Nov 262016
 
 November 26, 2016  Posted by at 9:54 am Finance Tagged with: , , , , , , , , , ,  


Fidel Castro and Che Guevara ca. 1957

Cuban Revolutionary Fidel Castro Dies At 90 (AFP)
Wisconsin Agrees To Statewide Recount In Presidential Race (R.)
Bid To Challenge Brexit Gathers Pace Among Pro-Remain Politicians (G.)
Houses Have Never Been More Expensive To Buyers Who Need A Mortgage (Hanson)
Black Friday: The Death of Department Stores (WS)
US Payday Lenders Seek Emergency Court Help Against Regulators (R.)
When Money Dies (Bhandari)
Here’s What Happened When Ancient Romans Tried To ‘Drain The Swamp’ (Black)
Innovation Is Overvalued. Maintenance Matters More (Aeon)
Australia Eases Limits On Foreign Buyers As Apartment Glut Looms (AFR)
Australia Ceases Multimillion-Dollar Donations To Clinton Foundation (News)
Australia Joins Norway, Cuts Clinton Foundation Donations To $0 (ZH)
New Zealand Media Merger Risks Growth Of ‘Glib, Click-Bait’ Coverage (G.)
Greek Debt Relief Plan Said to Entail $35 Billion Bank Bond Swap (BBG)

 

 

How many people remember it was the US that drove Castro into Russian arms? He visited the US shortly after becoming president. Eisenhower refused to talk. Everything after that is propaganda and fake news.

Cuban Revolutionary Fidel Castro Dies At 90 (AFP)

Guerrilla revolutionary and communist idol, Fidel Castro was a holdout against history who turned tiny Cuba into a thorn in the paw of the mighty capitalist United States. The former Cuban president, who died aged 90 on Friday, said he would never retire from politics. But emergency intestinal surgery in July 2006 drove him to hand power to Raul Castro, who ended his brother’s antagonistic approach to Washington, shocking the world in December 2014 in announcing a rapprochement with US President Barack Obama. Famed for his rumpled olive fatigues, straggly beard and the cigars he reluctantly gave up for health reasons, Fidel Castro kept a tight clamp on dissent at home while defining himself abroad with his defiance of Washington.

In the end, he essentially won the political staring game, even if the Cuban people do continue to live in poverty and the once-touted revolution he led has lost its shine. As he renewed diplomatic ties, Obama acknowledged that decades of US sanctions had failed to bring down the regime – a drive designed to introduce democracy and foster western-style economic reforms – and it was time to try another way to help the Cuban people. A great survivor and a firebrand, if windy orator, Castro dodged all his enemies could throw at him in nearly half a century in power, including assassination plots, a US-backed invasion bid, and tough US economic sanctions.

Born August 13, 1926 to a prosperous Spanish immigrant landowner and a Cuban mother who was the family housekeeper, young Castro was a quick study and a baseball fanatic who dreamed of a golden future playing in the US big leagues. But his young man’s dreams evolved not in sports but politics. He went on to form the guerrilla opposition to the US-backed government of Fulgencio Batista, who seized power in a 1952 coup. That involvement netted the young Fidel Castro two years in jail, and he subsequently went into exile to sow the seeds of a revolt, launched in earnest on December 2, 1956 when he and his band of followers landed in southeastern Cuba on the ship Granma. Twenty-five months later, against great odds, they ousted Batista and Castro was named prime minister.

Once in undisputed power, Castro, a Jesuit-schooled lawyer, aligned himself with the Soviet Union. And the Cold War Eastern Bloc bankrolled his tropi-communism until the Soviet bloc’s own collapse in 1989. Fidel Castro held onto power as 11 US presidents took office and each after the other sought to pressure his regime over the decades following his 1959 revolution, which closed a long era of Washington’s dominance over Cuba dating to the 1898 Spanish-American War.

Read more …

How much of the $5 million so far was furnished by Soros?

Wisconsin Agrees To Statewide Recount In Presidential Race (R.)

Wisconsin’s election board agreed on Friday to conduct a statewide recount of votes cast in the presidential race, as requested by a Green Party candidate seeking similar reviews in two other states where Donald Trump scored narrow wins. The recount process, including an examination by hand of the nearly 3 million ballots tabulated in Wisconsin, is expected to begin late next week after Green Party candidate Jill Stein’s campaign has paid the required fee, the Elections Commission said. The state faces a Dec. 13 federal deadline to complete the recount, which may require canvassers in Wisconsin’s 72 counties to work evenings and weekends to finish the job in time, according to the commission. The recount fee has yet to be determined, the agency said in a statement on its website.

Stein said in a Facebook message on Friday that the sum was expected to run to about $1.1 million. She said she has raised at least $5 million from donors since launching her drive on Wednesday for recounts in Wisconsin, Michigan and Pennsylvania – three battleground states where Republican Trump edged out Democratic nominee Hillary Clinton by relatively thin margins. Stein has said her goal is to raise $7 million to cover all fees and legal costs. Her effort may have given a ray of hope to dispirited Clinton supporters, but the chance of overturning the overall result of the Nov. 8 election is considered very slim, even if all three states go along with the recount. The Green Party candidate, who garnered little more than 1 percent of the nationwide popular vote herself, said on Friday that she was seeking to verify the integrity of the U.S. voting system, not to undo Trump’s victory.

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In the same way that life imitates art, UK and US imitate each other.

Bid To Challenge Brexit Gathers Pace Among Pro-Remain Politicians (G.)

A series of informal but concerted efforts by pro-remain politicians to reshape or even derail the Brexit process is under way and gaining momentum, according to people involved. MPs from across the parties had discussed how to push the government into revealing its Brexit plans and to ensure continued single market access, sources said, as a series of senior political figures made public interventions suggesting the result of the EU referendum could be reversed. Tony Blair and John Major both suggested this week that the public should be allowed to vote on or even veto any deal for leaving the EU. However, those connected to efforts by serving pro-remain MPs say the former prime ministers’ views had little support in the Commons.

More significant, they argued, were strategy discussions involving MPs from all parties “caught between their own views and those expressed at the ballot box” in the referendum. “It’s a long process of gradually bringing people round to our way of thinking, on all sides,” said someone who works closely with pro-remain figures. “A lot of people are a bit unsure what to do – they’re caught between their own views and those expressed at the ballot box, often by their own constituents. “There’s a growing realisation that this is a long game. There’s actually very little information out there, and very little substance to get into. It’s hard to coalesce people around particular policy positions when the government has no policy to speak of. That’s quite a challenge.”

Major told a private dinner that there was a “perfectly credible case” for holding a second referendum on the terms of a Brexit deal. He said the views of the 48% of people who voted to remain should be taken into account and warned against the “tyranny of the majority”. Blair, in particular, is known to be sounding out opinion on Brexit as part of his re-emergence into political life. The former Labour prime minister’s office said he had discussed the issue with the former chancellor George Osborne, among “many people”.

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Be careful out there.

Houses Have Never Been More Expensive To Buyers Who Need A Mortgage (Hanson)

Houses have NEVER BEEN MORE EXPENSIVE to end-user, mortgage-needing shelter buyers. The recent rate surge crushed what little affordability remained in US housing. It now it requires 45% more income to buy the average-priced house than just four years ago, as incomes have not kept pace it goes without saying. The spike in rates has taken “UNAFFORDABILITY” to such extremes that prices, rates, and/or credit are now radically out of scope. At these interest rate levels house prices are simply not sustainable even in the lower-end price bands, which were far more stable than the middle-to-higher end bands (have been under significant pressure since spring). [..] The Data (note, for simplicity my models assume best-case 20% down and A-grade credit, which is the “minority” of lower-to-middle end buyers).

1) The average $361k builder house requires nearly $65k in income assuming a 4.5% rate, 20% down, and A-grade credit. Problem is, 20% + A-credit are hard to come by. For buyers with less down or worse credit, far more than $65k is needed. For the past 30-YEARS income required to buy the average priced house has remained relatively consistent, as mortgage rate credit manipulation made houses cheaper. Bottom line: Reversion to the mean will occur through house price declines, credit easing, a mortgage rate plunge to the high 2%’s, or a combination of all three. However, because rates are still historically low and mortgage guidelines historically easy, the path of least resistance is lower house prices.

2) The average $274k builder house requires nearly $53k in income assuming a 4.5% rate, 20% down, and A-grade credit. Problem is, 20% + A-credit are hard to come by. For buyers with less down or worse credit, far more than $53k is needed. For the past 30-YEARS income required to buy the average priced house has remained relatively consistent, as mortgage rate credit manipulation made houses cheaper. Bottom line: Reversion to the mean will occur through house price declines, credit easing, a mortgage rate plunge to the high 2%s, or a combination of all three. However, because rates are still historically low and mortgage guidelines historically easy, the path of least resistance is lower house prices.

3) Bonus Chart … Case-Shiller Coast-to-Coast Bubbles Bottom line: IT’S NEVER DIFFERENT THIS TIME. Easy/cheap/deep credit & liquidity has found its way to real estate yet again. Bubbles are bubbles are bubbles. And as these core housing markets hit a wall they will take the rest of the nation with them; bubbles and busts don’t happen in “isolation.”

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What does this mean for the future of human interaction?

Black Friday: The Death of Department Stores (WS)

There are still four weeks left to pull out the year. And hopes persists that this year will be decent. But online sales are hot, according to Adobe Digital Index, cited by Reuters. Online shoppers blew $1.15 billion on Thanksgiving Day, between midnight and 5 pm ET, according to Adobe Digital Index, up nearly 14% from a year ago. Sales by ecommerce retailers have been sizzling for years, growing consistently between 14% and 16% year-over-year and eating with voracious appetite the stale lunch of brick-and-mortar stores, particularly department stores. The lunch-eating process began in 2001. The chart below shows monthly department store sales, seasonally adjusted, since 1992. Note the surge in sales in the 1990s, driven by population growth, an improving economy, and inflation (retail sales are mercifully not adjusted for inflation). But sales began to flatten out in 1999. The spike in January 2001 (on a seasonally adjusted basis!) marked the end of the great American department store boom.

Even as the US fell into a recession in March 2001, ecommerce took off. But department store sales began their long decline, from nearly $20 billion in January 2001 to just $12.7 billion in October 2016, despite 14% population growth and 36% inflation! The decline of department stores is finding no respite during the holiday season. Not-seasonally-adjusted data spikes in October, November, and December. But these spikes have been shrinking, from their peak in December 2000 of $34.3 billion to $23.4 billion in December 2015, a 32% plunge, despite, once again, 14% population growth and 36% inflation!

In other words: the brick-and-mortar operations of department stores are becoming irrelevant. Ecommerce sales include all kinds of merchandise, not just the merchandise available in department stores. So it’s a broader measure. They have skyrocketed from $4.5 billion in Q4 1999 ($1.5 billion a month on average) to $101 billion in Q3 2016 ($33.7 billion a month on average).

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From the “It’s Just Not Fair!” department.

US Payday Lenders Seek Emergency Court Help Against Regulators (R.)

Payday lenders asked a federal judge in Washington, D.C., for emergency relief to stop what they called a coordinated effort by U.S. regulators to stop banks from doing business with them, threatening their survival. In Wednesday night filings, the Community Financial Services Association of America (CFSA) and payday lender Advance America, Cash Advance Centers Inc said a preliminary injunction was needed to end the “back-room campaign” of coercion by the Federal Reserve, the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency. Advance America said its own situation became dire after five banks decided in the last month to cut ties, including a 14-year relationship with U.S. Bancorp, putting it “on the verge” of being unable even to hold a bank account.

Payday lenders make small short-term loans that can help tide over cash-strapped borrowers. But critics say fees can drive effective interest rates well into three digits, and trap borrowers into an endless debt cycle in which they use new payday loans to repay older loans. The CFSA said other payday lenders are also losing banking relationships as a result of “Operation Choke Point,” a 2013 Department of Justice initiative meant to block access to payment systems by companies deemed at greater risk of fraud. “Protecting consumers from credit fraud is, of course, a commendable goal,” Charles Cooper, a lawyer for the CFSA, wrote. “But the manner in which the defendant agencies have chosen to pursue that ostensible goal betrays that their true intent has always been to eradicate a disfavored industry.”

