volume. Earlier, Japan’s Nikkei index rose above 20,000 points for the first time in 15 years while top European shares advanced to their highest since 2000. Oil prices rose on lowered expectations of an Iran nuclear deal that would allow more Iranian oil into the market. Gold rose on the day but snapped a three-week winning streak on a stronger dollar.

“We are in a honeymoon period for risk assets, and will be for another quarter,” said Sandra Crowl, an investment committee member at Paris-based asset managers Carmignac Gestion. The Dow Jones industrial average closed up 98.92 points, or 0.55%, to 18,057.65, the S&P 500 ended up 10.88 points, or 0.52%, to 2,102.06 and the Nasdaq Composite finished 21.41 points, or 0.43%, higher at 4,995.98. Tokyo’s Nikkei closed down 0.2% after breaching the 20,000-point mark. Buoyed by gains in Asia and the renewed drop in the euro, the pan-European FTSEurofirst 300 share index reached a 15-year high of over 1,640 as its ninth week of rises in the last 10 took it to its highest since 2000. Germany’s DAX also scored a record high. The MSCI world equity index, which tracks shares in 45 nations, rose 0.4% to 435.72, a shade below its record high.

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“..in particular its reluctance to talk about cutting civil servants’ pensions.” Ergo, Syriza can’t allow for Greece to remain in the eurozone.

Eurozone Officials Shocked By Greece’s Stance, Says German Newspaper (Reuters)

Eurozone officials were shocked at Greece’s failure to outline plans for structural reforms at last week’s talks in Brussels, a German newspaper on Saturday cited participants as saying, adding the Greek representative behaved like a “taxi driver”. A meeting of deputy finance ministers on Thursday gave Athens a six working day deadline to present revised economic reform plans before eurozone finance ministers meet on April 24 to consider unlocking emergency funding to keep Greece afloat. Eurozone sources told the Frankfurter Allgemeine Sonntagszeitung that they were disappointed and shocked at Athens’ lack of movement in its plans, and in particular its reluctance to talk about cutting civil servants’ pensions.

The mood between Greece’s leftist government and its eurozone partners, especially Germany, has deteriorated in the last few weeks, with personal recriminations flying between ministers and calls from Athens for Berlin to pay war reparations. The paper said at last week’s meeting the Greek representative just asked where the money was “like a taxi driver”, according to sources, and insisted his country would soon be bankrupt. The eurozone sources told the paper that Greece’s creditors do not believe this is the case and that it would be a domestic political issue if Athens is unable to fully pay salaries and pensions. The paper also said that German Finance Minister Wolfgang Schaeuble, who has taken a tough line towards Greece in bailout talks, would have to get the Bundestag lower house of parliament to vote on any fundamental changes to the reform programme.

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Very impressive.

Yanis Varoufakis and Joseph Stiglitz (INET)

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“About 28.1% of home loans extended by Greek banks, which were worth a combined €69 billion, were non-performing or unpaid for more than 90 days, as of September 2014..”

ECB Sees Risks In Greece’s Planned Home Foreclosure Law (Reuters)

Greece’s draft law to protect primary residences from foreclosures goes beyond protecting low-income debtors and could encourage strategic defaults, the ECB said in a legal opinion on Saturday in a potential setback to the plan. Greece’s Economy Ministry had asked for the ECB’s views on the draft legislation, which seeks to protect indebted citizens from losing their primary homes – and fulfills a pledge by the governing SYRIZA party to deal with a humanitarian crisis brought on by the country’s debt crisis. The draft law offers protection to primary homes valued up to €300,000 and requires that borrowers do not have an annual income of more than €50,000 to be eligible. It also sets an upper limit of €500,000 for borrowers’ total wealth, of which bank deposits and other liquid assets cannot exceed €30,000.

The conditions are more generous than under Greece’s previous foreclosure law, which expired last year. It provided protection for homes valued at 200,000 euros or less and required that borrowers had an annual income of 35,000 euros maximum and total wealth of 270,000 euros or less. “The very broad scope of eligible debtors, which goes beyond the protection of vulnerable and low-income debtors, may create moral hazard and could lead to strategic defaults, undermining the payment culture and future credit growth,” the ECB said. “The draft law sets out significantly broader eligibility criteria in terms of the value of the protected property, the annual household income, the value of immovable and movable assets and the amount of deposits,” the ECB said, comparing it to the previous law.

