Jul 232018
 July 23, 2018  Posted by at 9:02 am Finance Tagged with: , , , , , , , , , ,  

René Magritte Man in a bowler hat 1964


Martyrs to the Cause: Carter Page and Julian Assange (Raimondo)
British Assassination Campaign Targeting Russian Exiles? (SCF)
The Burden Of Proof Is On The Russiagaters (CJ)
Russian Hysteria An Exercise In PsyOps (Kunstler)
Liquidity Crisis: Tesla Asks Suppliers For “Cash Back” (ZH)
Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival.
How The Fracking Revolution Broke OPEC’s Hold On Oil Prices (Rapier)
Less Than 20% Of US Apartments Affordable For Middle-Income Black Renters (MW)
China Probes Stainless Steel Imports From Indonesia, EU, Japan And Korea (R.)
The World’s Largest Megacities By 2100 (ZH/VC)
Earth’s Resources Consumed In Ever Greater Destructive Volumes (G.)
Crop Failure And Bankruptcy Threaten Farmers As Drought Grips Europe (G.)



“Assange is, in short, the greatest journalist of our time..”

Martyrs to the Cause: Carter Page and Julian Assange (Raimondo)

Assange was granted sanctuary due to Rafael Correa, then the President of Ecuador: unfortunately, Correa’s successor – one Lenin Moreno – has caved to pressure from the US and Britain, and it looks like Assange is going to be handed over to the British imminently. What happens next is anybody’s guess, but my own view is that there has indeed been a grand jury secretly deliberating his case, and charges will be made public: which means Assange will be sent to America, and to an uncertain fate. Uncertain due to the Supreme Court decision in the Pentagon Papers case, in which the Supremes ruled that the First Amendment protects journalists who report facts that may embarrass or otherwise inconvenience the government.

In other circumstances, and in an earlier era, his fate would not be uncertain, it would be sealed. After all, WikiLeaks has revealed more US government secrets than any single individual or state adversary in history. One after another the revelations came – a US helicopter gunship gunning down Iraqi civilians, the entire secret diplomatic history of the US, complete with original documents and references, the methodology of hi-tech US surveillance on ordinary Americans, and the list goes on and on. Assange is, in short, the greatest journalist of our time – and so naturally the rest of the profession hates his guts, and is calling for his head.

The reasons for this should be clear enough: the Russia-gate mythology, a matter of faith for the Fourth Estate, characterizes Assange as one of its chief demons. He is, in their fake-expert phraseology, a Russian “asset,” Putin’s puppet, who deprived Hillary Clinton of her rightful due and “stole” the 2016 presidential election on behalf of Donald Trump.

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Since the narrative is not based on any evidence whatsoever, we can simply turn it upside down.

British Assassination Campaign Targeting Russian Exiles? (SCF)

For its part, the Russian government has always categorically denied any involvement in the ill-fate of nationals living in exile in Britain. On the Skripal case, Moscow has pointed out that the British authorities have not produced any independently verifiable evidence against the Kremlin. Russian requests for access to the investigation file have been rejected by the British. On the Litvinenko case, Russia has said that the official British inquiry was conducted without due process of transparency, or Russia being allowed to defend itself. It was more trial by media. A common denominator is that the British have operated on a presumption of guilt. The “proof” is largely at the level of allegation or innuendo of Russian malfeasance.

But let’s turn the premise of the argument around. What if the British state were the ones conducting a campaign of assassination against Russian émigrés, with the cold-blooded objective of using those deaths as a propaganda campaign to blacken and criminalize Russia? In a recent British media interview Russia’s Foreign Minister Sergei Lavrov was typically harangued over alleged Russian malign activity in Britain. Lavrov rightly turned the question around, and said that the Russian authorities are the ones who are entitled to demand an explanation from the British state on why so many of its nationals have met untimely deaths. The presumption of guilt against Russia is based on a premise of Russophobia, which prevents an open-minded inquiry.

If an open mind is permitted, then surely a more pertinent position is to ask the British authorities to explain the high number of deaths in their jurisdiction. As ever, the litmus-test question is: who gains from the deaths? In the case of the alleged attempted assassination of Sergei Skripal and his daughter, would Russia risk such a bizarre plot against an exile who had been living in Britain undisturbed for 10 years? Or would Britain gain much more from smearing Moscow at the time of President Putin’s re-election in March, and in the run-up to the World Cup?

The more recent alleged nerve-agent poisoning of two British citizens – Charlie Rowley and Dawn Sturgess – in the southern English town of Amesbury revived official anti-Russia accusations and public fears over the earlier Skripal incident in nearby Salisbury. The Amesbury incident in early July occurred just as a successful World Cup tournament in Russia was underway. It also came ahead of US President Donald Trump’s landmark summit with Vladimir Putin in Helsinki. Again, who stands to gain most from these provocative events? Russia or Britain?

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This is how it should be done.

The Burden Of Proof Is On The Russiagaters (CJ)

As we’ve discussed previously, in a post-Iraq invasion world the confident-sounding assertions of spies, government officials and media pundits is not sufficient evidence for the public to rationally support claims that are being used to escalate dangerous cold war tensions with a nuclear superpower. The western empire has every motive in the world to lie about the behaviors of a noncompliant government, and has an extensive and well-documented history of doing exactly that. Hard, verifiable, publicly available proof is required. Assertions are not evidence.

But even if there wasn’t an extensive and recent history of disastrous US-led escalations premised on lies advanced by spies, government officials and media pundits, the burden of proof would still be on those making the claim, because that’s how logic works. Whether you’re talking about law, philosophy or debate, the burden of proof is always on the party making the claim. A group of spies, government officials and media pundits saying that something happened in an assertive tone of voice is not the same thing as proof. That side of the Russiagate debate is the side making the claim, so the burden of proof is on them. Until proof is made publicly available, there is no logical reason for the public to accept the CIA/CNN Russia narrative as fact, because the burden of proof has not been met.

[..] There are many Russiagate skeptics who have been doing copious amounts of research to come up with other theories about what could have happened in 2016, and that’s fine. But in a way this can actually make the debate more confused, because instead of leaning back and insisting that the burden of proof be met, you are leaning in and trying to convince everyone of your alternative theory. Russiagaters love this more than anything, because you’ve shifted the burden of proof for them. Now you’re the one making the claims, so they can lean back and come up with reasons to be skeptical of your argument.

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“I think that the thinking class in the United States has literally lost its mind.”

Russian Hysteria An Exercise In PsyOps (Kunstler)

The media over the last few years has indulged in wild speculation around U.S.-Russian relations. And as seen, the run up to this weeks meeting at Helsinki between the leaders of the two nations has been no different. James believes the ongoing Russia investigation, the election of Donald Trump and the defeat of Hillary Clinton has made a certain class of people in the U.S. irrational. “I think that the thinking class in the United States has literally lost its mind. Donald Trump’s persona is so odious that it’s just driven them mad and he’s like a giant splinter in the eye of the thinking class.”

A registered Democrat, Kunstler doesn’t believe that the Russians interfered in the U.S. election in any meaningful way. And any efforts to punish or antagonize them are crazy and dangerous. The ongoing expansion of NATO, playing war games at Russia’s borders and the destabilizing of Ukraine has consolidated bad relations with Russia stretching back to the Cold War. History repeats itself tragically when the thinking classes of powerful nations start to behave extremely irrationally. “Doing anything to interfere with trade and erect barriers and put up tariffs might be a dangerous thing to do,” says Kunstler.

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Boy, what a story.

Liquidity Crisis: Tesla Asks Suppliers For “Cash Back” (ZH)

According to a memo seen by The Wall Street Journal that was sent to a supplier last week, Tesla said it is asking its suppliers for cash back to, drumroll, help it become profitable, as if that is somehow the priority of the company’s suppliers. And we are not talking about a few cents here and there: Tesla requested the supplier return what it calls a meaningful amount of money of its payments since 2016. But wait, it gets better: the memo which was sent by a global supply manager (who will probably be fired shortly), described the request as “essential to Tesla’s continued operation” and characterized it as an investment in the car company to continue the long-term growth between both players.

In other words, Tesla has given its vendors an ultimatum: give us a haircut, or else we won’t survive, and not only is your business with us over, but all those billions in payables we owe you, well, good luck with the other pre-petition claims in bankruptcy court. Or as one Tesla skeptic noted on twitter: “TSLA has been cranking out cars 24/7 at 2-3x the rate they can deliver them, turning supplier parts on credit into finished goods. Then they turn around and “ask” for a cash back so they don’t default on said suppliers. Y’all just got played.” For those wondering how much money Tesla owes its suppliers, or “ransom” as it is now better known, the answer is $2.6 billion and rising exponentially.

As the WSJ further adds, “while Tesla said in the memo that all suppliers were being asked to help it become profitable, it is unclear how many were asked for a discount on contracted spending amounts retroactively.” While Tesla did not comment on the memo, it spun the situation as standard industry practice (it isn’t) confirming it is seeking price reductions from suppliers for projects, some of which date back to 2016, and some of which final acceptance many not yet have occurred. The company called such requests a standard part of procurement negotiations to improve its competitive advantage, especially as it ramps up Model 3 production. Odd that Tesla did not consider all these aspects of its business when it signed contracts which laid out, very clearly, what its obligations were.

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Why still austerity in Greece?

Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival.

Ramón Rivera had barely gotten his olive oil business started in the sun-swept Algarve region of Portugal when Europe’s debt crisis struck. The economy crumbled, wages were cut, and unemployment doubled. The government in Lisbon had to accept a humiliating international bailout. But as the misery deepened, Portugal took a daring stand: In 2015, it cast aside the austerity measures its European creditors had imposed, igniting a virtuous cycle that put its economy back on a path to growth. The country reversed cuts to wages, pensions and social security, and offered incentives to businesses. The government’s U-turn, and willingness to spend, had a powerful effect. Creditors railed against the move, but the gloom that had gripped the nation through years of belt-tightening began to lift. Business confidence rebounded. Production and exports began to take off — including at Mr. Rivera’s olive groves.

“We had faith that Portugal would come out of the crisis,” said Mr. Rivera, the general manager of Elaia. The company focused on state-of-the-art harvesting technology, and it is now one of Portugal’s biggest olive oil producers. “We saw that this was the best place in the world to invest.” At a time of mounting uncertainty in Europe, Portugal has defied critics who have insisted on austerity as the answer to the Continent’s economic and financial crisis. While countries from Greece to Ireland — and for a stretch, Portugal itself — toed the line, Lisbon resisted, helping to stoke a revival that drove economic growth last year to its highest level in a decade. The renewal is visible just about everywhere. Hotels, restaurants and shops have opened in droves, fueled by a tourism surge that has helped cut unemployment in half.

