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“A large part of the European banking sector would be on the brink of collapse and no stress test could anticipate the magnitude of that kind of credit risk..”

• The ECB Is Creating A World Of Zombie Banks And Zombie Companies (HandBl.)

Next year could turn out to be a make-or-break year for Europe. But unlike in 2008, neither the governments nor the central banks have sufficient means to deal with another crisis. And it’s not entirely clear whether their intervention last time actually made things better or worse. Take Mr. Draghi, for instance. By lowering interest rates in the euro zone and buying up debt en masse, he has been trying to give the European economy a much needed shot in the arm. Yet despite all of his efforts, the specter of deflation still looms over the bloc, the future of the common currency is uncertain and lenders in southern Europe are still fighting for their existence. At the same time, the negative effects of Mr. Draghi’s policies are becoming more apparent. The STOXX Europe 600 index may have closed at its highest level in more than two months earlier this week, but it’s still 65% lower than where it was before the financial crisis.

The IMF has even said it feared a third of European banks wouldn’t be able to become profitable again even if the economy were to recover. The weird thing about the way the European economy has fared after the financial crisis is that even though businesses have been struggling, not a lot of them are going under. Insolvencies have been below the historical average. In Germany, for instance, the%age of companies declaring bankruptcy was the same right before the Lehman Brothers crash as it was in the 1990s – between 1.5 and 2%. Since the crisis began, that metric has fallen steadily. In 2015, the last full year for which data is available, it stood at 0.6%. Insolvency rates have even dropped in the euro zone’s weakest members along its southern periphery. Common sense would have one believe that the number of bankruptcies increases in times of crisis – especially during crises as protracted as financial ones.

“With its zero interest rate policy and the massive purchasing of bonds, the ECB is undermining the process of creative destruction, which is so important to a market economy,” said Markus Krall at Goetz Partners in Frankfurt. The ECB, for its part, was willing to do anything to prevent the economy from tanking. The central bank flooded the banks with money, and that deluge reduced companies’ capital costs to practically nothing. Even the most inefficient businesses can survive in that environment. Mr. Krall did the math on what it would mean for the balance sheets of European banks if insolvency rates had been at the historical average all along. He discovered that the €1 trillion in bad loans the ECB identified in its latest report would be closer to the tune of €2.5 trillion in that hypothetical scenario. “A large part of the European banking sector would be on the brink of collapse and no stress test could anticipate the magnitude of that kind of credit risk,” Mr. Krall said. “The ECB is creating a world of zombie banks and zombie companies,” he added.

1929, 1999, 2007.

• Stocks Have Only Been This Expensive During Times Of Crisis (BI)

Stocks are getting a bit pricey. All three major indexes break though their all-time highs on a seemingly daily basis, and this has pushed earnings multiples higher and higher. The current 12-month trailing price-to-earnings ratio of the S&P 500 sits at 25.95x, while the forward 12-month price-to-earnings is roughly 17.1x, according to FactSet data. Each of these is higher than its long-term average. In fact, based on one measure of valuation, the market hasn’t been this expensive anytime other than before a massive crash. The cyclical adjusted price-to-earnings ratio, better known as Shiller P/E, which adjusts the price-to-earnings ratio for cyclical factors such as inflation, stands at 27.86 as of Friday.

There have only been a few instances in history when stocks have been this expensive: just before the crash of 1929, the years leading up to the tech bubble and its bursting, and around the financial crisis of 2007-09. This does not necessarily mean that a crash is imminent — during the tech bubble, the Shiller P/E made it well into the 30s before coming back down. Additionally, there are some criticisms that Shiller P/E is generally more backward-looking since it adjusts for the cycle, so it may not be as accurate. Another caveat is that, during the three previous instances, investors have been incredibly bullish on stocks (there’s a reason Robert Shiller’s book is titled “Irrational Exuberance”) and most indicators of sentiment — from the American Association of Individual Investors to Bank of America Merrill Lynch’s sell-side sentiment indicator — are still depressed. Still, an elevated level for the Shiller P/E certainly isn’t going to make it any easier to sleep at night.

As the EU descends into chaos, some of these people are going to remember something about a gift horse’s mouth.

• UK Government Faces New Brexit Court Case (R.)

Opponents to Britain leaving the EU will launch a fresh legal action this week, which could further hamper Prime Minister Theresa May’s Brexit plans, The Sunday Times reported. The newspaper said campaigners will write to the UK government on Monday saying they are taking it to the High Court in an effort to keep Britain in the single market. It said the claimants will seek a judicial review in an attempt to give lawmakers a new power of veto over the terms on which Britain leaves the EU. They argue the government “has no mandate” to withdraw from the single market because it was not on the referendum ballot paper on June 23 and was not part of the ruling Conservative Party’s manifesto for the 2015 general election.

May has said she wants to invoke Article 50 of the EU’s Lisbon Treaty by the end of March, kicking off up to two years of exit negotiations. However the High Court ruled last month that Article 50 cannot be triggered without parliament’s assent. That ruling is being challenged by the government in Britain’s Supreme Court. The Sunday Times said the new court case hinges on whether the government would also have to trigger another legal measure — Article 127 of the European Economic Area agreement — in order to quit the single market. It said ministers argue Britain automatically exits the single market when it quits the EU. But, it said if the claimants win the new case, the government would have to gain the approval of lawmakers.

Sanity evaporates in the US. And it’s not Trump.

• Senate Quietly Passes “Countering Disinformation And Propaganda Act” (ZH)

While we wait to see if and when the Senate will pass (and president will sign) Bill “H.R. 6393, Intelligence Authorization Act for Fiscal Year 2017”, which was passed by the House at the end of November with an overwhelming majority and which seeks to crack down on websites suspected of conducting Russian propaganda and calling for the US government to “counter active measures by Russia to exert covert influence … carried out in coordination with, or at the behest of, political leaders or the security services of the Russian Federation and the role of the Russian Federation has been hidden or not acknowledged publicly,” another, perhaps even more dangerous and limiting to civil rights and freedom of speech bill passed on December 8.

Recall that as we reported in early June, “a bill to implement the U.S.’ very own de facto Ministry of Truth has been quietly introduced in Congress. As with any legislation attempting to dodge the public spotlight the Countering Foreign Propaganda and Disinformation Act of 2016 marks a further curtailment of press freedom and another avenue to stultify avenues of accurate information. Introduced by Congressmen Adam Kinzinger and Ted Lieu, H.R. 5181 seeks a “whole-government approach without the bureaucratic restrictions” to counter “foreign disinformation and manipulation,” which they believe threaten the world’s “security and stability.” Also called the Countering Information Warfare Act of 2016 (S. 2692), when introduced in March by Sen. Rob Portman, the legislation represents a dramatic return to Cold War-era government propaganda battles.

“These countries spend vast sums of money on advanced broadcast and digital media capabilities, targeted campaigns, funding of foreign political movements, and other efforts to influence key audiences and populations,” Portman explained, adding that while the U.S. spends a relatively small amount on its Voice of America, the Kremlin provides enormous funding for its news organization, RT.“Surprisingly,” Portman continued, “there is currently no single U.S. governmental agency or department charged with the national level development, integration and synchronization of whole-of-government strategies to counter foreign propaganda and disinformation.”

Long before the “fake news” meme became a daily topic of extensive conversation on wuch mainstream fake news portals as CNN and WaPo, H.R. 5181 would rask the Secretary of State with coordinating the Secretary of Defense, the Director of National Intelligence, and the Broadcasting Board of Governors to “establish a Center for Information Analysis and Response,” which will pinpoint sources of disinformation, analyze data, and — in true dystopic manner — ‘develop and disseminate’ “fact-based narratives” to counter effrontery propaganda.

I don’t really want to mention Krugman ever again, but maybe just this once…

• Does Krugman Really Support The Working Class? (Dean Baker)

Paul Krugman told readers that intellectual types like him tend to vote for progressive taxes and other measures that benefit white working class people. This is only partly true. People with college and advanced degrees tend to be strong supporters of recent trade deals [I’m including China’s entry to the WTO] that have been a major factor in the loss of manufacturing jobs in the last quarter century, putting downward pressure on the pay of workers without college degrees. They also tend to support stronger and longer patent and copyright protections (partly in trade deals), which also redistribute income upward. (We will pay $430 billion for prescription drugs this year, which would cost 10-20% of this amount in a free market. The difference is equal to roughly five times annual spending on food stamps.)

Educated people also tended to support the deregulation of the financial sector, which has led to some of the largest fortunes in the country. They also overwhelmingly supported the 2008 bailout which threw a lifeline to the Wall Street banks at a time when the market was going to condemn them to the dustbin of history. (Sorry, the second Great Depression story as the alternative is nonsense — that would have required a decade of stupid policy, nothing about the financial collapse itself would have entailed a second Great Depression.)

His crew has also been at best lukewarm on defending unions. However they don’t seem to like free trade in professional services that would, for example, allow more foreign doctors to practice in the United States, bringing their pay in line with doctors in Europe and Canada. The lower pay for doctors alone could save us close to $100 billion a year in health care expenses.

OPEC members cheat. What do you think non-members will do? Still, prices can remain ‘high-ish’ until we find out.

• Non-OPEC Oil States Agree To Cuts In ‘Historic’ Deal (AFP)

11 countries agreed on Saturday to cut their oil output, teaming up with the OPEC cartel in an exceptional bid to end the world’s glut of crude and reverse a dramatic fall in income. Russia and 10 other non-OPEC states will reduce their production by more than half a million barrels per day (bpd), OPEC announced. The deal will take effect from the start of 2017 and last for six months, though it may be extended depending on market conditions. “I am happy to announce that a historic agreement has been reached,” said Qatar’s Energy Minister Mohammed Bin Saleh Al-Sada, whose country holds the rotating presidency of the OPEC. The cut will contribute to OPEC’s own initiative to ease a saturated market and end a price slump that has brutally affected the economies of many oil producers.

On November 30 its members announced a slash in output by 1.2 million barrels per day (bpd) beginning in January, to 32.5 million bpd. Under that deal, OPEC called on non-member producer states to lower their output by 600,000 bpd. Saturday’s deal approves cuts totalling 558,000 bpd. Russia had already signalled it would provide half of that production cut in the first half of 2017. Among the other countries that will contribute cuts Kazakhstan agreed to reduce production by 20,000 bpd, Mexico 100,000 bpd, Oman 40,000 bpd and Azerbaijan 35,000 bpd, according to Bloomberg. The deal also includes Malaysia, Bahrain, Equatorial Guinea, Sudan, South Sudan and Brunei.

Québec is powered by hydro. All this is just for export to the US. Turn ‘La Belle Province’ into a moonscape. It’s up to the First Nations again to stop the mess. You still like Justin?

• Quebec Paves Way For More Oil And Gas Exploration (BBG)

Quebec’s legislature passed a bill that will pave the way for more oil and gas exploration, providing a boost to drillers such as Junex Inc. while drawing criticism from environmental, aboriginal and citizen groups. Bill 106 passed Quebec’s National Assembly in a 62-38 vote early Saturday after an overnight debate ahead of the holiday break. The legislation is meant to implement Quebec’s clean energy plan but also contains provisions allowing for energy exploration, potentially including fracking. “Quebec’s government just voted down an amendment to ban fracking in a triumph of science over ‘leave it in the ground’ lunacy,” Calgary-based Questerre Energy tweeted early Saturday morning. Shares of companies that hold exploration rights, including Questerre and Junex, based in Quebec City, surged last week as passage of the legislation looked likely.

Questerre holds about 1 million acres and has drilled test wells in the Utica shale formation along the St. Lawrence River, according to its website. Questerre’s shares rose the most in more than eight years on Thursday and inched up again on Friday. Junex’s stock increased 30%, the most in almost two years. Bill 106 creates a new agency to promote Quebec’s transition to cleaner energy yet also lays out a framework for oil and gas development in the Canadian province. Environmental, aboriginal and citizen groups argued that the bill’s mandate is contradictory, that debate was rushed and that it should have included a moratorium on fracking as well as greater protection for landowners. [..] Bill 106 strips power from landowners who will be powerless to stop exploration by companies with drilling claims, Carole Dupuis at Regroupement vigilance hydrocarbures Quebec, said by phone.

That, in turn, will hurt property values, especially if exploration leads to fracking. “If there was not the fracking issue, the landowner issue would not be a problem. It’s an access issue,” she said. “What’s the value of your land if someone has been drilling one kilometer from you and you don’t know if your drinking water is safe?” [..] Bill 106 goes against aboriginal rights to self-determination and to establish the best use of their lands, Mi’gmaq Chief Darcy Gray said in an e-mail Saturday. “The bill also opens up our lands to exploration that we feel could have long-lasting, detrimental and irreparable damage,” he wrote “especially with regards to hydraulic fracturing and or other types of well stimulation.” “Why this would even be considered, or how it could be construed as a favorable initiative, is beyond me,” he said.

When will Modi’s support crash?

• Goa Goes Cashless: ‘Who Buys Fish With A Credit Card?’ (G.)

It’s 11 o’clock, and Laxman Chauhan still hasn’t sold any fish. His stall in the central market in the west Indian city of Panjim has been open for three hours, but none of his usual clients have come today. He checks his watch, and then takes a walk to see if other vendors have had any customers. “Sold anything yet?” he asks Ramila Pujjar, who has set her stall up with a glistening display of the morning’s catch. She hasn’t either. “I’m losing 2,000-3,000 rupees (£23-£35) a day,” says Chauhan. “I’m throwing fish away every day.” The low footfall at Panjim’s fish market is unusual; fish is a staple in Goan cuisine but, for the past month, since the prime minister, Narendra Modi, abolished the 500 and 1,000 rupee notes, business has suffered. “I’m losing money because of the government,” says Pujjar.

“The government only takes care of the rich, the poor will always be poor.” Modi’s surprise announcement wiped out 86% of the nation’s currency overnight, leaving the vendors at Panjim’s fish market to suffer heavy losses. “Nobody has cash, so they’re not buying fish.” Panjim is no different to the rest of India. Long queues wind around banks and ATMs in every city as people scramble to exchange their high-value banknotes. The cash crisis has hit millions of traders, as people tighten purse strings and save up precious banknotes. But now, this sleepy tourist town is going to become the laboratory for a radical new experiment. From January, Goa’s government has announced that the city will go “cashless”, meaning every street vendor, rickshaw driver and shopkeeper must offer their customers the option to pay using a debit card or mobile phone. The cash-free drive will attempt to close down India’s thriving parallel economy of untaxed cash transactions.

A government circular at the beginning of the month instructed traders: “Goa is likely to become the state in India to go for cashless transactions from 31 December. Even though cash transactions are not being banned, it is in the interest of the government to encourage cashless transactions.” The policy, announced by India’s defence minister, Manohar Parrikar, is in line with Modi’s vision for a cash-free India. Last week, the finance minister, Arun Jaitley, announced a series of discounts on digital transactions for petrol, railway tickets and insurance policies. Modi has urged young people to support his “less cash” economy in a radio broadcast: “I need the help of young people in India … There are many people in your families or neighbourhoods who may not know how to use technologies such as e-wallets and payments through mobiles. I urge you to spend some time … to teach this technology to at least 10 families who may not know it,” he said.

Sure. Just get your most creative accountants out. A “landmark year”?

• Greece Passes Austerity 2017 Budget, Eyes 2.7% Growth (AP)

Greece’s Parliament has passed a budget of continued austerity as mandated by the country’s creditors, but which forecasts robust growth for 2017. Prime Minister Alexis Tsipras says it will mark Greece’s “final exit” from its nearly decade-long financial crisis. The budget adds more than €1 billion in new taxes, mostly indirect taxes on items from phone calls to alcohol. It also cuts spending by over €1 billion. The budget was backed by the left-dominated ruling coalition and opposed by all other parties. It passed by a vote of 152-146 on Saturday. Despite the continued austerity, Tsipras predicted that 2017 will be a “landmark year” with 2.7% economic growth. He said his government has achieved a higher-than-forecast 2016 primary surplus.

Interesting long interview.

• The Icelandic Minister Who Refused To Help The FBI Frame Assange (Katoikos)

You are “the minister” who refused to cooperate with the FBI because you suspected their agents on mission in Iceland were of trying to frame Julian Assange. Do you confirm this? Yes. What happened was that in June 2011, US authorities made some approaches to us indicating they had knowledge of hackers wanting to destroy software systems in Iceland. I was a minister at the time. They offered help. I was suspicious, well aware that a helping hand might easily become a manipulating hand! Later in the summer, in August, they sent a planeload of FBI agents to Iceland seeking our cooperation in what I understood as an operation set up to frame Julian Assange and WikiLeaks.

Since they had not been authorised by the Icelandic authorities to carry out police work in Iceland and since a crack-down on WikiLeaks was not on my agenda, to say the least, I ordered that all cooperation with them be promptly terminated and I also made it clear that they should cease all activities in Iceland immediately. It was also made clear to them that they were to leave the country. They were unable to get permission to operate in Iceland as police agents, but I believe they went to other countries, at least to Denmark. I also made it clear at the time that if I had to take sides with either WikiLeaks or the FBI or CIA, I would have no difficulty in choosing: I would be on the side of WikiLeaks.

Erdogan’s son-in-law, “groomed to be Mr Erdogan’s successor”. Parliament certain to vote to hand Erdogan much increased powers. Seen any false flags lately?

• WikiLeaks Emails ‘Link Turkey Oil Minister To Isis Oil Trade’ (Ind.)

WikiLeaks has released a cache of thousands of personal emails allegedly from the account of senior Turkish government minister Berat Albayrak, son-in-law of the country’s president, Recep Tayyip Erdogan, which it says shows the extent of links between Mr Albayrak and a company implicated in deals with Isis-controlled oil fields. The 60,000 strong searchable cache, released on Monday, spans the time period between April 2000 – September 23 2016, and shows Mr Albayrak had intimate knowledge of staffing and salary issues at Powertrans, a company which was controversially given a monopoly on the road and rail transportation of oil into the country from Iraqi Kurdistan.

Turkish media reported in 2014 and 2015 that Powertrans has been accused of mixing in oil produced by Isis in neighbouring Syria and adding it to local shipments which eventually reached Turkey, although the charges have not been substantiated by any solid evidence. The emails were apparently obtained by Redhack, a Turkish hactivist collective. WikiLeaks founder Julian Assange said that they were published in response to the Turkish government’s widening crackdown on dissent. Mr Albayrak, one of the most powerful individuals in Turkey, is widely seen as being groomed to be Mr Erdogan’s successor. The hardline president has been consolidating his grip on power by implementing emergency powers and arresting thousands of journalists, activists and academics in the wake of a failed military coup in July.

Reported without any added anti-Putin innuendo?!

• Russian Bombardment Forces ISIS Out Of Palmyra Hours After Re-Entry (AFP)

A Russian aerial onslaught forced Islamic State fighters to withdraw from Palmyra at dawn on Sunday, only hours after the jihadis had re-entered the ancient Syrian city, a monitor said.“Intense Russian raids since last night forced IS out of Palmyra, hours after the jihadists retook control of the city,” said Rami Abdel Rahman of the Syrian Observatory for Human Rights.The raids killed a large number of militants in the desert city in central Syria, Abdel Rahman told AFP. “The army brought reinforcements into Palmyra last night, and the raids are continuing on jihadist positions around the city.”Isis began an offensive last week near Palmyra, which is on Unesco’s world heritage list. In May last year, the Sunni Muslim extremist group seized several towns in Homs province including Palmyra, where they caused extensive damage to many of its ancient sites. They were ousted from Palmyra in March by Syrian regime forces backed by Russia.

Debt Rattle December 9 2016

Dec 092016

December 9, 2016 Posted by Raúl Ilargi Meijer at 9:42 am Finance Tagged with: Draghi, euro, M5S, OPEC, refugees, Shiller, Trump, Trumponomics, Tulip Bubble 4 Responses »

Arthur Rothstein Migratory fruit pickers’ camp in Yakima, Washington Jul 1936

• Trumponomics Will Collapse Under a Mountain of Debt (Stockman)

• Shiller CAPE Ratio Signals ‘Overvaluation On A Very Grand Scale’ (CNBC)

• The American Dream Is Fading And May Be Very Hard To Revive (WSJ)

• Europe’s Comfort Blanket Is Being Pulled Away (AEP)

• Albert Edwards’ ‘Most Frightening Chart’ (MW)

• Australia Property Market Mirrors Tulip Bubble, Says Former Bank CEO (ND)

• Top Official In Italy’s M5S Increases Call For Referendum On Euro (G.)

• It Is Almost Certain There Will Be Another Euro Crisis In 2017 (McWilliams)

• OPEC Deal Won’t Be Enough to Drain Oil Stockpiles (BBG)

• UK Sells Majority Stock In Gas Infrastructure To China, Qatar (Ind.)

• UK Village Unleashes Anger With Syrian Refugees: £600 Worth Of Jumpers (Ind.)

• Relations With Ankara Sour As Turkey Disputes Greek Sovereignty (Kath.)

• Electric Cars Are Only As Clean As Their Power Supply (G.)

Right back to the poisoned chalice I wrote about on the morning of election day.

• Trumponomics Will Collapse Under a Mountain of Debt (Stockman)

Financial markets are heading straight into a perfect storm of central bank failure, bond market carnage, a worldwide recession and a spectacular fiscal bloodbath in Washington. Investors should be heading for the hills with all deliberate speed. What is going to stop Trumponomics cold is debt — roughly $64 trillion of it. That’s what is crushing the American economy, and until the mechanics of its relentless growth are stopped and reversed, the odds of achieving and sustaining the 3–4% real economic growth that Trump’s economics team is yapping about is somewhere between slim and none. Here’s the newsflash. The nation’s monumental debt problem wasn’t newly created by the Obama Administration or the fact that Nancy Pelosi never met a spending program she couldn’t embrace.

The last eight years have surely made the problem far worse and the Democrats are culpable without question. But quite frankly the debt problem is a thoroughly bipartisan creation that is completely immune to the fact that the White House and both sides of Capitol Hill are now under GOP control. In fact, the nation’s debt affliction actually goes back to August 1971 when Nixon closed the gold window and launched the world on the current destructive experiment with massive central bank driven credit expansion. However, it was after 1980 that the wraps really started coming off the debt monster that was spawned by the world’s unshackled central banks. In that context, Paul Volcker was the last honest central banker, and with Ronald Reagan’s acquiescence he did break the back of the virulent commodity and consumer goods inflation that had been unleashed by his immediate predecessors during the 1970s.

Yet Volcker’s great handiwork was for naught because of two other developments – the breakdown of fiscal rectitude and the final destruction of sound money by Alan Greenspan – that also occurred on the Gipper’s watch. In fact, the gigantic Reagan deficits — which nearly tripled the national debt from $930 billion to $2.7 trillion during his eight years in office — is exactly what led Greenspan to crank up the printing press at the Fed after the stock market crash in October 1987.

What Stockman said, but now in a graph.

• Shiller CAPE Ratio Signals ‘Overvaluation On A Very Grand Scale’ (CNBC)

While the S&P 500 is reaching all-time highs on optimism over Donald Trump’s economic agenda, some Wall Street strategists are increasingly worried about a widely followed valuation measure that’s reached levels that preceded most of the major market crashes of the last 100 years. “The cyclically adjusted P/E (CAPE), a valuation measure created by economist Robert Shiller now stands over 27 and has been exceeded only in the 1929 mania, the 2000 tech mania and the 2007 housing and stock bubble,” Alan Newman wrote in his Stock Market Crosscurrents letter at the end of November. Newman said even if the market’s earnings increase by 10% under Trump’s policies “we’re still dealing with the same picture,.”

The Shiller “cyclically adjusted price-to-earnings ratio” (CAPE) is calculated using price divided by the index’s average historical 10-year earnings, adjusted for inflation. Yale economics professor Robert Shiller’s research found future 10-year stock market returns were negatively correlated to high CAPE ratio readings on a relative basis. He won the Nobel Prize in economics in 2013 for his work on stock market inefficiency and valuations.

Barely half of US 30-year-olds earn more than their parents did at that age..

• The American Dream Is Fading And May Be Very Hard To Revive (WSJ)

Barely half of 30-year-olds earn more than their parents did at a similar age, a research team found, an enormous decline from the early 1970s when the incomes of nearly all offspring outpaced their parents. Even rapid economic growth won’t do much to reverse the trend. Economists and sociologists from Stanford, Harvard and the University of California set out to measure the strength of what they define as the American Dream, and found the dream was fading. They identified the income of 30-year-olds starting in 1970, using tax and census data, and compared it with the earnings of their parents when they were about the same age. In 1970, 92% of American 30-year-olds earned more than their parents did at a similar age, they found. In 2014, that number fell to 51%.

“My parents thought that one thing about America is that their kids could do better than they were able to do,” said Raj Chetty, a prominent Stanford University economist who emigrated from India at age 9 and is part of the research team. “That was important in my parents’ decision to come here.” Although there are many definitions of the American Dream—the freedom to speak your mind, for instance, or the ability to rise from poverty to wealth—the economists chose a measure that they said was possible to define precisely. The percentage of young adults earning more than their parents dropped precipitously from 1970 to about 1992, to 58%, found Mr. Chetty et al.

Draghi says two or more completely contradictory things all in one breath. It’s what they pay him the big bucks for.

• Europe’s Comfort Blanket Is Being Pulled Away (AEP)

The long-feared moment of bond tapering in the eurozone has arrived. The comfort blanket is being pulled away – gently – for the first time since the region first crashed into a debt crisis. The ECB has tried to cushion the blow with dovish rhetoric and a glacially slow exit but there is no denying that monetary policy has reached a critical turning point. “The ECB has delivered an unwelcome surprise,” said Luigi Speranza from BNP Paribas. Europe’s incipient tightening has begun just as the US Federal Reserve prepares to raise interest rate next week, probably the first of several rises over the next twelve months as the incoming Trump administration launches a fiscal boom. It comes as China takes action to choke off a property bubble and rein in shadow banking. The world’s three big monetary blocs will all be draining liquidity at the same time.

The ECB will wind down quantitative easing from €80bn to €60bn a month when the current programme expires in March. Societe Generale says that this is just the start, predicting more tapering of €10bn in June, and then further cuts of €10bn at each meeting – a truly drastic outlook. Doves at the ECB warned that it would be dangerous to start any tapering at this delicate juncture, given that there has been no flicker of life in core inflation – still stuck at 0.8pc – and given that imported monetary tightening from the US has already led to a doubling of Italian 10-year yields over the last three months. The doves were over-ruled. It is clear that a German-led bloc on the ECB’s governing council blocked efforts to roll over the existing QE structure for another six months.

Bond purchases will carry on for longer instead. The new €60bn regime will run for nine months until the end of 2017. The ultimate stock of ECB bonds will be higher. You could call it a compromise. But despite appearances – and logical inference – these are not an equivalent forms of stimulus. The stormy saga of bond tapering by the Fed shows that investors react more to the monthly “flow” of QE than they do to the “stock” of bonds held – the balance sheet syndrome that looms large in the theoretical models of central banks. [..] Mario Draghi, the ECB’s president, was at pains to insist that there is no tightening whatsoever coming next year. “The presence of the ECB on the markets will be there for a long time. The key message is that there is no tapering in sight,” he said. Nothing is on auto-pilot and the volume of QE could rise again if need be. “It can go back to €80bn,” he said.

“..a ghoulish quest to harvest bad news with a forceful sweep of my scythe..”

• Albert Edwards’ ‘Most Frightening Chart’ (MW)

Albert Edwards, a global strategist at Société Générale, has been steadily beating the doomsday drum for decades. But despite the perma-bear’s repeated warnings about an impending economic disaster, investors are still likely to take notice when he gleefully shares the “most frightening chart” he’s seen in a while — especially when the stupendous postelection rally in U.S. stocks has stoked fears that a correction might be just around the corner. “I sometimes feel like ‘The Grim Reaper,’ scouring the research savannah in a ghoulish quest to harvest bad news with a forceful sweep of my scythe. Imagine then my perverse delight when our credit team produced what is one of the scariest charts I have seen for a very long time,” writes Edwards in his report. The chart by Guy Stear, head of emerging markets and credit research at Société Générale, shows credit spreads holding steady even as political uncertainty spikes to an unprecedented level.

According to Edwards, that cognitive dissonance is all wrong. “Markets shrugged off the Brexit vote in a couple of days. They shrugged off Donald Trump’s election in a single day. They shrugged off the Italian referendum result in a couple of hours. Heck, in this mood they would shrug off an alien invasion of planet Earth,” he said. “But global political risk is now at such elevated levels that investors must surely be on another planet.” The graph is based on the economic policy uncertainty index developed by three U.S. professors — Scott Baker, Nick Bloom and Steven Davis. This is the original chart that shows the EPU index at 282, significantly above 201 in 2008 and 218 in 2011, two previous periods of panic:

Really?: “If the economy tracks along okay, it might turn out that this thing sorts itself out.”