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I don’t know to what extent Modi is the psychopath he’s made out to be here, but I do like the decentralization described (fits in with my end of centralization themes). “What a crazy idea it is to have a State monopoly on money..” [..] “In a tribalistic and irrational society, decentralization makes life much safer and makes the market more free, as complex decisions will be taken on the local level, where they belong”

When Money Dies (Bhandari)

Most people — particularly the salaried middle class – still seem to have a favorable opinion of Mr. Modi. They have been indoctrinated – in India’s extremely irrational and superstitious society – to believe that this demonetization will somehow alleviate corruption and that anything but support of Modi’s actions is anti-national and unpatriotic. This gives me pause to reflect. What a crazy idea it is to have a State monopoly on money, particularly a money that carries no inherent value and depends on regulatory edicts. On a deeper level, it makes me reflect on why for the culture of India – which is tribalistic, nativistic, superstitious and irrational – “India” is actually an unnatural entity. Such a society should consist of hundreds of tribes and countries, which is what “India” was before the British consolidated it.

In a tribalistic and irrational society, decentralization makes life much safer and makes the market more free, as complex decisions will be taken on the local level, where they belong . India’s institutions – not just organizations, but larger socio-political beliefs – have begun to decay and crumble after the British left, losing their underlying essence, the reason for which they had been institutionalized in the first place. This degradation is now picking up pace. They must eventually fall apart – including the nation-state of India – to adjust to the underlying culture. Let us consider some of these institutions. Western education implanted in India has mutated. It is making individuals cogs in a big machine, all for the service of one great leader. Public education and the mass-media have become instruments of propaganda.

Complexity and the diversity of options that technology brings make an irrational thinker extremely confused, forcing him to seek sanity in ritualistic religion —hence the increase in religiosity in India and elsewhere in the region. This has happened despite the explosion in information technology. The concept of the nation-state, when it took hold in Europe, was about the values the emergent rational and enlightened societies of Europe shared and had collectively come to believe in, at least among their elites. In India, the idea of the nation-state has morphed into a valueless thread, which binds people together through nothing but a flag and an anthem, symbols completely devoid of any values. It has collectivized tribalistic and irrational people (an irrationality that is amply epitomized by the negative force Islam has become in the last two decades).

In India and many similarly constituted countries, institutions that are not natural to their culture – the nation state, education, monetary system, etc. must eventually face entropy, slowly at first, and then rapidly. India has now entered the rapid phase. The death of money – amid a lack of respect for property rights (which again are a purely European concept that emerged from the intellectual revolutions of the last 800 years) – has been sudden and will very likely be catastrophic. It is a man-made disaster of gargantuan proportions. It will fundamentally change India in a very negative way, particularly if the demonetization effort succeeds, as it will have created the foundations enabling the rapid emergence of a police state.

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Yeah, expecting peaceful transitions is perhaps a bit much.

Here’s What Happened When Ancient Romans Tried To ‘Drain The Swamp’ (Black)

In late January of the year 98 AD, after decades of turmoil, instability, inflation, and war, Romans welcomed a prominent solider named Trajan as their new Emperor. Prior to Trajan, Romans had suffered immeasurably, from the madness of Nero to the ruthless autocracy of Domitian, to the chaos of 68-69 AD when, in the span of twelve months, Rome saw four separate emperors. Trajan was welcome relief and was generally considered by his contemporaries to be among the finest emperors in Roman history. Trajan’s successors included Hadrian and Marcus Aurelius, both of whom were also were also reputed as highly effective rulers.

But that was pretty much the end of Rome’s good luck. The Roman Empire’s enlightened rulers may have been able to make some positive changes and delay the inevitable, but they could not prevent it. Rome still had far too many systemic problems. The cost of administering such a vast empire was simply too great. There were so many different layers of governments—imperial, provincial, local—and the upkeep was debilitating. Rome had also installed costly infrastructure and created expensive social welfare programs like the alimenta, which provided free grain to the poor. Not to mention, endless wars had taken their toll on public finances. Romans were no longer fighting conventional enemies like Carthage, and its famed General Hannibal bringing elephants across the Alps.

Instead, Rome’s greatest threat had become the Germanic barbarian tribes, peoples viewed as violent and uncivilized who would stop at nothing to destroy Roman way of life. Corruption and destructive bureaucracy were increasingly rampant. And the worse imperial finances became, the more the government tried to “fix” everything by passing debilitating regulation and debasing the currency. In his seminal work The History of the Decline and Fall of the Roman Empire, Edward Gibbon wrote: “The story of its ruin is simple and obvious; and instead of inquiring why the Roman empire was destroyed, we should rather be surprised that it had subsisted so long.”

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Progress as a blind faith. “Critics wondered if Nixon was wise to point to modern appliances such as blenders and dishwashers as the emblems of American superiority.”

Innovation Is Overvalued. Maintenance Matters More (Aeon)

Innovation is a dominant ideology of our era, embraced in America by Silicon Valley, Wall Street, and the Washington DC political elite. As the pursuit of innovation has inspired technologists and capitalists, it has also provoked critics who suspect that the peddlers of innovation radically overvalue innovation. What happens after innovation, they argue, is more important. Maintenance and repair, the building of infrastructures, the mundane labour that goes into sustaining functioning and efficient infrastructures, simply has more impact on people’s daily lives than the vast majority of technological innovations. The fates of nations on opposing sides of the Iron Curtain illustrate good reasons that led to the rise of innovation as a buzzword and organising concept.

Over the course of the 20th century, open societies that celebrated diversity, novelty, and progress performed better than closed societies that defended uniformity and order. In the late 1960s in the face of the Vietnam War, environmental degradation, the Kennedy and King assassinations, and other social and technological disappointments, it grew more difficult for many to have faith in moral and social progress. To take the place of progress, ‘innovation’, a smaller, and morally neutral, concept arose. Innovation provided a way to celebrate the accomplishments of a high-tech age without expecting too much from them in the way of moral and social improvement.

Before the dreams of the New Left had been dashed by massacres at My Lai and Altamont, economists had already turned to technology to explain the economic growth and high standards of living in capitalist democracies. Beginning in the late 1950s, the prominent economists Robert Solow and Kenneth Arrow found that traditional explanations – changes in education and capital, for example – could not account for significant portions of growth. They hypothesised that technological change was the hidden X factor. Their finding fit hand-in-glove with all of the technical marvels that had come out of the Second World War, the Cold War, the post-Sputnik craze for science and technology, and the post-war vision of a material abundance.

Robert Gordon’s important new book, The Rise and Fall of American Growth, offers the most comprehensive history of this golden age in the US economy. As Gordon explains, between 1870 and 1940, the United States experienced an unprecedented – and probably unrepeatable – period of economic growth. That century saw a host of new technologies and new industries produced, including the electrical, chemical, telephone, automobile, radio, television, petroleum, gas and electronics. Demand for a wealth of new home equipment and kitchen appliances, that typically made life easier and more bearable, drove the growth. After the Second World War, Americans treated new consumer technologies as proxies for societal progress – most famously, in the ‘Kitchen Debate’ of 1959 between the US vice-president Richard Nixon and the Soviet premier Nikita Kruschev. Critics wondered if Nixon was wise to point to modern appliances such as blenders and dishwashers as the emblems of American superiority.

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Just wow. No lessons learned from Vancouver, keep digging while in that hole.

Australia Eases Limits On Foreign Buyers As Apartment Glut Looms (AFR)

The federal government has announced it will make it easier for foreigners to buy new apartments amid concerns of a looming glut that will drive down prices. Treasurer Scott Morrison said the government will make changes to the foreign investment framework to allow foreign buyers to buy an off-the-plan dwelling that another foreign buyer has failed to settle as a new dwelling. Previously, on-sale of a purchased off the plan apartment was regarded as a second hand sale, which is not open to foreign buyers. Foreign buyers can only buy new dwellings. The move effectively opens up the pool of buyers who can soak a potential flood of apartments hitting the residential markets due to failed settlements.

“This change addresses industry concerns, and means property developers won’t be left in the lurch when a foreign buyer pulls out of an off-the-plan purchase,” Mr Morrison said in an announcement. “It is common sense that an apartment or house that has just been built, or is still under construction and for which the title has never changed hands, is not considered an established dwelling.” The policy change comes after Mirvac said it experienced a rise in the default rate for the settlement of off-the-plan residential sales, above its historic average of 1%. The changes will apply immediately and regulation change will be made soon to enable developers to acquire “New Dwelling Exemption Certificates” for foreign buyers of these recycled off-the-plan homes.

On top of defaults, the Australian apartment markets – which boomed in the last four years – are facing other fresh risks. On Friday, HSBC said an oversupply of apartments in Melbourne and Brisbane could send unit prices down by as much as 6% in 2017. The apartment building boom, an ongoing concern for the Reserve Bank of Australia, especially in inner city Melbourne is likely to “start showing through” in price drops of between 2% and 6% in that city next year, HSBC chief economist Paul Bloxham said in a note. It’s a similar story in Brisbane where apartment prices are forecast to fall by as much as 4%. “A national apartment building boom, which has been part of the rebalancing act, is likely to deliver some oversupply in the Melbourne and Brisbane apartment markets, which is expected to see apartment price falls in these markets,” Mr Bloxham said.

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No play no pay.

Australia Ceases Multimillion-Dollar Donations To Clinton Foundation (News)

The Clinton Foundation has a rocky past. It was described as “a slush fund”, is still at the centre of an FBI investigation and was revealed to have spent more than $50 million on travel. Despite that, the official website for the charity shows contributions from both AUSAID and the Commonwealth of Australia, each worth between $10 million and $25 million. News.com.au approached the Department of Foreign Affairs and Trade for comment about how much was donated and why the Clinton Foundation was chosen as a recipient. A DFAT spokeswoman said all funding is used “solely for agreed development projects” and Clinton charities have “a proven track record” in helping developing countries. Australia jumping ship is part of a post-US election trend away from the former Secretary of State and presidential candidate’s fundraising ventures.

Norway, one of the Clinton Foundation’s most prolific donors, is reducing its contribution from $20 million annually to almost a quarter of that, Observer reported. One reason for the drop-off could be increased scrutiny on international donors. The International Business Times reported in 2015 on curious links between donors and State Department approval. IBT wrote that the State Department approved massive commercial arms sales for countries which had donated to the Clinton charity. More than $165 billion worth of arms sales were approved by the State Department to 20 nations whose governments gave money to the Clinton Foundation, data shows. The countries buying weapons from the US were the same countries previously condemned for human rights abuses. They included Algeria, Saudi Arabia and Kuwait.

But what does Australia gain from topping up the Clinton coffers? The Australian reported in February that Australia was “the single biggest foreign government source of funds for the Clinton Foundation” but questions remain unanswered about the agreement between the two parties. “It’s not clear why Canberra had to go through an American foundation to deliver aid to Asian countries (including Indonesia, Papua New Guinea and Vietnam). There is now every chance the payments will become embroiled in presidential politics.” The Daily Telegraph wrote in October that “Lo and behold, (Julia Gillard) became chairman (of the Clinton-affiliated Global Partnership for Education) in 2014”, one year after being defeated in a leadership ballot by Kevin Rudd.

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“After contributing $88mm to the Clinton Foundation over the past 10 years, making them one of the Foundation’s largest contributors, Australia has decided to pull all future donations.

But why would they stop funding now that Hillary has so much more free time to focus on her charity work?

Australia Joins Norway, Cuts Clinton Foundation Donations To $0 (ZH)

For months we’ve been told that the Clinton Foundation, and it’s various subsidiaries, were simple, innocent “charitable” organizations, despite the mountain of WikiLeaks evidence suggesting rampant pay-to-play scandals surrounding a uranium deal with Russia and earthquake recovery efforts in Haiti, among others. Well, if that is, in fact, true perhaps the Clintons could explain why wealthy foreign governments, like Australia and Norway, are suddenly slashing their contributions just as Hillary’s schedule has been freed up to focus exclusively on her charity work. Surely, these foreign governments weren’t just contributing to the Clinton Foundation in hopes of currying favor with the future President of the United States, were they? Can’t be, only an useless, “alt-right,” Putin-progranda-pushing, fake news source could possibly draw such a conclusion.