In the Beato district of Lisbon, a mega-campus for start-ups rises from the rubble of a derelict military factory. Bosch, Google and Mercedes-Benz recently opened offices and digital research centers here, collectively employing thousands. Foreign investment in aerospace, construction and other sectors is at a record high. And traditional Portuguese industries, including textiles and paper mills, are putting money into innovation, driving a boom in exports. “What happened in Portugal shows that too much austerity deepens a recession, and creates a vicious circle,” Prime Minister António Costa said in an interview. “We devised an alternative to austerity, focusing on higher growth, and more and better jobs.”

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How long for?

How The Fracking Revolution Broke OPEC’s Hold On Oil Prices (Rapier)

A decade ago, in the summer of 2008, the price of West Texas Intermediate (WTI) crude was racing toward $150 a barrel. Over the previous three years, and despite strong demand growth, the world had only increased oil production by 1.2 million BPD, and it essentially all came from OPEC. Many analysts, including me, were extremely concerned about the future hold OPEC would maintain over the world’s oil supplies. It appeared that there would an enormous transfer of wealth from those countries dependent upon oil imports – like the United States – to OPEC countries. In many cases, these countries have interests that are hostile to those of the U.S., so this was very much an issue of national security.

But the future played out differently than it seemed it would in the summer of 2008. Unbeknownst to most people, oil producers were experimenting with a marriage between two established oil drilling technologies — horizontal drilling and hydraulic fracturing. The success of this marriage would unlock oil in tight oil and shale oil deposits that had previously been too expensive to recover, and would result in one of the greatest oil booms the world had ever seen. In fact, the “fracking revolution” caused U.S. oil production to turn upward in 2009, and then rise over the next seven years at the fastest rate in U.S. history.

While it is still true that OPEC still produced 42.6% of the world’s oil in 2017, the majority of new oil production since 2008 has come from the U.S. Of the 10.3 million BPD of new oil production since 2008, the U.S. supplied 6.2 million BPD (60%). The world’s two other major oil-producing countries, Saudi Arabia and Russia, saw their production increase by 1.7 million BPD and 1.2 million BPD respectively since 2008. OPEC overall increased its production by 3.6 million BPD since 2008, primarily as a result of production growth in Saudi Arabia, Iraq, and Iran. But OPEC’s gains were limited by production declines in Venezuela, Libya, and Nigeria. There were also regional production declines in Europe, Asia, Africa, and South and Central America.

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What happens if you use cheap credit to make your zombie economy look alive.

Less Than 20% Of US Apartments Affordable For Middle-Income Black Renters (MW)

Millions of Americans rent because they can’t afford to buy. And many of those people struggle to pay the rent, new research suggests, more so if they are African-American or Hispanic. A renter who earned $39,647 per year, the median black household income in the U.S., could afford just 16.2% of rentals available on Zillow if they kept their housing costs below 30% of their pretax income, according to a new analysis from the real-estate company. Hispanic renters fared somewhat better: Those who earned the median household income could afford 27.3% of rentals before they risked spending more than a third of their pretax income on housing.

Spending 30% of your gross income on rent is the traditional measure of affordability used by many real-estate experts. Comparatively, white renters who earned the median household income for their demographic could afford 49.7% of rentals, while Asian renters could afford 67.4%. “Perhaps more so than any other factor, income determines where and how we live in the United States today,” said Zillow senior economist Aaron Terrazas in the report. “Income disparities across racial and ethnic groups in the United States have remained stubbornly persistent and, as a result, black and Hispanic families encounter far fewer affordable rental options than white and Asian families,” he said.

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More tariffs?

China Probes Stainless Steel Imports From Indonesia, EU, Japan And Korea (R.)

China on Monday launched an anti-dumping probe into stainless steel imports worth $1.3 billion, including from a privately owned Chinese mill with operations offshore, after complaints that a flood of product has damaged the local industry. The Commerce Ministry said on Monday the investigation will target imports of stainless steel billet and hot-rolled stainless steel sheet and plate from the European Union, Japan, South Korea and Indonesia, which nearly tripled last year. The move follows a complaint by Shanxi Taigang Stainless Steel with backing from four other state-owned mills including Baosteel’s stainless steel division, which blamed cheap imports on falling prices, it said.

China makes and consumes around half of the world’s stainless steel, which is used to protect against corrosion in buildings, transportation and packaging. While the complaint targets eight foreign producers, it also lists a number Chinese companies, including the Indonesian unit of one of the world’s top producers, Tsingshan Stainless Steel, and 19 traders who import product. Some private Chinese companies have opened or started building plants in Indonesia in recent years, drawing on its plentiful nickel resources and lower-cost of production. A significant portion of the new production has been sold in China, analysts say.

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At least a little scary.

The World’s Largest Megacities By 2100 (ZH/VC)

Throughout the course of human history, the biggest cities have always seemed impossibly large. For many millennia, it was almost unfathomable for a city to sustain more than 1 million residents. In fact, as Visual Capitalist’s Jeff Desjardins notes, it wasn’t until the 19th century that the largest cities globally, such as London and Beijing, were able to consistently hold populations beyond that impressive mark. Despite this, in the modern era, we’ve quickly discovered that a city of 1 million people isn’t remarkable at all. In China alone, there are now over 100 cities with a million people today – and as such, our mental benchmark for what we consider to be a “big city” has changed considerably from past times.

Just like a city the size of modern Tokyo was hard to imagine for someone living in the 19th century, it can be an extremely difficult thought experiment for us to visualize what future megacities will look like. Researchers at the Global Cities Institute have crunched the numbers to provide us with one view of the potential megacities of the future, extrapolating a variety of factors to project a list of the 101 largest cities in the years 2010, 2025, 2050, 2075, and 2100.

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The Overshoot theme is shaky, but not fully devoid of meaning.

Earth’s Resources Consumed In Ever Greater Destructive Volumes (G.)

Humanity is devouring our planet’s resources in increasingly destructive volumes, according to a new study that reveals we have consumed a year’s worth of carbon, food, water, fibre, land and timber in a record 212 days. As a result, the Earth Overshoot Day – which marks the point at which consumption exceeds the capacity of nature to regenerate – has moved forward two days to 1 August, the earliest date ever recorded. To maintain our current appetite for resources, we would need the equivalent of 1.7 Earths, according to Global Footprint Network, an international research organisation that makes an annual assessment of how far humankind is falling into ecological debt.

The overshoot began in the 1970s, when rising populations and increasing average demands pushed consumption beyond a sustainable level. Since then, the day at which humanity has busted its annual planetary budget has moved forward. Thirty years ago, the overshoot was on 15 October. Twenty years ago, 30 September. Ten years ago, 15 August. There was a brief slowdown, but the pace has picked back up in the past two years. On current trends, next year could mark the first time, the planet’s budget is busted in July. While ever greater food production, mineral extraction, forest clearance and fossil-fuel burning bring short-term (and unequally distributed) lifestyle gains, the long-term consequences are increasingly apparent in terms of soil erosion, water shortages and climate disruption.

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Record highs everywhere.

Crop Failure And Bankruptcy Threaten Farmers As Drought Grips Europe (G.)

Farmers across northern and central Europe are facing crop failure and bankruptcy as one of the most intense regional droughts in recent memory strengthens its grip. States of emergency have been declared in Latvia and Lithuania, while the sun continues to bake Swedish fields that have received only 12% of their normal rainfall. The abnormally hot temperatures – which have topped 30C in the Arctic Circle – are in line with climate change trends, according to the World Meteorological Organization. And as about 50 wildfires rage across Sweden, no respite from the heatwave is yet in sight. Lennart Nilsson, a 55-year-old cattle farmer from Falkenberg near Malmo and co-chair of the Swedish Farmers Association, said it was the worst drought he had experienced.

“This is really serious,” he said. “Most of south-west Sweden hasn’t had rain since the first days of May. A very early harvest has started but yields seem to be the lowest for 25 years – 50% lower, or more in some cases – and it is causing severe losses.” If no rain comes soon, Nilsson’s association estimates agricultural losses of up to 8bn Swedish kronor (£700m) this year and widespread bankruptcies. The drought would personally cost him around 500,000 kronor (£43,000), Nilsson said, adding that, like most farmers, he is now operating at a loss. The picture is little different in the Netherlands, where Iris Bouwers, a 25-year-old farmer, said the parched summer had been a “catastrophe” for her farm.

“Older families around me are comparing this to 1976,” she said. “My dad can’t remember any drought like this.” The Bouwerses expect to lose €100,000 this year after a 30% drop in their potato crop. After investing in a pig stable over the winter, the family have no savings to cover the loss. Asked what she would do, Bouwers just laughed. “Hope and pray,” she said. “There is not much more I can do. I wouldn’t talk about bankruptcy yet, but our deficit will be substantial. It probably means we need to have a very good talk with the bank.”

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Jul 182017
 July 18, 2017  Posted by at 9:01 am Finance Tagged with: , , , , , , ,  

Piet Mondriaan The Flowering Apple Tree 1912


US Senate Will Vote To Repeal Obamacare Without Replacement (G.)
There Has Been Just One Buyer Of Stocks Since The Financial Crisis (ZH)
People Buy Payments – Not Houses (Roberts)
Student Debt Is a Major Reason Millennials Aren’t Buying Homes (BBG)
US Student Loans Worth Billions Are Getting Erased On A Technicality (ZH)
UK Students Should Not Try To Pay Off Loans Early (G.)
Fears Mount Over a New US Subprime Boom – Cars (BBG)
When A “Black Swan” Will No Longer Do: China Warns Beware The “Gray Rhino” (ZH)
Half of China’s Rich Plan To Move Overseas (CNBC)
Household Debt: A Tale of Three Countries (Hail)
Boomerangski (Jim Kunstler)
Staving Off the Coming Global Overshoot Collapse (Rees)



If they would stick their heads together, they could hammer out a single payer plan for less than what this competition in incompetence costs. But they won’t.

US Senate Will Vote To Repeal Obamacare Without Replacement (G.)

Senate majority leader Mitch McConnell has announced that the Senate will vote on a clean repeal of Obamacare without any replacement, after two Republican senators broke ranks to torpedo the current Senate healthcare bill. Senators Mike Lee of Utah and Jerry Moran of Kansas came out on Monday night in opposition to McConnell’s Better Care Reconciliation Act (BCRA), the Senate version of the controversial healthcare reform bill that passed the House in May. Senate Republicans hold a bare 52-48 majority in the Senate and two members of the GOP caucus, the moderate Susan Collins of Maine and the libertarian Rand Paul of Kentucky, already opposed the bill, along with all 48 Democrats. The announcement from Moran and Lee made it impossible for Republicans to muster the 50 votes needed to bring the BCRA bill to the floor.