• Australia Property Market Mirrors Tulip Bubble, Says Former Bank CEO (ND)

Australia’s property market now mirrors one of the worst speculative manias in human history, according to a former Commonwealth Bank CEO. In a televised interview that drew little media attention, David Murray warned that the entire economy is “vulnerable” because of overvalued house prices in Sydney and Melbourne. “All the signs of a bubble are there. Many of the signs are the same as the Dutch tulips,” Mr Murray told Sky News on December 1. Starting in 1634, the Dutch bid up the price of tulip bulbs to extraordinarily high levels. Then, in 1637, the price collapsed, turning the craze into a byword for speculative insanity. Since 2009, Sydney dwelling prices have risen by 95% and Melbourne by 85%, according to CoreLogic, a prominent property analysis firm.

Mr Murray, who chaired a recent inquiry into the health of Australia’s financial sector, said we may yet avoid a Dutch-style price plunge. It is a risk, not a certainty. “If the economy tracks along okay, it might turn out that this thing sorts itself out. But when those risks are there, something needs to be done about it in a regulatory sense, and the Reserve Bank and APRA need to stay on it.” In recent years, APRA has imposed tougher lending policies on the big banks, including forcing them to hold more capital as a buffer against mortgage defaults. This was a recommendation made by Mr Murray during his financial sector review. The former bank boss has been warning of a property bubble since at least last year.

The fact that prices in Melbourne and Sydney have not corrected already is a further cause for concern, he said in his latest interview. “When we get a momentum in a market like this, when you get these self-amplifying price spirals, the fact they keep going on and on longer than expected is another sign that it’s not very healthy.” The crash, if it eventuates, would be triggered by a large number of landlords being forced to sell their investment properties all at once, thereby driving down prices, Mr Murray said. “We have more investors in the market than we’ve had historically and those investors typically, even people on lower incomes, own multiple properties and those properties are often collateralised in the system. So they’re the people who become forced sellers, and that’s the risk to the system.”

Now President Mattarella is rumored to have asked Renzi to form a new government?!

• Top Official In Italy’s M5S Increases Call For Referendum On Euro (G.)

A top official in the Italian anti-establishment Five Star Movement (M5S) is ratcheting up his party’s call for a referendum on the euro, signalling that Italy’s possible exit from the single currency could become a central issue in the next election. Alessandro Di Battista, 38, who is a prime contender to represent M5S in the next poll, said in an interview with German newspaper Die Welt that he did not support an exit from the EU but did support a referendum on the euro. “The euro and Europe are not the same thing. We only want for Italians to decide on the currency,” he said. Asked whether the party had considered the repercussions of leaving the euro, which most economists believe would carry big risks for Italy and the global markets, Di Battista said he “understood well the consequences of the introduction of the euro”.

The single currency, he said, had shrunk Italians’ buying power and earnings and caused higher unemployment and “social deprivation”. “If Europe does not want to implode you must accept that you can not go on like this,” he said. M5S’s opposition to the euro is not new, but the remarks are important in the wake of the departure of the centre-left prime minister Matteo Renzi, who submitted his resignation to Sergio Mattarella, the Italian president, on Wednesday evening. Mattarella is meeting the leaders of all the major political parties over the next few days in the hope they can agree on an interim prime minister. Renzi resigned after he was trounced in a referendum on Sunday, with nearly 60% of Italians opposing constitutional reforms he backed. Even if the parties agree on the next prime minister an early election is expected to be called in 2017.

[..] The chances of M5S winning the next election are fairly strong, according to most analysts. But its ability to hold a referendum would depend on whether the party could win strong majorities in both chambers of parliament. That rests on the fate of a controversial electoral law that is under legal review and will dictate how parliamentary seats will be allocated in the next election. Italy’s constitutional court is due to rule on the electoral law on 24 January. Even if M5S wins the next election, Italy’s exit from the euro would be complicated. Italy’s constitution sets a high threshold for the country to abandon an international treaty via a popular vote. M5S would have to pass an amendment before calling a referendum, which would then require winning two-thirds majorities in both chambers of parliament. Even if a referendum passed, the issue could come up for review by the constitutional court.

Oh, no, not almost.

• It Is Almost Certain There Will Be Another Euro Crisis In 2017 (McWilliams)

It is almost certain that there will be another euro crisis in 2017. The last time we had a euro crisis, the focus of attention was Greece; today the vortex is Italy. Italy is not Greece. Italy is the third-largest economy in the Eurozone. Italy is the second-largest manufacturing nation in the EU after Germany. Italy is the largest debtor in Europe. The third-largest Italian bank is irredeemably bankrupt. Italy has no government and the people who are likely to win the next election want to take Italy out of the euro and replace the euro with their own currency, the lira. These are the facts. Our Finance Minister has said there is no problem in the Eurozone. I really don’t know what planet he is living on. Unfortunately for the EU, if Greece was a tricky issue to deal with, Italy is — in economic terms — a massive Greece.

Unlike Greece when it was going bust, Italy can’t be patronised, isolated and vilified by the likes of Slovakia, Finland and – shamefully – our own Government. Italy is a country of close to 60 million people and unlike the British, who were always semi-detached Europeans, the Italians are founding members of the EU and original signatories of the Treaty of Rome, which is 60 years old in March. By March, it is likely that Marine Le Pen will be the frontrunner in the French presidential election. Could she win? Of course she could. And if she wins, the euro is toast. There is already a massive capital flight from Italy. This flight of money will extend to France in the months ahead. The euro is the problem and if the EU wants to save itself, it may have to abandon the euro.

Quite what that looks like is anyone’s guess, but here are the political facts: the two main Italian opposition parties, the people who won on Sunday, want Italy to hold a referendum on leaving the euro. Furthermore, Le Pen has explicitly stated that the day she wins, if she does, she will pull France out of the euro and reinstate the French franc. Le Pen currently has 40pc of the electorate. All she needs is the same type of momentum that propelled Brexit, Donald Trump, and the vote in Italy, where the government lost — not by a few%, but by a whopping 60pc to 40pc.

Not even close.

• OPEC Deal Won’t Be Enough to Drain Oil Stockpiles (BBG)

OPEC is likely to bring the oil market into balance by the middle of next year, but its production cut looks set to fall short of its stated goal of draining the stockpiles that are depressing prices. The oil market will rebalance “toward the middle of next year,” according to Nigeria’s Minister of State for Petroleum Emmanuel Kachikwu, bringing an end to more than three years when supply exceeded demand. However, Bloomberg News calculations based on OPEC data show that across the whole of 2017 there will be little overall reduction in record oil inventories – even if the group convinces non-members to join supply curbs at a meeting on Saturday. “Even with 100% compliance from both OPEC and non-OPEC producers global stocks are unlikely to fall in the first half of 2017,” said Tamas Varga at PVM Oil Associates in London. “That should keep oil prices in check.”

Crude prices could rise to $60 to $70 a barrel if the OPEC succeeds in bring inventories back to a normal level, Venezuelan Oil Minister Eulogio del Pino said last week, echoing a widely held view within the group, from Saudi Arabia to Iran. The portents for achieving this are mixed. OPEC’s track record shows the group only delivers 80% of promised cuts. While Russia has pledged to come to the party and lower output by 300,000 barrels a day in the first half of 2017, other non-OPEC producers, such as Mexico, Azerbaijan and Colombia, are likely to dress up involuntary production declines, already factored in by traders, as cuts. That scenario would leave largely unchanged the 300 million-barrel global stockpile surplus Del Pino and his colleagues are targeting.

OPEC has said its agreement will accelerate the decline of global stockpiles and an optimistic Bloomberg scenario shows the call on the group’s supply exceeding its output by 1.2 million barrels a day in third quarter. That depends on full compliance by OPEC members and for Russia to make good on its pledge, even as other non-OPEC producers make little contribution. The analysis of the market re-balancing by Bloomberg News is based on OPEC’s own estimates and projections of crude supply and demand adjusted for potential scenarios of cooperation from Russia and other non-OPEC countries. Other consultancies and agencies have different views. The International Energy Agency expects the re-balancing will happen early next year, while consultants at Rystad Energy expect a 1.26 million barrels-a-day deficit in the first quarter of next year if Russia is the only non-OPEC country to join the effort.

You should take your government to court for this, guys. Let them prove this is beneficial to the country.

• UK Sells Majority Stock In Gas Infrastructure To China, Qatar (Ind.)

National Grid has agreed to sell a majority stake in the UK’s gas pipe network to a team of investors, including the Chinese and Qatari states. The UK’s power network operator confirmed it is offloading the 61% shareholding to a consortium led by Australian investment bank Macquarie in a deal that values the unit at around £13.8bn. The division controls an important part of the country’s infrastructure, which delivers gas to 11 million homes through 82,000 miles of pipeline, and its sale will reignite concerns about the ownership of critical national assets by foreign investors. In August Theresa May said such deals would face tighter regulation as she gave the green light to the French and Chinese-funded Hinkley Point nuclear reactor.

National Grid said it would distribute a £150m voluntary payment to benefit British energy customers, while some £4bn of the proceeds will be returned to the company’s shareholders. It will keep 31% of the business but said it could potentially sell another 14% stake to the consortium under the terms of the deal. The sale, which is set to complete before the end of March next year, comes as part of a move to rebalance National Grid’s business towards higher growth areas and create extra value for shareholders. Dave Prentis, Unison union general secretary, said: “The experience of Thames Water customers when Macquarie was running the show should have been a red flag to ministers and regulators as how unsuitable this company is to be in charge of the UK’s gas supply. ”Macquarie has poor form already – in building up huge company debt, repatriating massive dividends to the southern hemisphere and charging customers more for a much poorer service.

Lovely. And funny.

• UK Village Unleashes Anger With Syrian Refugees: £600 Worth Of Jumpers (Ind.)

Last week I was in Torrington, North Devon, the village that’s been in the news because local people organised a massive collection of clothes and toys, for Syrian refugees placed in the area. Hundreds took part in the collection, and the local theatre was filled with provisions. It’s a story that would make any reasonable person look at those children’s faces and say, “What a bunch of do-gooding whining liberals, this is typical of the metropolitan elites in their cosy London boroughs such as North Devon.” North Devon obviously isn’t in Devon, because a law of modern life is that in the real neglected England that no one ever talks about, real proper people think all immigrants are thieving dogs, and they understand these matters because they’ve never seen a mango.

So it’s lucky the Daily Mail was able to report, “Fury as refugees are settled in Devon”, and another paper told us the refugees “faced anger” from the community. Because when the mayor, local theatre and hundreds of residents organised the collections, and arranged meetings to welcome the refugees, you could at first sight see this as motivated slightly by kindness. But these newspapers weren’t fooled, and understand it’s tradition in North Devon to express your anger by buying a room full of clothes and arranging them in a hall. Whatever you do when you’re in South Molton, don’t shout at a tractor driver to move out of your way, or they’ll lose their temper and collect six hundred pounds worth of jumpers and line them up in their kitchen, insisting you take the lot. Because a lifetime of working on the land makes them vicious.

Five national newspapers told the story of this rage against the refugees, all quoting one man who said: “We’re receiving 50 to 70 refugees, and 50 to 70 is a huge number in an area with restricted public transport.” There’s no doubt 50 to 70 would create a problem for local public transport, if all 50 to 70 of them were housed on one bus. The 7.15am from St Mary’s Church to Barnstaple would be a dreadful crush, so it’s no wonder this man was annoyed, and you can see why the newspapers regard him as the spokesman for the entire region, rather than the hundreds of people who provided all the clothes, who represent no one but themselves.

But it gets worse, because every newspaper covering the story told how refugee children “annoyed locals” by “relaxing playing basketball on a basketball court”. That’s just taking the piss, isn’t it? How dare children play sports in an area specially designated for that specific sport? They should reward our hospitality by playing sports in the wrong areas, such as basketball on a chess board, or skiing on a snooker table.

Here’s an issue the EU does need to speak up about. But doesn’t.

• Relations With Ankara Sour As Turkey Disputes Greek Sovereignty (Kath.)

Greek Foreign Minister Nikos Kotzias and his Turkish counterpart Mevlut Cavusoglu met Thursday on the sidelines of the annual OECD Summit in Hamburg amid escalating tensions brought on by the nationalistic rhetoric coming out of Ankara and Defense Minister Panos Kammenos’s reference to President Recep Tayyip Erdogan as a “ruthless dictator” who “at this moment is threatening our country.” “If they [Turkey] threaten our country, they will meet with our response and they will know that we shall not make concessions in the name of diplomacy on issues of national sovereignty,” Kammenos said in a radio interview Thursday, referring to recent remarks by Erdogan questioning the 1923 Treaty of Lausanne that set the borders between Greece and Turkey, as well as by other Turkish politicians who have disputed Greek sovereignty over a string of islets in the eastern Aegean.

The remarks by Kammenos, the leader of junior coalition partner Independent Greeks, followed strong statements by Turkey’s Deputy Parliament Speaker Tugrul Turkes, who described his country as the guarantor power of the whole of Cyprus, rather than just the breakaway state in the north, while a lawmaker of the opposition CHP, Tanju Ozcan, upped the ante even further, saying he would raise the Turkish flag on 18 Greek islands. “I will go to the islands and if need be I myself will raise the Turkish flag. Then I will fold the Greek one and send it to the Greek government with a courier,” he told the Turkish Parliament. The latest acrimonious rhetoric comes as tensions also simmer over the outcome of Turkey’s extradition request for eight officers who landed in Greece in July in the aftermath of a botched coup attempt in the neighboring country.

But ‘green’ sells, and delivers votes. Still: “Charging an electric car for 100 miles of travel could use about 30kwh – roughly the same amount of energy an average US home uses in three or four days.”

• Electric Cars Are Only As Clean As Their Power Supply (G.)

Electric cars have never been closer to the mainstream, the market pushed ahead by California subsidies for electric car buyers, and a wide array of new models from established car firms such as Toyota and Chevy. Tesla’s focus on luxury, high-performance vehicles has also broadened their appeal; electric cars are no longer purely an environmental statement, but a tech status symbol too. Yet the “zero emissions” claim grates on some experts, who have continued to argue over whether electric cars are really more environmentally friendly than gas guzzlers, once the manufacturing process for the vehicles and their batteries are taken into account.

Electric cars rely on regular charging from the local electricity network. The power plants providing that energy aren’t emission-free; even in California, 60% of electricity came from burning fossil fuels in 2015, while solar and wind together made up less than 14%. “I couldn’t bear to hear them say the words ‘zero emissions vehicle’ one more time,” says Joshua Graff Zivin, who advised one of California’s three main utilities, San Diego Gas & Electric, on electric cars. Graff Zivin is a professor of economics and public policy at the University of California, San Diego. [..] “All of the action is in the hourly,” says Graff Zivin. It’s not only the region that an electric vehicle plugs into that matters. The hour of the day is equally critical. “The cheapest power is not the greenest power.”

In California, the cheapest power is produced at night, mostly from natural gas, hydroelectric dams and nuclear. Night is when many people will charge their electric cars. However, the greenest power gets generated during the day, when solar power can feed the grid; solar doesn’t work in the dark, windmills stop spinning if there’s no wind and, in today’s grid, there is almost the capacity to store solar and wind-generated electricity to use later. Grid storage is slowly expanding, but most electricity has to be used as it is produced. Units of electricity also can’t be tagged according to where and how they were generated, so nobody can verify whether the electricity they use is from a sustainable source – unless they plug directly into their own solar panel or windmill.

[..] Graff Zivin, along with economics researchers Matthew Kotchen and Erin Mansur, waded into this contentious territory in a 2014 paper. Zivin concluded that a plug-in electric vehicle, such as the Nissan Leaf, always produces less carbon dioxide emissions than a hybrid electric- and gas-powered car – but only in selected regions that rely on less coal, like the western United States and Texas. Charging from the coal-dependent grid in the upper midwest of the US at night could generate more emissions than an average gasoline car. And, in some US regions, plugging in at different times of day could even double an electric car’s emissions impact. Charging an electric car for 100 miles of travel could use about 30kwh – roughly the same amount of energy an average US home uses in three or four days.

Debt Rattle December 4 2016

Dec 042016

December 4, 2016 Posted by Raúl Ilargi Meijer at 9:44 am Finance Tagged with: chaos, Goldman, Italy, OPEC, recount, recovery, Soros, Stein, Trump 4 Responses »

Wyland Stanley “J.A. Herzog Pontiac, 17th & Valencia Sts., San Francisco.” 1936

• Trump’s Unhappy Fate: A Financial Crisis Far Worse Than The Last (Rickards)

• Trump’s Appointments (Paul Craig Roberts)

• Petition To Reverse US Election Result Becomes Most Popular In History (Ind.)

• Jill Stein Supporters Drop Pennsylvania Recount Suit (WSJ)

• Jill Stein To Pursue Pennsylvania Recount Petition In Federal Court (R.)

• Brent Caps Biggest Weekly Advance Since 2009 on OPEC Agreement (BBG)

• Steve Keen, Michael Hudson Unpick Historical Path to Global Recovery (MH)

• The Italian Trouble for Greek Debt (BBG)

• Will 2017 See End Of US Neocons’ Promotion Of Chaos Theory? (RT)

• Late Is Enough: On Thomas Friedman’s New Book (Matt Taibbi)

As I said on election day in America is The Poisoned Chalice.

• Trump’s Unhappy Fate: A Financial Crisis Far Worse Than The Last (Rickards)

As earthquake doesn’t care if you’re progressive or populist. It destroys your house all the same. Likewise a financial crisis is indifferent to a politician’s policy mix. Systemic crises proceed according to their own dynamic based on the array of agents in a system, and systemic scale. The tempo of recent crises in 1994, 1998, and 2008 says a crisis is likely soon. A new global financial panic will be one legacy of the Trump administration. It won’t be Trump’s fault, merely his misfortune. The equilibrium and value-at-risk models used by banks will not foresee the new panic. Those models are junk science relying as they do on notions of efficient markets, normally distributed risk, continuous liquidity, and a future that resembles the past. None of those hypotheses match reality.

Advances in behavioural psychology have demolished the idea of efficient markets. Data shows the degree distribution of risk is a power curve not a normal bell curve. Liquidity evaporates when most needed. Prices gap down; they do not move continuously. Each of the 1994, 1998, and 2008 crises was worse than the one before, and required more drastic intervention. The future does not resemble the past; it keeps getting worse. The standard models are in ruins. Recent model improvements that take into account so-called tail risk still fail to come to grips with systemic scale. The most catastrophic event possible in a complex system is an exponential function of scale. In plain language, if you double system size, you do not double risk; you increase it by a factor of five or more.

Since 2008, the largest banks in the world are larger in terms of gross assets, share of total deposits, and notional value of derivatives. Everything that was too-big-to-fail in 2008 is bigger and exponentially more dangerous today. The living wills and resolution authority of Dodd-Frank are entrances to gated communities. They seem imposing, but are a façade. They will do nothing to stop an angry mob. Increases in regulatory capital will not suffice. When a leveraged financial institution faces a liquidity panic, no amount of capital is enough. As boxing legend Mike Tyson mused, no plan survives the first punch in the face.

[..] What snowflake could precipitate the next financial panic? Deutsche Bank is an obvious candidate. Less obvious is a failure to deliver physical gold by a London bullion bank. That would expose the hyper-leveraged “paper gold” market for what it is. A natural disaster on the scale of Fukushima would do as well. Looming over these catalysts is a global dollar shortage, which has been limned by economists Claudio Borio and Hyun Song Shin at the Bank for International Settlements. The strong dollar could precipitate a wave of defaults on $9 trillion of dollar-denominated emerging markets corporate debt. Those defaults would make the 1994 Tequila Crisis look tame.

The 2008 crisis was truncated with tens of trillions of dollars of currency swaps, money printing, and rate cuts coordinated by central banks around the world. The next crisis will be beyond the scope of central banks to contain because they have failed to normalise either interest rates or their balance sheets since 2008. Central banks will be unable to pull another rabbit out of the hat; they are out of rabbits.

Trump vs special interests. Why jump to conclusions?

• Trump’s Appointments (Paul Craig Roberts)

We do not know what the appointments mean except, as Trump discovered once he confronted the task of forming a government, that there is no one but insiders to appoint. For the most part that is correct. Outsiders are a poor match for insiders who tend to eat them alive. Ronald Reagan’s California crew were a poor match for George H.W. Bush’s insiders. The Reagan part of the government had a hell of a time delivering results that Reagan wanted. Another limit on a president’s ability to form a government is Senate confirmation of presidential appointees. Whereas Congress is in Republican hands, Congress remains in the hands of special interests who will protect their agendas from hostile potential appointees. Therefore, although Trump does not face partisan opposition from Congress, he faces the power of special interests that fund congressional political campaigns.

[..] With Trump under heavy attack prior to his inauguration, he cannot afford drawn out confirmation fights and defeats. Does Trump’s choice of Steve Mnuchin as Treasury Secretary mean that Goldman Sachs will again be in charge of US economic policy? Possibly, but we do not know. We will have to wait and see. Mnuchin left Goldman Sachs 14 years ago. He has been making movies in Hollywood and started his own investment firm. Many people have worked for Goldman Sachs and the New York Banks who have become devastating critics of the banks. Read Nomi Prins’ books and visit Pam Martens website, Wall Street on Parade. My sometimes coauthor Dave Kranzler is a former Wall Streeter. Commentators are jumping to conclusions based on appointees past associations. Mnuchin was an early Trump supporter and chairman of Trump’s finance campaign.

He has Wall Street and investment experience. He should be an easy confirmation. For a president-elect under attack this is important. Will Mnuchin suppport Trump’s goal of bringing middle class jobs back to America? Is Trump himself sincere? We do not know. What we do know is that Trump attacked the fake “free trade” agreements that have stripped America of middle class jobs just as did Pat Buchanan and Ross Perot. We know that the Clintons made their fortune as agents of the 1%, the only ones who have profited from the offshoring of American jobs. Trump’s fortune is not based on jobs offshoring. Not every billionaire is an oligarch. Trump’s relation to the financial sector is one as a debtor. No doubt Trump and the banks have had unsatisfactory relationships. And Trump says he is a person who enjoys revenge.

Not the Jill Stein petition. More the Soros one.

• Petition To Reverse US Election Result Becomes Most Popular In History (Ind.)

A petition asking for the result of the US election to be reversed is now the most popular in the history of Change.org. The signatories – who total 4.6 million people – call on the Electoral College to stop Donald Trump from being President, which is a theoretically possible but never-before-attempted way of altering the result of the US election. Hillary Clinton won millions more votes than Donald Trump, but Mr Trump became President-elect because of the voting system. The petition is titled “Make Hillary Clinton President” and argues that because Ms Clinton won the popular vote she should be made President. It also argues that the President-elect is “unfit to serve”. With 4.6 million signatures, the petition has over two million more votes than the second largest campaign on the website. That was a campaign asking for the Yulin Dog Meat Festival to be shut down, which was begun three years ago.

The petition against Mr Trump was begun just after the election on 10 November. It was started by social worker Daniel Brezenoff. Signatures to the petition are based on the idea that it is still possible for the result of the election to be reversed. The Electoral College system requires that representatives of each state cast ballots to decide who will actually become the new President – those members of the college are supposed to vote for whoever won their state, but could theoretically change their mind. “On December 19, the Electors of the Electoral College will cast their ballots,” the petition writes. “If they all vote the way their states voted, Donald Trump will win. However, in 14 of the states in Trump’s column, they can vote for Hillary Clinton without any legal penalty if they choose.”

Since the petition has started, some legal proceedings have been launched to test the legal penalty in those other states. There has never really been any need to enforce them, since faithless electors make up only a tiny number of people, but activists are looking to encourage more people not to vote this year. The petition itself argues that the Electoral College should change its mind because of the results of the popular vote. “Hillary won the popular vote,” the description reads. “The only reason Trump “won” is because of the Electoral College.

But wait, there’s more…

• Jill Stein Supporters Drop Pennsylvania Recount Suit (WSJ)

Supporters of Green Party presidential candidate Jill Stein on Saturday withdrew a last-ditch lawsuit in Pennsylvania state court aimed at forcing a statewide ballot recount, another major setback in the effort to verify the votes in three states that provided President-elect Donald Trump his margin of victory. Ms. Stein’s campaign announced in a statement Saturday that the Pennsylvania lawsuit had been dropped after the court demanded that a $1 million bond be posted by the 100 Pennsylvania residents who brought the suit, which was backed by the campaign. Recounts will still proceed in a handful of Pennsylvania precincts, but it is far from the statewide recount that Ms. Stein initially was hoping for.

She is also pushing recounts in Wisconsin and Michigan after a prominent computer scientist laid out a case that the election results may have been hacked. Legal challenges have also been filed in state and federal court to halt those recount efforts as well. The decision also dashes the aspirations of some Democrats, who had hoped that enough irregularities or missing votes would be found across all three states to overturn the election results that saw Mr. Trump, the Republican candidate, prevail over Democrat Hillary Clinton. Mrs. Clinton would need to declared the winner in all three states to reverse the election results.

“The judge’s outrageous demand that voters pay such an exorbitant figure is a shameful, unacceptable barrier to democratic participation,” said Ms. Stein in the statement. “This is yet another sign that Pennsylvania’s antiquated election law is stacked against voters. By demanding a $1 million bond from voters yesterday, the court made clear it has no interest in giving a fair hearing to these voters’ legitimate concerns over the accuracy, security and fairness of an election tainted by suspicion.”

…. straight to federal court.

• Jill Stein To Pursue Pennsylvania Recount Petition In Federal Court (R.)

Green Party candidate Jill Stein late Saturday vowed to bring her fight for a recount of votes cast in Pennsylvania in the U.S. presidential election to federal court, after a state judge ordered her campaign to post a $1 million bond. “The Stein campaign will continue to fight for a statewide recount in Pennsylvania,” Jonathan Abady, lead counsel to Stein’s recount efforts, said in a statement. Saying it has become clear that “the state court system is so ill-equipped to address this problem,” the statement said “we must seek federal court intervention.” The Stein campaign said it will file for emergency relief in the Pennsylvania effort in federal court on Monday, “demanding a statewide recount on constitutional grounds.”

The bond was set by the Commonwealth Court of Pennsylvania a day after representatives of President-elect Donald Trump requested a $10 million bond, according to court papers. The court gave the petitioners until 5 p.m. local time on Monday to post the bond, but said it could modify the amount if shown good cause. Instead, Stein’s campaign withdrew. “Petitioners are regular citizens of ordinary means. They cannot afford to post the $1,000,000 bond required by the court,” wrote attorney Lawrence Otter, informing the court of the decision to withdraw.

“The last time OPEC set a quota, members exceeded it for 20 of the 24 months before the cap was scrapped..”

• Brent Caps Biggest Weekly Advance Since 2009 on OPEC Agreement (BBG)

Brent oil capped its biggest weekly gain since 2009 after OPEC approved its first supply cut in eight years, with attention now shifting to compliance with the deal and how other producers will react to a price rally. Futures closed at the highest in more than a year in London and New York. OPEC’s three largest producers – Saudi Arabia, Iraq and Iran – overcame discord to reach Wednesday’s pact to reduce the group’s output by 1.2 million barrels a day, while Russia pledged a cut of as much as 300,000. The accord ended the group’s pump-at-will policy started in 2014 aimed at protecting market share and driving out high-cost competitors such as shale. “Everyone wins, but U.S. shale producers are the big winners from the OPEC deal,” Francisco Blanch at Bank of America said.

“The agreement made sense purely on economic logic. OPEC wanted to end the price war.” OPEC set a collective output target at the lower end of the range outlined two months ago in Algiers, boosting prices and prompting predictions of a possible advance to $60 a barrel from Goldman Sachs and Morgan Stanley. Some analysts warned that the rally may encourage higher output from producers outside the group, including in the U.S. The last time OPEC set a quota, members exceeded it for 20 of the 24 months before the cap was scrapped at the end of 2015.

Two of the finest in a long conversation. Here’s a tiny snippet of Hudson talking.

• Steve Keen, Michael Hudson Unpick Historical Path to Global Recovery (MH)

Killing the Host will be published in German at the end of the month of November, and, basically, it’s a more popular version of The Bubble and Beyond. And it shows that when the financial sector takes over, it’s very much like a parasite in nature. And people think of parasites simply as taking the life blood of the host and draining the energy. But in order to do that, the parasite has to have an enzyme to take over the host’s brain. And the key thing in nature is they take over the brain, and they convince the host that the free luncher is actually part of the host’s own body, and even its baby to be protected. And that’s what the financial sector has done.

