M. C. Escher Circle limit III 1959
The benefits of easy money.
• BIS Warns Zombies Are Crippling Global Growth (ZH)
In the latest quarterly review from the Bank of International Settlements, the Basel-based organization that oversees the world’s central banks warned that decades of falling interest rates have led to a sharp increase in the number of “zombie” firms, rising to an all time high since the 1980s, threatening economic growth and preventing interest rates from rising. Zombie firms are defined as companies that are at least 10 years old, yet are unable to cover their debt service costs from profits, in other words the Interest Coverage Ratio (ICR) is less than 1x for at least 3 consecutive quarters. These types of companies, which first gained attention in Japan decades ago and have since gained prevalence in Europe and, increasingly, the United States.
According to a second definition, a requirement for a “zombie” is to have comparatively low expected future growth potential. Specifically, zombies are required to have a ratio of their assets’ market value to their replacement cost (Tobin’s q) that is below the median within their sector in any given year. According to authors Ryan Banerjee and Boris Hofmann, zombie firms that fall under the two definitions are very similar with respect to their current profitability, but qualitatively different in their profitability prospects, which may be a function of how central banks have “broken” the market. Graph 1 below shows that, for non-zombie firms, the median ICR is over four times earnings under both definitions. As the majority of zombie firms make losses, the median ICRs are below minus 7 under the broad measure and around minus 5 under the narrow one, so this is hardly a surprise.
And that’s it?
• ‘Key Allies’ Want FBI Docs Blocked: Trump (AAP)
US President Donald Trump says “key allies” have asked him not to release classified FBI documents related to the probe into Russian influence in the 2016 presidential election, raising speculation the Australian government could be exposed. Former Australian high commissioner to the UK Alexander Downer has become a reluctant player in the controversy for his London drinks session with former Trump foreign relations aide George Papadopoulos. Papadopoulos, sentenced to 14 days’ jail for lying to the FBI, has repeatedly targeted Downer in Twitter tirades in recent days, claiming the former Australian foreign affairs minister recorded their meeting at the Kensington Wine Rooms in May, 2016, and was acting as a spy. Downer has strongly rejected this.
“Alexander Downer will go down in history as a stooge for (Hillary) Clinton who single-handedly caused irreparable damage between the USA-Australia,” Papadopoulos wrote on Twitter on Friday. “Congrats, buddy.” On Monday Trump ordered documents related to the FBI’s Russian investigation, including text messages from FBI figures Peter Strzok and Lisa Page, be declassified and released publicly. However, on Friday the president pulled back. “I met with the DOJ concerning the declassification of various UNREDACTED documents,” Trump announced on Twitter. “They agreed to release them but stated that so doing may have a perceived negative impact on the Russia probe. “Also, key Allies’ called to ask not to release.”
[..] “After reports are finally out that the British and Australian governments were actively spying and trying to sabotage the Trump campaign, those two governments called the president to ask for him not to declassify any FISA documents,” Papadopoulos wrote on Twitter. “Strange.”
Taking another road. If 3/4 of Americans say Big Tech is politically biased, can’t very well not investigate.
• White House Denies Trump Executive Order On Facebook, Google, Twitter (Ind.)
The White House sought to distance itself Saturday from reports that President Donald Trump is considering an executive order that would subject tech giants like Facebook, Google and Twitter to federal investigations for alleged political bias. For weeks, top tech companies have been on edge, fearing that the Trump administration could seek to regulate the industry in response to the president’s tweets attacking social-media sites for silencing conservatives online. Their worst suspicions seemed to come true Friday night, with the emergence of a draft executive order that called for nearly every federal agency to study how companies like Facebook police their platforms and refer instances of “bias” to the Justice Department for further study.
But three White House aides soon insisted they didn’t write the draft order, didn’t know where it came from, and generally found it to be unworkable policy anyway. One senior White House official confirmed the document had been floating around the White House but had not gone through the formal process, which is controlled by the staff secretary. Asked about the document, Lindsay Walters, the deputy White House press secretary, said of the digital-age ‘whodunit’ on Saturday: “Although the White House is concerned about the conduct of online platforms and their impact on society, this document is not the result of an official White House policymaking process.”
This dominates the news. Sex sells. But what a convoluted story it has become.
• Christine Blasey Ford Reaches Deal to Testify at Kavanaugh Hearing (NYT)
Senators looking to confirm or refute the allegations will face a nearly impossible task. Complicating matters, Dr. Blasey has said she does not recall the specific date or location of the house where the alleged incident occurred, though she believes it was during the summer of 1982. Judge Kavanaugh’s prospects were further clouded on Sunday when The New Yorker reported on a new allegation of sexual impropriety: A woman who went to Yale with Judge Kavanaugh said that, during a drunken dormitory party their freshman year, he exposed himself to her, thrust his penis into her face and caused her to touch it without her consent.