Alas, no matter the cause, according to news.com.au, the fact is that after contributing $88mm to the Clinton Foundation, and its various affiliates, over the past 10 years the country of Australia has decided to cease future donations to the foundation just weeks after Hillary’s stunning loss on November 4th. And just like that, 2 out of the 3 largest foreign contributors to the Clinton Foundation are gone with Saudia Arabia being the last remaining $10-$25mm donor that hasn’t explicitly cut ties or massively scaled by contributions. [..]
News.com.au confirmed Australia’s decision to cut future donations to the Clinton Foundation earlier today. When asked why donations were being cut off now, a Department of Foreign Affairs and Trade official simply said that the Clinton Foundation has “a proven track record” in helping developing countries. While that sounds nice, doesn’t it seem counterintuitive that these countries would pull their funding just as Hillary has been freed up to spend 100% of her time helping people in developing countries?

“Australia has finally ceased pouring millions of dollars into accounts linked to Hillary Clinton’s charities. Which begs the question: Why were we donating to them in the first place? The federal government confirmed to news.com.au it has not renewed any of its partnerships with the scandal-plagued Clinton Foundation, effectively ending 10 years of taxpayer-funded contributions worth more than $88 million. News.com.au approached the Department of Foreign Affairs and Trade for comment about how much was donated and why the Clinton Foundation was chosen as a recipient. A DFAT spokeswoman said all funding is used “solely for agreed development projects” and Clinton charities have “a proven track record” in helping developing countries.”

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Fake News Inc.

New Zealand Media Merger Risks Growth Of ‘Glib, Click-Bait’ Coverage (G.)

A group of distinguished former newspaper editors has launched a scathing attack on plans for New Zealand’s largest print media companies to merge, calling it a threat to democracy which could see a concentration of power exceeded “only in China”. The merger of NZME and Fairfax Media, which was proposed in May, would not be healthy in a country that “already suffers from a dearth of serious content and analysis”, the editors say in a submission to the commerce commission. The group, which includes Suzanne Chetwin, former Dominion chief Richard Long and ex-New Zealand Herald editor Gavin Ellis, also criticise the trend towards “click-bait stories” at a time when television has “all but abandoned current affairs and our public discourse is increasingly glib”.

“The merger would see one organisation controlling nearly 90% of the country’s print media market (and associated websites), the greatest level of concentration in the OECD and one that is exceeded only by China. “That cannot be healthy, particularly in a society like New Zealand’s that has so few checks and balances in its constitutional arrangements.” The submission went on to state the greatest threat to New Zealand media came from off-shore publishers who had “no feel for New Zealand’s social fabric”, and urged the commerce commission to decline the merger. The merger was sold as an attempt by both companies to stem revenue losses and drastic staff and budget cuts, particularly to rural and regional newsrooms.

Dunedin’s The Otago Daily Times would be the only newspaper in the country to remain independent, although it too could be affected as they have content sharing agreements with NZME’s The New Zealand Herald. Radio stations and magazines owned by both companies would also be affected.

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That’s not debt relief, it’s Schauble-friendly creative accounting.

Greek Debt Relief Plan Said to Entail $35 Billion Bank Bond Swap (BBG)

Greece’s battered banks are being asked to swap about 33 billion ($35 billion) euros in floating-rate bonds for 30-year, fixed-rate securities under a euro-area plan to shield Athens from future interest rate increases, three people with knowledge of the matter said. The swap is part of a package of debt-relief proposals for Greece to be presented at a Dec. 5 meeting of euro-area finance ministers, according to the people, who asked not to be named because they weren’t authorized to speak publicly about the matter. The notes were issued by the European Financial Stability Facility, the region’s crisis-fighting fund, to re-capitalize Greek lenders in 2013.

While the current EFSF holdings of Greek banks fall due between 2034 and 2046, the fixed-rate notes will expire in 2047, the people said. That will reduce Greece’s interest rate risk, but it may come at a cost for its four systemically important lenders, which could be left with securities that are more difficult to trade. The technical aspects of the operation are still being hashed out. “There are discussions going on as to proposals which will improve the sustainability of the Greek debt,” Piraeus Bank Chairman George Handjinicolaou said in an interview Thursday. “Part of this proposal is a change in the EFSF bonds for something else, some form of fixed-rate debt, which would improve the predictability of the sustainability of the Greek debt profile.”

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Jan 092016
 
 January 9, 2016  Posted by at 9:42 am Finance Tagged with: , , , , , , , , ,  


DPC Longacre Square, soon to be Times Square 1904

Worst First Five Days of Year Ever For US Stocks Dim Outlook (WSJ)
The End of the Monetary Illusion Magnifies Shocks for Markets (BBG)
More Than 40% Of Young Americans Use Payday Loans Or Pawnshops (Ind.)
British People Donating Bodies To Science To Avoid Funeral Costs (Tel.)
Multiple Jobholders Responsible For 64% Of Net US Job Gains (ECRI)
First Profit Fall In 48 Years Looms Over US Energy Sector (MarketWatch)
Mining’s $1.4 Trillion Plunge Like Losing Apple, Google, Exxon Combined (BBG)
Inventor of Market Circuit Breakers Says China Got It Wrong (BBG)
China Market Tsar In Spotlight Amid Stock Market Turmoil (Reuters)
As Growth Slows, China’s Era of Easy Choices Is Over (WSJ)
Why China Shifted Its Strategy for the Yuan, and How It Backfired (WSJ)
China Finds $3 Trillion Just Doesn’t Pack the Punch It Used To (BBG)
Shock, Laughter Greet Plan for Saudi Arabia’s Record Oil IPO (BBG)
Saudi Aramco’s Fire Sale (BBG)
US Accuses Volkswagen Of Poor Co-Operation With Probe (FT)
Visible Light From Black Holes Detected For First Time (Guardian)
Refugees Struggle In Sub-Zero Temperatures In Balkans (BBC)
Greek Police, Frontex To ‘Check’ Volunteers On Islands Receiving Migrants (Kath.)

China went up on Friday, but Wall Street did not. Omen?

Worst First Five Days of Year Ever For US Stocks Dim Outlook (WSJ)

The Dow industrials tumbled more than 1,000 points this week, marking the worst first five days of any year, as volatility across the globe rattled investors. Traders said they are bracing for further big swings in the weeks to come. The Dow fell 1% Friday after starting the day in positive territory amid a strong U.S. jobs report and an uneventful session in China’s markets overnight. But shares slumped in afternoon trading as investors became unwilling to enter the weekend exposed to the risk of further losses. In all, U.S. stocks lost $1.36 trillion in value this past week.

The unusually severe drop highlighted the precarious position of markets caught between relatively high valuations—attributable in part to years of easy money from central banks—and a new round of uncertainty about the fundamental underpinnings of key parts of the global economy. “The conundrum is there are parts of the world that are doing fine…and we have pockets that aren’t doing so well,” said Lawrence Kemp, head of BlackRock’s Fundamental Large Cap Growth team. “Given what’s going on in China and the rest of the world, the U.S. economy could grow a little more slowly.” The Dow Jones Industrial Average lost 1,078.58 points in the first week of 2016, down 6.2%. The broader S&P 500 was down 6%, also its worst five-day start to a year, and the Nasdaq Composite Index was down 7.3%.

Traders said the glum tone is likely to carry over into the coming week, as U.S. companies start reporting earnings for the last quarter of 2015. Corporate-earnings reports are widely expected to be underwhelming. The strong dollar is weighing on the competitiveness of U.S. exporters and the dollar value of companies’ overseas sales. Oil prices, which fell below $33 a barrel Friday in New York before closing at $33.16, continue to weaken. And China’s growth remains slow. Fourth-quarter earnings by companies in the S&P 500 are expected to come in 4.7% lower than they were a year earlier, according to FactSet.

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Central banks

The End of the Monetary Illusion Magnifies Shocks for Markets (BBG)

Central bankers are no longer the circuit breakers for financial markets. Monetary-policy makers, market saviors the past decade through the promise of interest-rate reductions or asset purchases, now lack the space to cut further or buy more. Even those willing to intensify their efforts increasingly doubt the potency of such policies. That’s leaving investors having to cope alone with shocks such as this week’s rout in China or when economic data disappoint, magnifying the impact of such events. “The monetary illusion is drawing to a close,” said Didier Saint Georges at Carmignac Gestion, an asset-management company. “With central banks becoming increasingly restricted in their stimulus policies, 2016 is likely to be the year when the markets awaken to economic reality.” Even against the backdrop of this week’s market losses, Fed officials signaled their intention to keep raising interest rates this year.

Those at the ECB and BoJ ended last year playing down suggestions they will ultimately need to intensify economic-aid programs. They have only themselves to blame for becoming agents of volatility, according to Christopher Walen at Kroll Bond Rating. He told Bloomberg TV this week that officials’ willingness to keep interest rates near zero and repeatedly buy bonds and other assets meant they became “way too involved in the global economy” and should have left more of the lifting work to governments. The handover to looser fiscal policy now needs to happen if economic growth and inflation are to get the spur they need, said Martin Malone at London-based brokerage Mint Partners. “Major economies have exhausted monetary and foreign-exchange policies,” he said. “Government action must take over from central-bank policies, triggering more confident private-sector investment and spending.”

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Yeah, recovery.

More Than 40% Of Young Americans Use Payday Loans Or Pawnshops (Ind.)

Young people are turning to desperate means to make ends meet. New figures that show 42% of Millennials, the generation born between 1980 and the mid-1990s, have turned to alternative finance including payday lenders and pawnshops in the past five years. The numbers come from a survey of more than 5,000 Millennials in the US by PriceWaterhouseCoopers and the Global Financial Literacy Excellence Center at George Washington University. Reports show that Millennials are high users of payday loans in the UK too. A 2014 report by the Financial Ombudsman Service showed that customers complaining about payday lenders were far more likely to be drawn from the 25-34 age group than any other.

The PwC study showed that a third of Millennials are very unsatisfied with their current financial situation and 81% have at least one long term debt, like a student loan or mortgage. That’s before they are saddled with interest on a payday loan that can be as much as 2000%. “They have already maxed out everything else and so they’re going to behavior that’s deemed even riskier,” said Shannon Schuyler, PwC’s corporate responsibility leader. The report also found that almost 30% of Millennials are overdrawn on their current accounts and more than half carry a credit card. Millennials are not the only generation suffering from rising debts. Earlier this week the Bank of England published a report showing that household borrowing surged in the run up to Christmas. The monthly cash rise in consumer credit for November 2015 was the highest since February 2008.

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The shape of things to come. Who can afford a $5000-6000 funeral?

British People Donating Bodies To Science To Avoid Funeral Costs (Tel.)

People are choosing to donate their body to science to avoid the cost of paying for a funeral, MPs have been warned. A leading forensic anthropologist said giving remains to anatomy departments can be seen as a way of avoiding the burden of funeral costs. However, science departments are not always able to take a person’s body, because of disease or because there is simply no space. Professor Sue Black, Director of the Centre for Anatomy and Human Identification at the University of Dundee, told the bereavement benefits inquiry families can be shocked to realise their loved one’s remains cannot be donated. “It is important that bequeathal is not viewed as an option to address funeral poverty although for some individuals it is unquestionably used in this manner,” she said.

As Dundee has one of the highest levels of child and adult poverty in Scotland, Professor Black said it is “not unusual for our bequeathal secretary to receive calls that will relate to concerns over funeral costs.” The Work and Pensions Committee is investigating funeral poverty after a freedom of information request by the BBC found the cost to local councils of so-called “paupers’ funerals” has risen almost 30pc to £1.7m in the past four years. The number of public health funerals, carried out by local authorities for people who die alone or whose relatives cannot afford to pay, has also risen by 11pc. [..] Bodies donated to science are mainly used for medical training and research.

But some are turned down because they are not suitable for educational use, for example if there has been a post-mortem and the body has already been dissected, or because the person has had a particularly destructive form of cancer, or if they have had an organ transplant. Potential donors must also make their wishes clear in their lifetime. “It’s really important that if people think that they want to donate their body, there are things that they must do. It’s not enough to say if verbally, they have to either find the consent forms or make a legal statement in a will or testament,” Professor Black said. The average cost of a basic funeral is now £3,702 according to a recent report.

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Could be the major take-away from yesterday’s BLS report. Employment numbers do not reflect those of the employed.