Classical economics was all about separating the rent-extracting sectors – landlords, monopolies, and finance – from the rest of the economy. And that was unearned income. It wasn’t necessary. And the whole idea of classical economics from Quesnay’s Tableau Economique to all the way through Adam Smith and John Stuart Mill was to look at the finance sector and the landlord sector and monopolies as unnecessary. You’re going to get rid of them. You’re going to tax away all the land’s rent or else nationalize the land. And you are going to have public enterprises as basic infrastructure so that they couldn’t be monopolized. Well, you had a revolution against classical economics in the 1890s and 1900s, and the national income now – accounts make it appear as if the financial sector and the real estate sector and the monopolies – oil and gas – are all contributing to GDP.

So a few months ago, you had the head of Goldman Sachs – Lloyd Blankfein – say, the Goldman Sachs managers are the most productive workers in the United States, because we make $22 million a year in salary, and we get bonuses. And that’s all considered as contributing to GDP. That’s the financial services that we’re providing $22 million per manager of financial services. Now what they don’t realize is that this $22 million per manager in that Goldman Sachs extracts money from the rest of the economy. It’s a zero-sum game. And instead of adding to the GDP, you should have – A subtraction. Yes, you should have – all of this is overhead – unnecessary. And since 2008, the 99% of the population in America, and I think in most of Europe, too, have seen their incomes go down. But the 1% have had their financial and real estate incomes go up so much more that there is an illusion of growth. And what’s been growing is the tumor, not the actual economic body.

Italian debt is a threat to the entire eurozone, not just Greece.

• The Italian Trouble for Greek Debt (BBG)

If the fallout for Sunday’s Italian referendum is bad for Italian bonds, it could well be worse for one of Europe’s star performers this year: Greece.Greek debt has tightened massively to German bonds in the past three months, while all other main European government securities have been widening. Growing confidence in Greek Prime Minister Alexis Tsipras’s willingness to conform to the Troika requirements on the latest bailout package, is behind this.

The pot of gold at the end of the rainbow would be inclusion into the ECB’s bond purchase program – Greece has long been excluded since it’s not rated investment grade. A shift in the rules would be a reward for budget discipline.This has looked until recently like a long shot, but a tectonic shift in attitude is underway. A recent piece of evidence for this is a remark from ECB policy maker Benoit Couere on Tuesday. He said that Greece can maintain a 3.5% primary budget surplus to GDP for years after the current bailout ends in 2018 – that is a major vote of confidence. Such recent Greek outperformance could easily unwind on a “no” vote on Italian constitutional reform. As Gadfly has argued, that could create serious problems not just for Italy, the world’s third-largest debtor, but also for other borrowers in the region.

It’s all the US have done for decades.

• Will 2017 See End Of US Neocons’ Promotion Of Chaos Theory? (RT)

Trump will hopefully be an assertive defender of US interests rather than an assertive meddler, says Oxford Crisis Research Institute Director Mark Almond.

RT: What obstacles remain preventing the UN from sending aid to Aleppo? Mark Almond: Obviously, there is still an area controlled by the rebels where there is fighting, and the rebels have not always been terribly concerned about discriminating between their enemies and aid workers. But it is quite bizarre that now, as you actually have people, tens of thousands of people, who are finally accessible, that the UN agencies are not actually rushing to help. Because, after all, these are people who are in need, and the weather is very bad in addition to all the suffering caused by the violence.

But I think we have to, I’m afraid, accept the fact that the UN is not composed of people from outside the normal world of politics – after all, the head of its aid agency is a former British conservative MP, [UN Special Envoy for Syria’s Senior Adviser] Jan Egeland is a Norwegian political activist who has been for a long time very critical of Russia. So, we are talking of people who do have a political past, even if they are now presented as being somehow the representatives of global charity or global concern. But I am afraid they are politicians.

RT: Do you think the standoff in Aleppo will continue for much longer? Despite major gains by the Syrian Army, the rebels are reportedly refusing to surrender. Mark Almond: I think the remaining rebel forces are in a very difficult position, so unless something changes through some external intervention which would widen the wall and would be a very dangerous development. And I don’t see the US, either doing it itself or, for that matter, encouraging any of its friends to do it, like Turkey or Saudi Arabia, neither of which, I think, really has the stomach for such a fight. So, the likelihood is that the horrible conflict in Aleppo itself is grinding towards a conclusion. And that may also mean that in 2017 we can look towards trying to repair the international situation around Syria.

The new president of the US has said that he is much more prepared to offer realpolitik rather than an ideologically driven agenda to produce regime change [that], if necessary, [says]… “if we can’t have regime change, at least we can have chaos and, perhaps, out of that chaos, something good will come.” I think we’ve seen, really, over the last 25 years, from the chaos we helped produce in Afghanistan through to Syria today, that the chaos theory that the neocons in Washington have promoted has actually bitten back. We’ve seen terrorist attacks in Western Europe, we’ve seen [them] in the US. I think Trump recognizes that even though he is going to be a very assertive defender of American interests, he is not going to be an assertive meddler. And that does offer some hope.

Friedman’s easy fodder.

• Late Is Enough: On Thomas Friedman’s New Book (Matt Taibbi)

“The folksiness will irk some critics … But criticizing Friedman for humanizing and boiling down big topics is like complaining that Mick Jagger used sex to sell songs: It is what he does well.” –John Micklethwait, review of Thank You for Being Late, in The New York Times With apologies to Mr. Micklethwait, the hands that typed these lines implying Thomas Friedman is a Mick Jagger of letters should be chopped off and mailed to the singer’s doorstep in penance. Mick Jagger could excite the world in one note, while Thomas Friedman needs 461 pages to say, “Shit happens.” Joan of Arc and Charles Manson had more in common. Thomas Friedman was once a man of great influence. His columns were must-reads for every senator and congressperson.

He helped spread the globalization gospel and push us into war in Iraq. But he’s destined now to be more famous as a literary figure. No modern writer has been lampooned more. Hundreds if not thousands of man-hours have been spent teaching robots to produce automated Friedman-prose, in what collectively is a half-vicious, half-loving tribute to a man who raised bad writing to the level of an art form. We will remember Friedman for interviewing 76% of the world’s taxi drivers, for predicting “the next six months will be critical” on 14 occasions over two and a half years (birthing the neologism, “the Friedman unit”), and for his unmatched, God-given ability to write nonsensical metaphors, like his classic “rule of holes”: “When you’re in one, stop digging. When you’re in three, bring a lot of shovels.”

Friedman’s great anti-gift is his ability to use many words when only a few are necessary. He became famous as a newspaper columnist for taking simple one-sentence observations like, “Wow, everyone has a cell phone these days,” and blowing them out into furious 850-word trash-fires of mismatched imagery and circular argument. The double-axel version of this feat was to then rewrite that same column over and over again, in the same newspaper, only piling on more incongruous imagery and skewing rhetoric to further stoke that one thought into an even higher and angrier fire.

Debt Rattle December 2 2016

Dec 022016

December 2, 2016 Posted by Raúl Ilargi Meijer at 10:34 am Finance Tagged with: austerity, bonds, China, fire sale, meltdown, oil, OPEC, outflows, Putin, Renzi, Trump 2 Responses »

Harris&Ewing Washington, DC, Storm damage..” Between 1913 and 1918

• Global Bonds Suffer Worst Monthly Meltdown as $1.7 Trillion Lost (BBG)

• What’s Causing The Fire Sale In The Bond Market (CNBC)

• Donald Trump Promises to Usher In New ‘Industrial Revolution’ (WSJ)

• Trump Will End Growth-Zapping Fiscal Austerity – McCulley (CNBC)

• China’s Central Bank Is Facing a Major New Headache (BBG)

• Rural China Banks With $4 Trillion Assets Face Debt Test (BBG)

• Obama Set To Block Chinese Takeover Of German Semiconductor Supplier (BBG)

• QE Infinity Eyed In Europe If Renzi Loses Crucial Italian Referendum (CNBC)

• December 4 Could Trigger the “Most Violent Economic Shock in History” (IM)

• How Putin, Khamenei And Saudi Prince Got OPEC Deal Done (R.)

• Russian Oil Output Near Post-Soviet Record as It Prepares to Cut (BBG)

• US Veterans Arrive At Pipeline Protest Camp In North Dakota (R.)

• Joy As China Shelves Plans To Dam ‘Angry River’ (G.)

• World’s Growing Inequality Is ‘Ticking Time Bomb’: Nobel Laureate Yunus (R.)

• This Is The Most Dangerous Time For Our Planet (Stephen Hawking)

Things get crowded, it’s inevitable. And much more so in manipulated markets.

• Global Bonds Suffer Worst Monthly Meltdown as $1.7 Trillion Lost (BBG)

The 30-year-old bull market in bonds looks to be ending with a bang. The Bloomberg Barclays Global Aggregate Total Return Index lost 4% in November, the deepest slump since the gauge’s inception in 1990. Treasuries extended declines Thursday along with European bonds on speculation that the ECB will consider sending a signal that stimulus will eventually end. The reflation trade has been driving markets since Donald Trump’s election victory due to his promises of tax cuts and $1 trillion in infrastructure spending. Calling an end to the three-decade bond bull market is no longer looking like a fool’s errand: the Federal Reserve is expected to raise interest rates again – and do so more often than once a year, inflationary expectations are climbing and there are hints global central banks may buy less sovereign debt going forward.

Investors pulled $10.7 billion from U.S. bond funds in the two weeks after Trump’s victory, the biggest exodus since 2013’s “taper tantrum,” while American stock indexes jumped to records. “The market has moved with remarkable swiftness to price in the anticipated reflationary impact of a Trump administration,” said Matthew Cairns, a strategist at Rabobank International in London. “This has, in turn, prompted a notable rotation out of fixed income and into equities.” Still, Cairns cautioned the moves are “remarkable given the distinct lack of clarity as regards what policies the president-elect will actually pursue.” November’s rout wiped a record $1.7 trillion from the global index’s value in a month that saw world equity markets’ capitalization climb $635 billion.

Eevrybody’s been on the same side of the boat for too long.

• What’s Causing The Fire Sale In The Bond Market (CNBC)

There’s a fire sale in the bond market, and the November jobs report could make it burn even hotter. The wild move came amid speculation that Friday’s employment report could be better-than-expected and drive interest rates even higher. Interest rates surged Thursday, with the 10-year yield spiking as much as 12 basis points at its peak, to 2.49%, the highest yield since June 2015. Yields move inversely to prices and rates snapped higher across the whole yield curve. The 2-year pressed up against 1.17% and the 30-year rose to as high as 3.15%. In afternoon trading, some of the selling subsided, and the 10-year yield slipped back to just under 2.44%, but 2.50 is being watched as the next psychological line in the sand.

“In order to stay above 2.50, it’s got to be a really good number. The way we’re going, it’s like an unhinged market. It’s also going to be counterproductive for things down the road. This is not a healthy adjustment in rates. There’s going to be some losses on this,” said George Goncalves at Nomura. The 10-year yield affects consumer loans especially home mortgage rates, which have already risen near 4%, slowing borrowing activity. The 2-year is the rate most closely watched as a signal about the market’s expectation for Fed rate activity. The Fed is expected to hike rates Dec. 14 but traders have been speculating a stronger economy could force it into a faster hiking cycle next year.

Strategists say Thursday’s rate spike was driven by a combination of factors and at the same time inexplicable in its scope. The overriding themes are that the world is moving to a higher interest rate environment and for the first time in years, there could be inflation. OPEC’s deal to cut production Wednesday, drove oil prices 15% higher in just two days, ramping up inflation expectations that already had been on the rise.

“There is no global anthem, no global currency..”

• Donald Trump Promises to Usher In New ‘Industrial Revolution’ (WSJ)

President-elect Donald Trump on Thursday said his administration would usher in a new “Industrial Revolution,” one of numerous promises he made in Cincinnati as he began a nationwide “Thank You” tour following his Nov. 8 election. Mr. Trump used the 53-minute speech, the first of its kind since he became president-elect, to reflect on his victory but also to outline a number of goals, many of them lofty, for his term as president. The speech was more than just thematic, however. He said for the first time that on Monday he would announce that he was nominating Ret. Gen. James Mattis as his first secretary of defense. Mr. Trump promised sweeping changes to trade policy, national security, infrastructure, military spending and immigration. He said he wanted to work with Democrats but said he could get the work done without them, even without his supporters.

“Now that you put me in this position, even if you don’t help me one bit, I’m going to get it done,” he said. “Don’t worry.” The Cincinnati rally resembled, in some ways, the campaign rallies he held for months as his candidacy gained steam during the year. There were chants of “U.S.A.,” and vendors sold Trump campaign memorabilia. But there was one notable difference: with the election over, the crowd was far smaller[..] During his speech, he stuck to many of his campaign promises. He said a wall would be built along the U.S.-Mexico border. He said his administration would “repeal and replace” the Affordable Care Act. He said the Trump administration would seek plans and deals that benefited Americans first and not get duped into deals with other countries. “There is no global anthem, no global currency,” he said. “We pledge allegiance to one flag, and that flag is the American flag.”

It’ll fail. You can’t ‘make’ growth.

• Trump Will End Growth-Zapping Fiscal Austerity – McCulley (CNBC)

Economist Paul McCulley told CNBC on Thursday he’s had a “big ax to grind” with Washington for years over the need for more deficit spending, and it appears Republican Donald Trump may actually be the one to deliver. The stock market rally since Trump won the presidential election has been reflecting that notion, argued McCulley, who said he voted for Democrat Hillary Clinton. “The market is essentially celebrating the end of fiscal austerity. And it just happens to be a vehicle of Mr. Trump. But the end of fiscal austerity is the key economic issue.” “My big ax to grind in recent years — not months but years — is that we needed to have more fiscal policy expansion, because we’re in a liquidity trap,” said McCulley, former chief economist at Pimco. He said too much responsibility has fallen on the Federal Reserve for growing the economy.

“We needed some help with larger budget deficits.” “I’ve never had an issue with increasing the size of the budget deficit. I think it’s been too small. I have zero problem with increased public investment and funding it with deficits,” he said. “To the extent that Mr. Trump wants to do that, I think that is the right Keynesian policy.” McCulley was referring to the British economist John Maynard Keynes, who is often credited with the concept of deficit spending as a means of fiscal policy. “My biggest complaints for the person I voted for, Mrs. Clinton, is that she said, ‘I will not add a penny to the national debt.’ That was basically putting you in a straightjacket of fiscal austerity forever,” said McCulley, senior fellow in financial macroeconomics at Cornell Law School.

Mundell: “..nations can’t sustain a fixed exchange rate, independent monetary policy, and open capital borders all at the same time..”

• China’s Central Bank Is Facing a Major New Headache (BBG)

People’s Bank of China Governor Zhou Xiaochuan already has one policy headache with the currency falling to near an eight-year low. He could have an even bigger one next month. That’s when a $50,000 cap on how much foreign currency individuals are allowed to convert each year resets, potentially aggravating capital outflow pressures that are already on the rise. If just 1% of China’s almost 1.4 billion people max out those limits, that’s an outflow of about $700 billion – more than the estimated $620 billion that Bloomberg Intelligence estimates indicate has already flowed out in the first 10 months of this year. Middle class and wealthy Chinese have been converting money into other currencies to protect themselves from devaluation, exacerbating downward pressure on the yuan.

Outflows could intensify if Federal Reserve interest-rate hikes fuel further dollar appreciation. That leaves Zhou in a bind identified by Nobel-prize winning economist Robert Mundell as the “impossible trinity” – a principle that dictates nations can’t sustain a fixed exchange rate, independent monetary policy, and open capital borders all at the same time. “At a moment like this, you have to compare two evils and pick the less-worse one,” said George Wu, who worked as a PBOC monetary policy official for 12 years. “Capital free flow may have to be abandoned in order to maintain a relatively stable currency rate.” China is moving further away from balance among trinity variables, at least temporarily, and “it may take a while before the situation stabilizes” for the yuan and capital outflows, said Wu, who’s now chief economist at Huarong Securities in Beijing.

[..] rather than raise borrowing costs to try to make domestic returns more attractive – China has added new restrictions on the flow of money across its borders. They include a pause on some foreign acquisitions and bigger administrative hurdles to taking yuan overseas, people familiar with the steps have told Bloomberg News. China should cut intervention in foreign exchange markets while stepping up capital control, Yu Yongding, a former academic member of the PBOC’s monetary policy committee, said Friday at a conference in Beijing. Yuan internationalization shouldn’t be promoted too aggressively, said Yu, a senior research fellow at the Chinese Academy of Social Sciences.

About $1.5 trillion has exited the country since the beginning of 2015. While China still has the world’s largest foreign exchange stockpile, the hoard shrank in October to a five-year low of $3.12 trillion, PBOC data show. That means there’s less in the armory to battle depreciation if China’s famously frugal savers park more cash abroad. The outflow pressure rose in January as individuals socked away a record amount in domestic bank accounts denominated in other currencies. Household foreign deposits surged 8.1% to $97.4 billion, according to the central bank, for the biggest jump since it began tracking the data in 2011. Those holdings stood at $113.1 billion in October.

The correct way to write this is: “Assets”.

• Rural China Banks With $4 Trillion Assets Face Debt Test (BBG)

Bond investors are weighing rising risks that smaller Chinese banks will fail against growing signs the government will do anything to avoid a financial meltdown. A lender called Guiyang Rural Commercial Bank in the southwestern province of Guizhou sparked concern that risks among smaller lenders are spreading after its rating outlook was cut last month following a jump in overdue loans to 30% of the total. That compares with just 3% at the nation’s biggest lender. Short-term borrowing costs surged for the riskiest lenders including rural commercial banks, which hold 29 trillion yuan ($4.2 trillion) of assets, 13.4% of the total amount in China’s banking system.

Yet confidence in the government’s readiness to step in and offer support to struggling borrowers is rising as authorities allow a credit-fueled recovery of manufacturing activity, helping an official factory gauge match a post-2012 high last month. While 17 onshore public bonds defaulted in the first half of the year, there have since been only seven. The combination of government support and desperation for yield helps explain why Guiyang Rural was able to sell a junior bond at 4.7% last month, 1.7 %age points less than a similar offering last year. “Investors have yet to suffer losses from any bank capital securities, which adds to their confidence,” said He Xuanlai at Commerzbank.

“Smaller banks have a less diversified business profile and will likely get less support from the central government compared with bigger banks. Still, the base case is the government is still not ready to let any bank fail in a disorderly way.” That assumption has helped cut the extra yield investors demand to hold AA- rated five-year bank subordinated notes over AAA rated peers to a record low of 81 basis points, from 113 at the start of the year. There are some positive fundamentals. Rural banks are tied with the big five state-owned banks for the best Tier 1 capital ratio at 12%, according to an analysis by Natixis.

And Germany says what?

• Obama Set To Block Chinese Takeover Of German Semiconductor Supplier (BBG)

U.S. President Barack Obama is poised to block a Chinese company from buying Germany’s Aixtron, people familiar with the matter said, which would mark only the third time in more than a quarter century that the White House has rejected an investment by an overseas buyer as a national security risk. The president is expected Friday to uphold a recommendation by the Committee on Foreign Investment in the U.S. that the sale of the semiconductor-equipment supplier to China’s Grand Chip Investment should be stopped, according to the people, who asked not to be identified as the details aren’t public. Blocking the €670 million ($714 million) acquisition would mark the second time Obama has rejected a deal on national security grounds. The first was in 2012 when he stopped Chinese-owned Ralls Corp. from developing a wind farm near a Navy base in Oregon.

Before that, in 1990 then-president George H.W. Bush stopped a Chinese acquisition of MAMCO, an aircraft-parts maker. CFIUS reviews purchases of U.S. companies by foreign buyers and pays particular attention to purchases of technology, especially when it has defense applications. It has a say in the Aixtron deal because the company has a subsidiary in California and employs about 100 people in the U.S., where it generates about 20% of its sales. Aixtron technology can be used to produce light-emitting diodes, lasers, transistors, solar cells, among other products, and can have military applications in satellite communications and radar. Northrop Grumman, a major U.S. defense contractor, is among its customers, according to a Bloomberg supply chain analysis. “It will be extremely difficult for China’s state owned enterprises to do deals in the semiconductor industry looking forward,” said He Weiwen at the Center for China and Globalization.

A No vote is also a vote against the ECB.

• QE Infinity Eyed In Europe If Renzi Loses Crucial Italian Referendum (CNBC)

Dovish words from the ECB this week have fueled speculation of more accommodative monetary policy if Italians reject constitutional reforms this weekend, but one economist has told CNBC that it might not be that simple. “The market believes that we are basically in for QE infinity in Europe and that might be a stretch of the imagination,” said Elga Bartsch, Morgan Stanley’s global co-head of economics. While the Morgan Stanley economist acknowledged the rhetoric emanating from ECB President Mario Draghi this week arguably did imply there could be a so-called “Draghi put” in the case of a “no” vote in the referendum, she also posited that this view was somewhat simplistic.

“There was strong communication from him (Draghi) and a number of executive board members at the ECB, but at the same time, the views of the broader council and among the national central bank governors seem to be a little bit more mixed,” she explained. “For instance, the debate as to whether instead of extending by six months at €80 billion, just to do nine months of €60 billion doesn’t really want to go away,” Bartsch noted.

“December 4 referendum fails >> M5S comes to power >> Italians vote to leave the euro currency >> European Union collapses.”

• December 4 Could Trigger the “Most Violent Economic Shock in History” (IM)

The Five Star Movement (M5S) is Italy’s new populist political party. It’s anti-globalist, anti-euro, and vehemently anti-establishment. It doesn’t neatly fall into the left–right political paradigm. M5S has become the most popular political party in Italy. It blames the country’s chronic lack of growth on the euro currency. A large plurality of Italians agrees. M5S has promised to hold a vote to leave the euro and reinstate Italy’s old currency, the lira, as soon as it’s in power. That could be very soon. Given the chance, Italians probably would vote to return to the lira. If that happens, it would awaken a monetary volcano. The Financial Times recently put it this way: “An Italian exit from the single currency would trigger the total collapse of the eurozone within a very short period. It would probably lead to the most violent economic shock in history, dwarfing the Lehman Brothers bankruptcy in 2008 and the 1929 Wall Street crash.”

If the FT is even partially right, it means a stock market crash of historic proportions could be imminent. It could devastate anyone with a brokerage account. Here’s how it could all happen… On December 4, Italian Prime Minister Matteo Renzi’s current pro-EU government is holding a referendum on changing Italy’s constitution. In effect, a “Yes” vote is a vote of approval for Renzi’s government. A “No” vote is a chance for the average Italian to give the finger to EU bureaucrats in Brussels. Given the intense anger Italians feel right now, it’s very likely they’ll do just that. According to the latest polls, the “No” camp has 54% support and all of the momentum. Even prominent members of Renzi’s own party are defecting to the “No” side.

If the December 4 referendum fails, Renzi has promised to resign. Even if he doesn’t, the loss would politically castrate him. In all likelihood his government would collapse. (Italian governments have a short shelf life. There have been 63 since 1945. That’s almost a rate of a new government each year.) One way or another, M5S will come to power. It’s just a matter of when. If Renzi’s December 4 referendum fails—and it looks like it will—M5S will likely take over within months. Once it’s in power, M5S will hold a referendum on leaving the euro and returning to the lira. Italians will likely vote to leave. [..] December 4 referendum fails >> M5S comes to power >> Italians vote to leave the euro currency >> European Union collapses.

Don’t be fooled: it’s all Putin, the one non-OPEC voice. And he’s playing the rest like so many fiddles.

• How Putin, Khamenei And Saudi Prince Got OPEC Deal Done (R.)

[..] Heading into the meeting, the signs were not good. Oil markets went into reverse. Saudi Prince Mohammed had repeatedly demanded Iran participate in supply cuts. Saudi and Iranian OPEC negotiators had argued in circles in the run-up to the meeting. And, then, just a few days beforehand, Riyadh appeared back away from a deal, threatening to boost production if Iran failed to contribute cuts. But Putin established that the Saudis would shoulder the lion’s share of cuts, as long as Riyadh wasn’t seen to be making too large a concession to Iran. A deal was possible if Iran didn’t celebrate victory over the Saudis. A phone call between Putin and Iranian President Rouhani smoothed the way.

After the call, Rouhani and oil minister Bijan Zanganeh went to their supreme leader for approval, a source close to the Ayatollah said. “During the meeting, the leader Khamenei underlined the importance of sticking to Iran’s red line, which was not yielding to political pressures and not to accept any cut in Vienna,” the source said. “Zanganeh thoroughly explained his strategy … and got the leader’s approval. Also it was agreed that political lobbying was important, especially with Mr. Putin, and again the Leader approved it,” said the source. On Wednesday, the Saudis agreed to cut production heavily, taking “a big hit” in the words of energy minister Khalid al-Falih – while Iran was allowed to slightly boost output. Iran’s Zanganeh kept a low profile during the meeting, OPEC delegates said.

Zanganeh had already agreed the deal the night before, with Algeria helping mediate, and he was careful not to make a fuss about it. After the meeting, the usually combative Zanganeh avoided any comment that might be read as claiming victory over Riyadh. “We were firm,” he told state television. “The call between Rouhani and Putin played a major role … After the call, Russia backed the cut.”

As you can see here, Putin even prepared for the cuts: all Russia needs to cut is that 2016 production surge. Which may have been untenable to begin with. And it catches out those who haven’t created a surge, but will have to cut anyway.

• Russian Oil Output Near Post-Soviet Record as It Prepares to Cut (BBG)

Russia, the world’s largest energy exporter, held November output near a post-Soviet record , which is likely to remain a high-water mark in the near term after a pledge to cut production. Russian crude and condensate production averaged 11.21 million barrels a day in November, compared with a record 11.23 million barrels a day in October, according to the Energy Ministry’s CDU-TEK statistics unit. Russia promised to support a push by OPEC to reduce a global oil oversupply after the group agreed to cut production by 1.2 million barrels a day on Wednesday.

Energy Minister Alexander Novak pledged Russia would cut its own output by as much as 300,000 barrels a day, a stronger move than the previously preferred position of a freeze. Russia will make a gradual reduction over the first half of the year starting in January, Novak said Thursday. The reduction, supported by Russian oil producers, would be spread proportionally among companies, he said without providing further detail. Gazprom Neft and Novatek led Russian output growth in November compared with a year earlier, although both companies posted lower oil production than October, according to the data.

“I bought a one-way ticket [..] Hopefully we can shut this down before Christmas.”

• US Veterans Arrive At Pipeline Protest Camp In North Dakota (R.)

U.S. military veterans were arriving on Thursday at a camp to join thousands of activists braving snow and freezing temperatures to protest a pipeline project near a Native American reservation in North Dakota. However, other veterans in the state took exception to the efforts of the group organizing veterans to act as human shields for the protesters, saying the nature of the protests reflected poorly on the participants. Protesters have spent months rallying against plans to route the $3.8 billion Dakota Access Pipeline beneath a lake near the Standing Rock Sioux reservation, saying it poses a threat to water resources and sacred Native American sites.

State officials on Monday ordered activists to vacate the Oceti Sakowin camp, located on U.S. Army Corps of Engineers land near Cannon Ball, North Dakota, citing harsh weather conditions. Officials said on Wednesday however that they will not actively enforce the order. Matthew Crane, a 32-year-old Navy veteran who arrived three days ago, said the veterans joining the protest were “standing on the shoulders of Martin Luther King Jr and Gandhi” with the their plans to shield protesters. “I bought a one-way ticket,” he told Reuters as he worked to build a wooden shelter at the main camp. “Hopefully we can shut this down before Christmas.”

[..]Veterans Stand for Standing Rock, a contingent of more than 2,000 U.S. military veterans, intends to reach North Dakota by this weekend and form a human wall in front of police, protest organizers said on a Facebook page. The commissioner of the state’s Department of Veterans Affairs, who appeared at the West Fargo event, said he was worried about the involvement of individuals who have been in war situations. “We’re going to have veterans that we don’t know anything about coming to the state, war time veterans possibly with PTSD and other issues,” Lonnie Wangen told Reuters. “They’re going to be standing on the other side of concertina fence looking at our law enforcement and our (National) Guard, many of whom have served in war zones also,” he added. “We don’t want to see veterans facing down veterans.”

“Thirty years ago there were 50,000 rivers in China; today there are less than 23,000.”

