Jun 122017
 
 June 12, 2017  Posted by at 9:42 am Finance Tagged with: , , , , , , , , , ,  2 Responses »
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Adam West died last week. This was his phone book listing in Ketchum, ID where he lived.

 

New Economic Woes Put Theresa May Under Fresh Pressure (Tel.)
EU Threatens Year-Long Delay In Brexit Talks Over UK Negotiating Stance (G.)
Donald Trump’s State Visit To Britain Put On Hold (G.)
It’s The Calm Before A Gigantic, Horrendous Storm: David Stockman (CNBC)
The Risk To The “Bull” Thesis (Roberts)
Big Tech Stocks Under Pressure After Apple Shares Downgraded (CNBC)
China’s $5 Trillion Asset Pile Could Still Expand (BBG)
When Currencies Fall, Export Growth Is Supposed to Follow (WSJ)
Aldi Fires $3.4 Billion Shot In US Supermarket Wars (R.)
France’s Macron Set For Landslide Majority In Parliament (R.)
Naomi Klein: ‘Trump Is An Idiot, But He’s Good At That’ (G.)
Chelsea Manning Explains Why She Went to Prison for You (TAM)
Over 2,500 Migrants Rescued In Mediterranean In 2 Days, Over 50 Missing (RT)

 

 

Even the -Tory- Telegraph has turned on the ‘winner’: Another one of their headlines: “Theresa May arrogantly abandoned Thatcherism – this is her reward”.

New Economic Woes Put Theresa May Under Fresh Pressure (Tel.)

Theresa May has been hit by a series of economic blows, with consumers tightening their belts and businesses increasingly showing fears of a sharp slowdown as she attempts to cling on to power. The crucial services sector stands on the brink of a contraction, new data shows, and credit card spending has fallen for the first time in four years. High Street footfall has also gone sharply into reverse and manufacturing and construction companies in the English regions report a widespread slowdown in activity. Most of the gloomy figures published today were gathered prior to Mrs May’s disastrous snap election. It has further undermined confidence, according to the Institute of Directors (IoD). The hung parliament has triggered a massive swing towards negativity among the business leaders.

Before the election, IoD members’ net confidence, which offsets economic pessimism and optimism, was almost balanced at minus three. In the aftermath of the election it has plunged to minus 37. Businesses were increasingly ready to openly criticise Mrs May over the weekend after her interventionist manifesto failed to inspire strong public support. Stephen Martin, IoD director general, said last night: “It was disheartening that the only reference the Prime Minister made to prosperity in her Downing Street statement was to emphasise the need to share it, rather than create it in the first place.” Official figures later this week are expected to show a tightening squeeze on consumers. Economists estimate that wages grew by 2pc the year to April, down from 2.1pc a month earlier. Meanwhile inflation is expected to remain at 2.7pc, with rises to come.

Shoppers are curbing their spending in response, according to data from Visa. The credit card company said household expenditure in May was gown 0.8pc on last year, the first decline since 2013. Consumers cut back on clothing and household goods especially. Visa UK managing director Kevin Jenkins said the data “clearly shows that with rising prices and stalling wage growth, more of us are starting to feel the squeeze”.

Read more …

All Jeremy Corbyn has to do is tell Europe that he won’t feel bound by anything they negotiate with May.

EU Threatens Year-Long Delay In Brexit Talks Over UK Negotiating Stance (G.)

Theresa May is to be told the EU will take a year to draft a new mandate for its chief negotiator, Michel Barnier, effectively killing the Brexit negotiations, if she insists on discussing a future trade relationship at the same time as the UK’s divorce bill. In a sign of growing impatience with the shambolic state of the British side of the talks, senior EU sources said that if London insisted on talking about a free trade deal before the issues of its divorce bill, citizens rights and the border in Ireland were sufficiently resolved, it would be met with a blunt response. “If they don’t accept the phased negotiations then we will take a year to draw up a new set of negotiating guidelines for Barnier,” one senior EU diplomat said, adding that the EU could not understand Britain’s continued claim that it would be able to discuss trade and the divorce terms in parallel.

The EU’s 27 leaders formally agreed to give Barnier a narrow set of tasks at a summit in April and they have no intention of rethinking the so-called phased approach when they meet May at a European summit on 22-23 June. Formal Brexit talks are due to begin on 19 June, the same day as the Queen’s speech, at which point it will be known whether May has secured the support of a majority of MPs for her policy agenda. The Department for Exiting the European Union (DExEU) sent a note to the European commission on Friday evening to signal that the government was operational and pre-negotiation talks about logistics should begin this week as planned. Olly Robbins, May’s EU adviser, told his European counterparts: “The prime minister has directed that the procedures for preparing the negotiations for the formal withdrawal from the European Union should start as soon as possible.” There is some scepticism in Brussels, however, about the ability of May’s minority administration to make effective decisions.

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But they keep all their own clowns in Parliament? Government, even?

Donald Trump’s State Visit To Britain Put On Hold (G.)

Donald Trump has told Theresa May in a phone call he does not want to go ahead with a state visit to Britain until the British public supports him coming. The US president said he did not want to come if there were large-scale protests and his remarks in effect put the visit on hold for some time. The call was made in recent weeks, according to a Downing Street adviser who was in the room. The statement surprised May, according to those present. The conversation in part explains why there has been little public discussion about a visit.

May invited Trump to Britain seven days after his inauguration when she became the first foreign leader to visit him in the White House. She told a joint press conference she had extended an invitation from the Queen to Trump and his wife Melania to make a state visit later in the year and was “delighted that the president has accepted that invitation”. Many senior diplomats, including Lord Ricketts, the former national security adviser, said the invitation was premature, but impossible to rescind once made.

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“Stockman believes the S&P 500 could easily fall to 1,600, about a 34% drop from current levels.”

It’s The Calm Before A Gigantic, Horrendous Storm: David Stockman (CNBC)

If David Stockman is right, Wall Street should hunker down. “This is one of the most dangerous market environments we’ve ever been in. It’s the calm before a gigantic, horrendous storm that I don’t think is too far down the road,” he recently said on “Futures Now.” Stockman, who was director of the Office of Management and Budget under President Ronald Reagan, made his latest prediction after lawmakers grilled former FBI Director James Comey over whether President Donald Trump tried to influence the Russia investigation. “This is a huge nothing-burger, but you don’t take comfort from that. You get worried about that because the system is determined to unseat Donald Trump,” said Stockman. Stockman argues the latest drama on Capitol Hill is a distraction from the real problems facing the economy.

“If the Senate can involve itself in something this groundless, it’s just more hysteria about Russia-gate for which there is no evidence. If they can bog themselves down in this, then we have a dysfunctional, ungovernable situation in Washington,” he said, noting there are just seven weeks until lawmakers go home for the August recess. Stockman contends it’s unlikely tax reform and an infrastructure package will become reality in this environment — two business-friendly policies seen as a huge benefit to Wall Street. In fact, he warns, the country could see a government shutdown in a matter of months. A scenario like that could wipe out all of the stock market gains since the election and more, according to Stockman.

“I don’t know what Wall Street is smoking. They ought to be getting out of the casino while it’s still safe. Yet there’s this idea that since he [Trump] wasn’t incriminated, that proves that we can move on,” he said. “I think it’s crazy.” Stockman believes the S&P 500 could easily fall to 1,600, about a 34% drop from current levels. He’s made similar calls like this in the past, but they haven’t materialized. “There is nothing rational about this market. It’s just a machine-trading-driven bubble that’s nearing some kind of all-time craziness, mania,” he said.

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Buybacks again. And again.

The Risk To The “Bull” Thesis (Roberts)

Following the election, the markets began pricing in a strongly recovering economic environment driven by a wave of legislative policies. While the market has indeed advanced, the economic and fundamental realities HAVE NOT changed since the election. As noted on Friday: “Economic data is not buying it either. Headline after headline, as of late, has continued to disappoint from new and existing home sales to autos, inventories, and employment. This also puts the Fed at risk of further rate hikes this year. ‘It appears traders are losing faith in the rest of the year as the odds of a hike occurring in December is now above that of September (as both drop to around 25%). As economic data has crashed since The Fed hiked rates in March, so the markets expectations has dropped to just 1.44 rate-hikes this year (one in June guaranteed), well below The Fed’s guidance of 2 more rate-hikes minimum.’”

Another huge risk going forward, as well, is the risk to further stock buybacks to support higher EPS as the lack of legislative reforms to boost the bottom line fade. As noted by Goldman just after the election: “We expect tax reform legislation under the Trump administration will encourage firms to repatriate $200 billion of overseas cash next year. “A significant portion of returning funds will be directed to buybacks based on the pattern of the tax holiday in 2004.” – Goldman Sachs. But it is not just the repatriation but lower tax rates that will miraculously boost bottom line earnings, but as noted from Deutsche Bank tax cuts are the key. “Every 5pt cut in the US corporate tax rate from 35% boosts S&P EPS by $5. Assuming that the US adopts a new corporate tax rate between 20-30%, we expect S&P EPS of $130-140 in 2017 and $140-150 in 2018. We raise our 2017E S&P EPS to $130.”

Maybe not so fast. Here is the problem. While you may boost bottom line earnings from tax cuts, the top line revenue cuts caused by higher interest rates, inflationary pressures, and a stronger dollar (as expected would be the result of tax reform) will exceed the benefits companies receive at the bottom line. I am not discounting the rush by companies to buy back shares at the greatest clip in the last 20-years to offset the impact to earnings by the reduction in revenues. However, none of the actions above go to solving the two things currently plaguing the economy – real jobs and real wages. Economic realities and wishful fantasies eventually reconnect and generally in the worst possible way.

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Bubble? Hell, no.