Multiple Jobholders Responsible For 64% Of Net US Job Gains (ECRI)

The latest jobs report far exceeded consensus expectations as the economy added 292,000 nonfarm payroll jobs. But a closer look at the details reveals why concerns remain about the health of the labor market. In December, year-over-year (yoy) growth in multiple jobholders rose to an 11-month high, while yoy growth in single jobholders eased to a three-month low. Specifically, since May the number of multiple jobholders has increased by 752,000, while single jobholders have increased by 429,000. In other words, multiple jobholders have been responsible for 64% of the net job gains since last spring. The disproportionate importance of multiple jobholders – forced to cobble together a living – shows why the labor market is weaker than it seems. Notably, as long as these multiple jobholders log 35 hours of work per week – no matter how many part-time jobs that takes – they are considered full-time.

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1967. Remember?

First Profit Fall In 48 Years Looms Over US Energy Sector (MarketWatch)

The energy sector will depress U.S. fourth-quarter earnings and subdue growth for the entire S&P 500, making 2015 the weakest year for earnings since 2008, Goldman Sachs said Friday. The bank trimmed its S&P 500 earnings-per-share estimates for 2015, 2016 and 2017 in a note that highlighted three factors it expects to feature in earnings releases and on conference calls this year. The fourth-quarter and 2015 earnings season kicks off next week. The report from Aluminum producer Alcoa, scheduled for Monday after the market’s close, is seen as the unofficial start of several weeks of corporate news. The first factor Goldman highlighted is the energy sector, which the bank says is about to show a decline in operating earnings per share for 2015, its first negative reading since the bank started keeping records in 1967. “Energy EPS has collapsed along with crude oil prices,” analysts wrote in a note.

Energy EPS is highly sensitive to the price of oil, which Goldman is assuming will average $44 a barrel this year. Crude futures were trading below $33 a barrel early Friday, after hitting their lowest level since 2004 this week. Energy companies have been hammered by the slump in oil prices caused by oversupply, which has made some shale plays unprofitable and led companies to slash spending budgets, sell underperforming assets and cut staff and other costs. “The write-down in energy company assets has exacerbated the earnings hit from the 35% fall in Brent crude oil prices in 2015, following a 48% plunge in the commodity price in 2014,” said the note. In 2014, the energy sector accounted for $13, or 12%, of the overall S&P 500’s EPS reading of $113. In 2015, that contribution had tumbled to a loss of $2. That means energy contributed a $15 decline to S&P 500 earnings, which more than outweighed EPS gains in other sectors, said the note.

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Much more downside to come.

Mining’s $1.4 Trillion Plunge Like Losing Apple, Google, Exxon Combined (BBG)

The $1.4 trillion lost in global mining stocks since 2011 exceeds the total market value of Apple, Exxon Mobil and Google’s parent Alphabet. When you’ve spent a decade building new mines from the Andean mountains to the West African jungle, it’s bad news when a downturn in China, your biggest customer, shows no signs of stopping. Investors have been unforgiving and concerns that it will only get worse pushed the Bloomberg World Mining Index to an 11-year low. “It’s terrible, there are no two ways about it,” said Paul Gait at Sanford C. Bernstein in London. “A lot of people were hoping at the start of 2016 to see at least some stabilization in the commodity performance in these stocks. Essentially people were looking to close the consensus short that has characterized 2015. This has clearly not happened.”

BHP Billiton and Rio Tinto were once among the world’s largest companies. Shares of the biggest commodity producers trading in London are now at least twice as volatile as the U.K.’s benchmark stock index. Raw-material prices slipped to the lowest since 1999 on Thursday, with China’s stock market suffering its worst start to the year in two decades after the central bank cut the yuan’s reference rate by the most since August. A weaker currency encourages exports from the nation and makes it costlier for it to import commodities, hurting those that supply them. Anglo American, worth almost £50 billion ($73 billion) in 2008, is now valued at £3.1 billion. The 99-year-old company, which is the world’s biggest diamond and platinum producer and owns some of the best copper and coal mines, is now worth less than mid-tier Randgold and copper miner Antofagasta.

Apple, the world’s most valuable company, is worth about $549 billion. Alphabet is valued at $510 billion and Exxon $321 billion. The Bloomberg mining index of 80 stocks slumped as much as 4.1% on Thursday to the lowest since 2004. Anglo closed down 11% in London to the lowest since it started trading in 1999. BHP tumbled 5% and Rio retreated 3.4%. Glencore settled down 8.3%.

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They seem to get a lot wrong.

Inventor of Market Circuit Breakers Says China Got It Wrong (BBG)

The man responsible for stock circuit breakers says Chinese officials must revise their safety net to avoid creating panic, joining critics who argue the nation’s trading halts are triggered too easily for such a volatile market. “They’re just on the wrong track,” said Nicholas Brady, 85, the former U.S. Treasury secretary who ran a committee that recommended the curbs on equity trading after the 1987 crash. “They need a set of circuit breakers that appropriately reflects their market.” Brady spoke Thursday after Chinese regulators suspended their newly introduced program that ends stock trading for the entire day after a 7% plunge. The halt was set off twice in its first week of operation, bolstering speculation China set its threshold too low. “The right thing to do is to widen their band,” Brady said in an interview.

The U.S. confronted a similar problem in the 1990s. The curb that the Brady Commission helped implement shut the market for the first time on Oct. 27, 1997, when the Dow Jones Industry Average lost 554 points. That was only a 7.2% decline, almost identical to the Thursday plunge in China’s CSI 300 Index. The trouble was that a decade-long surge in U.S. stock prices had diminished the value of each point in the Dow. The 1987 crash’s 508-point slump had amounted to a 23% tumble, three times greater than the decline that froze trading 10 years later. Regulators and exchanges pushed through a revision: If the Dow fell 10%, there would be an hour pause. At 20%, trading would cease for two hours, and at 30%, the day would end early.

In recent years, the benchmark that triggers the halts switched to the Standard & Poor’s 500 Index and the levels changed. Now it takes 7% and 13% drops to prompt a brief pause, and a 20% decline to close markets early for the day. Whereas 7% losses are rare in the U.S. – they were only common during the 2008 financial crisis, October 1987, and the Great Depression – Chinese shares have dropped about that much seven times in the past year. “I don’t think this is an exact science,” said Sang Lee, an analyst at financial-markets researcher Aite Group. With circuit breakers, “If you set these too low, instead of easing volatility it may increase volatility. That echoes the view of Brady, who was chairman of Wall Street powerhouse Dillon Read & Co. when President Ronald Reagan asked him to figure out what happened during the 1987 crash and propose solutions.

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Lost in Beijing hubris.

China Market Tsar In Spotlight Amid Stock Market Turmoil (Reuters)

Xiao Gang, China’s stock market tsar, once remarked that the only thing he’d done right in life was marry his wife. No doubt the self-effacing Xiao, chairman of China Securities Regulatory Commission (CSRC), has done many other things right. Managing the stock market, though, might not be a high point of his career. Xiao faced internal criticism from the ruling Communist Party for his handling of the stock market crash last year, sources with ties to the leadership said at the time. In another blow, a “circuit breaker” mechanism to limit stock market losses that was introduced on Monday was deactivated by Thursday after it was blamed for exacerbating a sharp selloff. Online media had nicknamed Xiao “Mr Circuit Breaker”.

“There has to be responsibility. People are looking to the leader at the regulator. Xiao Gang is the public face,” said Fraser Howie, an independent China market analyst. “He was lucky to keep his job after the fiasco of July and August.” Xiao, 57, became chairman of the CSRC in the leadership churn when President Xi Jinping came into power, taking the helm of the regulator in March 2013. At the time, Chinese markets had been among the world’s worst-performing for six years – indeed they had not recovered from their collapse during the global financial crisis. Unfortunately for Xiao, they still haven’t. The challenge Xiao faced upon taking up the post was enormous: to attract fresh investment into equities from speculative bubbles in sectors like real estate, while defending against endemic insider trading.

To pull any of this off he needed to first convince China’s legions of small retail investors, who dominate transactions but are infamously fond of quick-hit speculative plays, that stocks are a safe place to park long-term capital. The urgency was heightened by the need to deal with China’s corporate debt overhang – Chinese firms had become almost entirely dependent on bank loans for financing, which naturally prejudiced economic development toward collateral-rich heavy industry and away from the innovative, nimble technology companies that tend to rely more on stock issuances to fund quick growth.

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Chinese politics clash with economics. By default. It’s not just pushing a button or pulling a lever.

As Growth Slows, China’s Era of Easy Choices Is Over (WSJ)

China has pulled hundreds of millions of people from poverty, supercharged its economy and burnished the pride of a nation that stood weak and isolated only decades ago. But swelling levels of debt, bloated state companies and an overall aversion to market forces are swamping the world’s second-largest economy, threatening to derail China’s ascent to the ranks of rich countries. As Beijing battles another bout of stock-market turmoil—and global markets shudder in response—the risks of doing nothing about these deep-seated problems are rising, economists said. Without a change in course, they said, China faces a period of low growth, crimped worker productivity and stagnating household wealth. It’s a condition known as “the middle-income trap.” “The era of easy growth is over,” said Victor Shih, professor at the University of California-San Diego.

“It’s increasingly about difficult choices.” Some economists don’t rule out an abrupt drop in growth, a hard landing that would see bad debts soar, consumer confidence tank, the Chinese yuan plunge, unemployment spiral and growth crater. More likely is that Beijing will continue to prop up growth, steering more capital to money-losing companies, unneeded infrastructure and debt servicing, depriving the economy of productive investment and leading to the sort of protracted malaise seen in Japan in recent decades. But China is less prosperous than Japan. An anemic China would weaken global growth at a time of low demand and prolong the downturn for big commodity producers like Brazil that have been dependent on the Asian economic giant. “They don’t want to take the pain,” said Alicia Garcia Herrero at investment bank Natixis. “But the longer they wait, the more difficult it becomes.”

Chinese leaders are aware of the risks. On Tuesday, Premier Li Keqiang called for a greater focus on innovation to spur new sources of economic growth and to revitalize traditional sectors, according to the Xinhua. A far-reaching economic blueprint laid out in 2013 after President Xi Jinping came to power vowed to let markets take a “decisive” role and build out a legal framework to restructure the economy and benefit consumers and small businesses, rather than industry. Progress to date, economists said, has been disappointing. Political objectives stand in the way. Mr. Xi has committed the government to meeting a goal of doubling income per person between 2010 and 2020, the eve of the 100th anniversary of the ruling Communist Party. That means, in Mr. Xi’s eyes, that growth must reach 6.5% annually. With global demand slipping and fewer Chinese entering the workforce, Beijing will need to resort to stimulus spending to get there, analysts said, delaying the reckoning with restructuring.

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“As of September, China’s outstanding foreign debt stood at $1.53 trillion. More than two-thirds of that amount is expected to come due within a year..”

Why China Shifted Its Strategy for the Yuan, and How It Backfired (WSJ)

The IMF’s decision on Nov. 30 to declare the yuan an official reserve currency removed an incentive for the central bank to keep propping up the currency. Rather, it aims to let it gradually depreciate with an eye toward sending it modestly higher in this year’s second half, according to advisers to the PBOC. That is when Beijing will host leaders from the Group of 20 major economies and will be eager to showcase China’s economic might. But that strategy is fraught with risks. Chief among them, analysts say, is the difficulty in reversing continued market expectations for a still-weaker yuan. In Hong Kong, where the yuan can be bought and sold freely, the Chinese currency now trades at a steep discount to its mainland cousin, whose trading is limited within a government-dictated band.

The gap has led some investors to try to profit from the different exchange rates, causing irregular flow of funds across China’s borders. By intervening in the Hong Kong market Thursday to try to cap the offshore yuan rate and at the same time allowing the onshore rate to weaken faster, the central bank appears to be attempting to find “a near-term market equilibrium level that can help the exchange rates converge,” analysts at HSBC wrote in a research note. The central bank also doesn’t want a too-weak yuan to exacerbate capital outflows and make it more difficult for Chinese companies to pay off their dollar-denominated debt. As of September, China’s outstanding foreign debt stood at $1.53 trillion. More than two-thirds of that amount is expected to come due within a year, according to government data.

Among the big foreign-debt holders are Chinese property companies, which have more than $60 billion of dollar debt outstanding, according to data provider Dealogic. Wary of continued weakening of the yuan, some Chinese companies are moving to pay off their debt early. State-run airliner China Eastern Airlines paid down $1 billion of dollar debts on Monday, citing the need to reduce its exposure to exchange-rate fluctuations. For many years, the prevailing investor sentiment had been the yuan had no way to go but up as China’s trade surplus surged. Investors have now shifted their mind-set to the other extreme.