It said that broad-based prohibitions on primary home auctions was not a sustainable solution to tackle the high level of non-performing loans at Greek banks. “It is likely that the prohibitions in the draft law will incentivize debtors who are not in real need of protection to stop meeting their obligations or reduce them significantly, even if they have the means to meet them in full.” The ECB supervises Greek and other eurozone banks. Greek banks’ bad loans rose to 34.2% of their loan portfolios by the end of the third quarter of last year, from 31.9% in December 2013, according to Greek central bank data.

About 28.1% of home loans extended by Greek banks, which were worth a combined €69 billion, were non-performing or unpaid for more than 90 days, as of September 2014, according to latest Bank of Greece data. That was up from 26.1% in 2013. Home loans accounted for a third of banks’ total loans as of last September.

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“..we’ve had money building up four to six years in terms of a risk pattern, I think it could end very badly.”

Druckenmiller: This Could End ‘Very Badly’ (CNBC)

Billionaire investor Stanley Druckenmiller has once again warned that the easy money policies of recent years could end poorly. “I know it’s so tempting to go ahead and make investments and it looks good for today,” the retired founder of Duquense Capital Management said, “but when this thing ends, because we’ve had speculation, we’ve had money building up four to six years in terms of a risk pattern, I think it could end very badly.” The investor’s comments were made at an event in Palm Beach, Florida on Jan. 18, but the transcript was just circulated on Friday. Druckenmiller cited warning signs like the high number of initial public offerings of companies that are unprofitable, and high levels of debt issued to companies, often with poor credit ratings and without many lending restrictions—so called covenants.

Druckenmiller also said that comparing modern day economic policy to that of the Great Depression-era was totally inaccurate. He implied that the U.S. Federal Reserve would not cause to another recession by tightening the flow of money into the system. Druckenmiller showed slides at the event displaying how net worth per household hadn’t returned to pre-1929 levels in 1937, before rates began rising. He compared that to how wealth has risen today far beyond pre-crash levels in 2007. “We’re not even close to the kind of numbers we had in 1937,” he said.

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Fooling the system.

GE Plan Opens Escape Path From Fed Too-Big-To-Fail Label (Bloomberg)

General Electric’s plan to exit most lending operations could make its finance arm the first entity to escape the grip of the Federal Reserve’s too-big-to-fail oversight, a move that would free the company from strict capital requirements and reduce government monitoring. As part of a broad restructuring announced Friday, GE General Counsel Brackett Denniston said the finance unit will apply to lose its systemically important label sometime next year. GE has already discussed its overhaul, which includes the sale of $26 billion of real estate, with U.S. regulators who will decide whether the company can go free. “We think we’ve come a long way and you can argue we’re not systemic right now,” Denniston said an in interview.

“When the plan is further advanced, when we think the argument is even stronger and more compelling, that’s the right way to do it.” GE Capital is one of four non-banks hit with the tighter scrutiny, which applies to firms that regulators believe could threaten the U.S. economy if they failed. Companies have sought to avoid the capital, liquidity and leverage constraints that can come with being selected, with insurer Metlife Inc. suing the U.S. government to try to escape. Instead of fighting, Fairfield, Connecticut-based GE is slimming down. The company’s shares rose $2.48 to $28.21, or 9.6%, at 2:41 p.m. in New York trading. It was the biggest daily increase since March 2009, according to Bloomberg data.

Decisions on which companies are systemically important are made by the Financial Stability Oversight Council, a group of regulators set up under the 2010 Dodd-Frank Act that Treasury Secretary Jacob J. Lew leads. A designation subjects a company to supervision by the Fed, allowing the central bank to scrutinize it the same way it does large banks like Citigroup and JPMorgan. To get out, GE Capital will have to convince the FSOC that its collapse wouldn’t hurt the broader financial system. Once the restructuring is complete, GE’s ending net investment in GE Capital – a balance-sheet gauge that excludes non-interest bearing liabilities and cash – will fall to $90 billion from $363 billion, the company said. Just $40 billion of that will be in the U.S., making it “inconceivable” that the company could be considered systemic, Denniston said.

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NZ exports fell 27% in 2014. What more does anyone need to know?