Big Tech Stocks Under Pressure After Apple Shares Downgraded (CNBC)

After a drop in big technology stocks Friday caused the Nasdaq composite to post its worst week of the year, the shares were likely to come under pressure again on Monday after Apple shares were downgraded. Mizuho Securities’ Abhey Lamba downgraded the iPhone maker to neutral from buy on Sunday, saying the best case scenario is priced into the shares. The analyst echoed a common concern of investors taking profits in big technology stocks last week. “The stock has meaningfully outperformed on a YTD basis and we believe enthusiasm around the upcoming product cycle is fully captured at current levels, with limited upside to estimates from here on out,” wrote Lamba, who cut his 12-month price target to $150, which is about one dollar above where Apple closed Friday.

A Friday selloff pushed the Nasdaq down more than 1.5% last week, but the selling was worse among the biggest stocks. Apple, Alphabet, Microsoft, Facebook and Amazon lost nearly $100 billion in market value on Friday on no specific headlines, but rather investors questioning whether valuations for the names were getting ahead of themselves. Nasdaq-100 futures were lower Sunday evening following the Apple downgrade. [..] Apple, Facebook and Amazon are still up more than 27% so far in 2017. Alphabet is up 20% and Microsoft shares are 11% higher for the year. By comparison, the S&P 500 is up more than 7% year-to-date.

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The graph indicates balance sheet change, not total numbers. Bit misleading when a $5 trillion asset pile, with the Fed at $4.5 trillion, is the topic.

China’s $5 Trillion Asset Pile Could Still Expand (BBG)

Investors who fret about when and how global central banks will run down their crisis-era balance sheets can be relaxed about the biggest of them all – China’s. Whereas the Fed’s $4.5 trillion asset pile is set to be shrunk and the ECB’s should stop growing by the end of this year as the outlook brightens, China’s $5 trillion hoard is here to stay for the time being – and could even still expand, according to the majority of respondents in a Bloomberg survey. The PBOC balance sheet is a fundamentally different beast from its global peers – run up through years of capital inflows and trade surpluses rather than hoovering up government bonds – but it still matters for the global economy. Changes in the amount of base money in the world’s largest trading nation are having a bigger impact than ever, making the variable key for stability in a year when political transition in Beijing is in the cards.

“China is more than a couple of years away from balance-sheet contraction,” said Ding Shuang, chief China economist at Standard Chartered, pointing out that the growth in the broad money supply is still behind the government’s target. The balance sheet has broadly leveled off, and contracted in the first quarter of this year, though that was mostly through seasonal factors related to liquidity operations around the Lunar New Year, when the demand for cash surges. Now, with the Fed set to raise rates this year, the PBOC is still wary of accelerating cash outflows from China and may need to use reserves to support the currency even as trade surpluses keep piling up. Most economists said they predict that the balance sheet will be around the same size or bigger by the end of the year, in the survey of 21 institutions including Bank of China, Nomura and SocGen.

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No, you don’t get inflation from a falling currency. But you just might get higher prices.

When Currencies Fall, Export Growth Is Supposed to Follow (WSJ)

For decades, economics textbooks argued that suddenly weaker currencies are a boon to growth, because they make a country’s exports more competitive or profitable on the global stage, which in turn boosts domestic production and employment. What if that theory no longer holds? Economists and government officials are increasingly wondering if that effect is diminishing, especially among advanced Western economies with shrinking manufacturing capacity and supply chains increasingly interwoven with the rest of the world. The new idea is that much of the benefit from a falling currency is offset by the higher prices paid for components imported from overseas. The U.K. is emerging as a test case for whether globalization has diminished the effect.

Although its currency has been battered by the financial crisis, the Brexit vote to leave the European Union—which took place a year ago June 23—and the country’s fresh bout of political uncertainty, its exporting power hasn’t responded as textbooks might suggest. Chemicals made at Chemoxy’s factory in Middlesbrough are worth about 20% more in the export market after last June’s fall in sterling, given the beefed-up value of the currencies used to buy those goods overseas. Higher costs for imported materials, however, all but erased that advantage. “We have a huge interdependency on international markets,” says Chemoxy Chief Executive Ian Stark. The company exports more than 60% of its products and imports about 85% of its chemical raw materials. A weaker pound, he says, “isn’t revolutionary.”

British businesses ranging from car makers to food processors to lumber mills are discovering the same thing. Adam Posen, president of the Peterson Institute for International Economics, and a member of the Bank of England’s rate-setting monetary policy committee between 2009 and 2012, says the effects of currency moves on exports have faded over time. After the financial crisis in 2008, a big sterling depreciation didn’t result in the pickup in exports “we would have expected,” he says. “You just don’t get as much bang for your pound as you used to,” said Mr. Posen. Whether or how the relationship between a currency’s strength and economic growth still holds has ramifications for international politics.

In the U.S., manufacturers have long complained about the impact of a strong dollar. President Donald Trump has accused Japan and China of keeping their currencies artificially low, hampering U.S. exports. In 1992, the pound fell by around 11% between September and the end of that year after the U.K. crashed out of the European exchange rate mechanism—a precursor to the euro that required a stronger pound than the government could sustain. The U.K. economy then went on an export tear, which turned a trade deficit into a five-year surplus and jump-started a recovery.

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“Aldi’s prices were also up to 50% lower than traditional grocery chains, a move that appeared to follow rival Lidl’s announcement on prices.”

Aldi Fires $3.4 Billion Shot In US Supermarket Wars (R.)

German grocery chain Aldi said on Sunday it would invest $3.4 billion to expand its U.S. store base to 2,500 by 2022, raising the stakes for rivals caught in a price war. Aldi operates 1,600 U.S. stores and earlier this year said it would add another 400 by the end of 2018 and spend $1.6 billion to remodel 1,300 of them. The investment, which raises Aldi’s capital expenditure to at least $5 billion so far this year, comes at a time of intense competition and disruption in the industry. German rival Lidl will open the first of its 100 U.S. stores on June 15. In May, Lidl said it would price products up to 50% lower than rivals. Wal-Mart, the largest U.S. grocer, is testing lower prices in 11 U.S. states and pushing vendors to undercut rivals by 15%. Wal-Mart, the world’s biggest retailer, is expected to spend about $6 billion to regain its title as the low-price leader, analysts said.

The furious pace of expansion by Aldi and Lidl is likely to further disrupt the U.S. grocery market, which has seen 18 bankruptcies since 2014. The two chains are also upending established UK grocers like Tesco and Wal-Mart’s UK arm, ASDA. In May, Aldi CEO Jason Hart told Reuters the chain intended to have prices at least 21% lower than rivals and would focus on adding in-house brands to win over price-sensitive customers. “We’re growing at a time when other retailers are struggling,” Hart said in a statement. Hart added that Aldi’s prices were also up to 50% lower than traditional grocery chains, a move that appeared to follow rival Lidl’s announcement on prices. The latest store expansion will create 25,000 U.S. jobs and make Aldi the third-largest grocery chain operator in the country behind Wal-Mart and Kroger, the German chain said in a statement. Aldi’s 2,500 stores would equal about 53% of Wal-Mart’s U.S. outlets.

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As I said yesterday, highly curious. When he won on May 7, just 5 weeks ago, there were no candidates, no apparatus, and no money: word was the candidates even had to pay for their own campaigns. And look now.

Note: France is still under a state of emergency.

France’s Macron Set For Landslide Majority In Parliament (R.)

French President Emmanuel Macron’s party is set for a giant majority in parliament, opinion pollsters said on Sunday after a first round of voting. According to two pollsters, his Republic On the Move (LREM) party and its ally Modem were set to win well over 400 seats in the 577-seat National Assembly. The two organisations along with others forecast he had won well over 30% of first round votes as voting closed. A poll by Elabe put the number of seats at between 415 and 445, while a poll by Kantar Sofres put it at between 400 and 445. A second round of voting will determine the actual number of seats Macron wins. The first round for the most part eliminates eliminates candidates who have gathered less than 12.5% of registered voters.

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Long interview for Naomi’s new book “No Is Not Enough”.

Naomi Klein: ‘Trump Is An Idiot, But He’s Good At That’ (G.)

The fact that Naomi Klein predicted the forces that explain the rise to power of Donald Trump gives her no pleasure at all. It is 17 years since Klein, then aged 30, published her first book, No Logo – a seductive rage against the branding of public life by globalising corporations – and made herself, in the words of the New Yorker, “the most visible and influential figure on the American left” almost overnight. She ended the book with what sounded then like “this crazy idea that you could become your own personal global brand”. Speaking about that idea now, she can only laugh at her former innocence. No Logo was written before social media made personal branding second nature. Trump, she suggests in her new book, No Is Not Enough, exploited that phenomenon to become the first incarnation of president as a brand, doing to the US nation and to the planet what he had first practised on his big gold towers: plastering his name and everything it stands for all over them.

Klein has also charted the other force at work behind the victory of the 45th president. Her 2007 book, The Shock Doctrine, argued that neoliberal capitalism, the ideological love affair with free markets espoused by disciples of the late economist Milton Friedman, was so destructive of social bonds, and so beneficial to the 1% at the expense of the 99%, that a population would only countenance it when in a state of shock, following a crisis – a natural disaster, a terrorist attack, a war. Klein developed this theory first in 2004 when reporting from Baghdad and watching a brutally deregulated market state being imagined by agents of the Bush administration in the rubble of war and the fall of Saddam Hussein. She documented it too in the aftermath of the Boxing Day tsunami in Sri Lanka, when the inundated coastline of former fishing villages was parcelled up and sold off to global hotel chains in the name of regeneration.