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Will they have any FX reserves left a year from now? It’s not all that obvious.

China Finds $3 Trillion Just Doesn’t Pack the Punch It Used To (BBG)

China’s $3 trillion-plus in foreign currency reserves, the biggest such stockpile in the world, would seem to be a gold-plate insurance policy against the country’s current market chaos, a depreciating currency and torrent of capital leaving the country. Maybe not, say economists. First off, data point to an alarming burn rate of dollars at the People’s Bank of China. The nation’s stockpile of foreign exchange reserves plunged by $513 billion, or 13.4%, in 2015 to $3.33 trillion as the nation’s central bank coped with a weakening yuan and an estimated $843 billion in capital that left China between February and November, the most recent tally available according to data compiled by Bloomberg. “My greatest worry is the fast depletion of FX reserves,” said Yu Yongding, a member of China’s monetary policy committee when the currency was revalued in 2005.

True, trillions of dollars under the central bank’s care are thought to be invested in safe liquid securities, including Treasury bonds. The U.S. measure of China’s holdings of Treasuries, the benchmark liquid investment in dollars, stood at $1.25 trillion in October, according to the U.S. Treasury Department, which cautions that the figures may not reflect the true ownership of securities held in a custodial account in a third country. In China, like some other countries, the exact composition of China’s reserves is a state secret. But analysts worry the currency armory may not be as strong as it looks. That’s because some of the investments may not be liquid or easy to sell. Others may have suffered losses that haven’t been accounted for.

In addition, some Chinese reserves may have already been committed to fund pet government projects like the Silk Road fund to build roads, ports and railroad across Asia or tens of billions in government-backed loans to countries such as Venezuela, much of which is repaid through oil shipments. Then there are other liabilities that China needs to cover, such as the nation’s foreign currency debt to finance and manage imports denominated in overseas currencies. When those factors are taken into account, some $2.8 trillion in reserves may already be spoken for just to cover its liabilities, according to Hao Hong at Bocom International. “Considering China’s foreign debt, trade and exchange rate management, it needs around $3 trillion in foreign exchange reserves to be comfortable.” he said.

[..] “Where is the line in the sand, and what happens when we get there?,” said Charlene Chu, the former Fitch analyst known for her warnings over China’s debt risks. “China’s large hoard of foreign reserves gives the country considerable power and influence globally, and I would think they would want to protect that. If there is such a line in the sand, it is very possible we hit it in 2016.” To be sure, intervention isn’t the only thing dragging China’s reserves lower. There’s also a valuation impact from fluctuating currencies. Some of the fall may also reflect authorities accounting for its investments. Chu reckons much of the decline up to June 2015 was mostly due to investments in illiquid assets and valuation changes rather than capital outflows.

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“The company could be worth anything from $1 trillion to upwards of $10 trillion..”

Shock, Laughter Greet Plan for Saudi Arabia’s Record Oil IPO (BBG)

When one financial adviser heard about Saudi Arabia’s plans to list a company larger than the economies of most nations, he had to pull over his car because he was laughing so hard. Saudi Arabian Oil Co., or Aramco, the world’s largest oil producer, said Friday it’s considering an initial public offering. It confirmed an interview with Deputy Crown Prince Mohammad bin Salman published in the Economist Thursday. The news was greeted with incredulity in the financial industry, according to interviews with a half dozen bankers who do business in the Middle East. They asked not to be identified to protect their business interests. For one thing, Aramco’s inner workings are opaque, making its true value a mystery. Then there’s the timing. The price of crude oil is near its lowest level in more than a decade.

Discussions with Aramco about selling assets in the past had been about much smaller parts of the business, five of the people said. An initial public offering of the entire enterprise had only ever been discussed as a joke, one of the people said. The company could be worth anything from $1 trillion to upwards of $10 trillion, which would make it the most valuable company in the world, according to a note from Jason Tuvey at research firm Capital Economics. The last mega IPO from the oil industry was a decade ago, when Russia’s OAO Rosneft raised more than $10 billion. Even if Saudi Arabia sells a small stake, a listing could easily surpass that of Alibaba whose $25 billion IPO is the largest on record. Still, Aramco is unlikely to list on the biggest exchanges, according to Bloomberg oil strategist Julian Lee.

That would require the government to give investors more detailed information about Aramco’s reserves and production capacity, something oil-producing nations consider state secrets, he said. Aramco is considering selling an “appropriate%age” of its shares in the capital markets or listing a bundle of its subsidiaries, it said in the statement. Saudi Arabia typically sells stakes in state-owned companies to the public at below market value as part of its efforts to redistribute wealth. National Commercial Bank raised $6 billion in 2014 in the Middle East’s largest share sale. As the bankers do the sums, a big IPO won’t necessarily translate into big fees. Governments often pay low fees on their exits.

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“.. it’s hard not to see talk of floating Aramco as a defensive move forced on a kingdom that is under pressure on the financial, political and military fronts.”

Saudi Aramco’s Fire Sale (BBG)

That strange and rather unappetizing sound you just heard was the world’s energy bankers simultaneously salivating over the prospect of the oil deal of the century. In an interview published Thursday by The Economist, Saudi Arabia’s deputy crown prince Muhammad bin Salman said his country is considering privatizing Saudi Aramco. A quick back-of-the-envelope calculation for a company whose oil reserves dwarf those of Exxon Mobil yields a potential market capitalization of: gajillions. Apart from anything else, Aramco’s role in supplying roughly a tenth of the world’s oil would make its earnings guidance required reading not merely for sell-side analysts, but central bankers, government leaders and generals, too.There are many caveats here, beginning with the fact that the privatization is “something that is being reviewed.”

And if privatization were to proceed, it might well involve listing shares in some downstream part of Aramco such as petrochemicals, rather than the core upstream business or parent company. The bigger issue, though, is the idea appearing to have any traction at all and being spoken of publicly by no less a figure than the deputy crown prince. It adds a further twist to a narrative emanating from Saudi Arabia that suggests the global oil market is undergoing epochal change. The interview was wide-ranging, touching on relations with Iran and the U.S., women in the workforce, tax reform and possible privatization in many sectors, not just energy. And the deputy crown prince was in expansive mode, agreeing with his interviewer’s supposition that the autocratic kingdom is undergoing a “Thatcher revolution” and answering one question on attracting foreign investors with an almost Trumpian “I’m only giving out opportunities.”

The context for this sweeping vision, though, is the OPEC benchmark oil price having just slipped below $30 a barrel. The rational time to sell shares in Aramco would have been, let’s see, about 18 months ago, when oil was still trading in triple digits and the MSCI Emerging Markets Index was nudging 1100 rather than languishing below 750. Of course, other things play a part in deciding to privatize any state jewel of this scale – such as, in the words of the deputy crown prince, fostering transparency and strengthening the domestic stock market. Such factors were there, for example, in the privatization of China’s oil majors at the start of this century. Yet it’s hard not to see talk of floating Aramco as a defensive move forced on a kingdom that is under pressure on the financial, political and military fronts.

Saudi Arabia still sits on sizable foreign reserves. But the increases in (heavily subsidized) domestic fuel prices announced recently, as part of the country’s annual budget, indicate Riyadh’s desire to hunker down for a prolonged period of low oil prices. Indeed, it is possible that raising money from an Aramco IPO would be designed to show that the state is making its own sacrifices. [..] Change is clearly in the air. Riyadh is due later this month to unveil a medium-term “National Transformation Plan” aimed at, among other things, streamlining a public sector where wages swallow up nearly a fifth of GDP and diversifying the country’s tax base. This comes soon after a decision to open the country’s stock market to foreign investors. And, of course, it is happening amid an ongoing policy to maximize oil production in a suddenly much more competitive global oil market.

In one unnerving respect, this is bullish for oil: Ossified political structures are highly vulnerable precisely when they seek even partial reform. Any destabilization in Saudi Arabia could provide the supply shock that clears the glut in oil and raises oil prices. But don’t forget the warnings given by Saudi Arabia’s petroleum minister just over a year ago that global oil demand growth may face a “black swan” in the next few decades. Viewed through that lens, the policy of pumping more barrels out now looks like not merely a strategy to maintain market share but also to simply monetize reserves that might otherwise be left to mire underground. Take it one step further, and you might say the same of Riyadh suddenly deciding it’s time to cash in on Saudi Aramco now, oil price be damned.

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“VW cited German law as its reason for not co-operating.”

US Accuses Volkswagen Of Poor Co-Operation With Probe (FT)

Volkswagen is failing to co-operate sufficiently with a US investigation into the emissions scandal, according to New York attorney-general Eric Schneiderman, who warned that the authorities’ patience was “wearing thin”. Mr Schneiderman said on Friday that VW’s co-operation with a probe involving 47 state attorneys-general had been “spotty” and “slow”, adding to the German carmaker’s mounting troubles in the US. On Monday, the Department of Justice sued VW in a civil case, seeking at least $45bn in penalties. The US authorities’ clash with VW came as the company said that its annual sales had fallen last year for the first time in more than a decade.

A combination of the emissions scandal and turmoil in emerging markets has taken a toll on Europe’s biggest carmaker, pushing group-wide sales below 10m units in 2015. VW admitted in September that it had installed “defeat devices” in up to 11m cars, including 482,000 in the US, that served to understate the diesel-powered vehicles’ emissions of nitrogen oxides during official tests. The 47 state attorneys-general, plus prosecutors in Washington DC, are investigating whether VW violated environmental laws and misled consumers. The justice department is pursuing a similar probe now relating to almost 600,000 VW cars in the US.

“Volkswagen’s co-operation with the states’ investigation has been spotty — and frankly, more of the kind one expects from a company in denial than one seeking to leave behind a culture of admitted deception,” Mr Schneiderman said. He added that VW had been slow to produce documents from its US files, had sought to delay responses until it completed its own investigation, and had “failed to pursue every avenue to overcome the obstacles it says that German privacy law presents to turning over emails from its executives’ files in Germany”. “Our patience with Volkswagen is wearing thin,” Mr Schneiderman said. The New York Times first reported that VW was not handing over documents to the US authorities. VW cited German law as its reason for not co-operating.

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Not long ago the very idea was considered heresy.

Visible Light From Black Holes Detected For First Time (Guardian)

Astronomers have discovered that black holes can be observed through a simple optical telescope when material from surrounding space falls into them and releases violent bursts of light. The apparent contradiction emerges when a black hole’s gravity pulls in matter from nearby stars, producing light that can be viewed from a modest 20cm telescope. Japanese researchers detected light waves from V404 Cygni – an active black hole in the constellation of Cygnus, the Swan – when it awoke from a 26-year-long slumber in June 2015. Writing in the journal Nature, Mariko Kimura of Kyoto University and others report how telescopes spotted flashes of light coming from the black hole over the two weeks it remained active. The flashes of light lasted from several minutes to a few hours. Some of the telescopes were within reach of amateur astronomers, with lenses as small as 20cm.

“We now know that we can make observations based on optical rays – visible light, in other words – and that black holes can be observed without high-spec x-ray or gamma-ray telescopes,” Kimura said. The black hole, one of the closest to Earth, has a partner star somewhat smaller than the sun. The two objects circle each other every six-and-a-half days about 8,000 light years from Earth. Black holes with nearby stars can burst into life every few decades. In the case of V404 Cygni, the gravitational pull exerted on its partner star was so strong that it stripped matter from the surface. This ultimately spiralled down into the black hole, releasing a burst of radiation. Until now, similar outbursts had only been observed as intense flashes of x-rays and gamma-rays.

At 18.31 GMT on 15 June 2015, a gamma ray detector on Nasa’s Swift space telescope picked up the first signs of an outburst from V404 Cygni. In the wake of the event, Japanese scientists launched a worldwide effort to turn optical telescopes towards the black hole. The flickers of light are produced when x-rays released from matter falling into the black hole heat up the material left behind. Poshak Gandhi, an astronomer at Southampton University, said the black hole looked extremely bright when matter fell in, despite being veiled by interstellar gas and dust. “In the absence of this veil, V404 Cygni would have been one of the most distant objects in the Milky Way visible in dark skies to the unaided eye in June 2015,” he writes in the journal.

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Death stalks Europe.