In a statement, Judge Kavanaugh denied the allegation from the woman, Deborah Ramirez, and called it “a smear, plain and simple.” The New Yorker did not confirm with other eyewitnesses that Judge Kavanaugh was at the party. The Times had interviewed several dozen people over the past week in an attempt to corroborate her story, and could find no one with firsthand knowledge. Ms. Ramirez herself contacted former Yale classmates asking if they recalled the incident and told some of them that she could not be certain Mr. Kavanaugh was the one who exposed himself.
Hmmm. Methinks is rates rise, US shale is in deep doodoo.
• OPEC Predicts Massive Rise In Oil Production Over Next Five Years (G.)
World oil production will soar to new records over the next five years, as a dramatic expansion in demand from airlines offsets the arrival of electric cars, according to a report from Opec. In a forecast that will dismay environmentalists – and which questions the theory that oil company reserves will become “stranded assets” – Opec’s annual report significantly revised production estimates upwards. Most of the production increase will come from countries outside Opec, led by explosive growth from frackers in the United States, with China and India leading the increase in demand.
Opec expects global oil demand to reach nearly 112m barrels per day by 2040, driven by transportation and petrochemicals. That is up from almost 100m today and higher than last year’s projection. Coal will continue to be be burned in record amounts, despite concerns about its impact on climate change. Opec estimates that coal usage in the OECD countries will plummet by a third by 2040, but it will increase by 20% in developing countries to reach five times the volumes burned in the west. The world’s airlines will be the single fastest growing user of oil, increasing consumption by 2.2% a year on average, to 2040.
However, the largest absolute growth is expected to come from road transport. The number of vehicles on roads across the world are expected to leap from 1.1bn now to around 2.4bn in 2040. In its central scenario, Opec expects just 320m of those to be electric, a number that climbs to 720m in a scenario where battery-powered cars take off rapidly. It said that if the higher prediction for electric cars came to pass, oil demand would only slip slightly to 109m bpd rather than 111.7m bpd by 2040, the report said.
Who cares about deadlines?
• Leading Tory Eurosceptics Unveil Rival Brexit Plans (Ind.)
Leading Tory Eurosceptics are to spell out rival Brexit plans that directly contradict Theresa May’s proposals, setting the scene for intense Tory infighting just weeks before a deal is meant to be agreed with the EU. The rebel plans are likely to demand looser future relations with Brussels and are to be laid out by ex-cabinet minister David Davis and lead eurosceptic Jacob Rees-Mogg, but are also said to enjoy support inside the cabinet. In a sign of the impending hostilities, Brexit secretary Dominic Raab launched a pre-emptive attack on the approach taken by the Eurosceptics on Sunday, saying the kind of free trade deal they outline is “off the table”.
Ms May will meet her top team during the morning to discuss the fallout of last week’s summit in Salzburg where EU leaders torpedoed her “Chequers” proposals, forcing the prime minister to accuse them of disrespecting the UK. Monday’s cabinet meeting could also see a new clash between senior ministers over Britain’s future immigration policy and whether EU citizens should be afforded any kind of special status.
But that’s what his own people want.
• Labour’s New Brexit Referendum Won’t Offer Option To Remain (Ind.)
Remaining in the EU would not be on the ballot paper in a new Brexit referendum under Labour, John McDonnell has said. The shadow chancellor said Labour would “go for a people’s vote” on leaving the EU if it cannot push the government into calling a general election but any vote would only be on the terms of the deal. Rows over Brexit have dominated the start of Labour’s annual conference where more than 100 constituency parties submitted motions demanding a second referendum and thousands of people joined a march demanding a people’s vote on the final deal.
On Sunday, Jeremy Corbyn suggested Labour would shift its Brexit stance towards a vote on the final deal if party members backed it, but insisted that an election was a better way to solve the crisis. Unite boss Len McCluskey, a close ally of Mr Corbyn, went further, saying Labour could back a referendum on Theresa May’s deal or no-deal. However he said offering voters the chance to remain in the EU was “wrong”. Asked to guarantee that Labour would allow staying in the EU on the ballot paper, Mr McDonnell told the Today programme: “My view at the moment is that parliament will decide what will be on the ballot paper. “We’ll be arguing that it should be a vote on the deal itself, and then enable us to go back and do the negotiations.”
He simply lost it, in more than one sense.