• Joy As China Shelves Plans To Dam ‘Angry River’ (G.)

Environmentalists in China are celebrating after controversial plans to build a series of giant hydroelectric dams on the country’s last free-flowing river were shelved. Activists have spent more than a decade campaigning to protect the Nujiang, or “angry river”, from a cascade of dams, fearing they would displace tens of thousands of people and irreparably damage one of China’s most spectacular and bio-diverse regions. Since the start of this year, hopes had been building that Beijing would finally abandon plans to dam the 1,750-mile waterway, which snakes down from the Tibetan plateau through some of China’s most breathtaking scenery before entering Myanmar, Thailand and eventually flowing into the Andaman Sea.

On Friday, campaigners said that appears to have happened after China’s State Energy Administration published a policy roadmap for the next five years that contained no mention of building any hydroelectric dams on the Nu. “I am absolutely thrilled,” said Wang Yongchen, a Chinese conservationist and one of the most vocal opponents of the plans, which first surfaced in 2003. Wang, who has made 17 trips to the Nu region as part of her crusade to protect the river, said geologists, ecologists, sociologists and members of the public who had been part of the campaign could all take credit for halting the dams. “I think this is a triumph for Chinese civil society,” the Beijing-based activist said. Stephanie Jensen-Cormier, the China programme director for International Rivers, said environmentalists were “very happy and very excited” at what was a rare piece of good news for China’s notoriously stressed waterways.

“The state of rivers in China is so dismal. Thirty years ago there were 50,000 rivers in China; today there are less than 23,000. Rivers have completely disappeared. They have become polluted, they have become overused for agriculture and manufacturing,” she said. “So it is so exciting when a major river – which is a major river for Asia – is protected, at least where it flows in China.” Jensen-Cormier said the shelving of plans to dam the Nu – which is known as the Salween in Thailand and the Thanlwin in parts of Myanmar – represented “a great turning point for the efforts to preserve China’s rivers”. “It is a really good indication that China is starting to look at other ways of developing energy, and renewable energies especially, that mean they don’t have to sacrifice their remaining healthy river.”

I don’t know, I think perhaps many people are born followers: “People are not born to be job seekers – they are entrepreneurs by nature..”

• World’s Growing Inequality Is ‘Ticking Time Bomb’: Nobel Laureate Yunus (R.)

The widening gap between rich and poor around the world is a “ticking time bomb” threatening to explode into social and economic unrest if left unchecked, Nobel Peace laureate Muhammad Yunus said on Thursday. The banking and financial system has created a world of “the more money you have, the more I give you” while depriving the majority of the world’s population of wealth and an adequate standard of living, Yunus told the Thomson Reuters Foundation. “Wealth has become concentrated in just a few places in the world … It’s a ticking time bomb and a great danger to the world,” said the founder of the microfinance movement that provides small loans to people unable to access mainstream finance.

Yunus cited Donald Trump’s victory in the U.S. presidential election on Nov. 8 and Britain’s vote to leave the EU on June 23 as expressions of popular anger with ruling elites who have failed to stem the widening global wealth gap. A 2016 report by charity Oxfam showed that the wealth of the world’s richest 62 people has risen by 44% since 2010, with almost half of the super-rich living in the United States, while the wealth of the poorest 3.5 billion fell 41%. “This creates tension among people at the bottom (of the income ladder). They blame refugees and minorities – and unscrupulous politicians exploit this,” said Yunus [..]

To break free from an unequal financial system that disadvantages the poor, people should use their creative energy to become entrepreneurs themselves and spread wealth among a broader base of citizens, said Yunus. “People are not born to be job seekers – they are entrepreneurs by nature,” he said, adding that businesses that are focused more on doing social good than generating maximum profit can help to rectify economic and gender inequality. “If wealth comes to billions of people, this wealth will not come to the top one percent (of rich people), and it will not be easy to concentrate all the wealth in a few hands,” he said.

It’s a little painful to see Hawking lose himself in a field of logic that is not his. He claims we should go to Mars, but then he says earth is our only planet. Isn’t it true that the time and energy dispensed in efforts to get to Mars might be better used in saving earth? Or are we going to claim we can do both?

• This Is The Most Dangerous Time For Our Planet (Stephen Hawking)

As a theoretical physicist based in Cambridge, I have lived my life in an extraordinarily privileged bubble. Cambridge is an unusual town, centred around one of the world’s great universities. Within that town, the scientific community that I became part of in my 20s is even more rarefied. And within that scientific community, the small group of international theoretical physicists with whom I have spent my working life might sometimes be tempted to regard themselves as the pinnacle. In addition to this, with the celebrity that has come with my books, and the isolation imposed by my illness, I feel as though my ivory tower is getting taller. So the recent apparent rejection of the elites in both America and Britain is surely aimed at me, as much as anyone.

Whatever we might think about the decision by the British electorate to reject membership of the EU and by the American public to embrace Donald Trump as their next president, there is no doubt in the minds of commentators that this was a cry of anger by people who felt they had been abandoned by their leaders. It was, everyone seems to agree, the moment when the forgotten spoke, finding their voices to reject the advice and guidance of experts and the elite everywhere. I am no exception to this rule. I warned before the Brexit vote that it would damage scientific research in Britain, that a vote to leave would be a step backward, and the electorate – or at least a sufficiently significant proportion of it – took no more notice of me than any of the other political leaders, trade unionists, artists, scientists, businessmen and celebrities who all gave the same unheeded advice to the rest of the country. What matters now, far more than the choices made by these two electorates, is how the elites react.

Should we, in turn, reject these votes as outpourings of crude populism that fail to take account of the facts, and attempt to circumvent or circumscribe the choices that they represent? I would argue that this would be a terrible mistake. The concerns underlying these votes about the economic consequences of globalisation and accelerating technological change are absolutely understandable. The automation of factories has already decimated jobs in traditional manufacturing, and the rise of artificial intelligence is likely to extend this job destruction deep into the middle classes, with only the most caring, creative or supervisory roles remaining. This in turn will accelerate the already widening economic inequality around the world. The internet and the platforms that it makes possible allow very small groups of individuals to make enormous profits while employing very few people. This is inevitable, it is progress, but it is also socially destructive.

Debt Rattle December 1 2016

Dec 012016

December 1, 2016 Posted by Raúl Ilargi Meijer at 10:40 am Finance Tagged with: car loans, cash, debt relief, homeless, NWO, OPEC, Ponzi, tax cut, Trump 2 Responses »

NPC K & W Tire Co. Rainier truck, Washington, DC 1919

• Oil Price Surges As OPEC Agrees First Output Cut Since 2008 (G.)

• Preet Bharara to Stay On as Manhattan US Attorney Under Trump (WSJ)

• Trump’s Tax Cut Means Billion-Dollar Writedowns for US Banks (BBG)

• 6 Million Americans Are Delinquent On Auto Loans (MW)

• ‘Classic Ponzi Scheme’: Sydney House Prices 12 Times Annual Income (SMH)

• Melbourne Apartment Prices Drop by Most Since 2014 (BBG)

• Greece Isn’t ‘Crying Wolf’ on Debt Relief (BBG)

• Angry Mobs Lock Up Indian Bankers As Cash Chaos Soars (ZH)

• The Pillars Of The New World Order (Pieraccini)

• More Than 250,000 People Are Homeless In England (BBC)

• Climate Change Will Stir ‘Unimaginable’ Refugee Crisis, Says Military (G.)

How long will the illusion last?

• Oil Price Surges As OPEC Agrees First Output Cut Since 2008 (G.)

The price of oil has surged by 8% after the 14-nation cartel Opec agreed to its first cut in production in eight years. Confounding critics who said the club of oil-producing nations was too riven with political infighting to agree a deal, Opec announced it was trimming output by 1.2m barrels per day (bpd) from 1 January. The deal is contingent on securing the agreement of non-Opec producers to lower production by 600,000m barrels per day. But the Qatari oil minister, Mohammed bin Saleh al-Sada, said he was confident that the key non-Opec player – Russia – would sign up to a 300,000 bpd cut. Russia’s oil minister, Alexander Novak, welcomed the Opec move but said his country would only be able to cut production gradually due to “technical issues”. A meeting with non-Opec countries in Moscow on 9 December has been pencilled in.

Al-Sada said the deal was a great success and a “major step forward”, but the news that Saudi Arabia had effectively admitted defeat in its long-running attempt to drive US shale producers out of business was enough to send the price of crude sharply higher on the world’s commodity markets. Brent crude was trading at just over $50 a barrel following the completion of the Opec meeting in Vienna – an increase of almost $4 on the day. Saudi Arabia will bear the brunt of Opec’s production curbs, having agreed to a reduction in output of just under 500,000 bpd. Iraq has agreed to a 210,000 bpd cut, followed by the United Arab Emirates (-139,000), Kuwait (-131,000) and Venezuela (-95,000). Smaller countries are also reducing output, but Iran – which has only recently returned to the global oil market after the lifting of international sanctions – has been allowed to continue raising output.

Let’s say that the jury’s out.

• Preet Bharara to Stay On as Manhattan US Attorney Under Trump (WSJ)

Preet Bharara, the Manhattan U.S. attorney, has agreed to stay in his current role under the Trump administration, a surprise move that could signal the president-elect is serious about cracking down on Wall Street wrongdoing. Mr. Bharara, famous for his aggressive prosecutions of insider trading and corruption in New York, met with President-elect Donald Trump in Trump Tower on Wednesday. Afterward, Mr. Bharara told reporters that Mr. Trump asked whether he was prepared to remain as U.S. attorney, and Mr. Bharara said he was. “We had a good meeting,” Mr. Bharara said. “I agreed to stay on.” Since 2009, Mr. Bharara has served as the U.S. Attorney for the Southern District of New York, one of the highest-profile U.S. attorney’s offices in the country.

An appointee of President Barack Obama, he rose to prominence after pursuing dozens of insider-trading cases, leading to his moniker as the “sheriff of Wall Street.” The office is also seen as a leader in public corruption, cybercrime and terrorism prosecutions. His office has brought corruption charges against a dozen state lawmakers in New York and convicted the leaders of both legislative houses. Keeping Mr. Bharara appears to be at odds with other picks Mr. Trump has made. Despite campaigning against Wall Street excesses and the largest banks, Mr. Trump has tapped Wall Street investors for key positions in his cabinet, including a former Goldman Sachs executive, Steven Mnuchin, for Treasury Secretary and a billionaire private-equity investor, Wilbur Ross, to run the Commerce Department.

Partly as a result, financial services executives have quickly warmed to the prospect of a Trump presidency. His team has promised to roll back parts of the 2010 Dodd-Frank financial overhaul law enacted in the wake of the financial crisis, saying it has cut back on lending. But the decision to keep Mr. Bharara is likely to temper speculation that a Trump administration might focus less on corporate wrongdoing, white-collar lawyers said.

“In one fell swoop, a significant part of their net worth goes up in smoke.”

• Trump’s Tax Cut Means Billion-Dollar Writedowns for US Banks (BBG)

Donald Trump’s planned U.S. corporate tax cuts could translate to a big one-time earnings hit for many of the biggest U.S. banks, thanks to tax benefits they generated during the 2008 financial crisis. Citigroup would take the deepest earnings hit – perhaps $12 billion or more, according to recent estimates by the bank’s chief financial officer and several banking analysts. Others, including Bank of America and Wells Fargo could face multibillion-dollar writedowns. The banks might have to write down deferred tax assets, which often pile up when a company loses money and can’t immediately enjoy the tax benefits of those losses.

Any writedowns won’t have much impact on capital levels for the banks for regulatory purposes, and lower taxes will allow for higher earnings in the long run. But a one-time hit to earnings can make for a bruising quarter – and even year – for a bank’s results. “It’s a traumatic experience for companies with large” amounts of such assets, said Robert Willens, an independent tax and accounting expert in New York. “In one fell swoop, a significant part of their net worth goes up in smoke.” Deferred tax assets, as disclosed in securities filings, consist of benefits that companies expect to use to cut their future tax bills.

For most companies, the bulk of their value is tied to the current U.S. corporate tax rate of 35%. (Assets stemming from, say, state tax bills are tied to state tax rates.) The assets include unused credits for foreign taxes companies have paid; deductions they’re allowed to take in future years for prior losses; and future tax advantages that stem from so-called “timing differences” – or gaps between when income or expenses are reported to shareholders and to the Internal Revenue Service. Analysts say that calculating the value of assets associated with timing differences can be as much an art as a science.

America without a car.

• 6 Million Americans Are Delinquent On Auto Loans (MW)

The number of subprime auto loans sinking into delinquency hit their highest level since 2010 in the third quarter, with roughly 6 million individuals at least 90 days late on their car-loan payments. It’s behavior much like that seen in the months heading into the 2007-2009 recession, according to data from Federal Reserve Bank of New York researchers. “The worsening in the delinquency rate of subprime auto loans is pronounced, with a notable increase during the past few years,” the researchers, led by Andrew Haughwout, said Wednesday in a blog on their Liberty Street Economics site. Weakness among the lowest-rated borrowers plays out against a robustly growing vehicle lending market.

Originations of auto loans have continued at a brisk pace over the past few years, with 2016 shaping up to be the strongest of any year within the NY Fed’s data, which began in 1999. It’s worth noting that the majority of auto loans are still performing well—it’s the subprime loans, those with associated credit scores below 620, that heavily influence the delinquency rates, the researchers said. Consequently, auto finance companies that specialize in subprime lending, as well as some banks with higher subprime exposure are likely to have experienced declining performance in their auto loan portfolios. Credit officials have stressed that the contagion risk to the financial system from poor auto loans isn’t like the risk posed when subprime mortgage lending pushed the U.S. into the Great Recession.

That’s in large part because repossessed cars are easier to resell than bank-owned homes. Cars can’t sink whole neighborhoods with foreclosure blight. Subprime mortgage lending remains at very low levels since the financial crisis. But as the financial system has recovered, subprime auto lending has ramped up with little hesitation. New auto loans to borrowers with credit scores below 660 have nearly tripled since the end of 2009. So far in 2016, about $50 billion of new auto loans per quarter have gone to those borrowers and about $30 billion each quarter has gone to borrowers with scores below 620, according to data the Fed provided, citing credit-score tracker Equifax.

WHAT? “Property experts disagree furiously about whether prices are in a bubble..”

• ‘Classic Ponzi Scheme’: Sydney House Prices 12 Times Annual Income (SMH)

Sydney houses now cost 12 times the annual income, up from four times when Gough Whitlam was dismissed. As many first time buyers turn to the bank of mum and dad to top up their deposits, a new report “Parental guidance not recommended” warns Australians are being caught up in a classic “Ponzi scheme”. The report by economic consultancy LF Economics – which has previously sensationally warned of a “bloodbath” when Sydney’s property bubble bursts – estimates it will now take the average first time buyer in Sydney nine years to save a deposit, up from three years in 1975. Baby boomers, who have benefited from skyrocketing prices, are increasingly able to fast track their children’s path to property ownership by either stumping up part of the deposit or putting up their own homes as collateral.

LF Economics, founded by Lindsay David and Philip Soos, warns this may be helping a new generation to over-leverage into mortgages they can’t afford, leaving their parents’ homes exposed. “Unfortunately, this loan guarantee strategy in a rising housing market for securing ever-larger amounts of debt is essentially pyramid or Ponzi finance. This leaves many parents in a dangerous predicament should their children experience difficulties making loan payments, let alone defaulting and suffering foreclosure.” “In reality, many parents – the Baby Boomer cohort – are asset-rich but income-poor. The blunt fact is few parents have enough savings and other liquid assets on hand to meet their legal obligations without selling their home if their children default,” the report warns.

Property experts disagree furiously about whether prices are in a bubble and about the best measure of housing affordability. Treasury secretary John Fraser has said that Sydney house prices are in a “bubble”. But many economists remain wary of the term and point out that supply constraints and strong population growth will underpin prices, even if slower wages growth inhibits further price gains. LF Economics argues that price gains have outstripped the fundamental worth of properties. “Financial regulators have ignored the Ponzi lending practices by lenders, believing the RBA will have the adequate ability to bail them out at taxpayers’ expense the day this classic Ponzi lending scheme breaks down.”

Bailout?

• Melbourne Apartment Prices Drop by Most Since 2014 (BBG)

Apartment prices in Melbourne fell at the fastest pace in more than two years in November, reinforcing concerns about a looming oversupply of units in Australia’s second-largest city. The 3.2% month-on-month drop is the largest such decline since May 2014, according to figures from data provider CoreLogic Inc. This dragged down the overall increase in dwelling values across the nation’s state capitals to 0.2%, the smallest rise since March this year. Record low interest rates put in place by the Reserve Bank of Australia to help ease the economy’s shift away from mining investment and combat low inflation have helped to spur a housing boom in the nation’s biggest centers and the central bank has repeatedly voiced concern that apartment gluts are developing in central Melbourne and Brisbane.

“Risks around the projected large increases in supply in some inner-city apartment markets are coming to the fore,” the RBA said in its quarterly financial stability review in October. Shayne Elliott, CEO of Australia and New Zealand Bank, said Wednesday that the lender had become increasingly cautious about parts of the housing market. He warned about pockets of over-building, particularly in the small apartments segment. “There are emerging signs of stress” in the economy, the head of Australia’s third-biggest bank told a Reuters event in Sydney. The difficulty for both the RBA and commercial lenders in judging the state of the market is that in other areas house prices have been accelerating. In Sydney, where auction clearance rates have been around the 80% mark for the past three months, the median dwelling price has risen to A$845,000 ($625,000).

Schäuble invites in the vultures.

• Greece Isn’t ‘Crying Wolf’ on Debt Relief (BBG)

Paul Kazarian says he’s spent “tens of millions of dollars” mobilizing a team of a hundred analysts to scrutinize Greece’s assets and liabilities. According to him, everyone else – including the IMF, the credit-rating agencies, the EU and the Greek government itself — is massively overstating the problem of the nation’s debt burden relative to economic output. The problem is, the more he tries to convince the world to accept his version of the numbers, the harder it may get for Greece to win the additional debt relief that most economic observers agree is vital to its recovery. Kazarian, an alumnus of (where else) Goldman Sachs, says the investment firm he founded in 1988, Japonica Partners, is the largest private holder of Greek government debt.

Since he first made his interest known about four years ago, he’s declined to be specific about how much he’s invested, or what prices he paid, or whether he’s up or down or sideways on the trade. This isn’t just your standard tale of a bondholder trying to boost the value of his investments by talking his book. What Kazarian has tried to do for the past four years is treat the sovereign nation of Greece the same way he might a private company he’d taken over: by detailing its assets and liabilities, looking for ways to enhance asset value while reducing liabilities, and, most importantly, seeking to install his own managers to take charge. The more you reflect on that latter notion, the more disturbing Kazarian’s larger-than-life presence on the Greek financial scene becomes.

As the keynote speaker at a conference organized by the American-Hellenic Chamber of Commerce in Athens on Monday, the bespectacled, straight-talking American succeeded in turning the afternoon into The Paul Kazarian Show, berating his audience and his fellow speakers with an odd combination of derision and self-effacing charm and dominating the proceedings by sheer force of personality. (In a previous existence, he gained notoriety for firing BB guns into the empty executive chairs in the boardroom of a company he’d seized control of, accompanying the shots with shouts of “Die!”) Presenting a selection of gems from a presentation that runs to more than 110 slides (Kazarian clearly knows them all by heart), the financier leveled a damning accusation against his hosts: Greece, he said, is “crying wolf for debt relief.”

Payday coming up.

• Angry Mobs Lock Up Indian Bankers As Cash Chaos Soars (ZH)

India’s demonetization campaign is not going as expected. Overnight, banks played down expectations of a dramatic improvement in currency availability, raising the prospect of queues lengthening as salaries get paid and people look to withdraw money from their accounts the Economic Times reported. While much of India has become habituated to the sight of people lining up at banks and cash dispensers since the November 8 demonetisation announcement, bank officials said the message from the Reserve Bank of India is that supplies may not get any easier in the near future and that they should push digital transactions. “We had sought a hearing with RBI as we were not allocated enough cash, but we were told that rationing of cash may continue for some time,” said a banker who was present at one of several meetings with central bank officials.

“Reserve Bank has asked us to push the use of digital channels to all our customers and ensure that we bring down use of cash in the economy,” said a banker. This confirms a previous report according to which the demonstization campaign has been a not so subtle attempt to impose digital currency on the entire population. Bankers have been making several trips to the central bank’s headquarters in Mumbai to get a sense of whether currency availability will improve. Some automated teller machines haven’t been filled even once since the old Rs 500 and Rs 1,000 notes ceased to be legal tender, they said. Typically, households pay milkmen, domestic helps, drivers, etc, at the start of the month in cash. The idea is that all these payments should become electronic, using computers or mobiles.

This strategy however, appears to not have been conveyed to the public, and as Bloomberg adds, “bankers are bracing for long hours and angry mobs as pay day approaches in India.” “Already people who are frustrated are locking branches from outside in Uttar Pradesh, Bihar and Tamil Nadu and abusing staff as enough cash is not available,” said CH Venkatachalam, general secretary of the All India Bank Employees’ Association. The group has sought police protection at bank branches for the next 10 days, he added. Joining many others who have slammed Modi’s decision, the banker said that “this is the fallout of one of the worst planned and executed government decisions in decades.”

He estimates that about 20 million people – almost twice the population of Greece – will queue up at bank branches and ATMs over the coming week, when most employers in India pay their staff. In an economy where 98% of consumer payments are in cash, banks are functioning with about half the amount of currency they need. As Bloomberg notes, retaining public support is crucial for Modi before key state elections next year and a national contest in 2019, however it appears he is starting to lose it. “We are bracing ourselves for payday and fearing the worst,” said Parthasarathi Mukherjee, CEO at Laxmi Vilas Bank. “If we run out of cash we will have to approach the Reserve Bank of India for more. It is tough.”

It’s kind of funny that Trump is seen as the end of a 70-year era.

• The Pillars Of The New World Order (Pieraccini)

Looking at US history over a fairly long period of time, it is easy to see the destructive path that has accompanied the expansion of the American empire over the last seventy years. While World War II was still raging, US strategists were already planning their next steps in the international arena. The new target was immediately identified in the assault and the dismemberment of the Soviet empire. With the collapse of the Berlin Wall and the end of the Soviet economic model as an alternative to the capitalist system, the West found itself faced with what was defined as ‘the end of’ history, and proceeded to act accordingly. The delicate transition from bipolarity, the world-order system based on the United States and the Soviet Union occupying opposing poles, to a unipolar world order with Washington as the only superpower, was entrusted to George H. W. Bush.

The main purpose was to reassure with special care the former Soviet empire, even as the Soviet Union plunged into chaos and poverty while the West preyed on her resources. Not surprisingly, the 90’s represented a phase of major economic growth for the United States. Predictably, on that occasion, the national elite favored the election of a president, Bill Clinton, who was more attentive to domestic issues over international affairs. The American financial oligarchy sought to consolidate their economic fortunes by expanding as far as possible the Western financial model, especially with new virgin territory in the former Soviet republics yet to be conquered and exploited. With the disintegration of the USSR, the United States had a decade to aspire to the utopia of global hegemony. Reviewing with the passage of time the convulsive period of the 90’s, the goal seemed one step away, almost within reach.

The means of conquest and expansion of the American empire generally consist of three domains: cultural, economic and military. With the end of the Soviet empire, there was no alternative left for the American imperialist capitalist system. From the point of view of cultural expansion, Washington had now no adversaries and could focus on the destruction of other countries thanks to the globalization of products like McDonald’s and Coca Cola in every corner of the planet. Of course the consequences of an enlargement of the sphere of cultural influence led to the increased power of the economic system. In this sense, Washington’s domination in international financial institutions complemented the imposition of the American way of life on other countries. Due to the mechanisms of austerity arising from trap-loans issued by the IMF or World Bank, countries in serious economic difficulties have ended up being swallowed up by debt.

Not surprised. A country that needs to refind itself.

• More Than 250,000 People Are Homeless In England (BBC)

More than a quarter of a million people are homeless in England, an analysis of the latest official figures suggests. Researchers from charity Shelter used data from four sets of official 2016 statistics to compile what it describes as a “conservative” total. The figures show homelessness hotspots outside London, with high rates in Birmingham, Brighton and Luton. The government says it does not recognise the figures, but is investing more than £500m on homelessness. For the very first time, Shelter has totted up the official statistics from four different forms of recorded homelessness. These were: • national government statistics on rough sleepers • statistics on those in temporary accommodation • the number of people housed in hostels * the number of people waiting to be housed by social services departments (obtained through Freedom of Information requests).

The charity insists the overall figure, 254,514, released to mark 50 years since its founding, is a “robust lower-end estimate”. It has been adjusted down to account for any possible overlap and no estimates have been added in where information was not available. Charity chief executive Campbell Robb said: “Shelter’s founding shone a light on hidden homelessness in the 1960s slums. “But while those troubled times have faded into memory, 50 years on a modern-day housing crisis is tightening its grip on our country. “Hundreds of thousands of people will face the trauma of waking up homeless this Christmas.

Just in case you thought things are bad now.

• Climate Change Will Stir ‘Unimaginable’ Refugee Crisis, Says Military (G.)

Climate change is set to cause a refugee crisis of “unimaginable scale”, according to senior military figures, who warn that global warming is the greatest security threat of the 21st century and that mass migration will become the “new normal”. The generals said the impacts of climate change were already factors in the conflicts driving a current crisis of migration into Europe, having been linked to the Arab Spring, the war in Syria and the Boko Haram terrorist insurgency. Military leaders have long warned that global warming could multiply and accelerate security threats around the world by provoking conflicts and migration. They are now warning that immediate action is required.

“Climate change is the greatest security threat of the 21st century,” said Maj Gen Munir Muniruzzaman, chairman of the Global Military Advisory Council on climate change and a former military adviser to the president of Bangladesh. He said one metre of sea level rise will flood 20% of his nation. “We’re going to see refugee problems on an unimaginable scale, potentially above 30 million people.” Previously, Bangladesh’s finance minister, Abul Maal Abdul Muhith, called on Britain and other wealthy countries to accept millions of displaced people.

Brig Gen Stephen Cheney, a member of the US Department of State’s foreign affairs policy board and CEO of the American Security Project, said: “Climate change could lead to a humanitarian crisis of epic proportions. We’re already seeing migration of large numbers of people around the world because of food scarcity, water insecurity and extreme weather, and this is set to become the new normal. “Climate change impacts are also acting as an accelerant of instability in parts of the world on Europe’s doorstep, including the Middle East and Africa,” Cheney said. “There are direct links to climate change in the Arab Spring, the war in Syria, and the Boko Haram terrorist insurgency in sub-Saharan Africa.”

Debt Rattle November 25 2016

Nov 252016

November 25, 2016 Posted by Raúl Ilargi Meijer at 9:53 am Finance Tagged with: debt, deficits, deflation, Erdogan, Lesbos, Merkel, OPEC, refugees, Russia, WMP 10 Responses »

Robert Capa Anti-fascist militia women at Barcelona street barricade 1936

• America’s Trade Advantage: Large Deficits (Pettis)

• All Aboard Post-TPP World (Escobar)

• The Bank of Japan Can’t Keep Stores From Cutting Prices (BBG)

• China Banking Regulator Wrestles With $2.9 Trillion Off-Balance Sheet WMPs (R.)

• China Central Bank Warns Against Outflows Disguised As Investment (R.)

• ECB Says It Can Shield Eurozone From Global Finance Instability (BBG)

• The Snowball of Debt (HowMuch/VC)

• Russia to OPEC: Oil Freeze Is All You Get

• Germany, 15 Other Countries Press For Arms Control Deal With Russia (R.)

• Fillon Calls Hollande’s Hardline Policy On Russia ‘Absurd’ (EuA)

• EU Parliament President Martin Schulz to Step Down, Run Against Merkel (WSJ)

• Increasingly Rapid Ice Melt Could Trigger Uncontrollable Climate Change (G.)

• Erdogan Threatens To Open Borders To Refugees After EU Vote (AFP)

• Refugees Torch Lesbos Camp After Gas Explosion Kills Two (AFP)

Interesting point of view. What Pettis ignores is that the issuer of a global reserve currency MUST always run a deficit, or the world will be starved of money.

• America’s Trade Advantage: Large Deficits (Pettis)

Even China’s official voice, the People’s Daily, pointed out Monday how unlikely it was that China could “overtake the U.S. to lead the world.” This is because China must accommodate high and rising trade surpluses to moderate a stark trade-off between rising debt and rising unemployment. After years of deep imbalances and accelerating credit growth, China this year met its 6.7% GDP-growth target—needed to stabilize employment—only by growing debt in a frightening amount equal to more than 40 percentage points of GDP. Debt limits are a major constraint on China’s difficult adjustment. The country must therefore rely on its trade surplus for crucial breathing space, with each percentage point of surplus substituting for about 10 percentage points of debt.