Refugees Struggle In Sub-Zero Temperatures In Balkans (BBC)

Medics working at refugee aid camps in the Balkans say they are seeing a spike in the number of migrants falling ill as freezing temperatures arrive. It has fallen to as low as -11C (12F) in the region. The medical charities International Medical Corps and Medecins Sans Frontieres say most patients are suffering with respiratory problems such as bronchitis and flu. There are also concerns about people refusing or not seeking treatment. Migrants are offered medical assistance, warm clothes and food at the main refugee points at the Serbian border with Macedonia to the south, and Croatia to the north. International Medical Corps runs a makeshift clinic at the train station in the tiny town of Sid, in northern Serbia “Last week, when temperatures were a bit less, we were seeing around 50 to 60 people a day,” said Sanja Djurica, IMC team leader.

“This week, now that temperatures have fallen, it’s more like 100 or so a day.” “Almost all of them are suffering with respiratory illnesses brought on by the cold.” I met the Al-Maari family, who are making the journey as the snow falls thick and fast. They fled Syria three weeks ago, and have been on the road ever since. They are travelling with four children, the youngest is just two years old. His brother Mohammad, seven, is suffering with fever and a chest infection. “We are on a journey of death,” said Mohammad’s uncle, Iyad Al-Maari. “We can endure. But I am worried about the children – the cold, disease and hunger.” Mohammad is not thought to be seriously ill. Iyad said the family are determined to continue to Germany, where the children’s father is waiting for them.

“Some people are refusing further medical help after we’ve assessed them,” said Tuna Turkmen from MSF in Serbia. “Even if they are referred to hospital, most don’t go. They just want to keep moving… in case borders suddenly close and they are left stranded.” With tears in her eyes, Mohammad’s mother, Malak, said: “We didn’t want any of this… we just want the war to end in Syria.” The stress and anxiety can be seen clearly on Malak’s face. She is traumatised and desperate. Medics have also highlighted the enormous psychological impact on those making these journeys. International Medical Corps has psychologists on hand in Sid, and even though people only tend to stay there for a few hours, medics and aid workers do have some time to deliver “psychological first aid”. “It’s emotional comfort, empathetic listening and encouraging coping techniques,” said Sanja Djurica.

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Checking those who filled in when Europe was a no-show. What a joke.

Greek Police, Frontex To ‘Check’ Volunteers On Islands Receiving Migrants (Kath.)

The Greek Police and [EU border agency] Frontex are to carry out checks on non-governmental organizations and volunteers on islands of the northern Aegean which have been receiving large numbers of migrants, sources have told the Athens-Macedonia News Agency. “Our goal is not to offend the volunteers and employees of NGOs nor to disrupt their work but to simply highlight the presence of the police on the coastline and generally in areas where migrants and refugees are disembarking,” a police source told AMNA. There will also be an investigation into reports that certain individuals posed as refugees in order to steal the personal belongings of refugees or the smuggling boats on which they reach the islands. The broader checks will seek to determine that people declaring themselves as volunteers are working for an accredited organization. The aim is to restore a sense of security on the islands, police source said, not to prevent the work of the NGOs.

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Oct 292014
 
 October 29, 2014  Posted by at 11:41 am Finance Tagged with: , , , , , , , , , , , ,  


Russell Lee Photo booth at fiesta, Taos, New Mexico Jul 1940

Fed Set To End One Crisis Chapter Even As Global Risks Rise (Reuters)
How American QE Has Changed The World (Telegraph)
The Biggest Risk For US Investors Is A China Crash (MarketWatch)
Is China’s Export Boom Fake? (CNBC)
Another Reason Not to Trust China’s Economic Data (BW)
China Shadow Banking Shifted to Insurers Alarms Moody’s (Bloomberg)
US Homeownership Rate Drops To 1983 Levels (Zero Hedge)
Why British Interest Rates Will Never Go Up Again (MarketWatch)
EU Financial Transaction Tax Bid Falters on Revenue Disagreement (Bloomberg)
UK Faces ‘Debt Timebomb’ From Ageing Population (Telegraph)
Payday Loan Brokers Regularly Raid Bank Accounts Of Poor Customers (Guardian)
Dubai Insists the Boom is Not a Bubble This Time Around (Bloomberg)
Chinese Oil Trader Buys Record Number of Mideast Cargoes (Bloomberg)
Rajoy Apologizes as New Wave of Corruption Allegations Hits Spain (Bloomberg)
How The Consumer Dream Went Wrong (BBC)
Gross National Happiness – Can We Measure A Feelgood Factor? (Guardian)
Australia Protection Plan ‘Will Not Save Great Barrier Reef’ (BBC)
Blame The Cows: Kiwi Dollar May Stumble (CNBC)
Russia to Send 3,000 Tons of Aid to Eastern Ukraine Within Week (RIA)
Pope Francis: Evolution and Big Bang Theory Are Real (NBC)
Population Controls ‘Will Not Solve Environment Issues’ (BBC)

Mission accomplished.

Fed Set To End One Crisis Chapter Even As Global Risks Rise (Reuters)

– The U.S. Federal Reserve on Wednesday is expected to shutter its bond-buying program, closing one controversial chapter in its crisis response even as it struggles to manage a full return to normal monetary policy. The Fed is likely to announce at the end of a two-day meeting that it will no longer add to its holdings of Treasury bonds and mortgage-backed securities, halting the final $15 billion in monthly purchases under a program that at its peak pumped $85 billion a month into the financial system. An important symbolic step, the end of the purchases still leaves the Fed far from a normal posture.

Its balance sheet has swollen to more than $4 trillion, interest rates remain at zero, and, if anything, recent events have increased the risk the U.S. central bank may need to keep propping up the economy for longer than had been expected just a few weeks ago. The statement the Fed will issue at 2 p.m. will be read carefully for signs of how weak inflation, ebbing global growth and recent financial market volatility have influenced U.S. policymakers. There is no news conference scheduled after the meeting and no fresh economic forecasts from Fed officials. “They are worried about the economy, the global one,” and are likely to leave much of their language intact rather than signal progress towards a rate hike, Morgan Stanley analyst Vincent Reinhart wrote in a preview of the meeting.

Attention will focus on whether the Fed’s statement continues to refer to “significant” slack in the U.S. labor market, and whether it retains language indicating rates will remain low for a “considerable time,” as most economists expect. Paul Edelstein, director of financial economics at IHS Global Insight, said the Fed may also need to acknowledge the inflation outlook is weakening. “They have been kind of wrong about inflation lately,” Edelstein said. “It would behoove them to do something – signal to markets they are not going to tolerate inflation and inflation expectations persistently below 2%.” Fed officials have largely stuck to forecasts that the U.S. economy will grow around 3% this year, with inflation poised to move gradually back to their 2% goal.

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It has perverted just about all global economies for the benefit of banks and elites. As I said yesterday, perhaps that’s a touch of genius.

How American QE Has Changed The World (Telegraph)

The Federal Reserve is widely expected to end its asset purchasing programme today. If so, it will be a quiet end to one of the most radical monetary policy experiments in modern times. Since the financial crisis, the world’s biggest central bank has embarked on an unprecedented programme of asset purchases that has resulted in its balance sheet growing to more than $4.45 trillion. Under the most recent incarnation of monetary easing – dubbed “QE3” – the central bank has purchased around $1.6 trillion in government bonds and mortgage-backed securities. With QE3 now expected wind down, November could be the first time in more than 37 months that the Fed will not be dipping its toe in the securities market.

Here’s how QE has changed the global economy. In September 2012, the Fed announced it would be buying $40bn in mortgage-backed debt in addition to goverment bonds each month. At the time, the US economy was still in the midst of a fledgling recovery, while the eurozone crisis had begun to ease after Mario Draghi did his best to soothe markets. Then Fed chief Ben Bernanke announced the programme would be open-ended and contingent on improving conditions in the US labour market. In December last year, the central bank said that it would start to “taper” its purchases and buy fewer assets in each successive month. It has now decided the US economy is strong enough to and the stimulus altogether. Here’s why: Stubbornly high unemployment was one of the key reasons the Fed decided to embark on additional stimulative measures in 2012. Arguably, one the best indicators of the success of QE3 has been the fall in unemployment from more than 8pc, when the purchases began, to less than 6pc last month.

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“…if China’s economy slows, domestic consumption will start feeling the pain, leading to even less job creation and slower growth. That’s a feedback loop that will not end well for China.”

The Biggest Risk For US Investors Is A China Crash (MarketWatch)

There’s a lot of talk about how the U.S. stock market and the American economy will fare now that the Federal Reserve plans to end its bond-buying program. But the bigger risks are from overseas, namely a European slowdown and the threat of terrorism from ISIS in the Middle East. And the biggest risk for the next year is from China. Here’s why: China growth is falling fast: Last week, we learned that China’s gross domestic product growth rate for the third quarter was 7.3%, the slowest in five years. That’s down sharply from a peak of 11.9% in 2010 and below the 7.5% pace Beijing has been targeting. In fact, China has posted growth of 7.6% or higher dating back to 2000.

Domestic demand under pressure: Remember that China’s own policy makers estimate that 7.2% growth is running at about break-even. That’s because a growth rate that large is needed simply to create enough jobs — about 10 million annually — to support China’s massive (and still growing) population. Think of it this way: After the Great Recession, the U.S. returned to GDP expansion and even posted a respectable 2.5% growth rate in 2010 but, unfortunately, that didn’t necessarily mean much for American consumers or job-seekers that year. Or put another way, economists estimate about 2.2 million jobs must be created every year in the U.S. simply to ensure there’s work for a growing population of job-seekers. And China needs over four times that kind of growth. So if China’s economy slows, domestic consumption will start feeling the pain, leading to even less job creation and slower growth. That’s a feedback loop that will not end well for China, or investors in China stocks.

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Government created loopholes all over the place.

Is China’s Export Boom Fake? (CNBC)

Exports are regarded as the bright spot in China’s slowing economy, but growing evidence suggests mainland firms are “over-invoicing” outbound shipments, inflating the trade data, say economists. “When China’s external trade data for September came out two weeks ago, we were surprised by the apparent strength of exports. The Hong Kong trade data released [on Monday] suggests that renewed over-invoicing may be part of the reason for China’s strong September export data,” said Louis Kuijs, chief China economist at RBS. China’s exports rose 15.3% on year in September, beating a median forecast in a Reuters poll for a rise of 11.8%, following a 9.4% rise in August. In the same month, China reported that it exported $37.6 billion worth of goods to Hong Kong, while Hong Kong data revealed imports of just $24.1 billion, yielding an unusually large $13.5 billion gap.

“While there have always been discrepancies between the two sources on this trade flow, the discrepancy in September was equivalent to 4.3 percentage points of total export growth, the largest positive discrepancy since April 2013 during the previous round of over-invoicing,” said Kuijs. Widely seen in early 2013, over-invoicing is a technique by which companies inflate the value of exports, allowing them to evade capital controls and bring more funds into the country. Why is this happening? Last year, expectations of yuan appreciation seemed to be the key driving force. This year, the motivations appear to have shifted, said Kuijs. “One possible motivation could be that money was channeled to the Shanghai A-share market on expectations the A share market would rise after the launch of the Shanghai – Hong Kong Connect scheme,” he said. “Such flows may help to explain the rise in the A-share market index in September in the absence of obvious good economic or financial news,” he added.

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“…companies have “faked, forged, and illegally re-used” documents for exports and imports”

Another Reason Not to Trust China’s Economic Data (BW)

The numbers don’t match. In September, China exported $37.6 billion to Hong Kong, according to government data compiled by Bloomberg. For the same month, Hong Kong’s government says imports from the mainland amounted to only $24.1 billion. That’s this year’s biggest gap between Chinese and Hong Kong figures. Where did all those billions of dollars go? Julian Evans-Pritchard, Capital Economics’ China economist, called the results “very suspicious,” especially since the discrepancies are largely related to the trade of precious metals and stones. “It seems the Chinese customs are basically overvaluing these gems [and] these precious metals,” he told Bloomberg Television on Tuesday. Meanwhile, “Hong Kong customs are valuing them more accurately.” The China-Hong Kong discrepancy is just one example. Evans-Pritchard points to similar discrepancies regarding Chinese imports from South Korea. “

What appears to be happening [is] we have some round-tripping,” he said. Companies may be claiming to import the stones from Korea at a certain price and then export them to Hong Kong at a higher price, pocketing the difference. That helps companies evade Chinese government currency controls at a time when there’s renewed pressure to strengthen the yuan. With such conditions, “it makes a lot of sense” for Chinese companies to borrow money cheaply abroad and find ways to get that money into the country. The Chinese government is not blind to the problem. China has found almost $10 billion in fraudulent trades nationwide since April of last year, and companies have “faked, forged, and illegally re-used” documents for exports and imports, Wu Ruilin, a deputy head of the State Administration of Foreign Exchange’s inspection department, told reporters in Beijing in September.