Instead, McConnell announced late on Monday night that the Senate would vote on a bill to simply repeal Obamacare without any replacement in the coming days. The Kentucky Republican said in a statement: “Regretfully, it is now apparent that the effort to repeal and immediately replace the failure of Obamacare will not be successful.” He added that “in the coming days” the Senate would vote on repealing the Affordable Care Act with a two-year-delay. The Senate passed a similar bill in 2015, which was promptly vetoed by Barack Obama. McConnell’s plan echoes a statement made by Donald Trump in a tweet on Monday night, in which the president urged a repeal of Obamacare with any replacement to come in the future. “Republicans should just REPEAL failing ObamaCare now & work on a new Healthcare Plan that will start from a clean slate. Dems will join in!” Trump wrote.

In January, an analysis by the nonpartisan Congressional Budget Office (CBO) estimated that repealing Obamacare without a replacement would result in 32 million people losing insurance by 2026, including 19 million who would lose Medicaid coverage. It would also cause premiums to rise by as much as 50% in the year following the elimination of key planks of the healthcare law, including the repeal of Medicaid expansion and cost-sharing subsidies. Premiums would nearly double over a decade.

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This is your entire economy. Companies refusing to invest in themselves. Why do anything useful if you can simply borrow your share price higher?

There Has Been Just One Buyer Of Stocks Since The Financial Crisis (ZH)

When discussing Blackrock’s latest quarterly earnings (in which the company missed on both the top and bottom line, reporting Adj. EPS of $5.24, below the $5.40 exp), CEO Larry Fink made an interesting observation: “While significant cash remains on the sidelines, investors have begun to put more of their assets to work. The strength and breadth of BlackRock’s platform generated a record $94 billion of long-term net inflows in the quarter, positive across all client and product types, and investment styles. The organic growth that BlackRock is experiencing is a direct result of the investments we’ve made over time to build our platform.”

While the intention behind the statement was obvious: to pitch Blackrock’s juggernaut ETF product platform which continues to steamroll over the active management community, leading to billions in fund flow from active to passive management every week, if not day, he made an interesting point: cash remains on the sidelines even with the S&P at record highs. In fact, according to a chart from Credit Suisse, Fink may be more correct than he even knows. As CS’ strategist Andrew Garthwaite writes, “one of the major features of the US equity market since the low in 2009 is that the US corporate sector has bought 18% of market cap, while institutions have sold 7% of market cap.” What this means is that since the financial crisis, there has been only one buyer of stock: the companies themselves, who have engaged in the greatest debt-funded buyback spree in history.

Why this rush by companies to buyback their own stock, and in the process artificially boost their Eearning per Share? There is one very simple reason: as Reuters explained some time ago, “Stock buybacks enrich the bosses even when business sags.” And since bond investor are rushing over themselves to fund these buyback plans with “yielding” paper at a time when central banks have eliminated risk, who is to fault them. More concerning than the unprecedented coordinated buybacks, however, is not only the relentless selling by institutions, but the persistent unwillingness by “households” to put any new money into the market which suggests that the financial crisis has left an entire generation of investors scarred with “crash” PTSD, and no matter what the market does, they will simply not put any further capital at risk.

As to Fink’s conclusion that “investors have begun to put more of their assets to work”, we will wait until such time as central banks, who have pumped nearly $2 trillion into capital markets in 2017 alone, finally stop doing so before passing judgment.

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Real estate across the globe is on the edge of a cliff. Entire economies will follow it down.

People Buy Payments – Not Houses (Roberts)

When the average American family sits down to discuss buying a home they do not discuss buying a $125,000 house. What they do discuss is what type of house they “need” such as a three bedroom house with two baths, a two car garage, and a yard. That is the dream part. The reality of it smacks them in the face, however, when they start reconciling their monthly budget. Here is a statement I have not heard discussed by the media. People do not buy houses – they buy a payment. The payment is ultimately what drives how much house they buy. Why is this important? Because it is all about interest rates. Over the last 30-years, a big driver of home prices has been the unabated decline of interest rates. When declining interest rates were combined with lax lending standards – home prices soared off the chart. No money down, ultra low interest rates and easy qualification gave individuals the ability to buy much more home for their money.

[..] With this in mind let’s review how home buyers are affected. If we assume a stagnant purchase price of $125,000, as interest rates rise from 4% to 8% by 2027 (no particular reason for the date – in 2034 the effect is the same), the cost of the monthly payment for that same priced house rises from $600 a month to more than $900 a month – more than a 50% increase. However, this is not just a solitary effect. ALL home prices are affected at the margin by those willing and able to buy and those that have “For Sale” signs in their front yard. Therefore, if the average American family living on $55,000 a year sees their monthly mortgage payment rise by 50% it is a VERY big issue.

Assume an average American family of four (Ward, June, Wally and The Beaver) are looking for the traditional home with the white picket fence. Since they are the average American family their median family income is approximately $55,000. After taxes, expenses, etc. they realize they can afford roughly a $600 monthly mortgage payment. They contact their realtor and begin shopping for their slice of the “American Dream.” At a 4% interest rate, they can afford to purchase a $125,000 home. However, as rates rise that purchasing power quickly diminishes. At 5% they are looking for $111,000 home. As rates rise to 6% it is a $100,000 property and at 7%, just back to 2006 levels mind you, their $600 monthly payment will only purchase a $90,000 shack. See what I mean about interest rates?

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Home prices will have to come down enormously to cover this issue. And therefore they will. The losses will be crippling.

Student Debt Is a Major Reason Millennials Aren’t Buying Homes (BBG)

College tuition hikes and the resulting increase in student debt burdens in recent years have caused a significant drop in homeownership among young Americans, according to new research by the Federal Reserve Bank of New York. The study is the first to quantify the impact of the recent and significant rise in college-related borrowing—student debt has doubled since 2009 to more than $1.4 trillion—on the decline in homeownership among Americans ages 28 to 30. The news has negative implications for local economies where debt loads have swelled and workers’ paychecks aren’t big enough to counter the impact. Homebuying typically leads to additional spending—on furniture, and gardening equipment, and repairs—so the drop is likely affecting the economy in other ways.

As much as 35% of the decline in young American homeownership from 2007 to 2015 is due to higher student debt loads, the researchers estimate. The study looked at all 28- to 30-year-olds, regardless of whether they pursued higher education, suggesting that the fall in homeownership among college-goers is likely even greater (close to half of young Americans never attend college). Had tuition stayed at 2001 levels, the New York Fed paper suggests, about 360,000 additional young Americans would’ve owned a home in 2015, bringing the total to roughly 2.9 million 28- to 30-year-old homeowners. The estimate doesn’t include younger or older millennials, who presumably have also been affected by rising tuition and greater student debt levels.

There’s a good chance the number of millennials kept from buying homes because of their student loans has only grown since the period the economists studied. As tuition has risen, total student debt has increased 13%, and every new class graduates with more student debt than the preceding one. The consequences could reverberate for decades as more young Americans are locked out of purchasing property, the primary way that U.S. households build wealth. With less wealth, millennials could cut their spending as they attempt to build up their net worth. The U.S. economy has historically depended on household spending for roughly 70% of its growth.

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Who gets stuck with the empty bag here? The piper must be paid.

US Student Loans Worth Billions Are Getting Erased On A Technicality (ZH)

National Collegiate Funding (NCF) is an umbrella name for 15 trusts that collectively hold 800,000 private student loans, totaling some $12 billion in outstanding obligations. The only problem is that roughly $5 billion worth of those loans, or over 40%, are currently in default (and you thought auto delinquencies were bad). Now, ordinarily when a student defaults on their loan, NCF simply files a lawsuit in local or state court as a means for negotiating a settlement or payment plan with the borrower. Often times, NCF wins these cases automatically as the borrowers don’t even bother to show up for their court date. In cases like that, NCF can use their court victory to garnish wages and/or federal benefits from entitlement programs like Social Security which can haunt borrowers for decades.

That said, NCF is increasingly finding that, much like the subprime mortgage debacle from 10 years ago, student lending institutions apparently had a really hard time keeping tracking of paperwork over the years and/or processed deeply flawed contracts with incomplete ownership records and mass-produced documentation (who can forget that whole robo-signing catastrophe). As the New York Times points out today, student loans, much like mortgages, are often originated at large commercial banks before being sold to numerous other financial institutions and ultimately ending up in a securitization owned by some unsuspecting European pension funds. And while pooling these student loans in such a complicated way into securitizations apparently magically eradicates all default risk associated with the underlying loans (just ask any 22 year old on the JPM securitization desk and he/she will confirm the same), it also makes it extremely difficult to prove ownership.

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Shouldn’t try to pay them off at all. But a millstone around your neck for 30 years is no fun.

UK Students Should Not Try To Pay Off Loans Early (G.)

Students should not try to pay off their loans early despite the controversial interest rate rise to 6.1% in September, according to research by money expert Martin Lewis. Lewis says his moneysavingexpert.com website has been “swamped” by graduates terrified by new statements that show their debt spiralling in size after interest is added. He believes most graduates will never repay their debt. Lewis said: “Many graduates are starting to panic. First they look in shock at their student loan statements after noticing interest totalling thousands has been added. Then they read the headline interest rate for the 2017-18 academic year will increase from 4.6% to 6.1%. It’s no surprise I’ve been swamped with people asking if they should be trying to overpay the loans to reduce the interest.”

But after crunching the numbers, Lewis estimates that “overpaying is just throwing money away” unless the graduate is likely to be in very high-paid employment all their lives. Only if the student lands a job earning £40,000 a year on graduation, and then enjoys big pay rises after, should they consider repaying their loan early, said Lewis. A graduate earning £36,000 a year will repay £40,500 of a £55,000 total student loan over 30 years, said Lewis, at the current repayment rates. The remaining debt will be wiped clean after 30 years. If the same graduate cuts the total £55,000 balance to £45,000 with an overpayment of £10,000, they will still have to repay the same amount of student loan over 30 years, making the overpayment entirely pointless.

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A Spanish bank doing US subprime liar car loans. What a world.

Fears Mount Over a New US Subprime Boom – Cars (BBG)

It’s classic subprime: hasty loans, rapid defaults, and, at times, outright fraud. Only this isn’t the U.S. housing market circa 2007. It’s the U.S. auto industry circa 2017. A decade after the mortgage debacle, the financial industry has embraced another type of subprime debt: auto loans. And, like last time, the risks are spreading as they’re bundled into securities for investors worldwide. Subprime car loans have been around for ages, and no one is suggesting they’ll unleash the next crisis. But since the Great Recession, business has exploded. In 2009, $2.5 billion of new subprime auto bonds were sold. In 2016, $26 billion were, topping average pre-crisis levels, according to Wells Fargo. Few things capture this phenomenon like the partnership between Fiat Chrysler and Banco Santander.