New Zealand Rock Star Economy Takes Centre Stage As Currency Climbs (Guardian)

Australians are going to have to get used to New Zealanders going on about how much better their economy is. Paul Bloxham, the HSBC economist who first called New Zealand a rock star economy, says the New Zealand dollar is going to be strong for some time because the NZ economy is strong. The New Zealand dollar was at 98.27 Australian cents on Friday, up from 98.18 cents on Thursday and it is expected to reach parity. The last time the New Zealand dollar passed the Aussie dollar was on 18 October 1973 and it only managed it for a few hours, Bloxham said on TVNZ’s Q+A program on Sunday. The New Zealand economy is outperforming every other Organisation for Economic Cooperation and Development (OECD) economy. “That’s why we’ve been describing New Zealand as a rock star,” Bloxham said.

It was the fastest growing of the 34 OECD economies in the past year. “And, we think that situation’s going to continue this year as well,” Bloxham said. The Australian economy, in contrast, is at the end of a mining boom. Mining investment is falling and the rest of the economy is “so-so”. “So it makes sense that the New Zealand dollar is strong relative to the Aussie dollar, and we expect the situation to persist for some time,” Bloxham said. In New Zealand, there was an upturn in construction from the Canterbury rebuild and the housing market was booming in Auckland. Bloxham acknowledged dairy prices had fallen sharply but said dairy production was still rising and the domestic economy was doing very well.

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So what does Brussels say? Nothing.

Italy Rescues 978 Migrants Attempting to Cross the Mediterranean (Bloomberg)

The Italian navy and coast guard engaged in three different rescue operations Friday in order to bring to safety 978 migrants attempting to reach Europe by crossing the Mediterranean Sea, according to a coast guard Twitter post. The migrants were rescued off the Libyan coast following distress calls made from the boats via satellite phone, daily Corriere della Sera reported in its online edition. The government is continuing its “taxi service” to help the criminals that ferry these people over the sea, leader of the opposition Northern League party Matteo Salvini posted on social media following the rescues.

Migration to Europe across the Mediterranean Sea has increased as people flee wars and conflict in countries like Libya, Syria and Somalia. Last year, 218,000 irregular migrants tried to reach Europe, according to the Office of the United Nations High Commissioner for Refugees. The same year, Italy saved 100,250 people through its rescue operation Mare Nostrum at a cost of 114 million euros ($120 million), according to the Italian Interior Ministry. That operation was discontinued in November due to its high cost and criticism from politicians like Salvini that it was helping criminals exploit migrants. Operation Triton, a more limited effort coordinated by European Union border police agency Frontex, has replaced it.

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Ha! Let’s see what Hillary thinks.

China-Led Infrastructure Bank to Welcome U.S. ‘Anytime’ (Bloomberg)

China is keeping the door open for the U.S. to join its new development bank “anytime,” the lender’s chief said, after the Obama administration failed to persuade most allies to snub the lender. The U.S. is “welcome to the kitchen to work with us,’ Jin Liqun, secretary general of the secretariat for establishing the bank, told reporters in Singapore on Saturday. The Asian Infrastructure Investment Bank’s founding membership will probably be ‘‘short of 60,” he said. “China itself has benefited enormously from contributions by the World Bank” and Asian Development Bank, Jin said at a forum in Singapore. “Now it’s time for China to contribute more to this region, and hopefully China’s contributions will spill over to other regions.”

The U.S. suffered a diplomatic setback as allies including Australia, the U.K, and Germany opted to become founding members of the China-led bank. World Bank President Jim Yong Kim said this week he doesn’t view the development lender as heralding an end to the global economic order forged by the U.S. The AIIB will be owned by all members, not solely China, and will have a mandate to promote broad-based socio-economic development, Jin said. As it will focus exclusively on infrastructure funding, while the World Bank and Asian Development Bank address poverty reduction, there is more complementary territory than “head-on competition,” he said.

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Enemies and friends?!

Anonymous Declares Cyber War On ISIS Twitter Users (RT)

Hacktivists from the Anonymous group have attacked hundreds of pro-Islamic State websites and thousands of social networks’ accounts used by the terrorist group. ISIS has hit back though, threatening another 9/11 terror act against the US. A faction of the Anonymous group, called GhostSec, is carrying out a cyber campaign called #OpISIS against the Islamic State (IS). They are looking to target members and supporters of the terrorist organization, who want to spread propaganda over the internet. Anonymous are monitoring social media accounts as well as websites operated by the group formerly known as ISIS/ISIL to disrupt their online operations as they try to “cure the ISIS virus.”