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Dangerous development.

China Shadow Banking Shifted to Insurers Alarms Moody’s (Bloomberg)

A doubling in the trust holdings of China’s insurers has prompted ratings companies to warn the industry may be taking on too much shadow banking default-risk. Insurers held 281 billion yuan ($46 billion) of trust products on June 30, surging from 144 billion yuan at the end of last year, China Insurance Regulatory Commission data show. The companies’ shadow bank assets, including wealth management products and other financing kept off commercial lenders’ balance sheets, reached 1.14 trillion yuan, or 13% of their investments, Standard & Poor’s estimated, adding that this made them “vulnerable in times of stress.” China Pacific Life Insurance, Taiping Life Insurance and Du-Bang Property & Casualty Insurance all expanded trust investment fivefold or more in the first half, a “credit negative” for companies traditionally focused on fixed-income securities, according to Moody’s Investors Service. 51% of the trust investment was directed to real estate and infrastructure, making insurers vulnerable to a cooling property market, according to Fitch Ratings.

“If the insurers experience any liquidity problems, they won’t be able to easily turn these trust investments into cash,” said Sally Yim, a Moody’s analyst in Hong Kong. “These assets also tend to be more volatile. The yield may be higher, but there may also be defaults.” Chinese insurers’ assets doubled in the past five years to 9.6 trillion yuan last month, as premium income climbed an average of 14% annually. Squeezed by competition from wealth management products sold by banks and online funds, insurers started offering policies with investment characteristics to compete for money. “Over the last two or three years, banking product rates have been quite competitive compared with some of the rates offered by the insurers,” said Terrence Wong, a director at Fitch in Hong Kong. “So to enhance the yield, they have to seek investment instruments with higher returns.”

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More recovery.

US Homeownership Rate Drops To 1983 Levels (Zero Hedge)

The last time US homeownership declined down to 64.4% (which the Census Bureau just reported is what US homeownership declined to from 64.7% in Q2), was back in the fourth quarter of 1983. It goes without saying that this is about the bearishest news possible for those few who still believe in the American homewonership dream. Of course, those who have been following real-time rental market trends would be all too aware there is no rebound coming to the homeownership rate. The reason is simple: increasingly fewer can afford to buy, instead having no choice but to rent, which in turn has pushed the median asking rent to record highs.

In fact in the past two quarters, the asking rent was just $10 shy of its time highs at $756 per month. But capital allocation preferences aside, while explaining the disparity between rental and homeownership in a world where Renting is the new American Dream, what [this doesn’t explain] is why there is no incremental demand from all those millions of young Americans who enter the population and, eventually, the workforce. At least on paper. Earlier today, Bank of America was confused by precisely this:

Population growth of 25-34 year olds outpacing growth in the housing stock: The primary driver of household formation is population growth among 25 to 34 year olds. There is notable divergence with the growth in this age group and the growth in the housing stock. This suggests greater doubling up of households as a result of the recession and weak recovery. Unless doubling up turns into tripling up, household formation should recover over time, creating a need for greater building. Given tight credit conditions, this will tend to drive apartment construction more than single family construction. Either way, the housing stock is lagging well behind demographic fundamentals.

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Only, they will.

Why British Interest Rates Will Never Go Up Again (MarketWatch)

The autumn of 2014? Er, scratch that. The spring of 2015? Put that on the back burner. How about the autumn of 2015? For the moment, that seems to be the consensus. The markets have had plenty of dates that they penciled in for the first rate rise from the Bank of England. But each time one of them actually comes close, something comes along to blow it off course. It happened again this month. Analysts and economists in the City of London were confidently expecting the first rise sometime in the spring of next year. Then the plunge in the global markets of early October, combined with some disappointing economic data, meant that timetable was hurriedly reset. Here’s what is actually going to happen. Interest rates in the U.K. may not ever go up from the near-zero level of the last few years.

Japan cut its rates to those levels more than two decades ago and it is no closer to a rate rise now than it was in the mid-1990s. Sooner or later the penny is going to drop that rates are not going to go up, at least not in the working lives of most people in the market today. The timetable for the Bank of England to start moving interest rates back to normal levels is about as reliable as an Italian train. When Gov. Mark Carney moved from Canada to the U.K., he bought with him a policy of forward guidance, which was meant to give companies and consumers a clearer idea of where interest rates were heading. He set out criteria such as falling unemployment, and rising real wages, that would need to be met. But once those targets were hit, rates would start going up again.

There was certainly a lot to be said for that. It was on March 5, 2009, that the bank cut interest rates all the way down to 0.5%. At the time, it was presented as an emergency measure, designed to cope with deep recession bought on by the near collapse of the financial system a few months earlier. It was not presented as a normal rate, nor, at the time, is it likely that many of the members of the Monetary Policy Committee saw it that way either. They thought rates would stay at that level for a year or two, and then start to edge their way back towards normal. The trouble is, the right moment never seems to arrive. Despite heavy signaling through last spring that a rate rise was likely before the end of 2014, it hasn’t happened.

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It’s now become a joke.

EU Financial Transaction Tax Bid Falters on Revenue Disagreement (Bloomberg)

The European Union must figure out how to handle revenues from a proposed financial-transaction tax to meet a year-end deadline for moving ahead with the levy in participating nations. Ten nations pledged in May to seek agreement on a “progressive” tax on equities and “some derivatives” by the end of 2014, with implementation planned for a year later. As that deadline approaches, nations have found broad agreement on how to handle equities, according to an Oct. 27 planning document obtained by Bloomberg News. Derivatives and revenues are the biggest obstacles to moving forward with a proposed tax by year end, according to Italy, one of the participating nations and also current holder of the EU’s rotating presidency. National officials are due to discuss the tax plan this week, ahead of a Nov. 7 finance ministers’ meeting in Brussels. Italy proposed three possible models for shifting revenue from countries where transactions take place to nations where the trading firms are based, so that countries with smaller financial sectors wouldn’t be at a disadvantage.

This would allow the tax to be collected in the country of issuance, then allocated to take account of other parameters like residence. “Delegations could not agree on the solution of revenue distribution that would be acceptable to all of them,” according to the planning document. Willing nations are considering how to build the first phase of a trading tax, with an eye toward expanding it in future years. EU policy makers have considered a transactions tax to raise money and discourage speculative trading, goals that have gained urgency since the financial crisis and the euro-area budget rules adopted in its wake. Efforts to build a common tax for all 28 member nations fell apart, followed by a scaled back proposal for a joint tax among 11 willing nations. The plans have been criticized by banks and trading firms, which have warned that could curtail investment at a time when the EU is seeking to boost anemic economic growth.

“The FTT is about the worst idea of the last three centuries,” Wim Mijs, chief executive of the European Banking Federation, a Brussels-based industry group, told reporters yesterday. In some countries, the “cost of implementing it is higher than the possible gain,” he said. [..] Most participating nations are in favor of including equity derivatives, so that trading in equities doesn’t immediately jump to a non-taxed transaction. Still, some nations want to exclude equity derivatives, the document showed. Some nations want to tax credit default swaps. Other nations have concerns about interest-rate derivatives because these trades have ties to monetary policy and government bonds.

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Many nations do.

UK Faces ‘Debt Timebomb’ From Ageing Population (Telegraph)

Britain’s ageing population has created a “debt timebomb” that can only be defused through a combination of significant spending cuts, faster increases in the state pension age and ending universal free healthcare, according to a respected think-tank. The Institute of Economic Affairs (IEA) warned that the Government would need to slash public spending by a quarter in order to get Britain’s debt mountain down to sustainable levels. In a set of radical proposals, the IEA called on the Government to end “unhelpful” policies such as the “triple lock guarantee” that ensures the state pension increases by the higher of inflation, average earnings or a minimum of 2.5pc every year. It also said charging for some NHS services would help to reduce demand.

The IEA calculated that Government spending cuts equivalent to 9.6pc of GDP – or £168bn per year in today’s money – were needed to reduce Britain’s debt-to-GDP ratio to 20pc by 2063. This is equivalent to cutting the health, welfare and pensions budgets in half, or overall spending by a quarter. “Politicians must wake up to the size of the debt time bomb in the UK. Older generations have voted themselves benefits that will indebt future generations, meaning crippling tax hikes for our children and grandchildren,” said Philip Booth, editorial director at the IEA. “Very significant spending restraint and reform of entitlements will be required in the next parliament and beyond to get our debt levels back under control.” While the think-tank welcomed the measures introduced by the Government to link the state pension age to life expectancy and commit to a further £67bn worth of austerity by 2018-19, it said that without further reforms, debt would continue to rise in the long-term.

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How is this possible? Why do we condone preying on the poor?

Payday Loan Brokers Regularly Raid Bank Accounts Of Poor Customers (Guardian)

A new breed of payday loan brokers are making as many as 1m attempts per month to raid the bank accounts of some of the poorest members of society. The behaviour is provoking alarm at one of Britain’s biggest high street banks, Natwest, which says it is being inundated with complaints from its most vulnerable customers. NatWest said it is seeing as many as 640 complaints a day from customers who say that sums, usually in the range of £50 to £75, have been taken from their accounts by companies they do not recognise but are in fact payday loan brokers. The brokers are websites that promise to find loans, but are not lenders themselves. Often buried in the small print is a clause allowing the payday broker to charge £50 to £75 to find the person a loan – on top of an annual interest charge as high as 3,000%. In the worst cases, the site shares the person’s bank details with as many as 200 other companies, which then also attempt to levy charges against the individual.

The City regulator has received a dossier of information about the escalating problem, and the Financial Ombudsman Service also confirmed that it is facing a wave of complaints about the issue. NatWest, which is owned by the Royal Bank of Scotland, gave as an example a 41-year-old shop assistant who took a payday loan of £100 at 2,216% interest. A month later she complained to NatWest after seeing a separate fee of £67.88 paid to My Loan Now and £67.95 to Loans Direct on her account, companies she said she had never dealt with. The broker sites tell customers they need their bank account details to search for a loan, but then pass them on to as many as 200 other brokers and lenders, which then seek to extract fees, even if they have not supplied a loan. The small print allowing the site to pass on the details and demand payments can be hidden in the site’s ‘privacy policy’ or in small print at the bottom of the page.

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Sure.

Dubai Insists the Boom is Not a Bubble This Time Around (Bloomberg)

Alongside the Dubai Mall, one of the world’s largest shopping centers, sits an ersatz version of what would be an authentic retail experience in most Persian Gulf cities: an Arab souk. If, in the evening, you stroll through this air-conditioned, hassle- and haggle-free caricature of a market, staffed mostly by smiling South Asians, you can amble out onto the shores of man-made Burj Khalifa Lake, named after the world’s tallest building, which looms over it. Here – bumping elbows with a veritable United Nations General Assembly of residents and tourists decked out in everything from dishdashas to Dior – you can gawk at the Dubai Fountain, Bloomberg Markets magazine will report in its December issue. Every half-hour, an array of computer-choreographed nozzles sends jets of water erupting from the lake’s surface 500 feet into the air, gyrating to Middle Eastern pop one minute and Andrea Bocelli singing “Con Te Partiro” the next.

Awash in fantasia, this metropolis of glass and steel sprouting from the barren sands of the Arabian Peninsula often seems nothing more than an illusion born of desert heat. Never was Dubai more miragelike than five years ago, after the global financial crisis crushed what had been a bastion of wealth and growth. House prices plunged as much as 60%. Half of the city’s $582 billion in construction projects were either placed on hold or abandoned, their incomplete steel skeletons left poking from the sand, a 21st-century Ozymandias. Now, Dubai is booming again. To understand why, journey 20 miles (32 kilometers) from the Dubai Mall to a part of the city few tourists ever see. Here, if you pass through the security gates at Jebel Ali port, you’re treated to another mesmerizing mechanical ballet – one less ephemeral and arguably more important to the city-state’s fate than the Dubai Fountain’s dancing waters. Towering gantry cranes sidle up to 1,200-foot-long (365-meter-long) container ships bound for Mumbai or Singapore or Rotterdam.