Since 2013, as U.S. car sales soared, the two have built one of the industry’s most powerful subprime machines. Details of that relationship, pieced together from court documents, regulatory filings and interviews with industry insiders, lay bare some of the excesses of today’s subprime auto boom. Wall Street has rewarded lax lending standards that let people get loans without anyone verifying incomes or job histories. For instance, Santander recently vetted incomes on fewer than one out of every 10 loans packaged into $1 billion of bonds, according to Moody’s. The largest portion were for Chrysler vehicles.

Some of their dealers, meantime, gamed the loan application process so low-income borrowers could drive off in new cars, state prosecutors said in court documents. Through it all, Wall Street’s appetite for high-yield investments has kept the loans – and the bonds – coming. Santander says it has cut ties with hundreds of dealerships that were pushing unsound loans, some of which defaulted as soon as the first payment. At the same time, Santander plans to increase control over its U.S. subprime auto unit, Santander Consumer USA Holdings, people familiar with the matter said.

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Xi is toying with his credibility.

When A “Black Swan” Will No Longer Do: China Warns Beware The “Gray Rhino” (ZH)

Perhaps the biggest outcome from the weekend Conference was the creation of a financial “super-regultor” meant to tackle the growing threat of a financial crisis, and among its broad conclusions were i) To make finance better serve the real economy; ii) To contain financial risks; and iii) To deepen financial reforms. The proposed reforms are the result of the unprecedented increase in overall Chinese debt, which while promoting growth – in this case China’s latest 6.9% GDP print – is also leading to a relentless buildup of risks. And while until now Chinese regulators had homed in on financial-sector excesses, the latest probe – Bloomberg notes – is now widening to debt in the broader economy, “a shift that prompted a sell-off in domestic stocks.”

There was another reason for the market’s swoon. Earlier on Monday China People’s Daily newspaper warned of potential “gray rhinos” which it defined as “highly probable, high-impact threats that people should see coming, but often don’t.” So in a surprising case of forward-looking prudence, the Chinese government is doing what numerous Fed members have also done in recent weeks, by setting a surprisingly wary tone about risk, demonstrated best by the front page commentary in the People’s Daily, which said China should not only be alert to “black swan” risks that catch people off guard but also more obvious threats, citing cited a term popularized by author Michele Wucker’s book “The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore.”

Noting that with the economy still on a slowing-growth trend, the People’s Daily commentary said that China should “strictly prevent risks from liquidity, credit, shadow banking and abnormal capital market fluctuations, as well as insurance market and property bubbles.” And, as Bloomberg adds, the new focus on “deleveraging in the economy” suggests that local-government and state-owned enterprise debt is now very much in the spotlight. In other words, this time Beijing’s crackdown on excess debt may actually be real. Of course, by now it is widely understood that China’s strong (credit-driven) momentum has fueled global economic expansion and boosted sentiment in international markets, and served as the springboard for the global economic rebound in the depths of the financial crisis (when China’s debt load was roughly half the current one).

[..] In a separate commentary by China Daily, the official English-language newspaper added that fending off risks is one of the country’s top priorities, with corporate debt running high, the property market being overheated and excess capacity in some sectors lingering, adding that “only through guarding against financial risks can a sound and stable financial sector better fulfill its duty and purpose of serving the real economy.” While it is admirable that China continues to push for deleveraging, it faces an uphill battle, not least of all because as the IIF recently calculated, China’s debt is not only the biggest contributor to global debt growth, currently at a record $217 trillion, but as of 2017 is at just over 300% debt/GDP. Meanwhile, the marginal benefit of all this debt continues to shrink, with the Chinese economy growing at levels just shy of all time lows.

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Cash in your monopoly money before they find out what it’s worth.

Half of China’s Rich Plan To Move Overseas (CNBC)

Half of Chinese millionaires are considering moving overseas, and the U.S. remains their favorite destination, according to a new survey. Among Chinese millionaires with a net worth of more than $1.5 million, half either plan to or are considering moving abroad, according to a survey from Hurun Report in association with Visas Consulting Group. The survey suggests that the flow of wealthy Chinese and Chinese fortunes into U.S. homes and buildings is likely to continue, helping demand and prices in certain real estate markets — especially in the U.S. The U.S. remains the most popular destination for wealthy Chinese moving their families and fortunes abroad, according to the report. Canada ranks second, overtaking the U.K., which had ranked second but now ranks third. Australia comes in at fourth.

The favorite city for wealthy Chinese moving to the U.S. is Los Angeles, while Seattle ranks second followed by San Francisco. New York ranked fourth. When asked for their main reasons for moving abroad, education was the top reason, followed by the “living environment.” “Education and pollution are driving China’s rich to emigrate,” said Rupert Hoogewerf, chairman and chief researcher of Hurun Report. “If China can solve these issues, then the primary incentive to emigrate will have been taken away.” Yet the fear of a falling Chinese currency is also driving many rich Chinese — and their money — abroad. Fully 84% of Chinese millionaires are concerned about the devaluation of the yuan, up from 50% last year. Half are worried about the exchange rate of the dollar, foreign exchange controls and property bubbles in China.

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Australia almost makes America look good. But let’s not make it look like Japan has no problems.

Household Debt: A Tale of Three Countries (Hail)

In the year 2000, Japan, the USA and Australia all had about the same ratio of household debt to GDP – in each country, this figure was about 70%. In Japan, the ratio fell gradually from 70% to the low 60%, and has remained at about 62% for a while. In the US, household debt surged as financial fragility grew, with the ratio peaking at 98% in the first quarter of 2008. Households deleveraged post GFC, and the ratio fell back to about 80%. Till way too high for another surge in private debt to be allowed to persist, but at least well below its level at the peak of the bubble. What about Australia? Like Japan and the US, our household debt to GDP stood at about 70% at the millennium – well above the levels of previous years. It then grew and grew, mainly due to increasing mortgage debt, standing at 108% in mid-2008.

Well above the level in the US when the crash happened there. As we know, Australia missed the worst of the GFC, and propped up its housing market, and household debt just kept growing. By the end of last year it was above 123%, placing Australia very near the top of the global league table. Bound to lead to a crash? Many would say so – Steve Keen and Philip Soos amongst them, and who am I to disagree? Unwise? On that we should all agree. And done at the urging of successive governments which have failed to run appropriate fiscal policies; with the approval, for most of this period, of the RBA; and with the acquiescence of what until quite recently was a very relaxed APRA. Who has the debt problem? Not Japan. Since around 2013, The Bank of Japan began buying up government debt, to become a monopoly supplier of bank reserves, denominated in Yen.

In September 2016 it took the decision to buy unlimited amounts of Japanese government bonds at a fixed-yield, meaning it could control yields across bond maturities from a two-to-40-year output and sets them at whatever level they choose. It also implemented $80 trillion worth of quantitative and qualitative easing while introducing a negative interest rate of minus 0.1% to current accounts held by financial institutions at the bank, driving the bond yield rate down. Bond market dealers queued up to get their hands on as much Japanese government debt as they could, with the promise it would mature within 40 years. To quote Economist Bill Mitchell: “The bond markets do not have the power to set yields unless the government allows them that flexibility. The government rules, not the markets.” Moreover, Japan’s government doesn’t need to issue debt in primary markets in order to spend. Because monetary sovereign government debt is not the problem. Household debt is the problem.

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“..any contact between Russians and Americans is ipso facto nefarious vectors into the very beating heart of the “Resistance” itself..”

Boomerangski (Jim Kunstler)

[..] this blog might be described as anti-Trump, too, in the sense that I did not vote for him and regularly inveigh against his antics as President — but neither is Clusterfuck Nation a friend of the Hillary-haunted Dem-Prog “Resistance,” in case there’s any confusion about where we stand. If anything, we oppose the entirety of the current political regime in our nation’s capital, the matrix of rackets that is driving the aforementioned Limousine-of-State off the cliff of economic collapse. Just sayin’. “Resistance” law professors, such as Lawrence Tribe at Harvard, were quick to holler “treason” over Junior’s meet-up with Russian lawyer Natalia Veselnitskaya and Russian-American lobbyist Rinat Akhmetshin. Well, first of all, and not to put too fine a point on it, don’t you have to be at war with another nation to regard any kind of consort as “treason?”

Last time I checked, we were not at war with Russia — though it sure seems like persons and parties inside the Beltway would dearly like to make that happen. You can’t call it espionage either, of course, because that would purport the giving of secret information, not the receiving of political gossip. Remember, the “Resistance” is not going for impeachment, but rather Section 4 of the 25th Amendment. That legal nicety makes for a very neat-and-clean surgical removal of a whack-job president, without all the cumbrous evidentiary baggage and pain-in-ass due process required by impeachment. All it requires is a consensus among a very small number of high officials, who then send a note to the leaders in both houses of congress stating that said whack-job president is a menace to the polity — and out he goes, snippety-snip like a colorectal polyp, into the hazardous waste bag of history.

And you’re left with a nice clean asshole, namely Vice President Mike Pence. Insofar as Pence appears to be a kind of booby-prize for the “Resistance,” that fateful reach for the 25th Amendment hasn’t happened quite yet. It is hoped, I’m sure, that the incessant piling on of new allegations about “collusion” with the Russians will get the 25thers over the finish line and into the longed-for end zone dance. More interestingly, though, the meme that has led people to believe that any contact between Russians and Americans is ipso facto nefarious vectors into the very beating heart of the “Resistance” itself: the Clintons.

How come the Clintons have not been asked to explain why — as reported on The Hill blog — Bill Clinton was paid half a million dollars to give speech in Russia (surely he offered them something of value in exchange, pending the sure thing Hillary inaugural), or what about the $2.35 million “contribution” that the Clinton Foundation received after Secretary of State Hillary allowed the Russians to buy a controlling stake in the Uranium One company, which owns 20% of US uranium supplies, with mines and refineries in Wyoming, Utah, and other states, as well as assets in Kazakhstan, the world’s largest uranium producer? Incidentally, the Clinton Foundation did not “shut down,” as erroneously reported early this year. It was only its Global Initiative program that got shuttered. The $2.35 million is probably still rattling around in the Clinton Foundation’s bank account. Don’t you kind of wonder what they did with it? I hope Special Prosecutor Robert Mueller wants to know.

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“..techno-industrial society consumed more energy and resources during the most recent doubling (the past 35 years or so) than in all previous history..”