And she saw it most of all in the fallout of Hurricane Katrina in New Orleans, when, she argued, disaster was first ignored and exacerbated by government and then exploited for the gain of consultants and developers. Friedmanites understood that in extreme circumstances bewildered populations longed above all for a sense of control. They would willingly grant exceptional powers to anyone who promised certainty. They understood too that the combination of social media and 24-hour cable news allowed them to manufacture such scenarios almost at will. The libertarian right of the Republican party, in Klein’s words, became “a movement that prays for crisis the way drought-struck farmers pray for rain”.

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Here’s hoping Chelsea has some peace and perhaps even fun.

Chelsea Manning Explains Why She Went to Prison for You (TAM)

Chelsea Manning has given her first interview since being released from prison last month in which she explains her motivations for making public thousands of military documents. Excerpts of her interview with ABC‘s “Nightline” co-anchor Juju Chang aired Friday on the network’s “Good Morning America.” Asked about why she leaked the trove of documents, she says, “I have a responsibility to the public … we all have a responsibility.” “We’re getting all this information from all these different sources and it’s just death, destruction, mayhem.” “We’re filtering it all through facts, statistics, reports, dates, times, locations, and eventually, you just stop,” she adds. “I stopped seeing just statistics and information, and I started seeing people.” Asked by Hing what she would tell President Obama, Manning, choking up, says, “I’ve been given a chance,” she says. “That’s all I asked for was a chance.”

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Stop bombing. Start rebuilding. There is no other solution.

Over 2,500 Migrants Rescued In Mediterranean In 2 Days, Over 50 Missing (RT)

More than 2,500 migrants were rescued off the Libyan coast in the past 48 hours while attempting to cross the Mediterranean in “flimsy dinghies,” the UN refugee agency has said. At least eight people have died and dozens are feared missing. “Eight corpses have been recovered so far and at least 52 people are feared missing from two incidents involving large numbers of people on flimsy dinghies off the coast of Libya on Saturday,” Director of Europe Bureau of the UN Refugee agency (UNHCR) Vincent Cochetel said in a statement, citing the Italian Coast Guard. In all, over a dozen search-and-rescue operations, coordinated by the Italian Coast Guard, were launched over the weekend. The rescued migrants are expected to be disembarked in Italy over the next few days, the agency added.

“UNHCR applauds the rescue efforts by European government authorities, the Italian Coast Guard and NGOs, but is deeply saddened that the death toll continues to rise,” the statement reads. Over 1,770 people are estimated to have perished or gone missing while trying to cross the Mediterranean so far this year, according to agency’s estimates, while more than 50,000 migrants reached Italian shores, most of them through Libya. The death toll among migrants trying to reach Europe is believed to be much higher, according to the UNHCR, though, as many of them presumably die in the Sahara desert without even making it to the Libyan coast. The migrant death toll is expected to spike in the next few months with the beginning of summer sailing season, the agency warns. While urging to strengthen international efforts to save people attempting to cross the Mediterranean, UNHCR stated that the “solutions cannot just be in Italy.” Italy has on numerous occasions said that it does not enough resources to deal with the migrant influx from Libya.

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Mar 042016
 
 March 4, 2016  Posted by at 9:16 am Finance Tagged with: , , , , , , , , ,  1 Response »
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Edward Meyer School victory garden on First Avenue New York 1944

China’s Coming Mass Layoffs: Past as Prologue? (Diplomat)
Red Ink Rising (Economist)
China Begins to Tackle Its ‘Zombie’ Factory Problem (WSJ)
PBOC Pulls $129 Billion in Biggest Weekly Withdrawal Since 2013 (BBG)
China To Increase Defence Spending By ‘7-8%’ In 2016 (AFP)
“I See Bubbles Bursting Everywhere” (CNBC)
UBS: “The Move In Oil Is TOTALLY Short Squeeze Led” (ZH)
EU Superstate Would Have No Democratic Legitimacy (Tel.)
Brazil’s Economy Slumps To 25-Year Low as GDP Falls 3.8% (Guardian)
Only The IMF Can Now Save Brazil (AEP)
Era Of Zero, Negative Interest Rates Could Last For Years: Barclays (Reuters)
Osborne’s Desire To Further Cut Spending Makes Little Sense (Wolf)
The Economy Simply Explained (AA)
Monsanto’s RoundUp Found in 14 Popular German Beers (NS)
Ballooning Bad Loans in Turkey Worsen as Tourists Flee (BBG)
The Syrian War Will Define The Decade (Reuters)
EU Fate At Stake On Muddy Greek Border (Reuters)
Pensioners Share Their Bread With Refugees At Greek Border (Reuters)
EU Mulls ‘Large-Scale’ Migrant Deportation Scheme (AP)

1990s: “Overnight, tens of millions of workers lost their “iron rice bowls.”

China’s Coming Mass Layoffs: Past as Prologue? (Diplomat)

China’s minister for human resources and social security has said that China will lay off 1.8 million workers in the coal and steel sectors, part of an overall plan to reduce overcapacity and streamline state-owned enterprises. Reuters, citing anonymous sources close to China’s leadership, puts the figure much higher, at 5 to 6 million in layoffs over the next two years. Beijing is aware of the risks such massive layoffs pose for social stability, and it’s already moving to control to damage. A Chinese official recently announced that the national government will set aside 100 billion renminbi ($15.3 billion) to help find new employment for those who lose their jobs to the restructuring.

On Wednesday, a spokesperson for the National Committee of the Chinese People’s Political Consultative Conference, which begins its annual session on Friday, assured journalists that the job losses would be “temporary.” At least publicly, Chinese officials are confident that growth in service sector jobs can absorb most of the layoffs from heavy industry. That may seem unlikely, given the sheer number of the coming layoffs, but remember that China has been through this before – and on an even grander scale. In the late 1990s, China drastically restructured its state-owned enterprises, privatizing some and shutting down others. The result: from 1995 to 2002, over 40 million jobs in the state sector were cut, along with nearly 30 million jobs lost in the manufacturing, mining, and utilities sectors.

Although many of these workers were able to pick up jobs in the newly-growing private sector, the societal and cultural shift entailed in the restricting should not be underestimated. Prior to that wave of reforms, state sector employees (the vast majority of China’s workforce) enjoyed the benefits of an “iron rice bowl,” absolute job security along with social benefits (such as healthcare and pensions) provided by the state. Yet as China transitioned to a capitalistic economy – as “socialism with Chinese characteristics” turned out to be – the state sector and its “iron rice bowl” were proving a financial disaster, particularly in the wake of the Asian Financial Crisis in the late 1990s.

Chinese blogger Yang Hengjun explained the resulting transition as follows: “The reforms of the 1990s resulted in massive lay-offs. Overnight, tens of millions of workers lost their “iron rice bowls.” There were people who didn’t want to accept it, even those who actively resisted, but the government ruled with an iron fist and eventually the reforms went through. Even today, some of these people have grown old on the edge of poverty. On a certain level, we sacrificed them in exchange for huge reforms to the economic system.”

This is the same situation China faces today: the need for economic restructuring that will inevitably cause economic turmoil for millions of Chinese. China’s reforms in the 1990s had obvious benefits for the Chinese economy; the painful transition toward capitalism help usher in the boom-time of double-digit economic growth during the 2000s. There were consequences as well, particularly noticeable in a wealth gap that has grown at the same breakneck pace as China’s economy. Yet, with all the benefits of hindsight, you’d be hard pressed to find a Chinese official who would argue against the state sector restructuring of the late 1990s.

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Ehh..: “..with the right policies, China could survive a deleveraging without too much pain.” That’s true only as long as you don’t understand why deleveraging takes place. You can’t escape it through more debt.

Red Ink Rising (Economist)

How worrying are China’s debts? They are certainly enormous. At the end of 2015 the country’s total debt reached about 240% of GDP. Private debt, at 200% of GDP, is only slightly lower than it was in Japan at the onset of its lost decades, in 1991, and well above the level in America on the eve of the financial crisis of 2007-08. Sooner or later China will have to reduce this pile of debt. History suggests that the process of deleveraging will be painful, and not just for the Chinese. Explosive growth in Chinese debt is a relatively recent phenomenon. Most of it has accumulated since 2008, when the government began pumping credit through the economy to keep it growing as the rest of the world slumped. Chinese companies are responsible for most of the borrowing. The biggest debtors are large state-owned enterprises (SOEs), which responded eagerly to the government’s nudge to spend.

The borrowing binge is still in full swing. In January banks extended $385 billion (3.5% of GDP) in new loans. On February 29th the People’s Bank of China spurred them on, reducing the amount of cash banks must keep in reserve and so freeing another $100 billion for new lending. Signs of stress are multiplying. The value of non-performing loans in China rose from 1.2% of GDP in December 2014 to 1.9% a year later. Many SOEs do not seem to be earning enough to service their debts; instead, they are making up the difference by borrowing yet more. At some point they will have to tighten their belts and start paying down their debts, or banks will have to write them off at a loss—with grim consequences for growth in either case. An IMF working paper published last year identified credit growth as “the single best predictor of financial instability”.

Yet China is not obviously vulnerable to the two most common types of financial crisis. The first is the external sort, like Asia’s in 1997-98. In such cases, foreign lending sparks a boom that eventually fizzles, prompting loans to dry up. Firms, unable to roll over their debts, must cut spending to save money. As consumption and investment slump, net exports rise, helping bring in the money needed to repay foreign creditors. China does not fit this mould, however. More than 95% of its debt is domestic. Capital controls, huge foreign-exchange reserves and a current-account surplus help defend it from capital flight. The other common form of crisis is a domestic balance-sheet recession, like the ones that battered Japan in the early 1990s and America in 2008. In both cases, dud loans swamped the banking system. Central banks then struggled to keep demand growing while firms and households paid down their debts.