• How Michael Moore Lost His Audience (Variety)
The films of Michael Moore have been faltering at the box office for several years now. This weekend, though, the lackluster performance of his latest truth-to-power opus, “Fahrenheit 11/9,” was notably dramatic, if not downright stark. The movie is a sequel, of sorts, to “Fahrenheit 9/11,” Moore’s scathing riff on the administration of George W. Bush. That movie, when it was released in 2004, made $119 million, becoming the highest-grossing documentary of all time. It was a special moment, of course. America was still grappling with the shock of 9/11, and Moore’s film became a lightning rod — a catharsis for liberals (or some of them, anyway) and a symbol, for conservatives, of everything that was wrong with liberalism. But one thing, perhaps, that everyone could agree on is that in “Fahrenheit 9/11,” Michael Moore, for good or ill, had become instrumental in defining the national dialogue.
“Fahrenheit 11/9,” his scathing riff on the administration of Donald J. Trump, will be lucky to gross one-tenth of what “Fahrenheit 9/11” did. That’s more than just a staggering comedown. It symbolizes a couple of things at once: how different the two eras are, but also how Michael Moore’s audience — there’s no other way to put it — has gradually drifted away. It symbolizes that Moore is no longer defining the dialogue. A Trump-era conservative would probably say, “It’s about time! Michael Moore has lied so much that it’s all finally caught up with him.” A Trump-era liberal would probably say, “I still agree with him, but I’ve seen enough Michael Moore movies. I know his message already.”
There must be a country with a flag to share.
• Panama Revokes Registration Of Last Migrant Rescue Ship In Central Med (R.)
The Panama Maritime Authority has revoked the registration of search and rescue ship Aquarius 2 in a move that means there will be no charity rescue ships off the Libyan coast in the near future unless the vessel can find a new flag to sail under. Aquarius 2, the one remaining charity rescue vessel still operating in the Central Mediterranean area, is currently at sea with 58 survivors on board. The decision by the Panama Authority (PMA) means that once the ship comes into port it will be deflagged and will not be allowed to operate again unless it can find a new flag.
SOS Mediterranee, one of the charities that operates the Aquarius, said in a statement it was reeling from news of the revocation, which it said followed pressure from the Italian government. “On Saturday … the Aquarius team was shocked to learn of an official communication from the Panamanian authorities stating that the Italian authorities had urged the PMA to take ‘immediate action’ against the Aquarius,” it said. Italy’s Interior Minister Matteo Salvini said the Italian government had applied no pressure on Panama.
Interesting for sure, but perhaps a bit premature.
• America’s Era Of Climate Mass Migration Is Here (G.)
The population shift gathering pace is so sprawling that it may rival anything in US history. “Including all climate impacts it isn’t too far-fetched to imagine something twice as large as the Dustbowl,” said Jesse Keenan, a climate adaptation expert at Harvard University, referencing the 1930s upheaval in which 2.5 million people moved from the dusty, drought-ridden plains to California. This enormous migration will probably take place over a longer period than the Dustbowl but its implications are both profound and opaque. It will plunge the US into an utterly alien reality. “It is very difficult to model human behaviour under such extreme and historically unprecedented circumstances,” Keenan admits.
The closest analogue could be the Great Migration – a period spanning a large chunk of the 20th century when about 6 million black people departed the Jim Crow south for cities in the north, midwest and west. By the end of this century, sea level rise alone could displace 13 million people, according to one study, including 6 million in Florida. States including Louisiana, California, New York and New Jersey will also have to grapple with hordes of residents seeking dry ground. “There’s not a state unaffected by this,” said demographer Mat Hauer, lead author of the research, which is predicated on a severe 6ft sea level increase.
There are established migration preferences for some places – south Florida to Georgia, New York to Colorado – but in many cases people would uproot to the closest inland city, if they have the means. “The Great Migration was out of the south into the industrialized north, whereas this is from every coastal place in the US to every other place in the US,” said Hauer. “Not everyone can afford to move, so we could end up with trapped populations that would be in a downward spiral. I have a hard time imagining what that future would be like.”
Like the angle.
• Air Pollution Rots Our Brains. Is That Why We Don’t Do Anything About It? (G.)
Researchers from Beijing University and Yale School of Health published research last month showing that people who live in major cities – which is, today, most of us – are not only suffering from increases in respiratory illnesses and other chronic conditions due to air pollution, but are losing our cognitive functions. The study showed that high pollution levels lead to significant drops in test scores in language and arithmetic, with the impact on some participants equivalent to losing several years of education. Other studies have shown that high air pollution is linked to premature birth, low birth weight, mental illness in children and dementia in the elderly.
We’re only just beginning to understand how the air we breathe affects not just our physical environment, but our mental capacity as well. And the air we breathe is changing in the long term, as well as the short. Rising carbon dioxide levels – the main driver of climate change – aren’t just a hazard to the earth and other living creatures, they’re also affecting our thinking. At higher levels, CO2 clouds the mind: it makes us slower and less likely to develop new ideas, it degrades our ability to take in new information, change our minds, or formulate complex thoughts.