Staving Off the Coming Global Overshoot Collapse (Rees)

Humans have a virtually unlimited capacity for self-delusion, even when self-preservation is at stake. The scariest example is the simplistic, growth-oriented, market-based economic thinking that is all but running the world today. Prevailing neoliberal economic models make no useful reference to the dynamics of the ecosystems or social systems with which the economy interacts in the real world. What truly intelligent species would attempt to fly spaceship Earth, with all its mind-boggling complexity, using the conceptual equivalent of a 1955 Volkswagen Beetle driver’s manual? Consider economists’ (and therefore society’s) near-universal obsession with continuous economic growth on a finite planet.

A recent ringing example is Kaushik Basu’s glowing prediction that “in 50 years, the world economy is likely (though not guaranteed) to be thriving, with global GDP growing by as much as 20% per year, and income and consumption doubling every four years or so.” Basu is the former chief economist of the World Bank, senior fellow at the Brookings Institution and professor of economics at Cornell University, so he is no flake in the economics department. But this does not prevent a display of alarming ignorance of both the power of exponential growth and the state of the ecosphere. Income and consumption doubling every four years? After just 20 years and five doublings, the economy would be larger by a factor of 32; in 50 years it will have multiplied more than 5000-fold! Basu must inhabit some infinite parallel universe.

In fairness, he does recognize that if the number of cars, airplane journeys and the like double every four years with overall consumption, “we will quickly exceed the planet’s limits.” But here’s the thing — it’s 50 years before Basu’s prediction even takes hold and we’ve already shot past several important planetary boundaries. Little wonder. Propelled by neoliberal economic thinking and fossil fuels, techno-industrial society consumed more energy and resources during the most recent doubling (the past 35 years or so) than in all previous history. Humanity is now in dangerous ecological overshoot, using even renewable and replenishable resources faster than ecosystems can regenerate and filling waste sinks beyond capacity. (Even climate change is a waste management problem — carbon dioxide is the single greatest waste by weight in all industrial economies.)

Meanwhile, wild nature is in desperate retreat. One example: from less than one% at the dawn of agriculture, humans and their domestic animals had ballooned to comprise 97% of the total weight of terrestrial mammals by the year 2000. That number is closer to 98.5% today, with wild mammals barely clinging to the margins. The “competitive displacement” of other species is an inevitable byproduct of continuous growth on a finite planet. The expansion of humans and their artefacts necessarily means the contraction of everything else. [..] Ignoring overshoot is dangerously stupid — we are financing growth, in part, by irreversibly liquidating natural resources essential to our own long-term survival.

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Jul 072014
 July 7, 2014  Posted by at 5:53 pm Finance Tagged with: , ,  

Russell Lee Fun with fountain at 4th of July picnic, Vale, OR July 1941

There is not one single person I’ve learned more from than Jay Hanson, back when I was even younger than I am now. Jay is not the greatest writer in the world, his talent is that he has the right kind of unrelenting curiosity, needed to dig deep into the reasons we put ourselves where we do (it’s hardwired). This curiosity made put together the best library of information on ourselves and the world we live in that one can ever hope to find, at dieoff.org, much of it not published anywhere else. I took a month off 15 years ago and read it all back to back. The dieoff library was – mostly – finished by then. So it was a nice surprise to have someone send me the following piece, which is recent. It may look bleak and dark to you, but the challenge is to find where you think Jay goes wrong, and what you know better. That will not be easy, Jay’s a mighty smart puppy. I guess the essence is this: our brains are our destiny. That this leads to things we don’t like to acknowledge is something we will need to deal with. Walking away from it is neither a solution nor the best way to use the one part of us that may help find a solution. Which is also our brain.

Overshoot Loop:

Evolution Under The Maximum Power Principle

Jay Hanson: I have been forced to review the key lessons that I have learned concerning human nature and collapse over the last 20 years. Our collective behavior is the problem that must be overcome before anything can be done to mitigate the coming global social collapse. The single most-important lesson for me was that we cannot re-wire (literally, because thought is physical) our basic political agendas through reading or discussion alone. Moreover, since our thoughts are subject to physical law, we do not have the free-will to either think or behave autonomously.

We swim in “politics” like fish swim in water; it’s everywhere, but we can’t see it!

We are “political” animals from birth until death. Everything we do or say can be seen as part of lifelong political agendas. Despite decades of scientific warnings, we continue to destroy our life-support system because that behavior is part of our inherited (DNA/RNA) hard wiring. We use scientific warnings, like all inter-animal communications, for cementing group identity and for elevating one’s own status (politics).

Only physical hardship can force us to rewire our mental agendas. I am certainly not the first to make the observation, but now, after 20 years of study and debate, I am totally certain. The net energy principle guarantees that our global supply lines will collapse. The rush to social collapse cannot be stopped no matter what is written or said. Humans have never been able to intentionally-avoid collapse because fundamental system-wide change is only possible after the collapse begins.

What about survivors? Within a couple of generations, all lessons learned from the collapse will be lost, and people will revert to genetic baselines. I wish it weren’t so, but all my experience screams “it’s hopeless.” Nevertheless, all we can do is the best we can and carry on…

I am thankful for the Internet where I can find others bright enough to discuss these complex ideas and help me to understand them.

Today, when one observes the many severe environmental and social problems, it appears that we are rushing towards extinction and are powerless to stop it. Why can’t we save ourselves? To answer that question we only need to integrate three of the key influences on our behavior: biological evolution, overshoot, and a proposed fourth law of thermodynamics called the “Maximum Power Principle”(MPP). The MPP states that biological systems will organize to increase power[1] generation, by degrading more energy, whenever systemic constraints allow it[2].

Biological evolution is a change in the properties of populations of organisms that transcend the lifetime of a single individual. Individual organisms do not evolve. The changes in populations that are considered evolutionary are those that are inheritable via the genetic (DNA/RNA) material from one generation to the next.

Natural selection is one of the basic mechanisms of evolution, along with mutation, migration, and genetic drift. Selection favors individuals who succeed at generating more power and reproducing more copies of themselves than their competitors.


Energy is a key aspect of overshoot because available energy is always limited by the energy required to utilize it.

Since natural selection occurs under thermodynamic laws, individual and group behaviors are biased by the MPP to generate maximum power, which requires over-reproduction and/or over-consumption of resources[3] whenever system constraints allow it. Individuals and families will form social groups to generate more power by degrading more energy. Differential power generation and accumulation result in a hierarchical group structure.

Overshoot eventually leads to decreasing power attainable for the group with lower-ranking members suffering first. Low-rank members will form subgroups and coalitions to demand a greater share of power from higher-ranking individuals who will resist by forming their own coalitions to maintain it. Meanwhile, social conflict will intensify as available power continues to fall.

Eventually, members of the weakest group (high or low rank) are forced to “disperse.”[4] Those members of the weak group who do not disperse are killed,[5] enslaved, or in modern times imprisoned. By most estimates, 10 to 20 percent of Stone-Age people died at the hands of other humans. The process of overshoot, followed by forced dispersal, may be seen as a sort of repetitive pumping action—a collective behavioral loop—that drove humans into every inhabitable niche.

Here is a synopsis of the behavioral loop described above:

Step 1. Individual and group behaviors are biased by the MPP to generate maximum power, which requires over-reproduction and/or over-consumption of natural resources (overshoot), whenever systemic constraints allow it. Individuals and families will form social groups to generate more power by degrading more energy. Differential power generation and accumulation result in a hierarchical group structure.

Step 2. Energy is always limited, so overshoot eventually leads to decreasing power available to the group, with lower-ranking members suffering first.

Step 3. Diminishing power availability creates divisive subgroups within the original group. Low-rank members will form subgroups and coalitions to demand a greater share of power from higher-ranking individuals, who will resist by forming their own coalitions to maintain power.

Step 4. Violent social strife eventually occurs among subgroups who demand a greater share of the remaining power.

Step 5. The weakest subgroups (high or low rank) are either forced to disperse to a new territory, are killed, enslaved, or imprisoned.

Step 6. Go back to step 1.

The above loop was repeated countless thousands of times during the millions of years that we were evolving[6]. This behavior is entrained in our genetic material and will be repeated until we go extinct. Carrying capacity will decline [7] with each future iteration of the overshoot loop, and this will cause human numbers to decline until they reach levels not seen since the Pleistocene.

Current models used to predict the end of the biosphere suggest that sometime between 0.5 billion to 1.5 billion years from now, land life as we know it will end on Earth due to the combination of CO2 starvation and increasing heat. It is this decisive end that biologists and planetary geologists have targeted for attention. However, all of their graphs reveal an equally disturbing finding: that global productivity will plummet from our time onward, and indeed, it already has been doing so for the last 300 million years.[8]

It’s impossible to know the details of how our rush to extinction will play itself out, but we do know that it is going to be hell for those who are unlucky to be alive at the time.

• To those who followed Columbus and Cortez, the New World truly seemed incredible because of the natural endowments. The land often announced itself with a heavy scent miles out into the ocean. Giovanni da Verrazano in 1524 smelled the cedars of the East Coast a hundred leagues out. The men of Henry Hudson’s Half Moon were temporarily disarmed by the fragrance of the New Jersey shore, while ships running farther up the coast occasionally swam through large beds of floating flowers. Wherever they came inland they found a rich riot of color and sound, of game and luxuriant vegetation. Had they been other than they were, they might have written a new mythology here. As it was, they took inventory. Frederick Jackson Turner

• Genocide is as human as art or prayer. John Gray

Kai su, teknon. Julius Caesar

[1] Power is energy utilization for a purpose; proportional to forces x flows = work rate + entropy produced (Maximum Power and Maximum Entropy Production: Finalities in Nature, by S. N. Salthe, 2010). A surplus resource is stored power. Energy is a key aspect of overshoot because available energy is always limited by the energy required to utilize it.

[2] Originally formulated by Lotka and further developed by Odum and Pinkerton, the MPP states that biological systems capture and use energy to build and maintain structures and gradients, which allow additional capture and utilization of energy. One of the great strengths of the MPP is that it directly relates energetics to fitness; organisms maximize fitness by maximizing power. With greater power, there is greater opportunity to allocate energy to reproduction and survival, and therefore, an organism that captures and utilizes more energy than another organism in a population will have a fitness advantage (The maximum power principle predicts the outcomes of two-species competition experiments, by John P. DeLong, 2008).

[3] The best way to survive in such a milieu is not to live in ecological balance with slow growth, but to grow rapidly and be able to fend off competitors as well as take resources from others.

Not only are human societies never alone, but regardless of how well they control their own population or act ecologically, they cannot control their neighbors behavior. Each society must confront the real possibility that its neighbors will not live in ecological balance but will grow its numbers and attempt to take the resources from nearby groups. Not only have societies always lived in a changing environment, but they always have neighbors. The best way to survive in such a milieu is not to live in ecological balance with slow growth, but to grow rapidly and be able to fend off competitors as well as take resources from others.