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“The big question is what China will do with all of these cargoes…”

Chinese Oil Trader Buys Record Number of Mideast Cargoes (Bloomberg)

China National United Oil Co., a unit of the country’s biggest energy company, bought the most ever cargoes of Middle East crude through a pricing platform in Singapore amid oil’s slump into a bear market. The company, known as Chinaoil, purchased about 21 million barrels this month through the system used to determine benchmark prices by Platts, a unit of McGraw Hill Financial Inc. It bought more than 40 cargoes of the Dubai, Oman and Upper Zakum grades in the so-called window, according to data compiled by Bloomberg. A Beijing-based press officer for CNPC, the parent company, wasn’t immediately able to comment and asked not to be identified because of internal policy. “It’s very difficult for the market to know Chinaoil’s strategy,” Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England, said by phone.

“Prices have gone down and China is always interested in buying more crude whenever the price is right, but they could also have some other different trading strategy.” Benchmark oil prices tumbled to the lowest in almost four years this month amid signs of an expanding global supply glut, led by the highest U.S. production in about three decades. China consumed the second-largest amount of crude ever last month and its stockpiles increased to a record. Some of Chinaoil’s cargoes may be used to fill the country’s strategic crude reserves, according to JBC Energy GmbH, a Vienna-based consultant. “The big question is what China will do with all of these cargoes,” JBC said in an e-mailed report Oct. 21. “If the Middle Kingdom puts the barrels into strategic storage, something that would be logical given low outright prices, they will disappear entirely from the market and China will still have to buy more crude for its day-to-day needs.”

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How corrupt is the government that’s supposed to fight corruption?

Rajoy Apologizes as New Wave of Corruption Allegations Hits Spain (Bloomberg)

Prime Minister Mariano Rajoy apologized to the Spanish people yesterday amid mounting public outrage at a new wave of corruption allegations against officials from his party. All members of the governing People’s Party among the 51 arrested this week on bribery allegations have had their party membership suspended and will be expelled if the charges are proved, Rajoy told the Senate in Madrid. “I understand and share fully the indignation of so many Spaniards at the accumulation of scandals,” Rajoy said. “In the name of the People’s Party I want to apologize to all Spaniards for having appointed to positions for which they were not worthy those who would seem to have abused them.”

Rajoy is battling to retain his moral authority amid evidence that local officials took bribes to hand out public contracts while he was administering the harshest budget cuts in Spain’s democratic history. This week’s arrests follow allegations from the former PP treasurer, Luis Barcenas, that Rajoy and other senior party officials including Rodrigo Rato, a former deputy prime minister, accepted cash from a party slush fund. Rajoy has denied the allegations against him. Barcenas produced handwritten ledgers to back up his claims that he handed out envelopes of cash to party officials and received text messages of support from Rajoy during the early part of the investigation. He’s in jail while the National Court probes his financial affairs.

A survey by the state pollster in July showed political corruption is the second-biggest concern for Spaniards after the country’s 24% unemployment rate, the second highest in the European Union. “Explain about the envelopes, explain about the messages you sent to Barcenas, explain about the secret financing of your party,” the opposition Socialist leader in the Senate, Maria Chivite, told Rajoy in response. “Explain to all Spaniards how many senior official from your party will appear before the courts because of their accounts in Switzerland.”

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It’s not like we we born as consumers.

How The Consumer Dream Went Wrong (BBC)

We could, it seemed, have it all. So what went wrong? The truth is this: despite all its promise, the idea of the Consumer is killing us. And before it does, we must kill it. I can perhaps best explain why the golden dream went so wrong by describing one of a series of recent experiments that have explored the effect of this word on our behaviour. The simplest was a survey of environmental and social attitudes and values. The group taking the survey was split in half. For half, the front cover said Consumer Reaction Study, for the rest, Citizen Reaction Study. No specific attention was drawn to this and there was no other significant difference between the two groups; just this one word. Yet those who answered the Consumer Reaction Study were far less motivated to care about society or the environment.

That pattern has been seen elsewhere, and the only possible explanation for the difference is the unconscious effect of merely being exposed to the language of the Consumer as a prime, a kind of mental framing of the task at hand. How can this be? Can a word, just a word, really make us less likely to care about one another and about the world, and less likely to trust and work with one another to fix it? Here’s the thing – nothing is “just a word”. Language is the scaffolding on which we build our thoughts, attitudes, values and behaviours. And as we do so, we would do well to recognise that the Consumer is a deeply dangerous place to start. Because what looks at surface level like a word is in fact a moral idea, an idea of what the right thing is for us to do in our daily lives. This word Consumer represents the idea that all we can do is consume, choosing between the options offered us, and that the morally right thing for us to do is to pick the best of these for ourselves, measured in material standards of living, as narrowly defined individuals, and in the short term.

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But we can be happy only as consumers these days.

Gross National Happiness – Can We Measure A Feelgood Factor? (Guardian)

The UK economy continues to recover, albeit at a slower pace, the latest official figures show. But how well does this reflect how people are feeling? GDP measurements only provide part of the picture and so the Office for National Statistics will soon reveal details of a new set of supplementary indicators on economic well-being. It follows a pledge by the prime minister, David Cameron, in 2010 to make the UK one of the first countries to officially monitor happiness. The inaugural release including how households are doing, how well-off people feel and other insights into well-being will be published just in time for Christmas on 23 December.

Bhutan is the real trailblazer in this area. The tiny nation to the east of the Himalayas has long been renowned for its focus not on GDP – gross domestic product – but GNH (gross national happiness). In other words, what matters to Bhutan more than upping production and improving productivity is whether its citizens are happy. It’s a measure the remote south Asian nation has been using since the early 1970s, well before the rest of the world began to realise that wealthier does not necessarily translate into happier. The ONS says its new regular well-being release will help businesses, households and policymakers in the UK make better-informed decisions by providing a whole “dashboard” of indicators on the state of the economy.

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They’re not trying.

Australia Protection Plan ‘Will Not Save Great Barrier Reef’ (BBC)

Australia’s Academy of Science says an Australian government draft plan to protect the Great Barrier Reef will not prevent its decline. The group said the Reef 2050 Long-Term Sustainability Plan failed to address key pressures on the reef including climate change and coastal development. Much bolder action was needed, said Academy Fellow Professor Terry Hughes. “The science is clear, the reef is degraded and its condition is worsening,” said Prof Hughes. “This is a plan that won’t restore the reef, it won’t even maintain it in its already diminished state,” he said in a statement released on Tuesday. “It is also more than disappointing to see that the biggest threat to the reef – climate change – is virtually ignored in this plan.”

Public submissions on the draft plan – an overarching framework for protecting and managing the reef from 2015 to 2050 – closed on Monday. The plan will eventually be submitted to the World Heritage Centre in late January, for consideration by Unesco’s World Heritage Committee mid-next year. Unesco has threatened to place the reef on its List of World Heritage in Danger. According to scientists, another major threat to the reef’s health is continual expansion of coal ports along the Queensland coast. In a controversial move earlier this year, the Australian government approved a plan to dredge a port at Abbot Point in Queensland, and dump thousands of tonnes of sediment in the sea.

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New Zealand needs to diversify away from export-driven monoculture, and towards its own domestic market.

Blame The Cows: Kiwi Dollar May Stumble (CNBC)

Once billed as the hottest currency trade this year, New Zealand’s dollar is set to stumble, tripped up by spilled milk. “Since peaking in February this year, international dairy prices per Fonterra Global Dairy Trade (GDT) auction have fallen by almost 50%,” Morgan Stanley said in a note Tuesday, noting that dairy products are New Zealand’s largest export, accounting for 26.4% of the total. “Due to New Zealand’s specialization in whole milk powder (WMP) exports to China, we expect the fall in price and import demand to weigh on the New Zealand dollar,” the note said. It’s a turnaround from the beginning of the year, when analysts had expected strong gains in the kiwi. BK Asset Management in January called the New Zealand dollar, also known as the kiwi, one of its favorite trades for the year, citing expectations the central bank would hike interest rates and increased demand for “soft commodities.”

After starting the year around $0.8221, the kiwi climbed to highs of over $0.88 in July, but it has since stumbled, fetching around $0.79 in early Asia trade Wednesday. Dairy prices face a lot of headwinds, likely keeping milk prices depressed for a while. “We expect the recent peak in dairy prices, the lift of EU dairy quota and lower feed costs to increase global milk production,” Morgan Stanley said, noting the USDA forecasts global dairy export volume to rise 10% in 2014. The EU dairy quota system, which fined countries for surplus production over a delivery quota, is set to be scrapped after the first quarter of next year, and Morgan Stanley noted that farmers there have already begun increasing their cow counts. While New Zealand will likely continue to dominate WMP exports to China, media reports indicate the mainland’s inventories are stocked up and lower prices aren’t likely to spur additional demand, the note said.

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By plane as well…

Russia to Send 3,000 Tons of Aid to Eastern Ukraine Within Week (RIA)

Russia will send up to 3,000 metric tons of humanitarian aid to Ukraine’s southeastern regions within a week, Russian Deputy Emergencies Minister Vladimir Stepanov told RIA Novosti Tuesday. “Within a week the total weight of humanitarian aid will amount to 3,000 metric tons,” Stepanov said, adding that it will be delivered both by aircraft and land vehicles. According to Stepanov, on Tuesday three aircraft will deliver part of the aid to the Russian city of Rostov-on-Don, where it will be loaded onto trucks. The aid includes food, medicine and construction materials that will help residents of southeastern Ukraine to prepare for the winter.

The deliveries of aid to Ukraine are being carried out in coordination with the Red Cross and the Russian Foreign Ministry. Earlier today, Russia’s Emergency Ministry confirmed that on October 28 a convoy of up to 50 trucks carrying humanitarian aid for the people of Donetsk and Luhansk regions will depart from the city of Noginsk. Since August, Russia has sent three humanitarian convoys of trucks carrying food, water, power generators, medication and warm clothes to eastern Ukrainian regions, which went through a severe humanitarian crisis due to the military operation initiated by Kiev’s authorities in April.

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Is he talking about TV series?

Pope Francis: Evolution and Big Bang Theory Are Real (NBC)

Big Bang theory and evolution in nature “do not contradict” the idea of creation, Pope Francis has told an audience at the Vatican, saying God was not “a magician with a magic wand.” The Pope’s remarks on Monday to the Pontifical Academy of Sciences appeared to be a theological break from his predecessor Benedict XVI, a strong exponent of creationism. “The beginning of the world is not the work of chaos that owes its origin to something else, but it derives directly from a supreme principle that creates out of love,” Pope Francis said.

“The Big Bang, that today is considered to be the origin of the world, does not contradict the creative intervention of God; on the contrary, it requires it. Evolution in nature is not in contrast with the notion of [divine] creation because evolution requires the creation of the beings that evolve.” The Pontiff said God created beings “and let them develop in accordance with the internal laws that he has given to each one.” He said: “When we read in Genesis the account of creation [we are] in danger of imagining that God was a magician, complete with a magic wand that can do all things. But he is not.”

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Not a problem for us to solve.

Population Controls ‘Will Not Solve Environment Issues’ (BBC)

Restricting population growth will not solve global issues of sustainability in the short term, new research says. A worldwide one-child policy would mean the number of people in 2100 remained around current levels, according to a study published in the Proceedings of the National Academy of Sciences. Even a catastrophic event that killed billions of people would have little effect on the overall impact, it said. There may be 12 billion humans on Earth by 2100, latest projections suggest. Concerns about the impact of people on the planet’s resources have been growing, especially if the population continues to increase. The authors of this new study said roughly 14% of all the people who ever existed were alive today.

These growing numbers mean a greater impact on the environment than ever, with worries about the conversion of forests for agriculture, the rise of urbanisation, the pressure on species, pollution, and climate change. The picture is complicated by the fact that while the overall figures have been growing, the world’s per-capita fertility has been declining for several decades. The impact on the environment has increased substantially, however, because of rising affluence and consumption rates. Many experts have argued the best way of tackling this impact is to facilitate a rapid transition to much lower fertility rates.

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