China’s banks are certainly at risk from a rash of defaults. Markets now price the big lenders at a discount of about 30% on their book value. Yet whereas America’s Congress agreed to recapitalise banks only in the face of imminent collapse, the Chinese authorities will surely be more generous. The central government’s relatively low level of debt, at just over 40% of GDP, means it has plenty of room to help the banks. Indeed, with the right policies, China could survive a deleveraging without too much pain.

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Begins is the key word.

China Begins to Tackle Its ‘Zombie’ Factory Problem (WSJ)

China’s leaders two decades ago decided that a combination of restructuring, privatization and massive job cuts was needed to revitalize the economy and shake up state industries weighed down by debt, overcapacity and declining profits. An estimated 20 to 35 million people lost jobs in the late 1990s. The same ills are now back, and reform of the country’s swollen industries is expected to feature prominently in China’s next five-year plan as the National People’s Congress, China’s annual legislative session, starts Saturday in Beijing. But this time around, the government is taking a more modest approach to cutting off its “zombie” factories as it confronts slowing economic growth that has unnerved Chinese leaders and global markets and raised fears of social unrest.

Beijing has outlined plans to cut 1.8 million steel and coal workers over the next five years. To ease social pain, it will put 100 billion yuan ($15.3 billion) into a restructuring fund for severance, retraining and relocation. Economists query whether the initiatives are enough. Beijing aims to cut up to 150 million tons of capacity in its steel industry by 2020, for example, but the annual surplus is currently around 400 million tons, according to the China Iron and Steel Association. The outline of China’s restructuring vision can be seen in its traumatized northeastern rust belt. In Jixi, a coal-dust-covered town of boarded-up buildings and sagging chimneys, provincial money is helping the Heilongjiang LongMay Mining trim its bloated payroll.

Between November and January, some 20,000 LongMay workers were transferred to jobs in farming, forestry and sanitation, among others, said Guo Shenming, a security inspector at the company’s Dongshan mine in Jixi. Workers receive 1,800 yuan ($275) a month for three years from the province, after which the new employer picks up the tab, he said. “Coal is a twilight industry,” he said, “so it’s a good chance for workers to get out.” But the coal-industry retrenchment and the 2014 closure of a steel mill has hit Jixi hard, said Mr. Guo, whose family runs a restaurant. “Families used to buy 10 or more pig’s feet for the Lunar New Year holiday, but this year they only got three or four,” he said. LongMay, which had over 250,000 workers in its heyday, now has well below 200,000. But it still lost 2.23 billion yuan in the first half of 2015, according to China Bond Rating, which is affiliated with the central bank. In November, the provincial government stepped in with a 3.8 billion yuan bailout to help the company with its debts.

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Guess this is where you say: Make up your minds already! You can’t micro-manage this.

PBOC Pulls $129 Billion in Biggest Weekly Withdrawal Since 2013 (BBG)

China’s central bank drained the most funds from the financial system in three years, mopping up excess cash after a reserve-requirement ratio cut earlier this week boosted liquidity. The People’s Bank of China pulled a net 840 billion yuan ($129 billion) in the five days through Friday, data compiled by Bloomberg show. While that was the biggest weekly withdrawal since February 2013, money-market rates barely reacted with the RRR reduction releasing an estimated 685 billion yuan into the banking system. The PBOC kept its open-market seven-day interest rate unchanged at 2.25% on Friday. The seven-day repurchase rate, a benchmark gauge of interbank funding availability, fell one basis point Friday and five basis points for the week, according to a weighted average from the National Interbank Funding Center.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was little changed at 2.3%. “The PBOC didn’t seem to plan to add excessive liquidity,” said Qu Qing at Huachuang Securities. “Keeping the interest rate of the operations unchanged also indicated its intention to maintain prudent monetary policy. The RRR cut is only replacing the huge amount of reverse repos due this week.” The central bank auctioned 50 billion yuan of seven-day reverse repos on Friday, bringing this week’s total sales to 320 billion yuan. That’s less than a record 1.16 trillion yuan of contracts maturing this week that will drain funds from the financial system. The PBOC injected an unprecedented 1.7 trillion yuan via such operations in the five weeks running up to the Lunar New Year holidays.

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Where the newly unemployed can go.

China To Increase Defence Spending By ‘7-8%’ In 2016 (AFP)

China will raise its defence spending by between 7-8% this year, a senior official has said, a smaller increase than the double-digit rises of the past as Beijing seeks a more efficient military. China’s budget will rise to around around 980bn yuan ($150bn) as the Beijing regime increases its military heft and asserts its territorial claims in the South China Sea, raising tensions with its neighbours and with Washington. Defence spending last year was budgeted to rise 10.1% to 886.9bn yuan ($135.39bn), which still only represents about one-quarter that of the United States. The US defence budget for 2016 is $573bn. “China’s military budget will continue to grow this year but the margin will be lower than last year and the previous years,” said Fu Ying, spokeswoman for the national people’s congress (NPC), the Communist-controlled parliament.

“It will be between 7-8%.” The exact increase will be announced on Saturday at the opening of the NPC, Fu told reporters. The slowdown in spending comes as president Xi Jinping seeks to craft a more efficient and effective People’s Liberation Army (PLA), the world’s largest standing military. At a giant military parade in Beijing last year to commemorate the 70th anniversary of Japan’s World War II defeat, Xi announced the PLA would be reduced by 300,000 personnel. But the event also saw more than a dozen “carrier-killer” anti-ship ballistic missiles rolling through the streets of the capital, with state television calling them a “trump card” in potential conflicts and “one of China’s key weapons in asymmetric warfare”.

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As we’ve been saying for a very long time. The inevitability far trumps the timing.

“I See Bubbles Bursting Everywhere” (CNBC)

Deflationary tides are lapping the shores of countries across the world and financial bubbles are set to burst everywhere, Vikram Mansharamani, a lecturer at Yale University, told CNBC on Thursday. “I think it all started with the China investment bubble that has burst and that brought with it commodities and that pushed deflation around the world and those ripples are landing on the shore of countries literally everywhere,” the high-profile author and academic said at the Global Financial Markets Forum in Abu Dhabi. Price levels are already falling in parts of Europe. Inflation declined by an annualized 0.2% in the euro zone in February, according to an estimate from the European Union’s statistical body. Annualized inflation was flat in Japan in January (the latest month for which there is official data), but rose by a narrow 0.3% in the U.K.

On Thusday, Mansharamani said that financial bubbles had been fueled by “cheap money” created by highly accommodative monetary policy across developed economies. “I mean, we’ve got a bubble bursting, I would argue, in Australian housing markets — that is beginning to crack; South Africa – the whole economy; Canada – housing and the economy; Brazil. We can keep going on and on,” the academic told CNBC. Financial markets have suffered a rocky ride this year, with significant variation across the world. The U.S. benchmark S&P 500 equity index is down 2.8% since the start of 2016, while China’s Shanghai Composite index has tumbled more than 19%. On Thursday, though, markets were in “risk-on” mode. The CBOE’s VIX — a widely used indicator of risk aversion – dipped to its lowest level in 2016 and “safe-haven” U.S. Treasury notes traded at three-week lows.

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Banks drive up price of oil so borrowers, before going bankrupt, can pay back loans to … banks.

UBS: “The Move In Oil Is TOTALLY Short Squeeze Led” (ZH)

Today, one Wall Street firm confirms that indeed the recent move in oil has nothing to do with fundamentals, and everything to do with positioning, and as UBS explains, “the performance is TOTALLY short-squeeze led.” Here’s why:

RECENT ACTION/ SENTIMENT : Yesterday oil ended in the green despite a very large reported crude inventory build, a reflection of how biased to the downside sentiment and positioning already is. Today, crude started in the read and has been mixed from there but moving higher. And both days, the stocks have lead with energy the best performing subsector in the S&P. Now, there is no doubt that the performance today is TOTALLY short-squeeze led. Though it also shows how negative sentiment and positioning is. Interestingly, with energy outperforming the market the last few days for the first time in a very long while, I actually got a few long only generalist type calls yesterday. Nothing concrete but generalists who are underweight the space trying to figure out if this is a turning point…

WHAT HAS HELPED FUEL THIS SHORT SQUEEZE?
• Positioning and sentiment very biased to the short side/ underweight. And as we move up, the move is also exxacerbated by short gamma positions that have to cover at higher levels.
• Despite high oil inventories (and still building), most upstream producers (from Exxon on down) have guided to lower than expected production as a result of lower capex.
• Ongoing hopes of a potential agreement between OPEC and non-OPEC members (seems umlikely but now a meeting set for March 20th is reviving some market hopes).
• A couple of supply issues like Kirkuk/Ceyhan pipeline damage taking longer to repair than expected and Farcados force majeure in Nigeria still on going issue.
• Credit players covering equity shorts — evident today that “good credit names” are underperforming and “bad credit names” outperforming.
• We took a day break from equity issuances in the space ystd and this morning… despite energy’s strong performance. Though rest assured we haven’t seen the end of issuances yet (RRC WLL, RSPP, MUR, CRZO GPORare all top of mind)… by the same token all this energy issuances are helping the credit side of things which has also been the culprit of the issue.

One may wonder if the squeeze is forced, or simply momentum driven, although we would like to quickly point us that most of the recent equity offerings by O & G companies who have benefited from the rally have noted in the “use of proceeds” that the raised capital would be used to pay down secured debt, i.e., take out the banks. In other words, it is as if the banks are orchestrating a squeeze to allow the shale companies to raise capital which will then allow them to repay their secured debt to the banks, secured debt whose recoveries as we have recently shown are practically non-existent in bankruptcy.

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“As it stands, the people of the nations of monetary union are farther away from the idea of political union than at any time in the past.”

EU Superstate Would Have No Democratic Legitimacy (Tel.)