To see how this affects China’s leadership role, consider how the U.S., only after 50 years as the world’s largest economy and a negligible governance role, finally came to dominate global trade. This occurred over two separate periods. The first ran for roughly five decades beginning with World War I. Two highly destructive world wars left all the world’s major economies acutely short of capital—all except for the U.S., which began the period as the world’s largest surplus nation and its main exporter of savings. This inevitably put America at the center of the emerging economic order. By the 1970s, conditions were very different. The other advanced nations had rebuilt their economies, global savings were abundant and other forms of demand determined the growth rates for most economies.

Rather than receive access to scarce capital, these countries wanted instead to export capital, i.e., to expand demand by increasing exports of tradable goods while constraining imports. With its flexible financial system and the gradual elimination by the 1970s of all capital restrictions, the U.S. quickly adapted and began running large deficits, the costs of which, in the form of unemployment and consumer debt, America was willing to absorb for political advantage. This is the key reason why China cannot replace the U.S. as the leader of global trade.

[..] Opposition to trade, particularly among Americans most vulnerable to unemployment and consumer debt, was therefore inevitable. But rather than other countries reorganizing around the surpluses China requires, it is more likely that over time global trade will become unstable and increasingly contentious. That is in fact closer to the historical norm than the anomalous stability of the four decades before 1914 and the six after 1945. A U.S. retreat from trade would clearly be damaging to global prospects. Many economists argue that it will also damage U.S. prospects. But they are almost certainly wrong. History suggests that intervention usually benefits diversified economies with large, persistent trade deficits, especially when driven at least in part by distortions abroad.

Escobar should read Pettis.

• All Aboard Post-TPP World (Escobar)

A half-hearted near handshake between US President Barack Obama and Russian President Vladimir Putin before and after they spoke ‘for about four minutes’, standing up, on the sidelines of the APEC summit in Lima, Peru, captured to perfection the melancholic dwindling of the Obama era. A whirlwind flashback of the fractious relationship between Obama and ‘existential threats’ Russia and China would include everything from the Washington-sponsored Maidan in Kiev to Obama’s ‘Assad must go’ in Syria, with special mentions to the oil price war, sanctions, the raid on the ruble, extreme demonization of Putin and all things Russian, provocations in the South China Sea – all down to a finishing flourish; the death of the much vaunted TPP treaty, which was reconfirmed at APEC right after the election of Donald Trump.

It was almost too painful to watch Obama defending his not exactly spectacular legacy at his final international press conference – with, ironically, the backdrop of the South American Pacific coast – just as Chinese President Xi Jinping all but basked in his reiterated geopolitical glow, which he already shares with Putin. As for Trump, though invisible in Lima, he was everywhere. The ritual burial, in Peru’s Pacific waters, of the «NATO on trade» arm of the pivot to Asia (first announced in October 2011 by Hillary Clinton) thus offered Xi the perfect platform to plug the merits of the Regional Comprehensive Economic Partnership (RCEP), amply supported by China. RCEP is an ambitious idea aiming at becoming the world’s biggest free trade agreement; 46% of global population, with a combined GDP of $17 trillion, and 40% of world trade.

RCEP includes the 10 ASEAN nations plus China, Japan, South Korea, India, Australia and New Zealand. The RCEP idea was born four years ago at an ASEAN summit in Cambodia – and has been through nine rounds of negotiations so far. Curiously, the initial idea came from Japan – as a mechanism to combine the plethora of bilateral deals ASEAN has struck with its partners. But now China is in the lead. [..] Meanwhile, Putin and Xi met once again – with Putin revealing he’s going to China next spring to deepen Russian involvement in the New Silk Roads, a.k.a. One Belt, One Road (OBOR). The ultimate objective is to merge the Chinese-led OBOR with the development of the Russia-led Eurasia Economic Union (EEU).

That’s the spirit behind 25 intergovernmental agreements in economy, investment and nuclear industry signed by Russian PM Dmitry Medvedev and Chinese PM Li Keqiang in St. Petersburg in early November, as well as the set up of a joint Russia-China Venture Fund. In parallel, almost out of blue, and with a single stroke, Turkey President Tayyip Erdogan, on the way back from a visit to Pakistan and Uzbekistan, confirmed what had been all but evident for the past few months; “Why shouldn’t Turkey be in the Shanghai Five? I said this to Mr. Putin, to (Kazakh President) Nazarbayev, to those who are in the Shanghai Five now… I think if Turkey were to join the Shanghai Five, it will enable it to act with much greater ease”.

How is it possible that this is still allowed to continue?

• The Bank of Japan Can’t Keep Stores From Cutting Prices (BBG)

While Governor Haruhiko Kuroda’s vow to overshoot the Bank of Japan’s 2% inflation target caused a stir among monetary policy watchers in September, it’s yet to have an impact among retailers. Stores as diverse as supermarket operator Aeon, Mister Donut and Wal-Mart have all announced price cuts since Kuroda’s pledge, underscoring the weakness in Japanese consumer spending and the difficulty of overcoming the “deflationary mindset” that the BOJ set out to eradicate. Consumer prices fell for an eighth straight month in October, a government report showed Friday. “Companies are just being practical,” said Masamichi Adachi at JPMorgan. “No one is buying the BOJ’s new commitment. There is strong doubt that the BOJ can even achieve the 2% target and the name ‘overshooting commitment’ itself is hard to understand for ordinary people.”

Falling prices and expectations for more of the same could also drag on annual wage talks, which start soon. Kuroda said last week that he’s “paying close attention” to these, as weak growth in pay has been hampering efforts to generate inflation. It’s essential for Japanese companies to set salaries based on the premise of 2% inflation, he said. Base salaries, which exclude bonuses and overtime, will rise this year by less than last year, Dai-ichi Life Research Institute forecast in a report this month. This reinforces frugality among shoppers and encourages retailers to compete by discounting.

Beijing does not control its own economy. It’s hostage to the shadow banks.

• China Banking Regulator Wrestles With $2.9 Trillion Off-Balance Sheet WMPs (R.)

China’s banking regulator may be getting serious about how lenders provision for the more than 20 trillion yuan ($2.9 trillion) of wealth management products (WMPs) that have been issued as non-guaranteed off-balance sheet liabilities. The China Banking Regulatory Commission (CBRC), in new draft rules released on Wednesday, demanded banks apply a more “comprehensive” approach to cover “substantive risks” related to off-balance sheet activities, or shadow banking. The guidelines, which would replace 2011 regulations and are awaiting comment, proposed such measures as adding impairment loss allowances and properly calculating risk-weighted assets for off-balance sheet activity.

It was the latest measure announced by CBRC to curb shadow banking risks and address the rapid growth of WMPs, which amounted to 26.28 trillion yuan ($3.8 trillion) by end-June, data from the Banking Sector Wealth Management Product Registration and Custodian Centre showed. That amounts to around 39% of China’s GDP in 2015. About 77%, or 20.18 trillion yuan, of the products are non-guaranteed bank WMPs, a major component of shadow banking activity, the data showed. CBRC Chairman Shang Fulin warned banks in September the rampant growth of their off-balance sheet operations must be curtailed, and represented a “hidden credit risk that potentially threatens financial safety”.

[..] China’s mid-tier and small lenders, which have raised a greater proportion of their funding using WMPs, are more vulnerable to off-balance sheet liquidity risks. One important obstacle is capital. A very strict interpretation of the draft regulations, requiring banks to hold reserves against all off-balance sheet issuance, would require banks to raise as much as 1.7 trillion yuan to maintain current capital levels, said Jack Yuan, a banking analyst at Fitch. “The incentives for banks to issue more off-balance sheet WMPs still exists,” said Yuan. “There’s nothing in these rules that disincentivizes banks from continuing on with more off-balance sheet activity.” “It’s like driving a car,” said a risk manager at another mid-size lender. “If you don’t follow the rules, there’s a mess. But if you follow the rules, that doesn’t mean you have to slow down.”

How do you tell them apart though?

• China Central Bank Warns Against Outflows Disguised As Investment (R.)

China’s central bank has urged commercial banks in Shanghai to guard against money outflows via the Shanghai Free Trade Zone (FTZ) disguised as foreign investment, two sources with knowledge of the instructions said on Friday. The Shanghai headquarters of the People’s Bank of China asked for particular vigilance against money originating in other provinces or cities in China that flowed into the FTZ en route abroad, the banking industry sources said. The guidance from the PBOC’s was the latest in a string of measures to stem surging capital outflows as the yuan currency plumbs 8-1/2 year lows against the surging U.S. dollar.

“The central bank has urged lenders to strengthen due diligence to prevent capital outflows disguised as outbound investment,” said one source, who declined to be identified because he was not authorized to speak publicly about the matter. On Wednesday it said it would crack down on capital flight and closely monitor abnormal capital flows through the FTZ. In a report on Tuesday, Capital Economics estimated that capital outflows last month were the largest since January, and posed a threat to China’s exchange rate regime. The Shanghai FTZ was launched in 2013 to promote international trade and cross-border investment, but three years later the city government is trying to balance efforts to accelerate financial reforms in the zone while preventing capital outflows.

But of course….

• ECB Says It Can Shield Eurozone From Global Finance Instability (BBG)

The ECB is confident it will be able to continue shielding the euro area from the risk of a sudden correction in asset prices, after political events such as the election of Donald Trump threaten to increase volatility in coming months. “We are certainly seeing a correction coming from the U.S.,” ECB Vice President Vitor Constancio said on Thursday in an interview with Bloomberg TV’s Matt Miller. “The ECB will continue to exert its stabilizing role, so I don’t think there will be significant contagion to Europe.” Constancio spoke on the occasion of the publication of the ECB’s twice-yearly Financial Stability Review.

The report warns that the risk of an abrupt global market correction has intensified on the back of widespread political uncertainty, posing a threat to banks, stability and economic growth. While the policies of incoming President Trump may lead to higher spending and faster inflation in the U.S., their effect on the euro area is difficult to gauge given the possibility of protectionist tit-for-tats and higher chances of populist victories in votes across the continent. “More volatility in the near future is likely and the potential for an abrupt reversal remains significant,” according to the bank. “Elevated geopolitical tensions and heightened political uncertainty amid busy electoral calendars in major advanced economies have the potential to reignite global risk aversion and to trigger a major confidence shock.”

A similar graph of private debt would be more revealing.

• The Snowball of Debt (HowMuch/VC)

With the U.S. National Debt closing in on the $20 trillion mark, there has been a lot of conversation in Washington about debt and its role in government. And most of that conversation right now revolves around President-elect Donald Trump. On one hand, the Trump campaign had early rhetoric in the Presidential campaign that the elimination of the deficit and existing government debt would be paramount if elected. The Trump administration has also been highly critical of the Federal Reserve, saying that the Fed’s policies create a “false economy”. As a result, some see Trump embracing the unique opportunity to put his stamp on how the Federal Reserve does business in early 2017.

On the other hand, even many conservative think tanks are concerned about what Trump policies mean for government debt. Rebuilding infrastructure is not cheap, and widely-cited estimates see the national debt increasing by anywhere from $5.3 trillion to $11.5 trillion over the next 10 years. While giant numbers like $20 trillion sound abstract and meaningless, converting them to debt-per-capita can make things more intuitive. The per-capita amount shows the amount of debt that exists per citizen, and makes things plain and simple. Today’s infographic from HowMuch.net, a cost information site, shows government debt-per-capita in every country in the world, including the United States.

Here are the countries where people owe the most debt per person:
Japan: $85,694.87 per person
Ireland: $67,147.59 per person
Singapore: $56,112.75 per person
Belgium: $44,202.75 per person
United States: $42,503.98 per person
Canada: $42,142.61 per person
Italy: $40,461.11 per person
Iceland: $39,731.65 per person
Australia: $38,769.98 per person
United Kingdom: $36,206.11 per person
Of course, debt-per-capita isn’t the only lens to view government debt.

Manipulating prices with empty words. If they ever sign an agreement, it will be a hollowed out one, and it won’t last more than two weeks.

• Russia to OPEC: Oil Freeze Is All You Get

Facing pressure from OPEC to make a significant output reduction, Russia reiterated its readiness to freeze oil production at current levels, arguing that the offer amounted to a cut compared with next year’s plans. A production cap would mean Russia pumping 200,000 to 300,000 barrels a day less than planned in 2017, Energy Minister Alexander Novak told reporters in Moscow on Thursday. That means a freeze would be “quite a difficult and harsh situation for us as our plans envisioned an output growth next year,” he said. OPEC, which is seeking to finalize its own supply cuts of as much as 1.1 million barrels a day next week, asked non-members to contribute by cutting daily production by about 500,000 barrels, Novak said.

OPEC reached a preliminary deal in September to reduce collective output to 32.5 million to 33 million barrels a day, compared with the group’s estimate of 33.6 million in October. Talks on individual production quotas continued this week with the aim of securing a final pact by the ministerial meeting in Vienna on Nov. 30. The group will meet lower-level OPEC officials to discuss cooperation on Nov. 28, followed by a Nov. 30 breakfast meeting between ministers and non-members, including Russia, before the ministerial summit, according to people familiar with the matter.

Merkel’s anti-Putin stance will be used against her. Germany and Russia should always try to talk. They are too close to not talk.

• Germany, 15 Other Countries Press For Arms Control Deal With Russia (R.)

Fifteen European countries have joined Germany in its push for a new arms control agreement with Moscow, saying more dialogue is needed to prevent an arms race in Europe after Russia’s actions in Crimea and eastern Ukraine, a German newspaper said. “Europe’s security is in danger,” German Foreign Minister Frank-Walter Steinmeier told Die Welt newspaper in an interview published on Friday. “As difficult as ties to Russia may currently be, we need more dialogue, not less.” Steinmeier, a Social Democrat who has been nominated to become German president next year, first called for a new arms control deal with Russia in August to avoid an escalation of tensions in Europe.

Fifteen other countries – all belonging to the Organization for Security and Cooperation in Europe – have since joined Steinmeier’s initiative: France, Italy, Austria, Belgium, Switzerland, the Czech Republic, Spain, Finland, the Netherlands, Norway, Romania, Sweden, Slovakia, Bulgaria and Portugal. The group plans to issue a joint statement on Friday and will meet again on the sidelines of a Dec. 8-9 ministerial level OSCE meeting in Hamburg that will be hosted by Germany, which now holds the rotating presidency of the OSCE. Steinmeier condemned Russia’s annexation of Crimea and its support for separatists in eastern Ukraine, saying such acts undermined delicate bonds of trust built up over decades and threatened to unleashed a new arms race.

U.S. officials are skeptical about the initiative, citing Russia’s failure to abide by existing agreements and treaties. Steinmeier also drew criticism from U.S. and NATO officials in June after warning that Western military maneuvers in eastern Europe amounted to “saber-rattling and shrill war cries” that could worsen tensions with Russia.

I’ve said it before: it’s never a good feeling when the looses cannons make most sense. But that’s 2016 for you.

• Fillon Calls Hollande’s Hardline Policy On Russia ‘Absurd’ (EuA)

In a televised debate last night (24 November) French conservative frontrunner François Fillon said Russia must be anchored to Europe, or else Moscow would couple with China, to the detriment of the continent. The debate was largely seen as the last chance for Alain Juppé, who came second in the first round of the primary elections of the conservatives last Sunday, to impress the conservative electorate and catch up on Fillon ahead of the 27 November run-off. The one-and-a-half hour debate was generally uncontroversial. One of the rare contentious exchanges was when Juppé questioned Fillon’s perceived closeness to Russian President Vladimir Putin. Putin knew Fillon when they were both prime ministers.

In an unusual televised appearance the Russian president praised him Wednesday as a “great professional” and a “very principled person”. “This must be the first presidential election in which the Russian president chooses his candidate,” Juppé said. Fillon brushed off Putin’s comments but said the West must work more closely with Russia at a time when relations are at their worst since the Cold War. “Russia is a dangerous country if we treat it as we have treated it for the last five years,” Fillon said. He said the real danger to Europe was not Russia but the economic threat of “the Asian continent”. Fillon argued that Russia should be anchored to Europe geopolitically or risk seeing Moscow forge alliances with China instead.

He called “absurd” the hardline policy of French President François Hollande with regard to Russia, saying it only made Moscow harden its positions and exacerbate its nationalist reflexes. The French conservative frontrunner said the EU would not change alliances and would not abandon its transatlantic link, but added that Paris didn’t need the permission from Washington to talk to Moscow. “What I am asking is that we sit down at a table with the Russians without asking for the agreement of the United States and that we re-establish a link, if not a relation based on confidence, which will make it possible to anchor Russia to Europe.”

His EU pension for life will be stunning. And now he can add a German one.

• EU Parliament President Martin Schulz to Step Down, Run Against Merkel (WSJ)

European Parliament President Martin Schulz said on Thursday that he would stand down in January and run in next year’s elections in Germany, where he is seen as a potential rival to Chancellor Angela Merkel. The 60-year-old, who has been a member of the European Union’s legislature for the past 22 years, said it was “not an easy decision” to quit. Mr. Schulz’s return to German politics after more than 20 years in Brussels is fueling speculation that he could lead his Social Democratic Party’s ticket at next year’s general election, to run against Ms. Merkel’s conservatives. “My commitment to the European project is unwavering. From now on I will be fighting for this project from the national level, but my values don’t change,” Mr. Schulz said.

He noted that as the largest country in the EU, Germany “bears a special responsibility” which he will strive to fulfill, as of next year, from Berlin. Mr. Schulz didn’t comment on the possibility that he could succeed Frank-Walter Steinmeier as Germany’s foreign minister after the latter vacates his post early next year to run for the largely ceremonial office of German president. The SPD has said it would decide in January who would lead it into the general election next fall. SPD officials said Sigmar Gabriel, party chairman and economics minister, had the first shot, and would have to voluntarily yield to Mr. Schulz. The two men are longtime friends.

We play around, very much at our own peril. with systems far too complex for us to understand. We simply deny we don’t understand. And there’s something ironically stupid in the Trump team taking away funding from NASA to be used in … space exploration. That you don’t make up.

• Increasingly Rapid Ice Melt Could Trigger Uncontrollable Climate Change (G.)

Arctic scientists have warned that the increasingly rapid melting of the ice cap risks triggering 19 “tipping points” in the region that could have catastrophic consequences around the globe. The Arctic Resilience Report found that the effects of Arctic warming could be felt as far away as the Indian Ocean, in a stark warning that changes in the region could cause uncontrollable climate change at a global level. Temperatures in the Arctic are currently about 20C above what would be expected for the time of year, which scientists describe as “off the charts”. Sea ice is at the lowest extent ever recorded for the time of year. “The warning signals are getting louder,” said Marcus Carson of the Stockholm Environment Institute and one of the lead authors of the report. “[These developments] also make the potential for triggering [tipping points] and feedback loops much larger.”

Climate tipping points occur when a natural system, such as the polar ice cap, undergoes sudden or overwhelming change that has a profound effect on surrounding ecosystems, often irreversible. In the Arctic, the tipping points identified in the new report, published on Friday, include: growth in vegetation on tundra, which replaces reflective snow and ice with darker vegetation, thus absorbing more heat; higher releases of methane, a potent greenhouse gas, from the tundra as it warms; shifts in snow distribution that warm the ocean, resulting in altered climate patterns as far away as Asia, where the monsoon could be effected; and the collapse of some key Arctic fisheries, with knock-on effects on ocean ecosystems around the globe.

The research, compiled by 11 organisations including the Arctic Council and six universities, comes at a critical time, not only because of the current Arctic temperature rises but in political terms. Aides to the US president-elect, Donald Trump, this week unveiled plans to remove the budget for climate change science currently used by Nasa and other US federal agencies for projects such as examining Arctic changes, and to spend it instead on space exploration.

More power away from Merkel.

• Erdogan Threatens To Open Borders To Refugees After EU Vote (AFP)

Turkish President Recep Tayyip Erdogan on Friday threatened to throw open Turkey’s borders to illegal migrants after the European Parliament voted to back a freeze in membership talks with Ankara. “Listen to me. If you go any further, then the frontiers will be opened, bear that in mind,” Erdogan told the EU in a speech in Istanbul. On March 18, Ankara and Brussels forged a deal for Turkey to halt the flow of migrants to Europe – an accord that has largely been successful in reducing numbers crossing the Aegean Sea.

It’s a miracle we haven’t seen much moe of this kind of thing happen.

• Refugees Torch Lesbos Camp After Gas Explosion Kills Two (AFP)

Angry migrants set fire to a camp on the Greek island of Lesbos after a woman and a six-year-old child died following a gas cylinder explosion, local police said. The explosion occurred while the 66-year-old woman was cooking, police said, adding that the child’s mother and four-year-old sibling were hospitalised with serious injuries. In an apparent act of rage, migrants then set fire to the Moria camp on Lesbos, causing significant damage, police said. Firefighters arrived at the scene to try to put out the flames. Ensuing clashes between migrants and police left six refugees slightly injured. Some migrants fled the camp after the blast but had since returned and calm was being restored, a police source said.

Several fires have erupted in refugee camps on the Greek islands, where some 16,000 people became stranded after the European Union signed a deal that was aimed at stemming the influx of migrants. Moria has a capacity for 3,500 people but currently houses more than 5,000. Part of the camp was badly damaged in a fire on September 19 during clashes between migrants and police, and thousands had to be moved out before returning two days later. Nearly 66,000 refugees and migrants are currently stranded in Greece, according to official figures.

Debt Rattle October 11 2016

Oct 112016

October 11, 2016 Posted by Raúl Ilargi Meijer at 8:42 am Finance Tagged with: Brexit, capitalism, clean energy, hate, nuclear, OPEC, outflows, racism, savings, selloff, slaves Comments Off

NPC Grand Palace shoe shining parlor, Washington DC 1921

• “How Do You Have Capitalism Without Any Cost Of Capital?” (BBG)

• 7 in 10 Americans Have Less Than $1,000 In Savings (MF)

• After Becoming Debt Slaves, Millennials Get Blamed for Lousy Economy (WS)

• S&P 500 Triangle Chart Pattern ‘Warns Of A Big Selloff’ (MW)

• The Bank of Mom and Dad is Australia’s Fastest-Growing Housing Lender (BBG)

• Goldman Warns China’s Outflows May Be Worse Than They Look (BBG)

• ‘Why Do They Hate Us So?’-A Western Scholar’s Reply to a Russian Student (SC)

• Remainers, Brexit, Racism and a Self-Fulfilling Prophecy (Hannan)

• Greece Gets Fresh Loan Payout as Euro Area Looks to Help on Debt (BBG)

• Brazil Votes To Amend Constitution, Ban Spending Increases For 20 Years (BBG)

• Global Clean Energy Investment Dropped 43% in Worst Quarter Since 2013 (BBG)

• Russia’s Rosneft Boss Sechin Says No To OPEC Oil Cut/Freeze (R.)

• Britain’s Nuclear Cover-Up (NYT)

Titans of finance gather and sulk.

• “How Do You Have Capitalism Without Any Cost Of Capital?” (BBG)

Mary Callahan Erdoes, one of JPMorgan Chase’s most senior executives, summed up her industry’s mood like this: “There is no excitement,” she told throngs of bankers gathered in Washington. “There is a lot of handwringing.” Again and again, speakers at the Institute of International Finance’s three-day meeting in Washington, which wrapped up Saturday, bemoaned the inability of central banks to rev up economic growth, as well as the drag of tougher regulations and the looming impact of Brexit. Concerns over Deutsche Bank’s mounting legal costs deepened the gloom. Slow growth is leaving companies little reason to expand, fueling the public’s frustration and giving rise to extreme political views and nationalism, said Erdoes, 49, who runs JPMorgan’s asset-management operations.

Low interest rates – instead of better fiscal stimulus – are taking a toll on the entire system, she said. “We had a very smart economist at JPMorgan ask me the following question: How do you have capitalism without any cost of capital? And therein lies the problem.” [..] Goldman Sachs President Gary Cohn called the world’s central banks an “ineffective cartel,” as actions in Europe and Japan lead to negative rates and hamstring other policy makers. The outlook for low growth is long-term, he said. “I don’t see this changing,” Cohn said Friday. “We keep saying we’re getting closer to the end, but I don’t think we’re getting closer to the end.”

I’m not sure how one writes an article like this and completely fails to mention that for millions of Americans, it’s not a matter of bad saving habits, but of spending everything on the basics.

• 7 in 10 Americans Have Less Than $1,000 In Savings (MF)

The U.S. is often referred to as the land of economic opportunity. Apparently, it’s also the land of consumption and “spend everything you’ve got.” We don’t have to look far for confirmation that Americans are generally poor savers. Every month the St. Louis Federal Reserve releases data on personal household savings rates. In July 2016, the personal savings rate was just 5.7%. Comparatively, personal savings rates in the U.S. 50 years ago were double where they are today, and nearly all developed countries have a higher personal savings rate than the United States. In other words, Americans are saving less of their income than they should be — the recommendation is to save between 10% and 15% of your annual income — and they’re being forced to do more with less in terms of investing.

However, new data emerged this week from personal-finance news website GoBankingRates that shows just how dire Americans’ savings habits really are. Last year, GoBankingRates surveyed more than 5,000 Americans only to uncover that 62% of them had less than $1,000 in savings. Last month GoBankingRates again posed the question to Americans of how much they had in their savings account, only this time it asked 7,052 people. The result? Nearly seven in 10 Americans (69%) had less than $1,000 in their savings account. Breaking the survey data down a bit further, we find that 34% of Americans don’t have a dime in their savings account, while another 35% have less than $1,000. Of the remaining survey-takers, 11% have between $1,000 and $4,999, 4% have between $5,000 and $9,999, and 15% have more than $10,000.

Furthermore, even though lower-income adults struggle with saving money more than middle- and upper-income folks, no income group did particularly well. Some 29% of adults earning more than $150,000 a year, and 44% making between $100,000 and $149,999, had less than $1,000 in savings. Comparatively, 73% of the lowest income adults (those earnings $24,999 or less annually) had less than $1,000 in their savings account. There was even minimal difference between multiple generations of Americans. From seniors aged 65 and up to young millennials aged 18 to 24, between 62% and 72% of Americans had less than $1,000 in a savings account.

Great little piece by Wolf Richter.

• After Becoming Debt Slaves, Millennials Get Blamed for Lousy Economy (WS)

Over the past few days, the Diamond Producers Association launched its first new ad campaign in five years after watching retail sales of diamond jewelry slow down, as Millennials built on the habit pioneered by prior generations of delaying or not even thinking about marriage, and thus not being sufficiently enthusiastic about buying diamond engagement rings. The campaign, according to Adweek, is designed to motivate Millennials “to commemorate their ‘real,’ honest relationships with diamonds, even if marriage isn’t part of the equation.” Mother New York, the agency behind the campaign, spent months interviewing millennials, according to Quartz, and learned that they associated diamonds with a “fairytale love story that wasn’t relevant to them.”

So the premium jewelry industry, seeing future profits at risk, needs to do something about that. A year ago, it was Wall Street – specifically Goldman Sachs – that did a lot of hand-wringing about millennials. “They don’t trust the stock market,” Goldman Sachs determined in a survey. Only 18% thought that the stock market was “the best way to save for the future.” It’s a big deal for Wall Street because millennials are now the largest US generation. There are 75 million of them. They’re supposed to be the future source of big bonuses. Wall Street needs to figure out how to get to their money. The older ones have seen the market soar, collapse, re-soar, re-collapse, re-soar…. They’ve seen the Fed’s gyrations to re-inflate stocks. They grew up with scandals and manipulations, high-frequency trading, dark pools, and spoofing.

They’ve seen hard-working people get wiped out and wealthy people get bailed out. Maybe they’d rather not mess with that infernal machine. And today, the Los Angeles Times added more fuel. “They’re known for bouncing around jobs, delaying marriage, and holing up in their parents’ basements,” it mused. Everyone wants to know why millennials don’t follow the script. Brick-and-mortar retailers have been complaining about them for years, with increasing intensity, and a slew of specialty chains have gone bankrupt, a true fiasco for the industry, even as online retailers are laughing all the way to the bank. “For starters, millennials are not big spenders, at least not in the traditional sense,” the Times said. Yet most of them spend every dime they earn, those that have decent jobs. But much of that spending goes toward their student-loan burden and housing.

Trying to fit human behavior into triangles.