To see how this most human dynamic works, imagine an extremely simple world with only two societies and no unoccupied land. Under normal conditions, neither group would have much motivation to take resources from the other. People may be somewhat hungry, but not hungry enough to risk getting killed in order to eat a little better. A few members of either group may die indirectly from food shortages—via disease or infant mortality, for example—but from an individual s perspective, he or she is much more likely to be killed trying to take food from the neighbors than from the usual provisioning shortfalls. Such a constant world would never last for long. Populations would grow and human activity would degrade the land or resources, reducing their abundance. Even if, by sheer luck, all things remained equal, it must be remembered that the climate would never be constant: Times of food stress occur because of changes in the weather, especially over the course of several generations. When a very bad year or series of years occurs, the willingness to risk a fight increases because the likelihood of starving goes up.

If one group is much bigger, better organized, or has better fighters among its members and the group faces starvation, the motivation to take over the territory of its neighbor is high, because it is very likely to succeed. Since human groups are never identical, there will always be some groups for whom warfare as a solution is a rational choice in any food crisis, because they are likely to succeed in getting more resources by warring on their neighbors.

Now comes the most important part of this overly simplified story: The group with the larger population always has an advantage in any competition over resources, whatever those resources may be. Over the course of human history, one side rarely has better weapons or tactics for any length of time, and most such warfare between smaller societies is attritional. With equal skills and weapons, each side would be expected to kill an equal number of its opponents. Over time, the larger group will finally overwhelm the smaller one. This advantage of size is well recognized by humans all over the world, and they go to great lengths to keep their numbers comparable to their potential enemies. This is observed anthropologically by the universal desire to have many allies, and the common tactic of smaller groups inviting other societies to join them, even in times of food stress.

Assume for a moment that by some miracle one of our two groups is full of farsighted, ecological geniuses. They are able to keep their population in check and, moreover, keep it far enough below the carrying capacity that minor changes in the weather, or even longer-term changes in the climate, do not result in food stress. If they need to consume only half of what is available each year, even if there is a terrible year, this group will probably come through the hardship just fine. More important, when a few good years come along, these masterfully ecological people will/not/grow rapidly, because to do so would mean that they would have trouble when the good times end. Think of them as the ecological equivalent of the industrious ants.

The second group, on the other hand, is just the opposite—it consists of ecological dimwits. They have no wonderful processes available to control their population. They are forever on the edge of the carrying capacity, they reproduce with abandon, and they frequently suffer food shortages and the inevitable consequences. Think of this bunch as the ecological equivalent of the carefree grasshoppers. When the good years come, they have more children and grow their population rapidly. Twenty years later, they have doubled their numbers and quickly run out of food at the first minor change in the weather. Of course, had this been a group of “noble savages who eschewed warfare, they would have starved to death and only a much smaller and more sustainable group survived. This is not a bunch of noble savages; these are ecological dimwits and they attack their good neighbors in order to save their own skins. Since they now outnumber their good neighbors two to one, the dimwits prevail after heavy attrition on both sides. The “good” ants turn out to be dead ants, and the “bad” grasshoppers inherit the earth. The moral of this fable is that if any group can get itself into ecological balance and stabilize its population even in the face of environmental change, it will be tremendously disadvantaged against societies that do not behave that way. The long-term successful society, in a world with many different societies, will be the one that grows when it can and fights when it runs out of resources. It is useless to live an ecologically sustainable existence in the “Garden of Eden unless the neighbors do so as well. Only one nonconservationist society in an entire region can begin a process of conflict and expansion by the “grasshoppers” at the expense of the Eden-dwelling “ants”. This smacks of a Darwinian competition—survival of the fittest—between societies. Note that the “fittest” of our two groups was not the more ecological, it was the one that grew faster. The idea of such Darwinian competition is unpalatable to many, especially when the “bad” folks appear to be the winners.[pp. 73-75] (Constant Battles: Why we Fight, by Steven A. LeBlanc, St. Martin, 2004)

The Slaughter Bench of History, by Ian Morris, THE ATLANTIC, April 11, 2014

[4] “Dispersal” is important in biology. Many amazing biological devices have evolved to ensure it, such as the production of fruits and nectar by plants and the provision of tasty protuberances called elaiosomes by seeds to attract insects. Often a species will produce two forms:

(1) a maintenance phenotype (the outcome of genes and the structures they produce interacting with a specific environment) that is adapted to the environment in which it is born,

and (2) a dispersal phenotype that is programmed to move to a new area and that often has the capacity to adapt to a new environment.

According to the present theory, humans have developed two dispersal phenotypes in the forms of the prophet and the follower. The coordinated action of these two phenotypes would serve to disperse us over the available habitat. This dispersal must have been aided by the major climatic changes over the past few million years in which vast areas of potential human habitat have repeatedly become available because of melting of ice sheets.

The dispersal phenotypes might have evolved through selection at the individual level, since the reproductive advantage of colonizing a new habitat would have been enormous. They would also promote selection between groups. This is important because selection at the group level can achieve results not possible at the level of selection between individuals. One result of the dispersal phenotype includes ethnocentrism (the tendency to favor one’s own ethnic group over another) and the tendency to use “ethnic cleansing.” The other result, as previously noted, is selection for cooperation, self-sacrifice, and a devotion to group rather than individual goals. Factors that promote selection at the group level are rapid splitting of groups, small size of daughter groups, heterogeneity (differences) of culture between groups, and reduction in gene flow between groups. These factors are all promoted by the breaking away of prophet-led groups with new belief systems.

One of the problems of selection at the group level is that of free-riders. These are people who take more than their share and contribute to the common good of the group less than their proper share. Selection at the group level gives free-riders their free ride. They potentially could increase until they destroy the cooperative fabric of the group.

However, the psychology of the free-rider, which is one of self-aggrandizement and neglect of group goals, is not likely to be indoctrinated with the mazeway of the group. Nor is it likely to be converted to the new belief system of the prophet. Therefore, theoretically one would predict that cults and New Religious Movements should be relatively free of free-riders. Such an absence of free-riders would further enhance selection at the group level. Moreover, this is a testable theoretical proposition.

Cult followers have been studied and found to be high on schizotypal traits, such as abnormal experiences and beliefs. They have not yet been tested for the sort of selfish attitudes and behavior that characterize free-riders. If a large cohort of people were tested for some measure of selfishness, it is predicted that those who subsequently joined cults would be low on such a measure. Predictions could also be made about future cult leaders. They would be likely to be ambitious males who were not at the top of the social hierarchy of their original group. If part of why human groups split in general is to give more reproductive opportunities to males in the new group, it can also be predicted that leaders of new religious movements would be males of reproductive age. Female cult leaders are not likely to be more fertile as a result of having many sexual partners, but their sons might be in an advantageous position for increased reproduction.

Conclusion: The biobehavioral science of ethology is about the movement of individuals. We have seen that change of belief system has been responsible for massive movements of individuals over the face of the earth. Religious belief systems appear to have manifest advantages both for the groups that espouse them and the individuals who share them. It is still controversial whether belief systems are adaptations or by-products of other evolutionary adaptive processes. Regardless of the answer to this question, the capacity for change of belief system, both that seen in the prophet and also that seen in the follower, may be adaptations because they have fostered the alternative life history strategies of dispersal from the natal habitat.

Moreover, change of belief system, when it is successful in the formation of a new social group and transfer of that group to a “promised land,” accelerates many of the parameters that have been thought in the past to be too slow for significant selection at the group level, such as eliminating free-riders, rapid group splitting, heterogeneity between groups and reduction of gene transfer between groups. Natural selection at the group level would also favor the evolution of the capacity for change of belief system, so that during the past few million years we may have seen a positive feedback system leading to enhanced cult formation and accelerated splitting of groups. This may have contributed to the rapid development of language and culture in our lineage. (The Biology of Religious Behavior, Edited by Jay R. Feierman, pp. 184-186)

[5] The results of the study are striking, according to Robbins Schug, because violence and disease increased through time, with the highest rates found as the human population was abandoning the cities. However, an even more interesting result is that individuals who were excluded from the city’s formal cemeteries had the highest rates of violence and disease. (Violence, Infectious Disease and Climate Change Contributed to Indus Civilization Collapse , Science Daily, January 17, 2014)

[6] My discussion will revolve around two basic propositions regarding long-term human population history: 1) the near-zero growth rates that have prevailed through much of prehistory are likely due to long-term averaging across periods of relatively rapid local population growth interrupted by infrequent crashes caused by density-dependent and density-independent factors; and 2) broad changes in population growth rates across subsistence modes in prehistory are probably best explained in terms of changes in mortality due to the dampening or buffering of crashes rather than significant increases in fertility (Subsistence strategies and early human population history: an evolutionary ecological perspective, by James L. Boone, 2002).

[7] Sustainable Engineering: Resource Load Carrying Capacity and K≠phase Technology, by Peter Hartley, 1993

[8] pp. 118-119, The Medea Hypothesis: Is Life on Earth Ultimately Self-destructive? by Peter Ward, 2009

Never trust a central banker.

Central Banks End Era Of Clear Promises, Return To ‘Artful’ Policy (Reuters)

The world’s major central banks are returning to a more opaque and artful approach to policymaking, ending a crisis-era experiment with explicit promises that they found risked their credibility and did not substitute for action. From Washington to London to Tokyo, the global shift from transparency to flexibility underscores the challenges central bankers face as they test the limits of what monetary policy can achieve. The return to a more traditional policymaking approach and nuanced statements will challenge the communication skills of central bankers who have been chastened in the last year after some too-specific messages confused and disrupted financial markets. Complicating things on the world stage, the U.S. Federal Reserve and the Bank of England are looking to telegraph plans and conditions for raising interest rates, while the European Central Bank and the Bank of Japan are heading the other way.

“Central banking used to be an art,” said a senior official of a G7 central bank. “It became less so once, globally, but with what’s happened at the Fed and the BoE, it may be back to being an art.” Both the Fed and BoE had promised to hold interest rates near zero until their jobless rates had fallen to a particular level. However, unemployment in the United States and Britain fell much more quickly than economists expected and both central banks scrambled to replace their suddenly outdated “forward guidance”. “Too much transparency may sometimes be counter-productive. The balance is always tricky,” the official said, requesting anonymity.