The eurozone’s fledgling attempts to create a full-blown fiscal union has no democratic legitimacy, one of the single currency’s founding fathers has warned. Professor Otmar Issing – a former chief economist at the ECB and architect of the euro – said EU policymakers would not dare put their plans to transfer budgetary sovereignty to Brussels before electorates as they would fail at the first hurdle. Speaking of the European Commission’s Five Presidents Report – which lays out plans to shore up the foundations of the euro – Mr Issing said it was a step towards creating a fiscal union “without democratic legitimacy”. “Those who have read [the Five Presidents] report know that. Without political union all transfers will lack democratic legitimacy.

And nobody can be as stupid as to think political union is around the corner,” he told a parliamentary committee at the House of Lords. Prof Issing – who has been a fierce critic of attempts to pool budgetary powers in the euro – said EU elites were afraid to “confront” voters, delaying their plans for integration until after 2017, the year France and Germany hold national elections. “The thrust of all these ideas is going through a back door towards fiscal union,” he said. “Voters in the end will understand what is going on. They will know they are being exploited.” His comments come after prominent voices such as former Bank of England governor Lord King predicted the euro would collapse under the weight of popular disillusion in its weakest economies. But Prof Issing said there was too much “political investment” in the project to allow the euro to collapse.

“It will stay – I am sure about that,” he said. Instead of calling for a giant leap in integration, which would create a euro “superstate” with an EMU parliament and treasury, the German central banker urged policymakers to “stabilise” the current system and return to the original principles of monetary union, which forbids transfers from stronger to weak nations. “In the end, governments are responsible for their own actions,” said Professor Issing. “As it stands, the people of the nations of monetary union are farther away from the idea of political union than at any time in the past.” He also criticised EU plans to set up a banking union that guarantees the deposits of citizens across the 19-country bloc, describing it as an “expropriation of taxpayer money in some countries”.

“The idea of a common deposit insurance is fine, but before you start, you have to clarify bank balance sheets and have a new start. But this is also tricky and complex – there is no simple way out.” Highlighting the democratic constraints the euro has faced since the financial crisis, Professor Issing said he was concerned by developments in Spain and Portugal – where two incumbent bail-out governments have failed to be re-elected after imposing punishing austerity measures. “People have decided for a policy that is different to what is needed for monetary union. This strikes at the core of democracy.”

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Going more wrong by the day.

Brazil’s Economy Slumps To 25-Year Low as GDP Falls 3.8% (Guardian)

Brazil’s economy suffered its worst slump for quarter of a century last year as a global commodity rout, a domestic political crisis and rising inflation forced businesses to slash spending and jobs. Economists warned that the country’s recession had further to run and could deepen amid fresh signs that a drop in demand has continued into 2016. Official figures showed Brazil’s GDP fell 3.8% in 2015, the steepest decline since 1990, when the country was battling hyperinflation. Last year finished on a gloomy note with fourth quarter GDP down 1.4% on the previous quarter against the backdrop of a deepening political corruption scandal. The Brazilian economy is expected to shrink again by more than 3.0% this year, the worst consecutive annual plunges since records began in 1901. Four years ago, the economy was growing by more than 4.0% a year.

The gloomy news will raise pressure on President Dilma Rousseff, who is fighting efforts to impeach her over charges that she used money from state-run banks to plug holes in the budget. More timely figures showed the private sector contracted at a record pace last month. The Brazil composite output index, published by data company Markit, dropped to its lowest since the survey began in 2007. The index, which tracks companies across the economy, dropped to 39 in February, marking the 12th month running below the 50-point mark that separates expansion from contraction. Brazil’s economy had been hit hard by a collapse in commodity and oil prices in the past two years, said Mihir Kapadia at Sun Global Investments. “The situation has been made worse by the high debt levels, especially in foreign currency – essentially in US dollars. Problems of governance, corruption and political issues have created a perfect storm for continued political instability,” Kapadia added.

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No, not even the IMF can.

Only The IMF Can Now Save Brazil (AEP)

Brazil is heading straight into the arms of the IMF. The sooner this grim reality is recognized by the country’s leaders, the safer it will be for the world. The interwoven political and economic crisis has gone beyond the point of no return. The government is frozen. The finance ministry has lost the trust of Brazilian investors and global markets in equal measure. Almost nothing credible is being done to stop the debt trajectory spinning into orbit. Few believe that the ruling Workers Party is either capable or willing to take the drastic austerity measures needed to break out of the policy trap, or that it would suffice at this late stage even if they tried. “There is an enormous fiscal crisis and we’re flirting with a return to hyperinflation. All the debt variables are going in the wrong direction,” said Raul Velloso, the former state secretary of planning.

“There is a loss of confidence in the ability of the government to manage its debts. We face the risk of default,” he said. Three quarters of the budget is effectively untouchable, locked in by a web of welfare payments and regional transfers. President Dilma Rousseff is battling impeachment. Whether she wins or loses over coming months, the congress is too fractured and enflamed to do much about a budget deficit running at over 10pc of GDP. “I have the feeling that nobody wants to take any bold steps, or make any sacrifices,” said Arminio Fraga, the former central bank governor. “Brazil ended up in this situation by doubling down on credit and fiscal expansion. It woke up with the nightmare of a paralyzed country and a ruined model that is not being corrected. It is an economic tragedy,” he told O Estado de Sao Paulo.

Mr Fraga said the collapse is desperately sad because Brazil seemed to be on the right path under president Luis Inacio da Silva, or Lula as everybody knows him. “There was a feeling that the country was getting ahead, and then it vanished. The country suddenly lost itself completely,” he said. It emerged this week that even Lula is under criminal investigation, the latest casualty of the Lava Jato (carwash) scandal. This began as a probe into the abuse of inflated contracts from the state oil giant Petrobras to fund the Workers Party, but is fast engulfing the country’s political elites in a broader purge – akin to Italy’s “mani pulite” scandals in the 1990s. In a sense it is an impressive show of judicial independence. But nobody knows how this will end, and the mood is turning tetchy.

The justice minister resigned this week, angry over pressure from his own Workers Party to rein in the probe. Rui Falcão, the party chief, retorted that basic rights are now being violated by prosecutors acting beyond the rule of law. “We’re seeing the abolition of habeas corpus. It is the democracy of the country that is at stake,” he said. Dilma lost her last chance to win back market trust when her Chicago-trained trouble-shooter, Joaquim Levy, threw in the towel after a year as finance minister, defeated by foot-dragging in the cabinet. Disbelief is by now so pervasive that her government would struggle to restore confidence even if it grasped the nettle. The IMF is the only way out of the impasse.

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Only as long as investors can profit, and banks. Not endless.

Era Of Zero, Negative Interest Rates Could Last For Years: Barclays (Reuters)

The era of zero or negative interest rates, notably in Japan and the euro zone, could extend for several more years as central banks battle persistently low growth and inflation, strategists at Barclays said on Thursday. The downward pressure on interest rates will be strongest in Japan and the euro zone, while the greater flexibility and resilience of the U.S. and UK economies should allow interest rates there to rise quicker, albeit extremely gradually. “Negative nominal interest rates are more than just a passing monetary fad,” Barclays said in its 61st annual Equity Gilt Study. Barclays said the natural rate of interest across the developed world, where borrowing costs are neither stimulative nor restrictive given an economy’s potential growth and inflation rates, is lower than where nominal rates currently stand.

The study finds that real equilibrium policy rates are near-zero across the developed world and may need to fall further below zero in the euro zone and Japan for interest rate policy there to become “sufficiently accommodative”. Michael Gapen, the bank’s chief U.S. economist and co-author of the report, said the way to avoid a repeat of Japan’s experience over the last two decades is to restructure “zombie” banks and firms so that the broader private sector can clean itself up and get itself in shape to start growing again. This could be most difficult in the euro zone, where the mix of slow growth, low inflation and a fractured banking system blighted by bad loans will make it difficult for the ECB to escape low or negative rates.

“The era of low or even negative interest rates across the developed world, particularly in Japan and the euro zone, could last for several years to come,” Gapen said. In 1995 the Bank of Japan lowered its main interest rate to 0.5% to try and reflate the flagging economy. Rates have never been higher since and the BOJ has also injected trillions of yen worth of stimulus via quantitative easing bond purchases. The BOJ is still fighting that battle against low growth and deflation. Earlier this year it adopted negative interest rates on certain bank deposits and became the first G7 rich country to have yields on its benchmark 10-year bonds fall below zero. “We don’t see a ‘Japanification’ of the world. But accommodative policy is here to stay,” said Christian Keller, head of economics research at Barclays and also a co-author of the study. “Before we get to the limits (of these policies), central banks will persist with zero and negative rates,” he said.

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“This is bad history and worse economics.”

Osborne’s Desire To Further Cut Spending Makes Little Sense (Wolf)

George Osborne wants to burnish his image as an iron chancellor of the exchequer. He has already committed to achieving a fiscal surplus by 2019-20. He now suggests that further tightening of fiscal policy may be needed in response to the “storm clouds” he identified when in Shanghai last week. Mr Osborne may be preparing for bad news in his Budget on March 16. The question is whether his plan makes sense. The answer is no. The fiscal objective is itself questionable. The aim is to achieve an overall surplus, unless growth drops below 1%. This is to offer respite in the event of a recession. Just compare what the government would do if a deficit opened up while the economy grew 1.1% for three years (namely, tighten policy), with what it would do if it grew 3%, 0.9% and then 2% (not tighten at all in the second year).