• S&P 500 Triangle Chart Pattern ‘Warns Of A Big Selloff’ (MW)

The S&P 500 is moving fast toward an impending breakout that could be bad news for investors. “And it’s gonna be big, by all accounts,” said Carter Braxton Worth, a technical analyst at research firm Cornerstone Macro. The S&P 500 has been trading within a “symmetrical triangle” on a number of time scales, as the index traced out a pattern of rising lows and falling highs. Since the upper and lower boundary lines are narrowing to a point, it’s just a matter of time before the S&P 500 breaks above or below one of them. “It is a circumstance where buyers and sellers are matched off so evenly that purchases being made by those who like a particular security are in the same order of magnitude as the selling being done by those who dislike the security,” Worth wrote in a note to clients.

His research suggests that the resolution of these standoffs is usually “aggressive,” with the index moving past the declining or rising trendlines “in a meaningful way.” Many technicians believe triangles represent continuation patterns, or periods of pause in a bigger trend, which means they should eventually be resolved in the direction of the preceding trend. In the S&P 500’s case, that would mean a big rally is coming. But Worth said that based on his interpretation of the charts, the S&P 500’s triangle looks more like a reversal pattern. “We believe the current formation is a setup for a move lower,” Worth said.

Hoping that just this once it’s different.

• The Bank of Mom and Dad is Australia’s Fastest-Growing Housing Lender (BBG)

Beset by lending curbs and bubble-esque prices, first-time home buyers in Australia are turning to a rapidly growing source of finance: The Bank of Mom and Dad. More parents are taking advantage of record-low interest rates to refinance their properties and help their grown-up kids onto the housing ladder amid sky-rocketing house values. Digital Finance Analytics estimates the number of Aussies getting help from their parents has soared to more than half of first-home buyers from just 3% six years ago. Australia’s housing rally has favored baby-boomers and locked out youth, compounding an inter-generational shift of wealth.

As the number of bank loans to first-time buyers dwindles, the average slice of cash handed to them by parents has almost quadrupled in the past six years, DFA says. The downside: a market that the Reserve Bank of Australia is already wary of may get further inflated. First-time buyers are “being infected by the notion that property is about wealth building, rather than somewhere to live,” said Martin North, Principal at DFA. That “may be tested if interest rates rise later, or property prices fall from their current illogical stratospheric levels.” [..] The boom is turning some homes into cash dispensers. More than two thirds of owners that refinanced houses worth more than A$750,000 did so to extract capital for reasons including helping their kids. Near the start of 2010, the average helping hand from parents was about A$23,000; today, it’s more than A$80,000.

“..they don’t have a strong willingness to hold the yuan due to depreciation expectations..” Does that rhyme with the SDR basket thing?

• Goldman Warns China’s Outflows May Be Worse Than They Look (BBG)

China’s currency outflows may be bigger than they look, with Goldman Sachs warning that a rising amount of capital is exiting the country in yuan rather than in dollars. While the nation’s foreign-exchange reserves have stabilized and lenders’ net foreign-exchange purchases for clients have fallen close to a one-year low, official data show that $27.7 billion in yuan payments left China in August. That’s compared with a monthly average of $4.4 billion in the five years through 2014. Such large cross-border moves can’t be explained by market-driven factors and need to be taken into account when measuring currency outflows, according to MK Tang, Hong Kong-based senior China economist at Goldman Sachs.

Any sign of increased capital outflows could disturb a recent calm in China’s foreign-exchange market, adding to pressure from a potential Federal Reserve interest-rate increase and denting the yuan’s image as the world’s newest global reserve currency. The yuan fell to a six-year low on Monday, adding to outflow pressures. “There is some window guidance from the central bank that limits companies’ dollar conversion onshore, so they need to move the money overseas in yuan,” said Harrison Hu, chief Greater China economist at RBS in Singapore. “But they don’t have a strong willingness to hold the yuan due to depreciation expectations, so they sell it to offshore banks. This pressures the offshore yuan’s exchange rate.”

[..] Goldman Sachs started including yuan funds in its analysis of outflows in July, after noting that cross-border movement of the currency masked actual pressures. The bank estimates that 56% and 87% of outflows took place through the offshore yuan market in July and August, respectively.

Do read the whole thing for a good history lesson.

• ‘Why Do They Hate Us So?’-A Western Scholar’s Reply to a Russian Student (SC)

In 2000 when Putin was elected president, he publically promoted security and economic cooperation with Europe and the United States. After 9/11, he offered real assistance to Washington. The United States accepted the Russian help, but continued its anti-Russian policies. Putin extended his hand to the west, but on the basis of five kopeks for five kopeks. This was a Soviet policy of the interwar years. It did not work then and it does not work now. In 2007 Putin spoke frankly at the Munich conference on Security Policy about overbearing US behaviour. The “colour revolutions” in Georgia and the Ukraine, for example, and the Anglo-American war of aggression against Iraq raised Russian concerns. US government officials did not appreciate Putin’s truth-telling which went against their standard narrative about «exceptionalist» America and altruistic foreign policies to promote «democracy».

Then in 2008 came the Georgian attack on South Ossetia and the successful Russian riposte which crushed the Georgian army. It’s been all down-hill since then. Libya, Syria, Ukraine, Yemen are all victims of US aggression or that of its vassals. The United States engineered and bankrolled a fascist coup d’état in Kiev and has attempted to do the same in Syria reverting to their “Afghan policy” of bankrolling, supplying and supporting a Wahhabi proxy war of aggression against Syria. Backing fascists on the one hand and Islamist terrorists on the other, the United States has plumbed the depths of malevolence. President Putin and Russian foreign minister Sergei Lavrov have made important concessions, to persuade the US government to avert catastrophe in the Middle East and Europe.

To no avail, five kopeks for five kopeks is not an offer the United States understands. Assymetrical advantages is what Washington expects. One cannot reproach the Russian government for trying to negotiate with the United States, but this policy has not worked in the Ukraine or Syria. Russian support of the legitimate government in Damascus has exposed the US-led war of aggression and exposed its strategy of supporting Al-Qaeda, Daesh, and their various Wahhabi iterations against the Syrian government. US Russophobia is redoubled by Putin’s exposure of American support for Islamist fundamentalists and by Russia’s successful, up to now, thwarting of US aggression. Who does Putin think he is? From my observations, I would reply that President Putin is a plain-spoken Russian statesman, with the support of the Russian people behind him.

For five kopeks against five kopeks, he will work with the United States and its vassals, no matter how malevolent they have been, if they adopt less destructive policies. Unfortunately, recent events suggest that the United States has no intention of doing so. After one hundred years of almost uninterrupted western hostility, no one should be under any illusions. So then, the question is “Why do they hate us so?” Because President Putin wants to build a strong, prosperous, independent Russian state in a multi-polar world. Because the Russian people cannot be bullied and will defend their country tenaciously. “Go tell all in foreign lands that Russia lives!» Prince Aleksandr Nevskii declared in the 13th century: «Those who come to us in peace will be welcome as a guest. But those who come to us sword in hand will die by the sword! On that Russia stands and forever will we stand!”

Yeah, Daniel Hannan has lots of stuff wrong with him. But Britain must have this conversation regardless of that. I picked this piece up on Twitter, with this accompanying comment: “No aspect of Brexit is Remain voters’ fault in any way, or to any extent at all.” I don’t know if that was meant sarcastically, but I would certainly hope so. Without that conversation things can only get worse. Remainers must try harder to understand why Brexit happened. If nothing else, I would think they’re at least ‘guilty’ of not seeing it coming. And perhaps also of seeing Brexit as the problem, not a mere symptom.

• Remainers, Brexit, Racism and a Self-Fulfilling Prophecy (Hannan)

Shortly after the EU referendum, several thousand young people marched through London demanding a rerun. I happened to be sitting next to three of them on a train as I travelled into the capital that morning. They evidently recognised me right away as an Evil Tory Leaver, but we were past Clapham Junction before one of them plucked up the courage to talk to me. “Are you Daniel Hannan? I just wanted to say that what you’ve done is terrible. We’re not a racist country. You’ve taken away our future.” “Is that so? Out of interest, can you tell me who the President of the European Commission is?” “No. What’s that got to do with it?” “Can you name a single European Commissioner, come to that? Do you know what our budget contribution will be this year? Or what the difference is between a Directive and a Regulation?”

She was affronted by the questions. So were her two friends with their “I [heart] EU” placards. They weren’t interested in details. For them, it was about values. Are you a decent, internationalist, compassionate person? Or are you a selfish bigot? Let’s leave aside the fact that no one would ever vote on any ballot paper for a “selfish bigot” option. Their determination to approach the issue in terms of character, rather than cost-benefit, explains why they were so upset – and why, even now, some Remain voters struggle to accept the outcome. In my experience, the 48% who voted Remain fall into two categories. There are those who were making a judgement as to where Britain’s best options lay. They could see that the is EU flawed.

They were well aware of the corruption, the lack of democracy, the slow growth. But they took the view that, on balance, the disruption of leaving would outweigh the gains. These people, by and large, now want to make a success of things, and are keen to maximise our opportunities. Then there were those like my companions on South West Trains, for whom the issue was not financial but somehow moral. For them, the EU wasn’t the grubby and self-interested body that exists in reality; rather, it was a symbol of something better and purer, an embodiment of the dream of peace among nations. They never heard, because they never wanted to hear, the democratic or economic arguments against membership. As far as they were concerned, the only possible reason for voting Leave was chauvinism.

“Euro Area Looks to Help on Debt” sounds like the epitomy of cynicism. The Eurogroup withheld €1.7 billion, to Greece’s surprise, because it wanted to assess A) whether a June payment was fully used to pay off third parties, and B) whether the government had squeezed its people enough (reforms). The delay is convenient for Brussels because it also delays debt restructuring talks once again, for the umpteenth time. And without those talks, the IMF won’t commit. Rinse and repeat.

• Greece Gets Fresh Loan Payout as Euro Area Looks to Help on Debt (BBG)

The euro area authorized a €1.1 billion payment to Greece and signaled a further €1.7 billion would follow this month, saying the region’s most indebted nation has made progress in overhauling its economy. The green light, given by euro-area finance ministers on Monday in Luxembourg, removes a hurdle on Greece’s path to debt relief on which Prime Minister Alexis Tsipras has staked part of his political future. The country had to fulfill 15 conditions on matters such as selling state assets and improving bank governance to get the first payout.

It “was unanimously decided that Greece had completed the 15 milestones, so we can proceed to the €1.1 billion disbursement,” Greek Finance Minister Euclid Tsakalotos told reporters after the meeting, saying the talks produced a “very good” outcome for his country. The delay in getting an endorsement for the remaining sum, which is tied to the clearing of arrears, is merely “technical,” he said. Greece, in its third bailout since 2010, is struggling to right an economy that is poised to undergo its eighth annual contraction in the past nine years. A second review of the country’s rescue program will pave the way for a possible restructuring of Greece’s debt, which the IMF says is a necessary condition for its future involvement.

This feels like a military coup, a chapter straight out of the Shock Doctrine. Stocks go up because people’s lives go down.

Glenn Greenwald on Twitter: “Brazil’s lower House- in the face of negative growth- just voted to amend the Constitution to ban spending increases for 20 years..” “This extreme austerity in Brazil – enabled by impeachment- is being imposed in world’s 7th largest economy, 5th most populous country (200m). ”

Nomi Prins on Twitter: “Brazil’s coup was about advancing western speculative market access & squashing domestic population needs – for decades…bastards.”

• Brazil Votes To Amend Constitution, Ban Spending Increases For 20 Years (BBG)

The Ibovespa rose to a two-year high and the real gained as commodities advanced and as expectations mounted that lawmakers will approve a bill to cap spending, a key measure in President Michel Temer’s plan to trim a budget deficit and rebuild confidence in Brazil. The benchmark equity index rose 0.9% and the currency climbed 0.5% Monday in Sao Paulo. [..] Brazilian stocks have gained 75% in dollar terms this year and the real has strengthened 24%, the best performances in the world, on bets that a new government would be able to pull the country out of its worst recession in a century.

Temer, who formally replaced impeached former President Dilma Rousseff in August, said the administration should have enough votes to drive through a budget bill Monday that’s seen as a vital first step toward his economic reforms. The proposal to amend the Constitution to set limits on government spending for as long as 20 years must be approved by at least three-fifths of both chambers of Congress. “The market is very optimistic over this legislation,” said Paulo Figueiredo, an economist at FN Capital in Petropolis, Brazil. “New bets on local assets depend a lot on the signals that will come from this vote.”

Bubble?!

• Global Clean Energy Investment Dropped 43% in Worst Quarter Since 2013 (BBG)

Global investment in clean energy fell to the lowest in more than three years as demand for new renewable energy sources slumped in China, Japan and Europe. Third-quarter spending was $42.4 billion, down 43% from the same period last year and the lowest since the $41.8 billion reported in the first quarter of 2013, Bloomberg New Energy Finance said in a report Monday. Financing for large solar and wind energy plants sank as governments cut incentives for clean energy and costs declined, said Michael Liebreich at the London-based research company. Total investment for this year is on track to be “well below” last year’s record of $348.5 billion, according to New Energy Finance.

The third-quarter numbers “are worryingly low even compared to the subdued trend we saw” in the first two quarters, Liebreich said in a statement. “Key markets such as China and Japan are pausing for a deep breath.” Part of the reason for the steep decline in the quarter was a slowdown following strong spending in the first half of the year on offshore wind. Investors poured $20.1 billion into European offshore wind farms in the first and second quarters, “a runaway record,” according to Abraham Louw, an analyst for energy economics with New Energy Finance. That was followed by a “summer lull,” with $2.4 billion in spending in the third quarter.

So much for that.

• Russia’s Rosneft Boss Sechin Says No To OPEC Oil Cut/Freeze (R.)

Igor Sechin, Russia’s most influential oil executive and the head of Kremlin energy champion Rosneft, said his company will not cut or freeze oil production as part of a possible agreement with OPEC. His comments underline how difficult it is for Russia to get its oil companies to freeze or cut output as part of a potential deal with OPEC designed to support oil prices. President Vladimir Putin told an energy congress on Monday that Russia was ready to join the proposed OPEC cap, but did not provide any details. “Why should we do it?” Sechin, known for his anti-OPEC position, told Reuters in Istanbul on Monday evening, when asked if Rosneft, which accounts for 40% of Russia’s total crude oil output, might cap its own output.

Sechin said he doubted that some OPEC countries, such as Iran, Saudi Arabia and Venezuela would cut their output either, saying that an increase in oil prices above $50 per barrel would make shale oil projects in the United States profitable. There have been several attempts in the past for Russia and OPEC to join forces to stabilize oil markets. Those efforts have never come to pass however. Oil prices surged on Monday after Putin’s comments amid hopes that a two-year price slide could be halted.

Uglee!!!

• Britain’s Nuclear Cover-Up (NYT)

Last month, the British government signed off on what might be the most controversial and least promising plan for a nuclear power station in a generation. Why did it do this? Because the project isn’t just about energy: It’s also a stealth initiative to bolster Britain’s nuclear deterrent. For years, the British government has been promoting a plan to build two so-called European Pressurized Reactors (EPR) at Hinkley Point C, in southwest England. It estimates that the facility will produce about 7% of the nation’s total electricity from 2025, the year it is expected to be completed. The EPR’s designer, Areva, claims that the reactor is reliable, efficient and so safe that it could withstand a collision with an airliner.

But the project is staggeringly expensive: It will cost more than $22 billion to build and bring online. And it isn’t clear that the EPR technology is viable. No working version of the reactor exists. The two EPR projects that are furthest along — one in Finland, the other in France — are many years behind schedule, have hemorrhaged billions of dollars and are beset by major safety issues. The first casting of certain components for the Hinkley Point C reactors left serious metallurgical flaws in the pressure vessel that holds the reactor core. In 2014, the Cambridge University nuclear engineer Tony Roulstone declared the EPR design “unconstructable.”

The lead builder of the EPR, the French utility company Electricité de France, faced a mutiny this year: Its unions fought the Hinkley Point project, fearing it might bring down the company. E.D.F.’s chief financial officer has resigned, arguing that it would put too much strain on the company’s balance sheet. But the British government continues to act as though it wants the Hinkley project to proceed at almost any price. In return for covering about one-third of the costs, the Chinese state-run company China General Nuclear Power Corporation will take about one-third ownership in the project. (A subsidiary of E.D.F. owns the rest.) The British government has also provisionally agreed to let China build a yet-untested Chinese-designed reactor in Bradwell-on-Sea, northeast of London, later.

[..] The British government has [..] guaranteed that investors in the Hinkley project will get $115 per megawatt-hour over 35 years. This is approximately twice the price of electricity today [..]. If the market price of electricity falls below that rate, a government company is contractually bound to cover the difference — with the extra cost passed on to consumers. Price forecasts have dropped since the deal was struck: This summer the government, revising estimates, said differential payments owed under the contract could reach nearly $37 billion. If the Hinkley plan seems outrageous, that’s because it only makes sense if one considers its connection to Britain’s military projects — especially Trident, a roving fleet of armed nuclear submarines, which is outdated and needs upgrading.

Debt Rattle September 29 2016

Sep 292016

September 29, 2016 Posted by Raúl Ilargi Meijer at 8:38 am Finance Tagged with: Brexit, bubble, China, Deutsche, Dublin, FBI, Greece, IMF, OPEC, recovery, treason Comments Off

DPC “Wood Street, Pittsburgh, Pennsylvania.” 1905

• OPEC Agrees Modest Oil Output Curbs In First Deal Since 2008 (R.)

• Congress Rejects Obama Veto, Saudi 9/11 Bill Becomes Law (R.)

• Desperate Central Bankers (Stephen Roach)

• Disturbing Facts About The Fed’s Phony Housing “Recovery” (Adler)

• China’s Richest Man: Country’s Real Estate Is ‘Biggest Bubble In History’ (CNN)

• Beige Book Sounds Warning Over Chinese Economy (WSJ)

• China Property Bubble In Global Perspective (BBG)

• ‘Radioactive’ Deutsche Bank Could Go Nuclear At Any Time (Exp.)

• Europe’s Banks ‘Not Investable’ Says Credit Suisse CEO (G.)

• Rep. Gowdy Questions FBI Director Comey (USHouseJudiciary)

• Varoufakis: UK Should Activate Article 50 Now, Create Space And Time (CityAM)

• Hard Brexit Looms As 28 Red Lines Turn Deeper Shade Of Scarlet (BBG)

• Greece Approves Plan To Transfer State Utilities To New Asset Fund (DW)

• The Planned Destruction Of Greece Continues … (Mitchell)

• Brussels Pushes Greece For Action On Migrants Before Dublin Pact Reboot (Kath.)

Entirely meaningless. No-one’s committed to any specific cuts. In the end it’s all about market share and nobody wants to lose any.

• OPEC Agrees Modest Oil Output Curbs In First Deal Since 2008 (R.)

OPEC agreed on Wednesday modest oil output cuts in the first such deal since 2008, with the group’s leader Saudi Arabia softening its stance on arch-rival Iran amid mounting pressure from low oil prices. “OPEC made an exceptional decision today … After two and a half years, OPEC reached consensus to manage the market,” said Iranian Oil Minister Bijan Zanganeh, who had repeatedly clashed with Saudi Arabia during previous meetings. He and other ministers said the OPEC would reduce output to a range of 32.5-33.0 million barrels per day. OPEC estimates its current output at 33.24 million bpd.

“We have decided to decrease the production around 700,000 bpd,” Zanganeh said. The move would effectively re-establish OPEC production ceilings abandoned a year ago. However, how much each country will produce is to be decided at the next formal OPEC meeting in November, when an invitation to join cuts could also be extended to non-OPEC countries such as Russia. Oil prices jumped more than 5% to trade above $48 per barrel as of 2015 GMT. Many traders said they were impressed OPEC had managed to reach a compromise after years of wrangling but others said they wanted to see the details.

Wonder how this plays into the OPEC ‘agreement’.

• Congress Rejects Obama Veto, Saudi 9/11 Bill Becomes Law (R.)

Congress on Wednesday overwhelmingly rejected President Barack Obama’s veto of legislation allowing relatives of the victims of the Sept. 11 attacks to sue Saudi Arabia, the first veto override of his presidency, just four months before it ends. The House of Representatives voted 348-77 against the veto, hours after the Senate rejected it 97-1, meaning the “Justice Against Sponsors of Terrorism Act” will become law. The vote was a blow to Obama as well as to Saudi Arabia, one of the United States’ longest-standing allies in the Arab world, and some lawmakers who supported the override already plan to revisit the issue. Obama said he thought the Congress had made a mistake, reiterating his belief that the legislation set a dangerous precedent and indicating that he thought political considerations were behind the vote.

“If you’re perceived as voting against 9/11 families right before an election, not surprisingly, that’s a hard vote for people to take. But it would have been the right thing to do,” he said on CNN. Obama’s 11 previous vetoes were all sustained. But this time almost all his strongest Democratic supporters in Congress joined Republicans to oppose him in one of their last actions before leaving Washington to campaign for the Nov. 8 election. “Overriding a presidential veto is something we don’t take lightly, but it was important in this case that the families of the victims of 9/11 be allowed to pursue justice, even if that pursuit causes some diplomatic discomforts,” Senator Charles Schumer, a top Senate Democrat, said in a statement.

Schumer represents New York, site of the World Trade Center and home to many of the nearly 3,000 people killed in the 2001 attacks, survivors and families of victims. The law, known as JASTA, passed the House and Senate without objections earlier this year. Support was fueled by impatience in Congress with Saudi Arabia over its human rights record, promotion of a severe form of Islam tied to militancy and failure to do more to ease the international refugee crisis. The law grants an exception to the legal principle of sovereign immunity in cases of terrorism on U.S. soil, clearing the way for lawsuits seeking damages from the Saudi government.

“..it is strikingly reminiscent of the so-called liquidity trap of the 1930s, when central banks were also “pushing on a string.”

• Desperate Central Bankers (Stephen Roach)

As in Japan, America’s subpar recovery has been largely unresponsive to the Fed’s aggressive strain of unconventional stimulus – zero interest rates, three doses of balance-sheet expansion (QE1, QE2, and QE3), and a yield curve twist operation that seems to be the antecedent of the BOJ’s latest move. (The BOJ has just announced that it is targeting zero interest rates for ten-year Japanese government bonds.) Notwithstanding the persistent growth shortfall, central bankers remain steadfast that their approach is working, by delivering what they call “mandate-compliant” outcomes. The Fed points to the sharp reduction of the US unemployment rate – from 10% in October 2009 to 4.9% today – as prima facie evidence of an economy that is nearing one of the targets of the Fed’s so-called dual mandate.

But when seemingly solid employment growth is juxtaposed against weak output, the story unravels, revealing a major productivity slowdown that raises serious questions about America’s long-term growth potential and an eventual buildup of cost and inflationary pressures. The Fed can’t be faulted for trying, argue the counter-factualists who insist that only unconventional monetary policies stood between the Great Recession and another Great Depression. That, however, is more an assertion than a verifiable conclusion. While policy traction has been notably absent in the real economies of both Japan and the US, asset markets are a different story. Equities and bonds have soared on the back of monetary policies that have led to rock-bottom interest rates and massive liquidity injections.

The new unconventional monetary policies in both countries are obviously missing the disconnect between asset markets and real economic activity. This reflects the aftermath of wrenching balance-sheet recessions, in which aggregate demand, artificially propped up by asset-price bubbles, collapsed when the bubbles burst, leading to chronic impairment of overleveraged, asset-dependent consumers (America) and businesses (Japan). Under such circumstances, the lack of response at the zero bound of policy interest rates is hardly surprising. In fact, it is strikingly reminiscent of the so-called liquidity trap of the 1930s, when central banks were also “pushing on a string.”

The Fed kills the American homeownership dream.

• Disturbing Facts About The Fed’s Phony Housing “Recovery” (Adler)

But the Fed got the result it intended. It wanted to inflate prices to save the banks from their stupidity and criminality. Decisions were made at the highest levels of the Fed and the Federal Government to not only let the banks off the hook, but to rescue them. The only way to do that was to forego prosecution of massive criminal wrongdoing, and to engineer price inflation, so that the criminal perpetrators of the fraud that drove the Great Bubble would be free to re-offend. The Fed’s claim of trying to help the typical consumer is hogwash. The benefits of the low interest rate policy have flowed only to the upper income strata. In our monthly updates of our “Thanks Fed For Helping the Average Guy” we see that the chance of the “average guy” to buy a new home remains virtually nil.

Not only has there been no recovery in homes priced under $200,000, sales in that price range have essentially disappeared in spite of the world’s major central banks pushing mortgage rates down. Builders no longer have any interest in producing product in that price range because demand has weakened so much at that level. People at the reported median US household income simply can’t afford to buy houses regardless of the fact that they may be borderline qualified. Prior to the housing crash, most new homes sold were in the under $200,000 price range.Since 2007, mortgage rates have been cut nearly in half. Yet production and sales of homes in the under $200,000 range have continued falling, now down 61% since 2007.

Builders have shifted their efforts to the $200-$400k range, where they still have some margin, and can move enough inventory to earn a profit. The higher the price of the home, the more profitable it is for a builder. Unfortunately, homes priced above $230,000 are beyond the reach of households earning the reported median household income of $56,000, a figure which itself we believe is overstated. Because of central bank driven housing inflation, and suppression of household income growth (also partly attributable to ZIRP) home ownership is increasingly out of reach for an ever growing percentage of US households If monetary policy were helping the housing market, the rate of homeownership should be at least stable. Instead, as mortgage rates have been consistently suppressed since 2007, homeownership has fallen concurrently.

The bubble made him a billionaire.

• China’s Richest Man: Country’s Real Estate Is ‘Biggest Bubble In History’ (CNN)

Chinese billionaire Wang Jianlin made his fortune in the country’s real estate market – and now he’s warning that it’s spiraling out of control. It’s the “biggest bubble in history,” he told CNNMoney in an exclusive interview Wednesday. Bubble is a sensitive word in China after the dramatic rise and spectacular crash in the country’s stock market last year, which wiped out the savings of millions of small investors who thought Beijing wouldn’t allow the market to drop. After struggling to contain the fallout from the stock market debacle, China’s leaders could face a similar headache in the real estate sector. The big problem, according to Wang, is that prices keep rising in major Chinese metropolises like Shanghai but are falling in thousands of smaller cities where huge numbers of properties lie empty.

“I don’t see a good solution to this problem,” he said. “The government has come up with all sorts of measures – limiting purchase or credit – but none have worked.” It’s a serious worry in China, where the economy is slowing at the same time as high debt levels continue to increase rapidly. There are massive sums at stake in the real estate market: direct loans to the sector stood at roughly 24 trillion yuan ($3.6 trillion) at the end of June, according to Capital Economics.

“Deteriorating corporate finances and a rebalancing reversal seem a high price to pay for a quarter’s worth of stability..”

• Beige Book Sounds Warning Over Chinese Economy (WSJ)

Recent stability in the Chinese economy masks deep-seated problems that threaten to rattle global markets in advance of a leadership change next year, according to a survey. Ignoring these risks is shortsighted, said authors of the China Beige Book International, a quarterly survey that tracks the world’s second-largest economy. Data from the group’s third-quarter survey of 3,100 Chinese firms and 160 bankers point to some potential problems. New growth engines intended to shift the economy away from investment toward consumption-led growth are increasingly wobbly as corporate cash flow is squeezed and Beijing doubles down on traditional engines to stabilize output, the China Beige Book says.

“I’d find it earth-shatteringly surprising if we don’t have a significant problem between now and China’s leadership change” in the fall of 2017 when the 19th Party Congress convenes, said Leland Miller, China Beige Book’s president. “This is not a stable economy. It’s one that twists and turns and happens to end up at the same spot. There are real problems below the surface.” Growth in China’s service industry, a cornerstone of its planned transition to a new and more sustainable economic model, weakened during the third quarter as financial services, private healthcare, telecommunications, media and other subsectors flagged, the group’s data showed. In retail, the apparel, luxury goods and food sectors slowed, it said, as online retailers continued to cannibalize brick-and-mortar sales.

Despite Beijing’s pledge to reduce excess Industrial capacity and pare debt, China remains heavily dependent on government spending to power traditional debt-fueled growth engines, the group said. Much of the economic momentum during the third quarter came from infrastructure, manufacturing, commodities and real estate and many of these sectors are in danger of losing momentum, it said. While property sales remained strong in major cities, cash flow in the sector tightened and borrowing increased, a sign that investors should “think about getting off this train sooner rather than later,” the China Beige Book said. “Deteriorating corporate finances and a rebalancing reversal seem a high price to pay for a quarter’s worth of stability,” the group added.