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Draghi’s $1.4 Trillion Shot: Silver Bullet or Misfire? (Bloomberg)

Mario Draghi’s plan to end the euro area’s lending drought risks missing the target. While the European Central Bank president says a program to hand as much as €1 trillion ($1.4 trillion) to banks has built-in incentives to spur lending to the real economy, analysts from Barclays to Commerzbank have doubts on how well it will work. In fact, the measure allows banks to borrow cheaply from the ECB even without increasing credit supply. Draghi has identified weak lending as an obstacle to the euro area’s recovery and is committed to reversing a slump that has eroded more than €600 billion in loans to companies and households since 2009. The risk is that if the latest plan fails, the currency bloc slips closer to deflation and to the need for more radical action such as quantitative easing.

“It’s not the silver bullet,” said Philippe Gudin, chief European economist at Barclays in Paris. “Every incentive for banks to lend is a good thing, but I wouldn’t say I’m reassured that credit will pick up.” The ECB’s latest plan differs from its previous liquidity measures in the way it tries to nudge banks into lending more to the real economy. In contrast, three-year loans issued in late 2011 and early 2012 were used largely to buy higher-yielding government bonds, a practice known as the carry trade. Targeted longer-term refinancing operations will offer banks an initial total of as much as €400 billion this year that they can hold until 2016 with no strings attached. They can keep it another two years if they meet specific new lending targets set by the ECB, and they can borrow more funds starting in March if they exceed those thresholds. At his monthly press conference on July 3, Draghi said the total take-up could be €1 trillion.

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” … more repo trades are going uncompleted, or failing, because it’s either too difficult or expensive for the borrower to obtain and deliver Treasuries.”

Bond Anxiety in $1.6 Trillion Repo Market as Failures Soar (Bloomberg)

In the relative calm that is the market for U.S. Treasuries, a sense of unease over a vital cog in the financial system’s plumbing is beginning to rise. The Federal Reserve’s bond purchases combined with demand from banks to meet tightened regulatory requirements is making it harder for traders to easily borrow and lend certain desired securities in the $1.6 trillion-a-day market for repurchase agreements. That’s causing such trades to go uncompleted at some of the highest rates since the financial crisis. Disruptions in so-called repos, which Wall Street’s biggest banks rely on for their day-to-day financing needs, are another unintended consequence of extraordinary central-bank policies that pulled the economy out of the worst financial crisis since the Great Depression. They also belie the stability projected by bond yields at about record lows.

“You have a little bit of a perfect storm here,” said Stanley Sun, a New York-based interest-rate strategist at Nomura, one of the 22 primary dealers that bid at Treasury auctions, in a telephone interview June 30. A smoothly functioning repo market is vital to the health of markets. The fall of Bear Stearns, which was taken over by JPMorgan in 2008 after an emergency bailout orchestrated by the Fed, and collapse of Lehman Brothers, whose bankruptcy in September of that year plunged markets into a crisis, was hastened after they lost access to such financing. In a typical repo, a dealer needing short-term cash often borrows money from another dealer, a hedge fund or a money-market fund, putting up Treasuries as collateral. The cash lender can then use the securities to complete other trades, such as to close out short positions where it needs to deliver bonds.

Negative rates happen when certain Treasuries are in such high demand or short supply that lenders of cash are actually paying collateral providers interest so they can obtain the needed securities. Traders said that is a big reason why repo rates on desired Treasuries have recently gotten as low as negative 3%. Now, more repo trades are going uncompleted, or failing, because it’s either too difficult or expensive for the borrower to obtain and deliver Treasuries. Such failures to deliver Treasuries have averaged $65.6 billion a week this year, reaching as much as $197.6 billion in the week ended June 18, Fed data show.

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Early warning sign?

Sweden’s Stunning Rate Cut Seen Forcing Norges Bank to Act (Bloomberg)

Sweden’s surprise interest-rate cut last week will probably prompt a Norges Bank response to shield the economy from a strengthening currency, according to DNB, Norway’s biggest lender. Policy makers in Oslo now have to contend with record low rates in Sweden and in the euro area, the nation’s top trading partners, after the Riksbank lowered its benchmark to 0.25% on July 3, matching an all-time low. The European Central Bank reduced borrowing costs a month earlier, with both pledging to keep policy loose for a long time.

“It increases the pressure on Norges Bank to be more expansive in their monetary policy either by cutting or by keeping the rate low for longer,” Kjersti Haugland, an analyst at DNB, said in a July 4 interview. The central bank in western Europe’s largest oil producer signaled last month that it may also lower rates as it seeks to strike a balance between supporting growth and limiting krone strength. Policy makers kept the deposit rate at 1.5% on June 19, and pushed back the timing of tightening until the end of 2015, from a previous estimate of mid-year. Norges Bank said then that a further weakening of the economy may warrant a rate cut as it seeks to protect Scandinavia’s richest nation from a drop in oil investment.

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Why Trading Volume Is Tumbling, In 5 Charts (MarketWatch)

Where have all the traders gone? That’s been a common refrain in the last few years for many market watchers. These folks worry that lower trading volumes for U.S. stocks might indicate a disturbing lack of confidence in the market, even as stock prices march higher and the Dow Jones Industrial Average cracks 17,000. “There seems to be no excitement in the market anymore,” said Peter Cardillo, chief market economist at Rockwell Global Capital. There certainly are far fewer shares trading hands than a few years ago, as shown in this chart. Average daily trading volume, tallied by month, was just 5.8 billion shares in May, less than half of the peak of 12.3 billion shares during the financial crisis. Financial pros point to other charts and statistics that shed light on the trend — and might even make you less fearful about the volume decline. Read on for five explanations.

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Bubbling under the surface?!

Defensive Trading Comes Undone in $2 Trillion S&P 500 Rally (Bloomberg)

For the third straight year, rotating into defensive industries is proving to be a losing strategy in the U.S. equity market. Chip companies led by Micron Technology Inc. and consumer shares such as Netflix Inc. are driving gains since equities bottomed on April 11, replacing soapmakers and utilities that rallied as the economy slowed. The gains reflect projections that these cyclical stocks will deliver some of the strongest earnings growth in the Standard & Poor’s 500 Index this year, based on analyst estimates compiled by Bloomberg. The fleeting advance in defensive equities sounded a false alarm at the start of a year once again as the outlook for the U.S. economy improved.

While gross domestic product contracted 2.9% in the first quarter, the latest data on personal spending, manufacturing and inflation have exceeded analyst forecasts. Almost $2 trillion has been added to share values since April amid gains that pushed transportation stocks, industrials and small-cap shares to records. “We, like much of the industry, have been positioned, waiting and expecting some kind of pullback, and we got the pullback in the first quarter,” Chris Bouffard, who helps oversee $9 billion as chief investment officer at the Mutual Fund Store in Overland Park, Kansas, said July 2. “A lot of people were thinking, ‘oh, this might be the big one.’ Since then, the playbook resumed. We marched to new highs.”

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Is this where the cracks in the Truman dome will start to show?

European Banks Are In Trouble (Zero Hedge)

With Austrian bank contagion impacting European stocks on Friday, we thought it worth a look at the ‘recovering-out-of-the-crisis-all-is-well-and-stress-tests-will-prove-it’ European banks. It appears, having bid with both hands and feet for Europe’s peripheral debt – thus solidifying the very sovereign-financial-system linkages that were the cause of the European crisis contagion – Europe’s banks had the jam stolen from their donuts when Mario Draghi did not unveil a massive bond-buying scheme (by which they could offload their modestly haircut collateral at 100c on the euro, raise cash, take profits, and all live happily ever after). A TLTRO is no use to the banks who now know even the first sign of one dumping his domestic bonds will cause this illiquid monstrosity to collapse under its own weight. It is clear – as the following chart shows – that investors are quickly coming to that realization and exiting European bonds in a hurry. Since Draghi failed to unveil QE, European banks have collapsed to one-year lows relative to world banks…

Of course, some knife-catching Bill-Miller-ite will come to the rescue, buying-the-dip – but as BNP’s Ian Richards notes,

“The prospect of supporting material credit growth and better earnings revisions in the banking sector is further down the line than the market had hoped.”

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What, they want a stronger Euro?

France Hits Out At Dollar Dominance In International Transactions (FT)

France’s political and business establishment has hit out against the hegemony of the dollar in international transactions after U.S. authorities fined BNP Paribas $9 billion for helping countries avoid sanctions. Michel Sapin, the French finance minister, called for a “rebalancing” of the currencies used for global payments, saying the BNP Paribas case should “make us realize the necessity of using a variety of currencies”. He said, in an interview with the Financial Times on the sidelines of a weekend economics conference: “We [Europeans] are selling to ourselves in dollars, for instance when we sell planes. Is that necessary? I don’t think so. I think a rebalancing is possible and necessary, not just regarding the euro but also for the big currencies of the emerging countries, which account for more and more of global trade.”

Christophe de Margerie, the chief executive of Total, France’s biggest company by market capitalization, said he saw no reason for oil purchases to be made in dollars, even if the benchmark price in dollars was likely to remain. “The price of a barrel of oil is quoted in dollars,” he said. “A refinery can take that price and using the euro-dollar exchange rate on any given day, agree to make the payment in euros.” One chief executive of a CAC 40 industrial group said he supported Mr Sapin’s push. “Companies like ours are in a bind because we sell a lot in dollars but we do not always want to deal with all the US rules and regulations,” he said.

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No more pump?

China’s New Economy Stocks Selling Off With the Old (Bloomberg)

Last year’s most-profitable bets on the Chinese economy have turned into money losers in 2014 as policy makers send mixed signals on which industries will lead the country’s expansion. After surging at least 20% for the biggest gains in China’s stock market last year, gauges of technology, health-care and consumer shares have all lost more than 6%. The companies, tied to what analysts have dubbed China’s “new economy,” are now falling in tandem with “old economy” stocks in state sectors such as commodities and finance that fueled growth in the last decade. All 10 industries in the CSI 300 Index sank in the first half, the broadest losses in four years.

The declines suggest investors may be doubting China’s commitment to fostering a shift toward technology and services, putting at risk returns on smaller companies that have been the best in the past two years and the biggest among initial public offerings. While President Xi Jinping said in May the nation must adapt to a “new normal” pace of growth, in which innovation plays an increasing role, the government has also sped up state spending and eased credit curbs as the weakening property market puts its 7.5% expansion target at risk. “The market is now pricing in the risk that China won’t make a successful transition,” Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co., which oversees about $120 million, said by phone on July 4. The shift “will be much more difficult.”

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Starting to get messy now. Who does what, and what does it cost?

PBOC Wades Into Fiscal Waters as China Boosts Stimulus (Bloomberg)

China’s central bank is seeking to support economic growth with unconventional tools that Credit Suisse and Everbright Securities say look more like fiscal policy. The People’s Bank of China this year started a 100 billion yuan ($16 billion) quota for relending earmarked for agriculture and small businesses. It offered another 300 billion yuan for low-income housing, China Business News said. Governor Zhou Xiaochuan is trying to carry out Communist Party orders to protect this year’s 7.5% economic-growth target without resorting to nationwide stimulus that stokes debt dangers.