Why should an overall fiscal surplus be important, anyway? The answer is that it is a quicker way to lower the ratio of debt to GDP. But that would only be true if achieving the surplus did not itself slow the growth of GDP. As the Institute for Fiscal Studies notes in its Green Budget, “running a surplus is not necessary to bring debt down as a share of national income”. Moreover, if the government is in a position to invest by borrowing at low real interest rates, as now, it makes sense to do so. The government must worry about its balance sheet, not just its debt. Yet the absurdity of the target is brought out better still by the comments Mr Osborne made last week. He said, first, “this country can only afford what it can afford”; second, “the economy is smaller than we thought”; third, the UK must tighten further, to ensure “economic security”; and, finally, “the last time we didn’t [live within our means] we were right in the front rank of nations facing economic crisis”.

This is bad history and worse economics. It is a myth that the UK’s crisis was due to a failure of the government to live within its means. The truth is the opposite. The government did not have a fiscal crisis. The country had a financial crisis whose economic results were cushioned by the government’s deficits. Again, it is not true that running a fiscal surplus year after year is either necessary or sufficient to achieve “economic security”. It is more important to create a robust financial sector. Yet pressure from the Treasury today seems to be to relax constraints. That may well be far riskier for the UK economy in the long run than modest fiscal deficits.

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Ari Andicropoulos.

The Economy Simply Explained (AA)

Sometimes my friends tell me that they try to read them, but my posts are too complicated. I am using jargon that they don’t understand and probably they are too long and confusingly written. To remedy this, I have decided to try to write a simplified version of this piece I wrote about how the economy works.

How can one picture the economy? The economy should be viewed as a flow of money. This may seem straightforward, but mainstream economic models do not include money at all. And yet, a lot of the workings of the economy can be understood by looking at who receives money and how much of it they spend.

 If everyone is working and producing goods and services, then people need to buy these goods and services. In order for people to buy these products they need to have enough money.

Money received by people for producing things is then spent by these people on more things. This cycle repeats itself and makes the economy run.

What if people don’t have enough money? They can’t buy the goods and services. In a perfect world, the price of everything would go down so that all of what is produced can be bought. Unfortunately, in reality this is not the case.

Why can’t prices go down very easily? The reason that prices can’t adjust very easily to not enough money is that people’s wages tend not to go down. This is called ‘stickiness of wages’. Because people generally don’t like having pay cuts, producers can’t reduce prices or they will be making goods at a loss.

If they can’t reduce prices, what do they do? Instead they cut production and make people unemployed. This then, in turn, reduces the amount of money that people have to buy things. Leading to further job losses.

Eventually what would happen? Without any government intervention, in the end prices and wages would fall enough so that everyone could have a job again. But it is a long and painful process. It is much better to ensure that the correct amount of money is running therough the system.

How much money is the correct amount? A generally accepted nominal GDP growth target is 5% per year. This means that in total 5% more value in goods and services are produced each year. Some of this increase is due to inflation – one pays more for the same number of goods. And some of this is growth – more goods are produced.

But if 5% more £ worth of goods and services are produced, doesn’t that mean that people need to spend 5% more money each year than the year before? Exactly. Every year, for the economy to be healthy, 5% more money needs to be spent than the year before.

Where does this extra money come from? This is a very good question. And it is one that seems to be ignored by most economists.

The problem we have with the economy today is that actually it is being drained of money. If £1m of goods are produced and sold, then in the next year only approximately £970,000 will be spent. People are saving the other £30,000.

To be more exact, the gap between the amount people are saving and the amount of people’s savings from previous years that they are spending comes to 3%, maybe even 4%, of GDP.

Why is this gap so large? There are a number of reasons but it mainly has to do with the difference in spending of the people who receive the money. Working people on low and medium incomes tend to spend most of the money they receive. But savers receiving interest and dividends spend less of it in the economy.

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You expected something else? That German beer purity law (Reinheitsgebot) is 500 years old.

Monsanto’s RoundUp Found in 14 Popular German Beers (NS)

Want a round of Round Up with your beer? The German beer industry is in shock after finding that 14 different popular beer brands have traces of the ‘probably’ carcinogenic herbicide, glyphosate – an ingredient found in Monsanto’s best-selling weed killer, Round Up. Germany’s Agricultural minster is playing down the risks in order to save one of the countries’ best-selling exports. Glyphosate levels were as high as 30 micrograms per liter, even in beer that is supposed to be brewed from only water, malt, and hops. This finding by the Munich Environmental Institute calls into question the rampant spraying of Round Up on both GMO and non-GMO crops around the world, and casts doubt upon Germany’s 500-year-old beer purity law.

The EU Commission was looking to extend approval for the use of glyphosate in Germany, and other EU countries in April for another 15 years. The current license runs out this summer. Following the findings by France, that glyphosate is likely a human carcinogen, as well as the World Health Organization’s cancer research arm, the IARC, finding that glyphosate is a probable carcinogen, glyphosate in Germany’s coveted beer is not a positive discovery for the makers of this herbicide, which include companies like Monsanto. Germany’s farm federation has denied responsibility, saying that malt derived from glyphosate-sprayed barley has been banned. The group admits, though, that glyphosate could have been used on farms prior to the ban, meaning barley could still be grown in glyphosate-drenched soil.

The Bremen office of the brewery giant Anheuser-Busch described the institute’s findings as “not plausible,” citing a bill of health issued by Germany’s Federal Institute for Risk Assessment (BfR) that the amounts of glyphosate found in beer did not pose a threat to consumers. In a statement, the Institute said: “An adult would have to drink around 1,000 liters (264 US gallons) of beer a day to ingest enough quantities to be harmful to health.” As with other Big Ag deniers, they seem to forget that glyphosate exposure comes from multiple sources, aside from just contaminated beer.

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This will make Erdogan all the more dangerous.

Ballooning Bad Loans in Turkey Worsen as Tourists Flee (BBG)

The ailments afflicting Turkey’s economy that have triggered a surge in bad loans look poised to get worse before they get better. Non-performing loans at the nation’s lenders climbed to 3.18 percent of total credit in January, the sixth straight monthly increase and the highest proportion in almost five years, according to data this week from the Ankara-based Banking Regulation and Supervision Agency. BofA Merrill Lynch and Commerzbank said in Februrary corporate distress is deepening in Turkey, making it harder for companies to pay down debts. The rise in bad loans is compounding the challenges for Turkey’s $814 billion banking industry as a combination of currency depreciation, Russian sanctions and waning tourist visits amid a spate of terrorist attacks weigh on the economy.

As the central bank limits funding to tame inflation, the highest borrowing costs in four years and a slow down in loan growth are piling pressure on indebted businesses. “The trend is likely to increase and intensify,” said Apostolos Bantis, a Commerzbank credit analyst in Dubai, who said loans and lira-denominated bonds would be exposed. “While I don’t see the situation running out of control, the impact of Russian sanctions, the blow to the tourism industry, higher funding costs and the weaker currency will all take a toll on the corporate sector,” he said before the data.

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Would tend to agree. But don’t underestimate the coming financial crash.

The Syrian War Will Define The Decade (Reuters)

Many decades have a war that defines them, a conflict that points to much broader truths about the era — and perhaps presages larger things to come. For the 1930s, the Spanish Civil War, the three-year fight between Fascists (helped by Nazi German) and Republicans (armed by the Soviet Union) pointed to the far larger global disaster to come. For the 1980s, the Soviet battle to control Afghanistan, a bloody mess of occupation and insurgency, helped bring forward the collapse of the Soviet Union and set the stage for 9/11 and modern Islamist militancy. For the 1990s, you can take your pick of the Balkans, Somalia, Rwanda or Democratic Republic of Congo. For the 2000s, it was Iraq — the ultimate demonstration of the “unipolar moment” and the limits, dangers and sheer short-livedness of America’s status as unchallenged global superpower.

We are, of course, little more than half way through the current decade. Already, however, it looks as though it has to be Syria’s civil war. In pure human terms, the war dwarfs any other recent conflict. Estimates of the number of Syrian dead range from 270,000 to 470,000 people. The UN estimates up to 7.6 million Syrians are displaced within their own country, with up to 4 million fleeing their homeland. From its relatively small beginnings as a largely unarmed revolt, the Syrian conflict has now dragged in more than a half-dozen countries. Its broader implications continue to grow by the month. While not the sole cause of Europe’s migrant crisis, Syrians make up a significant proportion — perhaps even the majority — of new arrivals on the continent. The sheer numbers are producing political strains that have already torn up the ideal of a “borderless” Europe and may yet wreck the entire EU project.

Syria has exemplified what Financial Times columnist Gideon Rachmann calls a “zero-sum world.” From the beginning, rival regional powers — particularly Shi’ite Iran and Sunni states led by Saudi Arabia — approached the conflict with the assumption that neither side could afford to back down or compromise without letting the other win. From that perspective, Syria is part of a larger regional confrontation that encompasses the war in Yemen, the long-term sectarian battle for control of Iraq and, of course, attempts to rein in Iran, in general, and its nuclear program, in particular. Increasingly, though, the war in Syria has become part of the wider, potentially more dangerous confrontation between Western powers and Russia. That confrontation also goes back years — through Kosovo and the Balkans to the Cold War.

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It’s already lost.

EU Fate At Stake On Muddy Greek Border (Reuters)

In muddy fields straddling the border with Macedonia, a transit camp hosting up to 12,000 homeless migrants in filthy conditions is the most dramatic sign of a new crisis tearing at Greece’s frayed ties with Europe and threatening its stability. For the last year, Greece has largely waved through nearly a million migrants who crossed the Aegean Sea from Turkey on their way to wealthier northern Europe. Now, on top of a searing economic crisis that took it close to ejection from the euro zone a year ago, the European Union’s most enfeebled state is suddenly being turned into what Prime Minister Alexis Tsipras calls a “warehouse of souls”. At least 30,000 people fleeing conflict or poverty in the Middle East and beyond are bottled up in Greece after Western Balkan states effectively closed their borders.