“..the real-estate boom is leading couples to divorce, as a move to pay less property-related taxes..”

• China Property Bubble In Global Perspective (BBG)

China is turning Japanese. That’s the increasingly held view of observers comparing China’s frenzied real-estate market with the epic bust that more than two decades ago hobbled one of its biggest economic rivals. While the two scenarios aren’t a carbon copy, similarities between China’s record credit boom in recent years and Japan’s bubble era have been made at various times by a number of economists and investors. Now, those voices are being heard more often – even within China. Huang Yiping, a Peking University professor who advises China’s central bank, warned Saturday about leverage that continues to climb, saying that the top risk is more and more investment generates less growth. “That’s exactly the story that unfolded in Japan.”

[..] Hardly a week goes by without a warning that China is stoking a new bubble only a year after a $5 trillion stock market crash that rocked policy makers. Curbs to cool demand have struggled for traction, and Chinese media outlets carry reports of panic buying. A commentary published by a WeChat account affiliated to the People’s Daily, the Communist Party’s mouthpiece, on Monday said the real-estate boom is leading couples to divorce, as a move to pay less property-related taxes. It also said companies risk losing competitiveness as they focus on gaining from real estate rather than focusing on their own industry.

One example of a company benefiting from property: Nanjing Putian Telecommunication-B, a loss-making telecommunication equipment manufacturer, which is selling two apartments in the heart of Beijing’s school district to shore up its balance sheet. The value of the residences is estimated to have risen more than 10-fold since the firm bought them in 2004. At least 73 listed companies said they’re planning to sell or have sold properties to shore up cash. “I am big on the parallels,” said Roy Smith, the New York University academic who as a banker in 1990 anticipated Japan’s decline. Japan’s market crash “led to a financial crisis that they never recovered from. China probably faces a debt-led financial crisis too, which could have significant consequences,” he said.

“..it’s the interconnectedness with the rest of the system that is the problem.”

• ‘Radioactive’ Deutsche Bank Could Go Nuclear At Any Time (Exp.)

Germany’s biggest bank reportedly has a $45 TRILLION portfolio of underlying assets that its clients are taking a position in – which equates to more than 10 times Germany’s entire GDP. And the problem is that no one really knows what’s makes up Deutsche’s book of exposure and so-called derivatives book because it’s so opaque and complicated, according to Michael Hewson, chief market analyst at CMC Markets UK. He told Express.co.uk: “Deutsche has the biggest derivatives book in the world, and people will say that its hedged to a greater or lesser extent, but it’s the interconnectedness with the rest of the system that is the problem. “There doesn’t seem to be transparency about what’s in its book. No one really knows what the ripple-out effects would be.”

“That makes Deutsche radioactive about whether or not I would want to invest in it. “A bank becomes a risk to the financial system as a whole when the degree to which it is interconnected with other institutions increases. Deutsche Bank is currently a counterparty to virtually every major bank in the world, in virtually all asset classes. Deutsche Bank denies it has the biggest derivatives exposure – its portfolio of financial contracts based on the value of other assets – and insists that 85% of its exposure is to investment grade counter-parties. Investor confidence in Deustsche has been shaken over the last two days after German Chancellor Angela Merkel said it would not step in to rescue the bank if needed. But experts claim Berlin could be left with little choice but to intervene.

“..there was doubt that European banks still had a viable business model…”

• Europe’s Banks ‘Not Investable’ Says Credit Suisse CEO (G.)

One of Europe’s most senior bankers has said the embattled sector is “not really investable”, in remarks that underline the difficulties the continent’s big banks could face if they have to raise new funds. Tidjane Thiam, chief executive of Credit Suisse, issued the warning about the problems the sector faces as the focus remained on Deutsche Bank and its battle to reduce a $14bn (£10.5bn) penalty from the US authorities for mis-selling mortgage bonds. On Wednesday the German government raced to deny a report that it was preparing a bailout plan under which it might take a 25% stake in Deutsche Bank, which is the country’s biggest bank. With assets half the size of the German economy it is regarded as the bank that poses the biggest risk to global financial stability.

Shares in Deutsche Bank have plunged to near-30-year lows this week amid reports – which were then denied – that it had asked for German government intervention to help reduce the punishment from the US Department of Justice (DoJ). Their decline was arrested on Wednesday, when the bank sold a UK insurance company for €1bn; they closed 2% higher at €10.76. Thiam told a Bloomberg conference that Europe’s banks were in a “very fragile situation” and said there was doubt that European banks still had a viable business model. Concerns about rock-bottom interest rates and how much capital banks should hold meant returns to investors were too low, making banks “not really investable”.

Comey’s back in the Senate. A few painful minutes of that here. He’ll either have to come clean or resign.

• Rep. Gowdy Questions FBI Director Comey (USHouseJudiciary)

Get out of the EU while you can!

• Varoufakis: UK Should Activate Article 50 Now, Create Space And Time (CityAM)

Academic, EU-tormenter, former Greek finance minister and leather-jacket-wearing big thinker Yanis Varoufakis has blasted George Osborne and told the UK to get a move on with triggering Article 50. In an interview with the Today programme, Varoufakis, who resigned from the Syriza-led government last summer after he helped prime minister Alexis Tsipras take Greece to the edge of leaving the single currency, also outlined his latest thinking on what he sees as the doomed European project. Echoing statements made to the Institute of Directors yesterday, Varoufakis said the UK was about to travel into unchartered waters, and would discover just how difficult and inflexible the European institutions can be.

You can check out any time you like, as the Hotel California song says, but you can’t really leave. The proof is Theresa May has not even dared to trigger Article 50. It’s like Harrison Ford going into Indiana Jones’ castle and the path behind him fragmenting. You can get in, but getting out is not at all clear.

On what strategy the UK should adopt, Varoufakis, who was an academic before entering parliament for the first time in 2015 and diverting his considerable attention to anti-austerity campaigning, said: “My advice is simple: Activate Article 50, use those years as best you can and then strike a deal for the three or four years after Britain should be associated in a Norway-style agreement, and then use that period to have a robust debate on what’s to become later. “You need to create space and time during which to prepare yourself as a nation and a government. “The discussion before Brexit was very low quality, verging between scare-mongering on the one side and xenophobia on the other. There was no debate about a post-Brexit Britian.”

Varoufakis also suggested the Eurozone was on the brink of a breaking up and, despite calls from academics, politicians, economists and people on both the left and right that the European project is unsustainable, he believes not enough people are aware of its failures. He added: “Given these centrifugal forces, Brexit inspires several forces within the Eurozone to go it alone. The trouble with the euro … given it was very very badly constructed, is that it was always going to lead to a rupture which would make the EU totally and utterly unsustainable. “My great fear is that if the Eurozone goes, the EU goes. The repercussions are going to be dire.”

An entire list of threats.

• Hard Brexit Looms As 28 Red Lines Turn Deeper Shade Of Scarlet (BBG)

EU governments are refusing to grant the U.K. any leeway on the link between immigration and trade as it prepares to leave the bloc, raising the likelihood of a “hard Brexit.” Almost 100 days since a referendum signaled the end of Britain’s four decades of EU membership, a Bloomberg News analysis has identified a hardening of positions with even the U.K.’s traditional allies such as Ireland insisting it cannot “cherry pick” in the looming divorce talks. The U.K. “cannot have the advantages of the EU without carrying out the obligations,” Irish Finance Minister Michael Noonan said. Such intransigence may mean PM Theresa May ends up favoring a clean break from the EU to secure her goal of tougher immigration controls even if that costs the country access to the single market, a scenario dreaded by bankers and business executives.

“The dynamics within the government give the upper hand at the moment to the hard Brexit supporters,” former Foreign Secretary David Miliband told Bloomberg TV. The analysis is based on interviews and public comments from officials in all 28 EU governments. Among the other demands listed is that Britain must have “inferior” terms to what it currently enjoys as an EU member for fear that too many concessions will fan calls to leave from elsewhere in the region. Some want the U.K. to keep contributing to the EU budget in return for what benefits it does secure. Central eastern European countries are particularly animated on ensuring that the rights of their citizens to work in the U.K. are protected, with some threatening to veto any Brexit deal that doesn’t allow for that. Others are worried the U.K. will seek to slash corporate taxes.

Treason. “We think this is a crime because it involves basic public services.”

• Greece Approves Plan To Transfer State Utilities To New Asset Fund (DW)

Greece’s parliament passed new reforms on Tuesday night to cut pension expenditure and transfer control of public utilities to a new asset fund. The reforms seek to unlock €2.8 billion in financial loans as part of the country’s latest bailout program. The reforms were passed by a narrow 152-141 majority vote in Greece’s 300-seat parliament, after 152 parliamentary members of the ruling Syriza-Independent Greeks coalition approved the reform bill. Only one member of the coalition voted against the bill, along with all opposition members. The reforms will see public assets transferred to a new asset fund created by Greece’s creditors. Assets include airports and motorways, as well as water and electricity utilities.

The holding company groups together these state entities with the country’s privatization agency, the bank stability fund and state real estate. It will be led by an official chosen by Greece’s creditors, although Greece’s Finance Ministry will retain overall control. The reforms sparked significant backlash among demonstrators and public sector workers. Ahead of the vote, protestors outside of the parliament in Athens chanted, “Next you’ll sell the Acropolis!” Greece’s public sector union criticized the reforms, saying that the transfer of public assets paved the way for a fire-sale to private investors. “Health, education, electricity and water are not commodities. They belong to the people,” the union said in a statement.

Workers at Greece’s public water utility companies in Athens and Thessaloniki walked out on Tuesday to protest the reforms. “They are handing over the nation’s wealth and sovereignty,” George Sinioris, head of the water company workers association said. “We think this is a crime because it involves basic public services. We will respond with court challenges, strikes, building occupations and other forms of protest.”

” If an organisation can exhibit psychopathy then the IMF has it!”

• The Planned Destruction Of Greece Continues … (Mitchell)

After all the hoopla last year with the rise and fall of Syriza one’s attention span strays from what is happening in Greece at present and how it demonstrates the continued (and permanent) failure of the Eurozone. We also become inured to badness after badness is normalised. I was reminded of the depth of the malaise in that nation last week when I was in Kansas City. I won’t disclose confidences but an influential person (in the Greek context) I spoke to now regard their previous support for remaining within the Eurozone as a mistake and they consider my assessment of the situation (which they opposed at the time) to be closer to reality.

That was an interesting conversation and credit to them for being able to recognise an error of judgement. I was also reminded of the absurdity of the Eurozone when the IMF released its latest – Greece: Staff Concluding Statement of the 2016 Article IV Mission (September 23, 2016). This is normalisation of badness in bold! The current thinking is that the Greek unemployment rate will remain in double figures until at least 2050, that business investment has collapsed, real GDP is around 27% below its pre-GFC level – and – more significant and accelerated austerity is required. If an organisation can exhibit psychopathy then the IMF has it!

Conclusion: I haven’t written about Greece (or the Eurozone) for a while – it is depressing thinking about it really and I cannot imagine how the citizens in Greece are dealing with the planned destruction of their prosperity by highly paid officials in Brussels, Frankfurt and, particularly Washington. The scale of the destruction is beyond belief really and constitutes in my non-legal brain a crime against humanity. Someone in the IMF and Brussels should be paying for the professional incompetence that has created this human disaster.

The world on its head. We all understand that it’s Brussels that has failed to live up to its commitments. Not Greece. But let them try out that Dublin reboot on Italy, see what happens.

• Brussels Pushes Greece For Action On Migrants Before Dublin Pact Reboot (Kath.)

European officials are calling on Athens to take action by the end of this year ahead of the review and reactivation of the Dublin Regulation, which would lead to EU member-states returning migrants to Greece. The European Commission on Wednesday asked Athens to improve reception facilities, accelerate the processing of asylum claims and create separate facilities for unaccompanied minors. European Migration Commissioner Dimitris Avramopoulos said there will be no returns to Greece in the months leading up to the review of the pact, which stipulates that migrants lodge their asylum appeals in the first EU country they enter.

He said the goal remains a “gradual resumption” of migrant transfers to Greece but that “we need to avoid that an unsustainable burden be put on Greece.” Meanwhile the Commission aims to relocate 30,000 migrants from Greece to other EU countries by the end of next year. The presense of migrants in Greece has fuelled tensions with protests on Chios and in Rethymno on Wednesday.

Debt Rattle September 28 2016

Sep 282016

September 28, 2016 Posted by Raúl Ilargi Meijer at 9:20 am Finance Tagged with: container, deflation, Deutsche, Fed, GMO, Greece, microplastic, OPEC, wages, Wells Fargo 7 Responses »

DPC Heart of Chinatown, San Francisco, after earthquake and fire 1906

• Small Army Of Fed Speakers, OPEC On Tap For Wednesday (CNBC)

• “Negative Growth” of Real Wages is Normal for Much of the Workforce (WS)

• Grocery Prices Are Plunging (BBG)

• EU Banking Mayhem, One Bank at a Time, then All at Once (WS)

• Deutsche Bank Troubles Cast Long Shadow Over European Banking (BBG)

• IMF Warns Central Banks Could Lose Deflation Fight (AFP)

• A Legal Barrier to Higher US Interest Rates (WSJ)

• Global Container Volume on Track for Worst Year Since 2009 (WSJ)

• Wells Fargo Executives Forfeit Millions, CEO To Forgo Salary (G.)

• Worries Grow Over Greek Economic Forecast (WSJ)

• Germany’s Hypocrisy Over Greece Water Privatisation (G.)

• China Wants GMOs. The Chinese People Don’t. (BBG)

• Single Clothes Wash May Release 700,000 Microplastic Fibres (G.)

And the MH17 report that lost all credibility long ago. Got to keep the customer entertained.

• Small Army Of Fed Speakers, OPEC On Tap For Wednesday (CNBC)

A flurry of Fed speakers, including the Fed chair, will keep markets busy Wednesday. There are also mortgage applications at 7 a.m. EDT, durable goods data at 8:30 a.m. EDT and oil inventory data at 10:30 a.m. EDT. OPEC, meanwhile, is meeting in Algeria and could continue to create volatility in oil prices after headlines from there triggered a near 3% plunge Tuesday. Fed Chair Janet Yellen appears before the House Financial Services Committee at 10 a.m. on supervision and regulation. The Fed chair was personally criticized in the presidential debate Monday night by GOP candidate Donald Trump, who said the Fed’s decision to keep rates low was political and that it’s creating a bubble in the stock market.

“It has to worry the markets that potentially you could have a president getting into a nasty dispute with the chairman of the Fed in early 2017. That’s something the market would not like to see. I think the Fed has not done a very good job communicating. It’s a cacophony of confusing comments. There’s reason to criticize the Fed, but the personal attack on Yellen is unprecedented,” said Greg Valliere, chief global strategist at Horizon Investments. Traders are watching to see if Yellen is in the political hot seat on banking regulation and supervision when she appears before the committee.

One side of US deflation is falling wages…

• “Negative Growth” of Real Wages is Normal for Much of the Workforce (WS)

The chart below shows the%age change of real wages (left, y-axis) as these men aged (horizontal, x-axis). As young adults, their wages soared by up to 10% a year. Then the rate of growth fell off sharply. When the men in this cohort turned 40 in the 1990s, wage growth disappeared. By around the year 2000, the real wage peak in the US, when the oldest men in this cohort turned 50, wages had begun to decline for most of them. By the time these men were in the mid-50s, their wages across the board were heading south – and for many of them, rapidly. Hence this colorful, drooping spaghetti:

This “negative real wage growth” – devastating as it may be for those experiencing it – is nothing special, according to the New York Fed. And it crushes not just white men, but everyone: “Real wages tend to rise early in a worker’s career, flatten out mid-career, and then decline as the worker approaches retirement. This inverted U-shape pattern is a well-established feature in the labor economics literature.” The report explained it further: “Labor economists explain the rapid real wage growth early in a worker’s career as a combination of on-the-job learning and better matching of workers to jobs. A large portion is due to job matching as workers change jobs in search of a position that better utilizes their skills. As workers age, the decline in the pace of their real wage growth reflects a diminished incentive to invest in new skills (because their remaining work life is shorter) and fewer job changes (because they have found a good job match).”

The report divides life for its purposes into three phases, terms of wage growth: • Fast growth, up to age 40, • Flat growth, ages 41-54, • “Negative growth,” age 55 and older. Now there’s another problem mucking up the overall and ever-elusive real-wage growth miracle everyone has been counting on: demographics. The US population is aging. There are more people aged 40 and over in the workforce, and their incomes are now flat or declining. The portion of the population in the first phase when wages are growing fast has plunged from close to 60% in the 1980s to the mid-40% range currently. And the portion of workers with wages in the “negative growth” phase has ballooned. Given the demographics, real wage declines among workers over 50 will continue to hammer the national averages.

…and when wages are falling, so must prices.

• Grocery Prices Are Plunging (BBG)

Call it the Great Grocery-Store Giveaway of 2016. In Austin, Texas, Randalls slashed prices for boneless beef ribs by 40%, to $3.99 a pound. Not to be outdone, the H-E-B grocer down the street charged $1 a pound less. Not long ago, Albertsons advertised a deal you don’t normally see on your finer cuts of meat: “buy 1 get 1 free” specials on “USDA Choice Petite Sirloin Steak.” And what does $1 buy these days? In North Bergen, New Jersey, you could pick up a dozen eggs at Wal-Mart. OK, the price was actually $1.14. A mile away, check out Aldi, the German supermarket discounter, which can actually break the buck – 12 eggs for 99 cents. A year ago, you would have paid, on average, three times that price.

In a startling development, almost unheard of outside a recession, food prices have fallen for nine straight months in the U.S. It’s the longest streak of food deflation since 1960 – with the exception of 2009, when the financial crisis was winding down. Analysts credit low oil and grain prices, as well as cutthroat competition from discounters. Consumers are winning out; grocery chains, not so much. Their margins and, in some cases, their stock prices, are taking a hit. Eggs and beef have have grown especially inexpensive, and it isn’t only an American phenomenon: In England, Aldi recently offered its prized 8-ounce wagyu steaks from New Zealand for about $6.50 – a little more than the price of a pint of beer. “The severity of what we’re seeing is completely unprecedented,” said Scott Mushkin at Wolfe Research, who has studied grocery prices around the country for more than ten years. “We’ve never seen deflation this sharp.”

“The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.”

• EU Banking Mayhem, One Bank at a Time, then All at Once (WS)

Here are the 29 banks in the ESTX Banks Index of Eurozone banks (so Swiss and UK banks, for example are not included). It shows the percentage drop from their 52-week high. But for some of these banks, particularly for Italian and Portuguese banks, that 52-week high was just about last year’s 52-week low, so relentless has their decline been over the years. Some of them had already been reduced to penny stocks years ago, and for them, in euro terms, the biggest losses occurred back then. So these mayhem banks, color coded by country:

If a bank stock plunges from €0.04 to €0.01 over the 52-week period, such as Banco Comercial Português in Portugal, it has been toast for longer than 52 weeks, and the percentage plunge is essentially meaningless because shares were worthless to begin with. The shares of five of these banks trade under €1. Another 8 banks trade under €3. These 29 banks form a big part of the European financial system. It includes some of the world’s largest banks, such as Deutsche Bank, Societe Generale, and BNP Paribas. It includes a slew of other “systemically important financial institutions,” such as Unicredit, ING, and Santander. They’re troubled at the same time. The can has been kicked down the road for years. Now negative interest rates appear to have inadvertently crushed the can.

Deutsche won’t go alone. Just like saving only Deutsche is far from enough. The dominoes suppart each other.

• Deutsche Bank Troubles Cast Long Shadow Over European Banking (BBG)

The turmoil swirling around Deutsche Bank has brought simmering concerns about the health of Europe’s banks back to a boil. Germany’s largest lender extended losses to a record low this week, dragging down European financial stocks, after the U.S. Department of Justice requested $14 billion to settle claims tied to fraudulent mortgage-backed securities. While the bank said it won’t pay anywhere close to that amount, the dust-up fueled doubts over its capital levels and refocused investors on the industry’s faults. “One word – Deutsche,” David Moss at BMO Global Asset Management in London, said when asked to sum up the recent slump in European banks. “That’s the biggest thing – it’s reignited the risk around regulation, fines and litigation.”

Dismissing concern about the bank’s finances, Chief Executive Officer John Cryan told Bild in an interview published late Tuesday that capital “is currently not an issue,” and accepting government support is “out of the question for us.” Deutsche Bank has tumbled almost 20% this month, while Royal Bank of Scotland – which also faces a looming Justice Department fine – fell 13%, and Italy’s UniCredit slumped 12%. The Bloomberg Europe 500 Banks and Financial Services Index has declined 4.2% in September, making it the worst month since June, when Britain’s vote to exit the European Union roiled markets and sent bank shares plunging.

[..] European banks are grappling with tougher regulatory requirements, sputtering economic growth and negative interest rates, which squeeze lending margins and crimp investment returns. In Italy, where banks are burdened with some €360 billion of soured loans, UniCredit is working on a plan to boost capital that may include asset sales and a stock offering, according to people familiar with the matter. In Germany, Commerzbank scaled back its full-year profit goals and may announce thousands of job cuts this week,

They already have.

• IMF Warns Central Banks Could Lose Deflation Fight (AFP)

The IMF warned Tuesday that central banks are struggling to beat back deflationary forces and that governments need to spend to help them succeed. In a new assessment of global economic conditions, the IMF said many countries worldwide are battling disinflation – low and slowing inflation – due to weak global economic growth.If central banks around the world cannot halt this stall, and if companies and people increasingly believe they can’t halt it, their economies risk sinking into a deflationary spiral – where prices generally start to fall and companies and consumers hold back spending and investment, stalling the economy. In this case, “countries can’t afford to be complacent,” the Fund warned. The report said deflationary pressures in many countries are coming from abroad, in the form of sinking prices of both commodities and manufactured goods.

“The breadth of the decline in inflation across countries and the fact that it is stronger in the tradable goods sectors underscore the global nature of disinflationary forces,” the IMF said. Weak inflation challenges central banks’ ability to use monetary policy to stimulate demand, the IMF notes, because interest rates are likely to already be very low, giving them little room to cut further. That has been the case with top central banks including the Fed, the ECB and the BOJ, with the latter two already having taken some interest rates negative. “Eventually, ‘persistent’ disinflation can lead to costly deflationary cycles – as we have seen in Japan – where weak demand and deflation reinforce each other, and end up increasing debt burdens and hindering economic activity and job creation.”

How to politicize the Fed?!

• A Legal Barrier to Higher US Interest Rates (WSJ)

Defending the Fed’s recent decision to put off raising interest rates again, Fed Chair Janet Yellen told reporters last week that she and other Fed governors wanted “to see some continued progress” before taking that step. Politics, she insisted, had nothing to do with it. What Ms. Yellen didn’t say is that the Fed couldn’t raise its rates without breaking the law. Since when are Fed rate increases illegal? Since the 2007-08 subprime meltdown and financial disaster, actually. Until then the Fed could set any target it liked for the federal-funds rate—the interest rate banks pay for overnight loans of cash reserves. To keep the fed-funds rate from rising above target, the Fed pumped more reserves into the banking system. To keep it from dropping below, it took reserves away.

But after Lehman Brothers failed in 2008, the Fed’s efforts to keep the fed-funds rate from dropping below its target proved futile. To set a floor on how far the rate could go, the Fed started paying interest on banks’ reserve balances with the Fed, taking advantage of the 2006 Financial Services Regulatory Relief Act giving it permission to do so. Alas, it didn’t work. Government-sponsored enterprises Fannie Mae, Freddie Mac and the Federal Home Loan Banks, which also kept deposit balances at the Fed but weren’t eligible for interest on reserves (IOR), started making overnight loans to banks at rates below the IOR rate. In effect, this turned what the Fed hoped would be a floor on the fed-funds rate into a ceiling. To raise rates now, the Fed increases the rate on reserves.

So what’s to keep the Fed from raising rates this way again? The 2006 Financial Services Regulatory Relief Act is what. For that law only allows the central bank to pay interest on reserves “at a rate or rates not to exceed the general level of short-term interest rates.” The rub is that the Fed’s IOR rate of 50 basis points (0.5%) already exceeds the closest comparable market rates: those on shorter-term Treasury bills. At the start of this month, the four-week T-bill rate was just 26 basis points; since then it has slid even lower, all the way down to 10 basis points. Judging by these numbers, the Fed is already flouting the law. Another hike would mean flouting it all the more flagrantly. Lawmakers will be duty-bound to object. The law can only be stretched so far. Unless “general short-term rates” rise markedly, Congress can be expected to question the legality of any Fed rate increase. If it comes to that, Ms. Yellen will find it very hard to dissemble her way out of it.

2016 will be known as the good old days.

• Global Container Volume on Track for Worst Year Since 2009 (WSJ)

Global container volumes are on track for zero growth this year, which would mark the sector’s worst performance since the 2009 economic crisis and a sure catalyst for further bankruptcies and possible acquisitions in the beleaguered shipping industry, shipping executives said. Freight rates, the predominant source of income for shipping companies, fell 20% in the benchmark Asia to Europe trade route this week compared with last week to $767 per container. Rates have mostly stayed well below $1,000 since the start of the year and operators say anything below $1,400 is unsustainable. They aren’t expected to turn around soon.

China’s Golden Week holiday starts at the beginning of October, marking the slow season for operators as many Chinese factories cut production levels after an output frenzy in the summer months when western importers stack up products for the year-end holidays. “The industry faces its worst year since the Lehman Brothers collapse,” said Jonathan Roach, an analyst at London based Braemar ACM. “Demand is around zero and any moves to increase freight rates will likely fail.” Hanjin, South Korea’s biggest operator and the world’s seventh largest in terms of capacity, filed for bankruptcy protection last month and is under court order to sell its own ships and returning chartered ships to their owners. Container operators, which move everything from clothes and shoes to electronics and furniture, are burdened by 30% more capacity in the water than demand.

And they’ll keep their jobs?

• Wells Fargo Executives Forfeit Millions, CEO To Forgo Salary (G.)

Wells Fargo executives will forfeit millions of dollars in the wake of revelations that the bank’s sales quotas led to the creation of more than 2m unauthorized accounts. The bank’s chief executive John Stumpf will forgo his salary for the coming months as independent directors launch a new investigation into Wells Fargo’s retail banking and sales practices. Last year, Stumpf made about $19.3m. Stumpf will also forfeit unvested equity awards worth about $41m. Carrie Tolstedt, who oversaw the retail banking at Wells Fargo while the unauthorized accounts were opened, was slated to receive as much as $124.6m after retiring this summer, according to Fortune. The bank said on Tuesday that she would not receive an undisclosed severance and would forfeit about $19m in unvested awards.

Less than three weeks ago, Wells Fargo announced that it had agreed to pay $185m in penalties after an audit found that its employees opened as many as 1.5m deposit accounts and 565,000 credit card accounts without customers’ consent. The accounts were opened by the bank’s staff in hopes of meeting their monthly sales quota and earning their incentive bonuses. Wells Fargo workers have tried to draw attention to the “unreasonable” quotas before – some even staged a protest in front of the bank’s headquarters last year. When Stumpf testified in front of the US Senate last week, he drew ire from US lawmakers. Many of them called for the bank to recoup pay from Stumpf and Tolstedt and hold them accountable.

The EU has made Greek recovery impossible. Spending power has been murdered, and a whole generation of younger people is 50-60% long-term unemployed. It makes no difference what anyone forecasts.

• Worries Grow Over Greek Economic Forecast (WSJ)

Greece’s economic recovery is proving elusive, challenging the forecasts of the country’s government and foreign creditors still counting on growth reviving this year. The IMF said last week that the economy is stagnating, in the first admission from creditors that Greece’s recovery is off track again. Growth will only restart next year, the head of the IMF’s team in Greece said on a conference call with reporters, without offering details. Of particular concern is that exports, which are supposed to lead Greece out of trouble, are on a slow downward trajectory, hampered by capital controls, taxes and a lack of credit. “There is no chance we will see a rebound unless we see some bold political decisions that would introduce a more stable business environment,” said Dimitris Tsakonitis, general manager at mining company Grecian Magnesite.

The bailout agreement between Greece and its German-led creditors assumes rapid growth from late 2016 onward, including an official forecast of 2.7% growth in 2017. Private-sector economists believe next year’s growth could be closer to 0.6%. Weaker growth would undermine the budget, likely leading to fresh arguments with lenders about extra austerity measures. Greece is still grappling with the measures it has already agreed to. Late on Tuesday the country’s parliament approved pension overhauls and other policy changes that have been delayed for months, holding up bailout funding.