The GhostSec division of Anonymous has been keeping itself busy. They have been compiling a list (f websites “frequently used by the Islamic State through Twitter and other social media platforms for transmission of propaganda, religion, recruitment, communications and intelligence gathering purposes,” the group said in a statement. On Wednesday, the Anonymous group reported of “casualties” among the enemy ranks, which included 233 websites, which had been attacked, 85 websites that had been “destroyed” and 25,000 “terminated” Twitter accounts. Not everyone is happy with the actions undertaken by Anonymous. Security services have criticised the group for taking matters into their own hands. These intelligence bodies say the elimination of jihadist websites and social media accounts prevents them from gathering valuable information concerning their activities.

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“..a “man in the middle attack.”

China Said to Use Powerful New Weapon to Censor Internet (NY Times)

Late last month, China began flooding American websites with a barrage of Internet traffic in an apparent effort to take out services that allow China’s Internet users to view websites otherwise blocked in the country. Initial security reports suggested that China had crippled the services by exploiting its own Internet filter — known as the Great Firewall — to redirect overwhelming amounts of traffic to its targets. Now, researchers at the University of California, Berkeley and the University of Toronto say China did not use the Great Firewall after all, but rather a powerful new weapon that they are calling the Great Cannon. The Great Cannon, the researchers said in a report published on Friday, allows China to intercept foreign web traffic as it flows to Chinese websites, inject malicious code and repurpose the traffic as Beijing sees fit.

The system was used, they said, to intercept web and advertising traffic intended for Baidu — China’s biggest search engine company — and fire it at GitHub, a popular site for programmers, and GreatFire.org, a nonprofit that runs mirror images of sites that are blocked inside China. The attacks against the services continued on Thursday, the researchers said, even though both sites appeared to be operating normally. But the researchers suggested that the system could have more powerful capabilities. With a few tweaks, the Great Cannon could be used to spy on anyone who happens to fetch content hosted on a Chinese computer, even by visiting a non-Chinese website that contains Chinese advertising content.

“The operational deployment of the Great Cannon represents a significant escalation in state-level information control,” the researchers said in their report. It is, they said, “the normalization of widespread and public use of an attack tool to enforce censorship.” The researchers, who have previously done extensive research into government surveillance tools, found that while the infrastructure and code for the attacks bear similarities to the Great Firewall, the attacks came from a separate device. The device has the ability not only to snoop on Internet traffic but also to alter the traffic and direct it — on a giant scale — to any website, in what is called a “man in the middle attack.”

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Guesstimating dark matter.

The Universe May Not Be Expanding As Fast As We Thought (NatMon)

Two papers recently published in the Astrophysical Journal suggest that the universe may not be expanding at the rate that textbooks claim that it is. That conclusion would also imply that the amount of dark energy in the universe is less than current estimates claim it is. The team reached this conclusion by studying Ia supernovae, which are thought to be uniform enough to be used as beacons to measure distances in the cosmos. The team found that the supernovae were not, in fact, uniform but fell into different populations. “ The findings are analogous to sampling a selection of 100-watt light bulbs at the hardware store and discovering that they vary in brightness,” according to a statement. If their findings are correct, it means that a great deal of the math which astronomers use to measure the universe needs to be re-done.

Among other things it would mean that many of the measured distances to objects, the rate at which the universe is expanding and the amount of dark energy involved are currently wrong. “We found that the differences are not random, but lead to separating Ia supernovae into two groups, where the group that is in the minority near us are in the majority at large distances — and thus when the universe was younger. There are different populations out there, and they have not been recognized. The big assumption has been that as you go from near to far, type Ia supernovae are the same. That doesn’t appear to be the case,” said Milne, an associate astronomer with the UA’s Department of Astronomy and Steward Observatory.

The current view of the universe is that it is continuing to expand at an ever increasing rate, pulled apart by dark energy. This view resulted in the Nobel Prize for Physics for Brian Schmidt, Saul Perlmutter and Adam Riess in 2011. The three researchers independently arrived at the conclusion that many supernovae appeared to be fainter than predicted because they had moved farther away than they should have given the accepted rate of universal expansion. “The idea behind this reasoning. is that type Ia supernovae happen to be the same brightness – they all end up pretty similar when they explode. Once people knew why, they started using them as mileposts for the far side of the universe. The faraway supernovae should be like the ones nearby because they look like them, but because they’re fainter than expected, it led people to conclude they’re farther away than expected, and this in turn has led to the conclusion that the universe is expanding faster than it did in the past,” explained Milne.

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