Up to 3,000 more are crossing the Aegean every day despite rough winter seas. “This is an explosive mix which could blow up at any time. You cannot, however, know when,” said Costas Panagopoulos, head of ALCO opinion pollsters. Men, women and children from Afghanistan, Syria and Iraq are packed like sardines in a disused former airport terminal in Athens, crammed into an indoor stadium or sleeping rough in a central square, where two tried to hang themselves last week. The influx is severely straining the resources of a country barely able to look after its own people after a six-year recession – the worst since World War Two – that has shrunk the economy by a quarter and driven unemployment above 25%.

After years of austerity imposed by international lenders, who are now demanding deeper cuts in old-age pensions, ordinary Greeks say they feel abandoned by the European Union. A staggering 92% of respondents in a Public Issue poll published by To Vima newspaper last Sunday said they felt the EU had left Greece to fend for itself. The poll was taken before the European Commission announced €300 million in emergency aid this year to support relief organizations providing food, shelter and care for the migrants. But such promises do little to soften public anger. “I want to spit at them,” said 40-year-old Maria Constantinidou, who is unemployed. “Those European leaders .. should each take 10 migrants home, feed them, look after them and then see how difficult things are.”

Read more …

Greeks are Menschen.

Pensioners Share Their Bread With Refugees At Greek Border (Reuters)

Each day, Demetrios Zois buys two loaves of bread. One is for his family, and one for whoever comes knocking on his door. In the past year, there have been plenty of unexpected visitors. He is among 100 mainly elderly people living in Greece’s border community of Idomeni, which has become the focal point of a growing migrant crisis that is proving too big for the country to handle. Around 30,000 migrants and refugees were stranded in Greece on Thursday, with just over a third of them at Idomeni, waiting for the border with Former Yugoslav Republic of Macedonia (FYROM) to open. “We feel very bad for them. We understand they are hungry, but they are 10,000 and we are 100. If more come what will happen?” Zois, an 82-year-old pensioner, told Reuters.

He and his friend Theodoros Moutaftsis watch with growing concern as a tent city in the meadows outside their homes get bigger by the day. “It’s the first thing we check when we wake up in the morning, whether they have gotten closer to the village,” said Moutaftsis, 79. “That and if anything is missing,” he adds. Ten hens disappeared from his garden last month, and he thinks it was people from the camp. “These poor people are hungry. The state isn’t here to help them. It’s totally absent,” he said. There were anything between 11,000 and 12,000 people at the transit camp on Thursday, waiting for the border gate to open to continue their trek further in to Europe.

Read more …

This is flat-out illegal. In general, push back is not permitted. International law says that at the very minimum they would have to weigh every single case on an individual basis.

EU Mulls ‘Large-Scale’ Migrant Deportation Scheme (AP)

Turkey is under growing pressure to consider a major escalation in migrant deportations from Greece, a top EU official said Thursday, amid preparations for a highly anticipated summit of EU and Turkish leaders next week. European Council President Donald Tusk ended a six-nation tour of migration crisis countries in Turkey, where 850,000 migrants and refugees left last year for Greek islands. “We agree that the refugee flows still remain far too high,” Tusk said after meeting Turkish Prime Minister Ahmet Davutoglu. “To many in Europe, the most promising method seems to be a fast and large-scale mechanism to ship back irregular migrants arriving in Greece. It would effectively break the business model of the smugglers.”

Tusk was careful to single out illegal economic migrants for possible deportation, not asylum-seekers. And he wasn’t clear who would actually carry out the expulsions: Greece itself, EU border agency Frontex or even other organizations like NATO. Greek officials said Thursday that nearly 32,000 migrants were stranded in the country following a decision by Austria and four ex-Yugolsav countries to drastically reduce the number of transiting migrants. “We consider the (FYROM) border to be closed … Letting 80 through a day is not significant,” Migration Minister Ioannis Mouzals said. He said the army had built 10,000 additional places at temporary shelters since the border closures, with work underway on a further 15,000. But a top U.N. official on migration warned that number of people stranded in Greece could quickly double.

Read more …

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 February 21, 2016  Posted by at 10:50 pm Finance Tagged with: , , , , , , , , , ,  6 Responses »
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“6 gals for 99c”, Roosevelt and Wabash, Chicago 1939

That the world’s central bankers get a lot of things wrong, deliberately or not, and have done so for years now, is nothing new. But that they do things that result in the exact opposite of what they ostensibly aim for, and predictably so, perhaps is. And it’s something that seems to be catching on, especially in Asia.

Now, let’s be clear on one thing first: central bankers have taken on roles and hubris and ‘importance’, that they should never have been allowed to get their fat little greedy fingers on. Central bankers in their 2016 disguise have no place in a functioning economy, let alone society, playing around with trillions of dollars in taxpayer money which they throw around to allegedly save an economy.

They engage solely, since 2008 at the latest, in practices for which there are no historical precedents and for which no empirical research has been done. They literally make it up as they go along. And one might be forgiven for thinking that our societies deserve something better than what amounts to no more than basic crap-shooting by a bunch of economy bookworms. Couldn’t we at least have gotten professional gamblers?

Central bankers who moreover, as I have repeatedly quoted my friend Steve Keen as saying, even have little to no understanding at all of the field they’ve been studying all their adult lives.

They don’t understand their field, plus they have no idea what consequences their next little inventions will have, but they get to execute them anyway and put gargantuan amounts of someone else’s money at risk, money which should really be used to keep economies at least as stable as possible.

If that’s the best we can do we won’t end up sitting pretty. These people are gambling addicts who fool themselves into thinking the power they’ve been given means they are the house in the casino, while in reality they’re just two-bit gamblers, and losing ones to boot. The financial markets are the house. Compared to the markets, central bankers are just tourists in screaming Hawaiian shirts out on a slow Monday night in Vegas.

I’ve never seen it written down anywhere, but I get the distinct impression that one of the job requirements for becoming a central banker in the 21st century is that you are profoundly delusional.

Take Japan. As soon as Abenomics was launched 3 years ago, we wrote that it couldn’t possibly succeed. That didn’t take any extraordinary insights on our part, it simply looked too stupid to be true. In an economy that’s been ‘suffering’ from deflation for 20 years, even as it still had a more or less functioning global economy to export its misery to, you can’t just introduce ‘Three Arrows’ of 1) fiscal stimulus, 2) monetary easing and 3) structural reforms, and think all will be well.

Because there was a reason why Japan was in deflation to begin with, and that reason contradicts all three arrows. Japan sank into deflation because its people spent less money because they didn’t trust where their economy was going and then the economy went down further and average wages went down so people had less money to spend and they trusted their economies even less etc. Vicious cycles all the way wherever you look.

How many times have we said it? Deflation is a b*tch.

And you don’t break that cycle by making borrowing cheaper, or any such thing, you don’t break it by raising debt levels, and try for everyone to raise theirs too. Which is what Abenomics in essence was always all about. They never even got around to the third arrow of structural reforms, and for all we know that’s a good thing. In any sense, Abenomics has been the predicted dismal failure.

Now, I remember Shinzo Abe ‘himself’ at some point doing a speech in which he said that Abenomics would work ‘if only the Japanese people would believe it did’. And that sounded inane, to say that to people who cut down on spending for 2 decades, that if only they would spend again, the sun would rise in concert. That’s like calling your people stupid to their faces.

The reality is that in global tourism, the hordes of Japanese tourists have been replaced by Chinese (and we can tell you in confidence that that’s not going to last either). The Japanese economy simply dried out. It sort of functions, still, domestically, albeit it on a much lower level, but now that global trade is grasping for air, exports are plunging too, the population is aging fast and there’s a whole new set of belts to tighten.

So last June, the desperate Bank of Japan governor Haruhiko Kuroda did Abe’s appeal to ‘faith’ one better, and, going headfirst into the fairy realm, said:

I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it’. Yes, what we need is a positive attitude and conviction. Indeed, each time central banks have been confronted with a wide range of problems, they have overcome the problems by conceiving new solutions.

And that’s not just a strange thing to say. In fact, when you read that quote twice, you notice -or I did- that’s it’s self-defeating. Because, when paraphrasing Kuroda, we get something like this: ‘the moment the Japanese people doubt whether their government can save the economy, they cease forever to believe that it can’.

Now, I’m not Japanese, and I’m not terribly familiar with the role of fairy tales in the culture, but just the fact that Kuroda resorted to ‘our’ Peter Pan makes me think it’s not all that large. But I also think the Japanese understood what he meant, and that even the few who hadn’t yet, stopped believing in him and Abe right then and there.

Then again, Asian cultures still seem to be much more obedient and much less critical of their governments than we are, for some reason. The Japanese don’t voice their disbelief, they simply spend ever less. That’s the effect of Kuroda’s Peter Pan speech. Not what he was aiming for, but certainly what he should have expected, entirely predictable. Why hold that speech then, though? Despair, lack of intelligence?

In a similar vein, we chuckled out loud on Friday, first when president Xi demanded ‘Absolute Loyalty’ from state media when visiting them, an ‘Important Event’ broadly covered by those same media. Look, buddy, when you got to go on TV to demand it, someone somewhere’s bound to to be thinking you don’t have it…

And we chuckled also when the South China Morning Post (SCMP) broke the news that the People’s Bank of China, in its monthly “Sources and Uses of Credit Funds of Financial Institutions” report has stopped publishing the “Position for forex purchase”, which is that part of capital movements -and in China’s case today that stands for huge outflows- which goes through ‘private’ banks instead of the central bank itself.

It’s like they took a page, one-on-one-, out of the Federal Reserve’s playbook, which cut its M3 money supply reporting back in March 2006. What you don’t see can’t hurt you, or something along those lines. The truth is, though, that if you have something to hide, the last thing you want to do is let anyone see you digging a hole in the ground.