Good to note. Berlin buys back its water, and forces Athens to sell it. “It’s not any more a democracy or equality in the EU. It’s a kind of business..”

No society should ever agree to sell its basic needs to foreigners. Leaders who do that anyway should be fired.

• Germany’s Hypocrisy Over Greece Water Privatisation (G.)

Greek activists are warning that the privatisation of state water companies would be a backward step for the country. Under the terms of the bailout agreement approved by the Greek parliament today, Greece has pledged to support an existing programme of privatisation, which includes large chunks of the water utilities of Greece’s two largest cities – Athens and Thessaloniki. There is ongoing debate about water privatisation and the role of business. Across Europe a wave of austerity-driven privatisation proposals has led to protests in Ireland, Italy, Greece and Spain. At the same time, some of northern Europe’s largest cities, including Paris and Berlin, are buying back utilities they sold just last decade.

President of the Thessaloniki water company trade union George Argovtopoulos said a move to a for-profit model would raise prices for consumers and degrade services. “It’s not any more a democracy or equality in the EU. It’s a kind of business,” he said, adding that austerity measures that require water privatisation smacked of a “do as I say, but not as I do” approach from Germany. “We know that in Berlin, just two years ago they remunicipalised the water there, although they paid just under €600m to Veolia [to buy back its stake]. It’s clear that the model of privatisation of water has failed all around the world,” he said. The German finance ministry refused to comment ahead of a Eurogroup meeting in Brussels on Friday where the third bailout deal looked set to be signed.

[..] Austerity-led changes to water supply have been fiercely resisted across Europe’s most indebted countries. In Dublin this year, huge protests erupted over plans to directly charge water users who previously paid for water through their taxes. This was seen as a first step towards selling off Ireland’s water supply. A water privatisation push by former Italian prime minister Silvio Berlusconi was crushed by a 95% referendum vote in 2011. A similar referendum in Thessaloniki last year delivered a 98% vote against. A 2014 report by the Transnational Institute’s Satoko Kishimoto found that across the world 180 cities had bought back (or remunicipalised) their water supply. She said this was a response to almost universally higher water prices and the loss of control over a fundamental resource.

Another author claiming that “..the scientific consensus within and outside of China is that GMOs are safe..”

• China Wants GMOs. The Chinese People Don’t. (BBG)

The latest food safety scandal in China might be its most damaging. Earlier this week, a former doctoral student at one of the country’s national testing centers for genetically modified organisms went public with allegations of scientific fraud, including claims that records were doctored extensively, that unqualified personnel were employed under illegal contracts and – most seriously – that authorities refused to take action when his concerns were aired privately. On Wednesday, China’s Ministry of Agriculture responded to a social media storm by suspending operations at the center. That might take care of the current scandal, but the Chinese public’s hostility toward GMOs won’t go away so easily.

Those concerns have only grown over the past decade as the government has increased its support of GMOs, including approval of the state-owned ChinaChem Group’s $43 billion takeover offer for the Swiss seed giant Syngenta. These efforts have galvanized a very public opposition that transcends China’s typical political fault lines, and created one of the government’s most intractable headaches. Feeding China’s huge population has never been easy. But over the last three decades, the challenges have become considerably greater as urbanization devoured farmland, and pollution made even more of it unusable. Today, the government is faced with the task of feeding 21% of the world’s population with 9% of its arable land. Its reliance on foreign goods has made China the world leader in imports since 2011.

Officials now fear the country could become dependent on foreigners for its food supply and the government remains committed to maintaining self-sufficiency in rice, wheat, and other key grains. As a result, the political pressure to increase yields is considerable. In fact, this pressure is centuries-old. Domesticated rice first appeared in the Yangtze River Valley at least 8,000 years ago, and Chinese farmers and scientists have been innovating ever since. In 1992, China became the first country to introduce a GMO crop into commercial production, when it sowed a virus-resistant tobacco plant on 100 acres. Since then, the government has issued safety certificates for a wide range of GMO crops, ranging from chili peppers to petunias. Yet, so far at least, only cotton has gone into wide cultivation. Other GMOs – especially rice, a staple of the Chinese diet – are still awaiting approval to be domestically cultivated.

The blessings of plastic.

• Single Clothes Wash May Release 700,000 Microplastic Fibres (G.)

Each cycle of a washing machine could release more than 700,000 microscopic plastic fibres into the environment, according to a study. A team at Plymouth University in the UK spent 12 months analysing what happened when a number of synthetic materials were washed at different temperatures in domestic washing machines, using different combinations of detergents, to quantify the microfibres shed. They found that acrylic was the worst offender, releasing nearly 730,000 tiny synthetic particles per wash, five times more than polyester-cotton blend fabric, and nearly 1.5 times as many as polyester. “Different types of fabrics can have very different levels of emissions,” said Richard Thompson, professor of marine biology at Plymouth University, who conducted the investigation with a PhD student, Imogen Napper.

“We need to understand why is it that some types of [fabric] are releasing substantially more fibres [ than others].” These microfibres track through domestic wastewater into sewage treatment plants where some of the tiny plastic fragments are captured as part of sewage sludge. The rest pass through into rivers and eventually, oceans. A paper published in 2011 found that microfibres made up 85% of human-made debris on shorelines around the world. The impact of microplastic pollution is not fully understood but studies have suggested that it has the potential to poison the food chain, build up in animals’ digestive tracts, reduce the ability of some organisms to absorb energy from foods in the normal way and even to change the behaviour of crabs.

Debt Rattle September 26 2016

Sep 262016

September 26, 2016 Posted by Raúl Ilargi Meijer at 8:50 am Finance Tagged with: army, currency, Deutsche, economists, elephant, guns, Hillary, home prices, OPEC, Trump 2 Responses »

NPC Fire at Thomas Somerville plant, Washington DC 1926

• Asian Markets Drop As Pessimism Increases Ahead Of OPEC Meeting (MW)

• Deutsche Bank Slumps to Fresh Record Low on Capital Concerns (BBG)

• China’s Smaller Banks Are Funding Each Other’s Lending (BBG)

• China Launches $52.5 Billion Restructuring Fund For State-Owned Firms (R.)

• A Weaker Currency Is No Longer the Economic Elixir It Once Was (BBG)

• US Home Prices Rose 76% Since 1999 As Real Income Grew Less Than 2% (BBG)

• Justin Trudeau’s Canadian Honeymoon Is About to End (BBG)

• The Know-Nothing Economists Who Created This Mess Blast Trump’s Plan (MW)

• Amazon “Tweaks” Hillary Book Stats: ‘5-Star’ Reviews Double Overnight (ZH)

• Cracks Showing In Germany’s Fragile Truce With The ECB (R.)

• German Minister: Britain Won’t Stop EU Army (Pol.)

• 50% Of Guns In America Owned By Just 3% Of Population (ZH)

• African Elephants ‘Suffer Worst Decline In 25 Years’ (AFP)

And Europe’s falling faster.

• Asian Markets Drop As Pessimism Increases Ahead Of OPEC Meeting (MW)

Asian shares were broadly lower Monday, as relief over a delay by the U.S. Federal Reserve in raising interest rates wore off. Japan’s Nikkei was down 0.8%, while Hong Kong’s Hang Seng Index retreated 0.7%. South Korea’s Kospi slipped 0.4%. “Asia Pacific investors are bracing for a sell day after European and U.S. traders took some hard won risk off the table,” wrote Michael McCarthy, chief market strategist at CMC Markets, in a note. On Friday, the S&P 500 and Nasdaq both fell 0.6% and the Dow Jones Industrial Average shed 0.7% as energy stocks slid with oil prices Friday. Investors were also pessimistic on Monday over any breakthroughs in oil-production cuts when OPEC gathers for an informal meeting later this week.

Merkel’s comments weigh in.

• Deutsche Bank Slumps to Fresh Record Low on Capital Concerns (BBG)

Deutsche Bank shares dropped to a record low amid concerns that the lender’s capital buffers will be undermined by mounting legal charges including a settlement tied to the sale of U.S. securities The shares dropped 4.2% to €10.93 at 9:15 a.m. in Frankfurt, an all-time low. The 38-member Bloomberg Europe Banks and Financial Services Index slipped 1.5%, with Deutsche Bank the worst performer. A potential $14 billion bill to settle a U.S. probe into residential mortgage-backed securities is more than twice the €5.5 billion ($6.2 billion) Deutsche Bank has set aside for litigation. The lender also faces inquiries into legal issues including currency manipulation, precious metals trading and billions of dollars in transfers out of Russia, complicating CEO John Cryan’s efforts to bolster profitability and capital ratios.

Germany’s biggest bank would be “significantly under-capitalized” even assuming enough provisions to cover an eventual settlement with the U.S. Justice Department, Andrew Lim at Societe Generale said in a note earlier this month. A settlement range of $3 billion to $3.5 billion would leave the German lender room to settle other legal issues, while any additional $1 billion in litigation charges would erode 24 basis points in capital, JPMorgan analysts wrote. Chancellor Angela Merkel has ruled out any state assistance for Deutsche Bank in the year heading into the national election in September 2017.

Big warning sign. Circle jerking tail eating snakes.

• China’s Smaller Banks Are Funding Each Other’s Lending (BBG)

[..] China’s banking regulator told city banks last week to learn the lesson of the global financial crisis and get back to traditional businesses. CLSA estimates total debt may reach 321% of GDP in 2020 from 261% in the first half. “Contagion risks are definitely rising,” said Liao Qiang, Beijing-based senior director for financial institution ratings at S&P Global Ratings. “The pace of the development is concerning. If this isn’t stopped in time, the central bank will lose some control and flexibility of its monetary policy.” Shanghai Pudong Development Bank said in an e-mailed response on Sept. 24 it has been using appropriate financing and its regular deposits and interbank borrowing have been developing properly and in synchronization.

Total liabilities will be kept under control in the long run and all liquidity gauges meet regulatory requirements, it said. Rising short-term borrowing doesn’t mean its risks have climbed as well, the bank said. “City commercial banks should change as soon as possible the situation of allocating more funds into investing than lending, and developing their off-balance-sheet businesses too fast,” Shang Fulin, chairman of the China Banking Regulatory Commission, said. The PBOC resumed longer-term reverse repos to boost borrowing costs in August and deputy governor Yi Gang said in a television interview earlier this month that the nation’s short-term goal is to curb leverage. It gauged demand for such auctions today. The benchmark 10-year government bond yield climbed slightly, to 2.73% from a decade low of 2.64% on Aug. 15.

[..] The higher the reliance on wholesale funds and investment in illiquid assets, the greater the risk of a liquidity crunch, said Christine Kuo at Moody’s. “When banks face fund withdrawals by other financial institutions, this will in turn prompt them to call back their own funds,” she said. Banks are also buying each others’ wealth-management products and accounting for the transactions as investment receivables. A record 26.3 trillion yuan of WMPs were outstanding as of June 30, doubling over two years, official data showed. Investment receivables at 25 listed banks grew 13.4% in the first half to 11 trillion yuan.

Doesn’t sound like real restructuring.

• China Launches $52.5 Billion Restructuring Fund For State-Owned Firms (R.)

A private equity fund worth 350 billion yuan ($52.5 billion) has been launched in China to help with the restructuring of state firms, a newspaper run by Xinhua news agency reported on Monday. The China State-owned Enterprises Restructuring Fund will be managed by the State-owned Assets Supervision and Administration Commission (SASAC), according to the Economic Information Daily. The report said 10 state-owned enterprises have established the fund to help with restructuring of state firms, including M&A deals, as part of government efforts to advance supply side reform. The 10 firms have provided initial registered capital of 131 billion yuan, the newspaper said.

No detail was provided on the source of the rest of the equity fund. The 10 firms include China Mobile, China Railway Rolling Stock, China Petroleum & Chemical and China Chengtong, a restructuring platform supervised by SASAC that will lead the fund. China is embarking on a revamp of its massive but debt-ridden state sector, which has struggled under a system that requires firms to maximize economic gains while fulfilling government policy objectives. The government has vowed to create innovative and globally competitive enterprises through mergers, asset swaps and management reforms.

Caveat: a weak currency doesn’t automatically spur more exports. But they should also ask where exports would be if the currency had remained strong. Maybe they would have plummeted. Maybe global trade is falling fast.

• A Weaker Currency Is No Longer the Economic Elixir It Once Was (BBG)

A weaker currency, once the cure-all for ailing economies around the world, isn’t the panacea it once was. Just look at Japan, where the yen plunged 28% in the two years through 2014, yet net exports to America still fell by 10% in the span. Or at the U.K., where the pound’s 19% tumble in the two years through 2009 couldn’t stave off a 26% decline in shipments to the U.S. In fact, since the turn of the century, the ability of exchange-rate movements to affect trade and growth in major economies has fallen by more than half, according to Goldman Sachs. The findings suggest that weaker currencies may not provide much assistance to officials in countries like Japan and the U.K. that are relying on unprecedented easy-money policies to help boost tenuous growth and inflation.

On the flip side, the data also indicate that concerns U.S. growth will be derailed as rising interest rates drive investors into the dollar are also overblown. A shift in the structure of advanced-economy trade to less price-elastic goods and services, combined with the prolonged effects of the financial crisis, have stunted the sensitivity of trade volumes relative to global exchange rates, according to Goldman Sachs analysts led by Jari Stehn. “If you’re a central banker, yes you’re paying attention to currency levels, but the more-developed market economies aren’t reacting to currency debasing policies like they used to,” said Philippe Bonnefoy, the founder of hedge fund Eleuthera. “The impact has been diluted.”

Global central banks have cut policy rates 667 times since 2008, according to Bank of America Corp. During that period, the dollar’s 10 main peers have fallen 14%, yet Group-of-Eight economies have grown an average of just 1%. Since the late 1990s, a 10% inflation-adjusted depreciation in currencies of 23 advanced economies boosted net exports by just 0.6% of GDP, according to Goldman Sachs. That compares with 1.3% of GDP in the two decades prior. U.S. trade with all nations slipped to $3.7 trillion in 2015, from $3.9 trillion in 2014.

“Since 1999 year-end through 2015 home prices have risen 76% while household mean real income has grown less than 2%..”

• US Home Prices Rose 76% Since 1999 As Real Income Grew Less Than 2% (BBG)

U.S. home prices appear to be getting out of hand again as the gap between home price growth and household real income growth is close to where it was just before the housing collapse. It’s also notable, and worrying, that the housing market is back in a “flipping frenzy” with non-bank actors climbing aboard to fund the speculation. Since 1999 year-end through 2015 home prices have risen 76% while household mean real income has grown less than 2%; the millennium-to-date gap between the two growth rates peaked at 84% during 2005-2006 and has risen back to 74% as of 2015 year-end. Gap at year-end 2007 was 75%. This millennium through 2015 has seen average new and existing home sale prices rise 84% and 55%, respectively, despite the lack of income growth.

Existing and new home sales average prices peaked at $280.2k in June 2015 and $384k in Oct. 2014, respectively; both peaks exceeded levels seen during housing boom. Over the same period outstanding home mortgage debt has risen 14%, though it’s notable that with the end of easy mortgage credit it has fallen 11% from its June 2008 peak. Concurrent with this 11% fall, the homeownership rate (63.8% at 2015 year-end) has slid back to levels last seen in the mid-1960s. Monthly U.S. single-family home price y/y growth hit a post-crisis peak of 10.85% in Oct. 2013 and has since leveled off at ~5% each month since July 2015; this is still easily outpacing growth in real income.

The disconnect between home price growth and the lack of real income growth has led homebuilders’ to turn to the higher-end of the market and for Ginnie Mae to take the lead in mortgage lending. GNMA offers taxpayer-guaranteed loans to first-time homebuyers who have lower credit scores and smaller down payments than those who obtain loans through Fannie Mae or Freddie Mac. Whereas from 2005-2007 GNMA pct share of net MBS issuance was ~2% each year, during 2014, 2015 and 2016 YTD it is ~67%, according to BofAML data. Another severe downturn in home prices would be unlikely to play out in the agency MBS market in like manner to 2007-2008 as the Fed now holds ~33% of the outstanding universe and the U.S. taxpayer now guarantees almost all of the market with Fannie and Freddie remaining under government conservatorship.

A big bad hornet’s nest. And that’s before the economic poisoned chalice is served.

• Justin Trudeau’s Canadian Honeymoon Is About to End (BBG)

Along Canada’s evergreen-draped west coast, the fate of a multi-billion-dollar energy project and a nation’s reconciliation with its dark, colonial past hang in the balance. Beating rawhide drums and singing hymns, occupiers of Lelu Island—where Malaysia’s state oil company plans a $28 billion liquefied natural gas project—assert indigenous claims to the area where trees bear the markings of their forefathers and waters run rich with crimson salmon they fear the project will obliterate. “The blood of my ancestors is on my hands if I don’t defend this land,” says Donald Wesley, 59, a hereditary chief of the Gitwilgyoots tribe which has inhabited the area for more than 6,000 years.

That claim is about to test Justin Trudeau, the country’s telegenic 44-year-old prime minister, who swept to power a year ago vowing to be many things to many people—to tackle climate change, revive the economy, and reset Canada’s fraught relationship with its indigenous communities. Those pledges are set for collision in British Columbia—home to more First Nations communities than any other province and the crucible where a resource economy seeks to reinvent itself. Trudeau has promised to decide on the LNG project on Lelu Island by Oct. 2. He has big spending plans to spur growth in a commodities downturn, and B.C., the birthplace of Greenpeace, is where most energy projects able to support that growth are located.

Indigenous groups, essential to public support, are divided, with some seeking to preserve their habitat and traditions, and others arguing that the projects offer a path out of poverty, addiction and suicide. Facing five major energy initiatives in B.C., Trudeau will choose which constituency to abandon. He’s allowed a hydroelectric dam to proceed; pending are decisions on Enbridge’s Northern Gateway crude pipeline, Petroliam Nasional’s LNG project on Lelu Island, a pipeline expansion by Kinder Morgan, as well as a ban on crude oil tankers. He’s said to want at least one pipeline, and favor Kinder Morgan. Trudeau says regularly it’s a prime minister’s job to get the country’s resources to market, and a pipeline approval would demonstrate Canada can get major projects completed as warnings mount that the complex web of regulatory rules is spurring a flight of capital.

“It was refreshing to hear that Trump economic adviser Stephen Moore responded to a question from Pethokoukis about all the red ink in Trump’s plan with, “Whether it’s going to pay for itself, I don’t really care.”

• The Know-Nothing Economists Who Created This Mess Blast Trump’s Plan (MW)

Establishment economists ranging from austere neoliberals to spendthrift Keynesians are united in branding Donald Trump’s proposed economic policies as “disastrous.” He must be on to something. These economists are the distinguished experts, after all, who have championed the globalization that gutted American manufacturing, promoted the offshoring and outsourcing of American jobs, encouraged American companies to keep trillions (trillions!) of dollars of profit abroad, and enabled the tax inversions allowing American companies to move to the country most willing to beggar its neighbor. These are the celebrity academics who have championed the deficit-reducing, budget-balancing, tax-cutting policies that have crippled our infrastructure, degraded our schools, and cut public services from police and fire protection to garbage collection.

And now this gaggle of Washington insiders is warning us that Trump’s policies will throw the country into recession, ignite a trade war, launch the national debt into the stratosphere, and create more unemployment rather than jobs. Why, really, should anyone listen to them? There is Mark Zandi, whose title as chief economist of Moody Analytics makes this sometime adviser to Barack Obama and backer of Democratic nominee Hillary Clinton seem nonpartisan, even though he clearly is not. Not surprisingly, Zandi had his team at Moody’s produce some modeling this summer that concluded that Trump’s economic proposals would result in a less global economy, lead to larger government deficits and more debt, will largely benefit very high-income households, and will result in a weaker U.S. economy.

The implication is that these are all bad things. Those for whom Trump’s economic message resonates might consider a less global U.S. economy a good thing. To brand deficits and debts as terrible you would first have to prove that they do more harm than good.

[..] those establishment economists who through several administrations have served so ably on the president’s Council of Economic Advisers, in the Treasury Department and the Federal Reserve — the people, in short, who have delivered us into the economic morass they blithely call secular stagnation — are training their heavy artillery on poor, dumb Trump. Progressive economist Joseph Stiglitz, who chaired the CEA under President Bill Clinton, gives Trump an “F” in economics because the nominee apparently doesn’t understand the principle of comparative advantage in global trade — as if we lived in a world where currency manipulation, dumping subsidies, and substandard environmental and labor conditions don’t keep this pristine economic principle from working its magic.

And conservative analyst James Pethokoukis, a fellow at the American Enterprise Institute, labeled Trump’s economic plan “a complete and utter joke” as he took the Republican nominee to task for potentially adding $2.6 trillion to $3.9 trillion to the national debt over the next 10 years — even though the $9 trillion in debt added during the 7.5 years of the Obama administration has caused no detectable harm. It was refreshing to hear that Trump economic adviser Stephen Moore responded to a question from Pethokoukis about all the red ink in Trump’s plan with, “Whether it’s going to pay for itself, I don’t really care.” High time someone influencing policy fully appreciated the dynamic flexibility of a fiat currency in government finance. We don’t really need to care whether the plan “pays for itself” in the short term, if it does indeed produce the accelerated growth promised.

For entertainment purposes only.

• Amazon “Tweaks” Hillary Book Stats: ‘5-Star’ Reviews Double Overnight (ZH)

Two short weeks ago, we exposed the gaping difference between Amazon reader reviews of Hillary Clinton’s “Stronger Together” book (14% 5-Stars) and Donald Trump’s “Great Again” book (74% 5-Stars)… As The New York Times reported at the time, the book was a disaster. Both Mrs. Clinton and her running mate, Senator Tim Kaine, have promoted the book on the campaign trail, but the sales figure, which tallies about 80% of booksellers nationwide and does not include e-books, firmly makes the book what the publishing industry would consider a flop. [..] So, as with everything else in this ‘new normal rigged’ world, something had to be done and WaPo-owner Jeff Bezos’ Amazon reviews appear to have been ‘tweaked’ – more than doubling Hillary’s top reviews.

But, as WND.com explains, Amazon’s steps to ‘fix’ Hillary’s book rviews has resulted in 5-star ratings with scathingly negative comments… If you can’t even win when the rules are changed in your favor, things must be REALLY bad. That’s how it looks for Hillary Clinton’s new 2016 campaign book, “Stronger Together,” co-authored with running mate Tim Kaine. WND reported just days ago when the book was being savaged on Amazon.com with negative reviews, with 81% one-star ratings and an average of only 1.7. Clinton supporters lashed out at “trolls” they said were criticizing the book only because they oppose the Democrat’s presidential candidacy. WND previously reported there were more than 1,200 reviews, and the number grew to than 2,000.

But Thursday afternoon, there were only 255, with many of the most critical reviews removed by Amazon, whose CEO, Jeff Bezos, owns the Washington Post, which created an army of 20 reporters and researchers to investigate the life of Donald Trump. Victory for the Clinton book, however, remains out of grasp, with the negative, one-star responses, outnumbering positive, five-star responses nearly 2-1. The one-star ratings Thursday were 62%, to 35% for five-star ratings.

“..the political landscape in Germany has become decidedly more toxic for the ECB over the past months.”

• Cracks Showing In Germany’s Fragile Truce With The ECB (R.)

Michael Stuebgen, a conservative member of the German parliament, was speaking with the head of a local savings bank recently about the ECB’s QE program. “He told me the bond market was being emptied out,” Stuebgen recalled. “He likened it to going into a supermarket where everything has been bought up. You might find a shriveled old carrot or potato. Pretty soon you’re starving.” Stuebgen, a spokesman on European affairs for Chancellor Angela Merkel’s party in the Bundestag, credits the ECB and its President Mario Draghi with saving the euro zone from collapse four years ago. But conversations like the one with the banker have convinced him that its policies, in particular the massive bond-buying program known as QE, have gone too far. He is not alone.

[..] Instead of changing course, as Stuebgen and his colleagues want, the ECB is widely expected to announce an extension of its QE program by the end of the year. The program is due to expire in March. As early as next month, it could also announce steps to broaden the scope of what it can buy in response to a dwindling pool of available assets. The most controversial change would be abandoning the so-called “capital key”, which limits the proportion of government bonds the ECB can buy from any given member state, based on its size and economic weight. “The big challenge for Mario Draghi will be to prepare the Bundestag and German public for a further easing of monetary policy,” said Marcel Fratzscher, head of the DIW economic institute and a former senior official at the ECB.

That message is unlikely to go down well in Berlin. In addition to concerns about the distorting effects of QE on financial markets and the impact of low interest rates on German savers and insurers, the political landscape in Germany has become decidedly more toxic for the ECB over the past months.

Better get rid of the EU before they acutally do this.

• German Minister: Britain Won’t Stop EU Army (Pol.)

Ursula von der Leyen, Germany’s defense minister, does not believe the U.K. will stand in the way of deepened defense cooperation between EU member countries, she told Reuters in an interview Sunday night. Von der Leyen said she was confident Britain would “make good its promise that it will not hinder important EU reforms.” Michael Fallon, Britain’s defense secretary, said earlier this month Britain will veto measures to build an EU army for as long as it remains a member of the bloc. Von der Leyen said she told Fallon the plans were not directed against Britain, but “designed for a strong Europe” instead.

Martin Schulz, the president of the European Parliament, said during a speech in London last week that a British veto was “counterproductive and anyway not possible in this case.” EU defense ministers will discuss common military proposals on Monday and Tuesday. Federica Mogherini, the European Commission’s foreign policy chief, said earlier this month that member countries could combine their defense capabilities via a so-far unused provision in the Lisbon Treaty.

Feel safe?

• 50% Of Guns In America Owned By Just 3% Of Population (ZH)

A recent Harvard study of the demographics of gun ownership in the United States yielded a fairly shocking discovery, namely the emergence of the Obama gun “Super Owner.” The study, entitled “The Stock and Flow of US Firearms: Results from the 2015 National Firearms Survey”, was conducted by the Harvard School of Public Health and found that just 14% of all gun owners, or 7.6mm adults and 3% of the total U.S. population, possessed 50% of all guns owned by civilians in the country. Moreover, with a total stock of 270mm civilian-owned guns in the U.S., that implies that these “super owners” possess an average of nearly 18 guns per person.

“Gun owning respondents owned an average of 4.85 firearms (range: 1-140); the median gun owner reported owning approximately two guns. As can be seen in Figure 3, approximately half (48%) of gun owners report owning 1 or 2 guns, accounting for 14% of the total US gun stock, while those who own 10 or more guns (8% of all gun owners), own 39% of the gun stock. Put another way, one half of the gun stock (~130 million guns) is owned by approximately 86% of gun owners, while the other half is owned by 14% of gun owners (14% of gun owners equals 7.6 million adults, or 3% of the adult US population).”

Another startling discovery in the data, though “oddly” not highlighted in the report, is that the surge in gun ownership per capita seemed to coincide with the start of the Obama presidency and growing rhetoric over new gun regulations. Per the chart below, over the past 20 years, gun ownership per U.S. adult hovered around 1 from 1993 through 2007 but then surged starting in 2008 as an Obama presidency became increasingly likely. This trend is also reflected in annual guns sales which floated between 4-6mm units per year before surging in 2008.

Tears. I still have tears left.

• African Elephants ‘Suffer Worst Decline In 25 Years’ (AFP)

Africa’s elephant population has suffered its worst drop in 25 years, the International Union for Conservation of Nature (IUCN) said Sunday, blaming the plummeting numbers on poaching. Based on 275 estimates from across the continent, a report by the conservation group put Africa’s total elephant population at around 415,000, a decline of around 111,000 over the past decade. It is the first time in 25 years that the group’s African Elephant Status Report has reported a continental decline in numbers, with the IUCN attributing the losses in large part to a sharp rise in poaching. “The surge in poaching for ivory that began approximately a decade ago – the worst that Africa has experienced since the 1970s and 1980s – has been the main driver of the decline,” said IUCN in a statement.

Habitat loss is also increasingly threatening the species, the group said. IUCN chief Inger Andersen said the numbers showed “the truly alarming plight of the majestic elephant”. “It is shocking but not surprising that poaching has taken such a dramatic toll on this iconic species,” she said. The IUCN report was released at the world’s biggest conference on the international wildlife trade, taking place in Johannesburg. Thousands of conservationists and government officials are seeking to thrash out international trade regulations aimed at protecting different species. A booming illegal wildlife trade has put huge pressure on an existing treaty signed by more than 180 countries – the Convention on International Trade in Endangered Species (CITES).

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