While selective tools such as relending can bypass riskier industries including property, JPMorgan Chase & Co. says they lack transparency and contrast with the PBOC’s efforts to shift to market- from state-directed credit. “The central bank has invaded the field of fiscal policy,” said Xu Gao, chief economist at Everbright Securities in Beijing, who previously worked for the World Bank. “Fiscal policy hasn’t done its job – money that should have been spent wasn’t and projects that should have been financed weren’t, so the PBOC has had to inject liquidity.”

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Not exactly perfect.

German Industrial Output Falls Third Month In A Row (Bloomberg)

German industrial output dropped for a third month in May amid signs Europe’s largest economy is taking a breather. Production, adjusted for seasonal swings, fell 1.8% from April, when it declined a revised 0.3%, the Economy Ministry in Berlin said today. Economists forecast output to remain unchanged, according to the median of 35 estimates in a Bloomberg News survey. Production rose 1.3% in May from the previous year when adjusted for working days. While Germany’s economic trend points “upward significantly,” growth probably slowed in the three months through June, the Bundesbank has said. Factory orders fell more than economists expected in May, Ifo business confidence dropped to a six-month low in June, and unemployment rose for a second month.

“There was a little dent in the second quarter,” said Jens-Oliver Niklasch, a fixed-income strategist at Landesbank Baden-Wuerttemberg in Stuttgart. “But generally speaking, the German economy is in quite good shape and there’s no reason for concern as growth rates will remain solid.” Manufacturing fell 1.6%, with intermediate-goods production dropping 3% and consumer-goods output down 3.5%, today’s report showed. Investment-goods production rose 0.3% and energy output was up 1%, while construction slumped 4.9%.

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Germany’s AAA status is no longer enough guarantee?!

Germany Seeks Savings With First Collateral on Rate Swaps (Bloomberg)

Germany’s debt management agency is set to pledge collateral against some of its derivatives trades for the first time in a sign even Europe’s safest borrowers see scope to cut transaction costs with guarantees. The Federal Finance Agency, which manages the Finance Ministry’s budget and short-term liquidity funding, plans to increase savings on the interest-rate swaps it currently uses by offering collateral on as much as €8 billion ($10.9 billion) of the trades as early as next year, agency spokesman Joerg Mueller said July 5 by phone. The agency may at the same time opt to use a central derivative clearing house in London and appoint a company such as Eurex Clearing to settle the transactions, he said.

While Europe’s benchmark issuer has leaned on its AAA credit rating to avoid posting collateral on its debt in the past, buyers of one-way collateralized swaps and regulators are demanding more guarantees to limit risk. German lawmakers, in a revised 2014 budget on June 27, approved the backstops that can be transacted from next year. “The market would seem to be moving somewhat toward two-way contracts since the debt crisis, creating the bonus of added stability,” said Vincent Chaigneau, global head of rates and foreign-exchange strategy at Societe Generale in Paris, in a telephone interview on July 2. “The assumption is that Germany aims to pay less by posting collateral than not.”

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Yeah, right.

Stiglitz: I’m ‘Very Uncomfortable’ With Current Stock Levels (CNBC)

Nobel prize-winning economist Joseph Stiglitz said on Monday he is “very uncomfortable” with current stock market levels, arguing they do not equal a strong economic recovery in the United States. The Dow breached 17,000 points on Thursday before the U.S. markets closed for the long July 4 weekend. The jump came after the U.S. government reported the economy created a better-than-expected 288,000 jobs in June and the unemployment rate fell to 6.1%. “The reason the stock market is high, in part, is that interest rates are low, wages are low and the emerging markets are still growing much faster than the U.S. economy, let alone Europe,” Stiglitz said. He pointed to the fact that many U.S.-listed multinationals are increasingly getting a large chunk of their profits from emerging markets.

“These very strong stock market prices are in a sense a symptom of the weak economy, not a symptom that we are about to have a strong recovery to our real economy,” he said. Stiglitz, a professor of economics at Columbia University, said the recent stock market gains are not a sign that we are witnessing a recovery. Instead, we would see the continuation of a “North Atlantic malaise”, he said. “Remember, labor force participation is at very, very low levels, much lower than before the crisis. Real wage increases have been very weak, well below what they should be if we were having a robust recovery,” Stiglitz said. “There are lots if indicators that suggest this is a weak recovery.”

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Yeah, yeah.

ECB: We’re Aware Of Asset Bubble Risk (WSJ)

European Central Bank executive board member Benoit Coeure says the bank’s current monetary policy of interest rates close to zero for a long period increases the risk of asset price bubbles. Mr. Coeure said the International Bank of Settlements is right to point at the risk that cheap money may generate exuberant rises in some asset prices in the euro zone posing a systemic crisis risk when eventually bursting. The International Bank of Settlements added to its warnings a call for interest-rate hikes though Mr. Coeure said the ECB wouldn’t answer any asset price bubble with higher rates.

“We are totally aware of this risk. We will have to deal with it and we are ready to deal with it with the other tools we have at our disposal,” Mr. Coeure said during a lecture in Aix-en-Provence where he attended the annual Rencontres Economiques business conference. Mr. Coeure’s comments echo what ECB’s chairman Mario Draghi said earlier this week that the best way to deal with financial instability should be in the priority use of new macroprudential tools and not monetary policy, such as changes in banking regulations, tightening the lending standards that commercial banks use, for instance. Mr. Coeure added the ECB’s commitment to keep its benchmark interest rate close to zero for a long period will eventually likely lead to a divergence with monetary policies in the U.S. and in the U.K.

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Super-Typhoon Neoguri Approaches Japan’s Okinawa Islands (Guardian)

Super-typhoon Neoguri is approaching Japan’s Okinawa islands, bringing strong winds and torrential rains. Gusts of up to 270km per hour (160 miles per hour) are expected to slam into the southernmost subtropical island chain early Tuesday, and may reach mainland Japan by Wednesday. The storm could be one of the worst in decades, the national weather agency said. The typhoon was located some 600km (370 miles) south of Okinawa’s main island at 3am GMT on Monday, moving north/north-west at 25km (16 miles) per hour. The meteorological agency forecast that Neoguri, whose name means raccoon in Korean, would dump up to 80mm (three inches) of rain an hour on Okinawa as it pounded the archipelago.

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No comment.

In NSA-Intercepted Data, Ordinary Citizens Far Outnumber Targets (WaPo)

Ordinary Internet users, American and non-American alike, far outnumber legally targeted foreigners in the communications intercepted by the National Security Agency from U.S. digital networks, according to a four-month investigation by The Washington Post. Nine of 10 account holders found in a large cache of intercepted conversations, which former NSA contractor Edward Snowden provided in full to The Post, were not the intended surveillance targets but were caught in a net the agency had cast for somebody else. Many of them were Americans. Nearly half of the surveillance files, a strikingly high proportion, contained names, e-mail addresses or other details that the NSA marked as belonging to U.S. citizens or residents.

NSA analysts masked, or “minimized,” more than 65,000 such references to protect Americans’ privacy, but The Post found nearly 900 additional e-mail addresses, unmasked in the files, that could be strongly linked to U.S. citizens or U.S.residents. The surveillance files highlight a policy dilemma that has been aired only abstractly in public. There are discoveries of considerable intelligence value in the intercepted messages – and collateral harm to privacy on a scale that the Obama administration has not been willing to address. Among the most valuable contents – which The Post will not describe in detail, to avoid interfering with ongoing operations – are fresh revelations about a secret overseas nuclear project, double-dealing by an ostensible ally, a military calamity that befell an unfriendly power, and the identities of aggressive intruders into U.S. computer networks.

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There’s supposed to be huge gas reserves there, and they come up with zilch?

Shell/Aramco Saudi Arabia Gas Comes Up Empty (Telegraph)

Royal Dutch Shell has admitted that its search for gas in Saudi Arabia has been a decade-long wild goose chase, dashing any hopes of gaining a prized upstream foothold in the kingdom. “We haven’t had a very successful exploration campaign,” Andrew Brown, director of upstream international business at Shell, told The Sunday Telegraph in an interview. “We aren’t conducting any operations there [at Rub al-Khali desert] at the moment.” Mr Brown declined to specify whether the failure of exploration in the desert – where sand dunes can tower 1,000ft high and temperatures can hit 122F – would force it to shutdown the South Rub al-Khali Company (SRAK), its joint venture with state-owned producer Saudi Aramco.

The announcement on its activities in the Rub al-Khali comes as Shell – Britain’s most valuable company by market value – aggressively cuts costs. In January, Shell said it aimed to raise about $15bn (£8.7bn) from asset sales and cut capital spending to $37bn this year from $46bn in 2013. No work has taken place in the area since the company said it had stopped drilling in February. Exploration has been plagued by delays and the cost of working in such an environment.

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Not unimportant.

Sea Levels To Rise Faster With Accelerating Antarctic Winds, Ice Melt (SMH)

Sea levels may rise much faster than predicted because climate models have failed to account for the disruptive effects of stronger westerly winds, Australian-led research has found. Recent studies of Antarctica have suggested the giant glaciers of West Antarctica may have begun an irreversible melting that will raise sea levels by as much as 3 metres over 200-500 years. That estimate, though, may prove optimistic because models had failed to account for how strengthening westerly winds in the Southern Ocean would start to impinge coastal easterlies, upsetting a delicate balance of warm and cold waters close to the Antarctic ice sheets, said Paul Spence, an oceanographer at the University of NSW’s Climate Change Research Centre. “It’s the first time that I looked at my science and thought, ‘Oh my god, that is very concerning’!”, he said. “You hope it’s wrong and you hope it doesn’t happen.

“If you were buying land in Australia and wanting to pass it down to your kids or your grandchildren, I suggest it’s a couple of metres above sea-level,” Dr Spence said. The research, published in Geophysical Research Letters, found that the coastal temperature structure was more sensitive to global warming, particularly the changes to winds, than previously identified. “The dynamic barrier between cold and warm water relaxes, and this relatively warm water just offshore floods into the ice-shelf regions, increasing the temperatures by 4 degrees under the ice shelf,” he said. “If you look at how sensitive the coastal ocean is to these changing winds, you could put a lot more heat under these ice shelves than people have previously thought,” Dr Spence said. A study released earlier this year by UNSW’s Matt England – also an author on this new research – found westerly winds in the Southern Ocean had quickened 10-15%over the past 50 years, and shifted 2 to 5 degrees closer to the South Pole.

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