But the effect of this attempt to not let analysts get the data is simply that they’re going to get suspicious, and start digging even harder and with increased scrutiny. And they have access to the data anyway, through other channels, so the effect will be the opposite of what’s intended. And that too is predictable.

First, from Fortune, based on the SCMP piece:

Is China Trying to Hide Capital Outflows?

China’s central bank is making it harder to calculate the size of capital outflows afflicting the economy, just as investors have started paying closer attention to those mounting outflows, which in December reached almost $150 billion and in January around $120 billion. The central bank omitted data on “position for forex purchase” during its latest report, the South China Morning Post reported today.

The unannounced change comes at a time pundits are questioning whether outflows have the potential to cripple China’s currency and economy. Capital outflows lead to a weaker currency, which concerns the hordes of Chinese companies that borrowed debt in foreign currencies over the past few years and now have to pay it back with a weaker yuan.

The news of the central bank withholding data is important because capital outflow figures aren’t released as line items. They are calculated by analysts in a variety of ways, one of which includes using the omitted data. The Post quoted two analysts concluding the central bank’s intention was to hide the true amount of continuing outflows.

The impulse to hide bad news shouldn’t come as a surprise. China’s government has been evasive about economic matters from this summer’s stock bailout to its efforts propping up the value of the yuan. Analysts still have a variety of ways to estimate the flows, but the central bank is making it ever more difficult.

And then the SCMP:

Sensitive Financial Data ‘Missing’ From PBOC Report On Capital Outflows

Sensitive data is missing from a regular Chinese central bank report amid concerns about capital outflow as the economy slows and the yuan weakens. Financial analysts say the sudden lack of clear information makes it hard for markets to assess the scale of capital flows out of China as well as the central bank s foreign exchange operations in the banking system.

Figures on the “position for forex purchase” are regularly published in the People’s Bank of China’s monthly report on the “Sources and Uses of Credit Funds of Financial Institutions”. The December reading in foreign currencies was US$250 billion. But the data was missing in the central bank’s latest report. It seemed the information had been merged into the “other items” category, whose January figure was US$243.9 billion -a surge from US$20.4 billion the previous month.

[..] “Its non-transparent method has left the market unable to form a clear picture about capital flows,” said Liu Li-Gang, ANZ’s chief China economist in Hong Kong. “This will fuel more speculation that China is under great pressure from capital outflows. It will hurt the central bank’s credibility.”

[..] All forex-related data released by the central bank is closely monitored by financial analysts. They often read item by item from the dozens of tables and statistics to try to spot new trends and changes. China Merchants Securities chief economist Xie Yaxuan said the PBOC would not be able to conceal data as there were many ways to obtain and assess information on capital movements.

“We are waiting for more data releases such as the central bank’s balance sheet and commercial banks’ purchase and sales of foreign exchange released by the State Administration of Foreign Exchange for a better understanding of the capital movement and to interpret the motive of the central bank for such change,” Xie said.

It’s like they’ve landed in a game they don’t know the rules of. But then again, that’s what we think every single time we see Draghi and Yellen too, who are kept ‘alive’ only by investors’ expectations that they are going to hand out free cookies, and lots of them, every time they make a public appearance.

And what’s going on in Japan and China will happen to them, too: they will achieve the exact opposite of what they’re aiming for. They arguably already have. Or at least none of their desperate measures have achieved anything close to their stated goals.

They may have kept equity markets high, true, but their economies are still as bad as when the QE ZIRP NIRP stimulus madness took off, provided one is willing to see through the veil that media coverage and ‘official’ numbers put up between us and the real world. But they sure as h*ll haven’t turned anything around or caused a recovery of any sorts. Disputing that is Brooklyn Bridge for sale material.

Eh, what can we say? Stay tuned?! There’ll be a lot more of this lunacy as we go forward. It’s baked into the stupid cake.


Professor Steve Keen and Raúl Ilargi Meijer discuss central banking, Athens, Greece, Feb 16 2016

Feb 212016
 
 February 21, 2016  Posted by at 9:58 am Finance Tagged with: , , , , , , , , ,  Comments Off on Debt Rattle February 21 2016
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Wyland Stanley Boeing 314 flying boat Honolulu Clipper. 1939

BofA: ‘Shanghai Accord’, Massive Central Bank Intervention Imminent (ZH)
I Don’t Know What The Bulls Are Smoking: Stockman (CNBC)
China Lenders’ Foreign-Exchange Holdings Omitted From PBOC Data (BBG)
Sensitive Financial Data ‘Missing’ From PBOC Report On Capital Outflows (SCMP)
Xi Jinping Demands ‘Absolute Loyalty’ From Chinese State Media (AP)
The Only Thing Worse Than Oil? Investing in It (WSJ)
A Furious Turkey Says US Is “Acting Like An Enemy” (ZH)
TPP, Abe Set To Demolish Japan’s Small Scale Agriculture Model (FT)
EU-US TTIP Talks Seen By The French Threatening Small Farms (BBG)
Calais ‘Jungle’ Eviction Postponed Because Of Risk To Lone Children (G.)
Razor Wire Fence Fails To Keep Refugees, Migrants Out Of Hungary (BBC)
Despite Aegean Rescuers’ Best Efforts, Not All Migrants Are Saved (NPR)

Shanghai Accord to be like Plaza Accord, mass devaluation of the yuan, to “reset global monetary policy stability if only for a few more months”…

BofA: ‘Shanghai Accord’, Massive Central Bank Intervention Imminent (ZH)

Any time the relative performance of global financials to US Treasuries has stumbled as far as it has, as shown in the chart below, it has meant one thing – a major central bank intervention was imminent. At least that’s the interpretation of BofA’s Michael Hartnett, who shows that in order to provide the kick for the bounce in this all too important “deflationary leading indicator”, central banks engaged in major unorthodox easing episodes, whether QE1-3, or the ECB’s QE.

Why intervene now? Here are the problems according to Hartnett:
• Problem 1: US economy in “bad Goldilocks”, i.e. US economy not hot/strong enough to lift global GDP & EPS; but not cold/bad enough to induce global coordinated response
• Problem 2: global policy-maker rhetoric in recent days shows “coordinated innocence” not stimulus, all blaming global economy for weak domestic economies (“Overseas factors are to blame”…Japan PM Abe; “drag on U.S. economy from greater-than-expected-slowdown in China & other EM economies“…FOMC minutes; “increasing concerns about the prospects for the global economy”…ECB Draghi; “the change in China’s growth rate can be attributed in part to weak performance of the global economy”…PBoC)

Problem 2 is static, meant for media propaganda and jawboning; it can easily be removed once the global economy takes the next leg lower. Which incidentally would also resolve the gating factor of Problem 1 – as we have said for months, the Fed and its central bank peers need the political cover to launch more stimulus.

And in a reflexive world, where the “economy is the market”, this means just one thing – a big leg lower in stocks is the necessary and sufficient condition to once again push stocks higher, as policy failure is internalized, and global risk reprises from square 1. This is Bank of America’s summary, warning that unless a major policy intervention is enacted, the market will then sell off to the next support level, below the 1,812 which has proven so stable since August. Stabilization of “4C’s” (China, Commodities, Credit, Consumer) allowed SPX 1800 to hold/bounce to 1950-2000; weak policy stimulus in coming weeks could end rally/risk fresh declines to induce growth-boosting policy accord.

Here is a summary of the near-term events which stocks are betting on do not disappoint: G20 Shanghai (February 26-27); ECB (March 10), BoJ (March 15) & FOMC (March 16). And as documented previously, the one main near-term event Hartnett is focusing on is the Shanghai meeting next weekend. Recall: “We remain sellers into strength in coming weeks/months of risk assets at least until a coordinated and aggressive global policy response (e.g. Shanghai Accord) begins to reverse the deterioration in global profit expectations (currently heading sharply south – Chart 1) and credit conditions.”

In other words, Hartnett expects a “Shanghai Accord” to be unveiled next weekend, one where like the Plaza Accord three decades earlier, the Yuan will be massively depreciated, which ironically would halt all piecemeal Yuan devaluation on expectation of future devaluation (as it will have already happened), and reset global monetary policy stability if only for a few more months. Said otherwise, if next weekend the G-20 disappoints and unveils nothing, the next big leg down in the selloff will have arrived.

Read more …

“They should have the good graces to resign. They are lost. None of this is helping the economy..”

I Don’t Know What The Bulls Are Smoking: Stockman (CNBC)

Anyone who believes that the global economy isn’t crashing must be delirious, according to David Stockman. The former director of the Office of Management and Budget argues that a rapidly deteriorating economic environment is going to send stocks and oil prices spiraling even lower than they already have. “I think your traders are smoking something stronger than what I can legally buy here in Colorado,” Stockman said Thursday on CNBC’s “Futures Now.” The S&P 500 has fallen 6% year to date, and crude oil has plunged more than 17%. However, Stockman still sees a long way to go.

He expects the S&P 500 to drop to 1,300 before making any new highs, and sees oil falling below $20. Investors have been too optimistic about the U.S. economy because they are not factoring in global risk, said Stockman, who expects to see a recession by the end of the year. “Everywhere trade is drying up, shipping rates are at all-time lows,” he said. “There is a recession that’s going to engulf the entire world economy, including the United States.” Contributing to the turmoil is the ineptitude of central banks, he said. While Stockman doesn’t expect the Federal Reserve to adopt a negative interest rate policy, he said monetary policymakers have exhausted all other options.

“They should have the good graces to resign. They are lost. None of this is helping the economy,” he said. Add in the 2016 presidential election, and Stockman said the markets will find themselves in a situation similar to that of the global financial crisis. “The out-of-control election process will feed into and create an environment that we haven’t seen since the fall of 2008,” he said. Of course, this isn’t the first time Stockman has been bearish. For years, he has been predicting a crash worse than 2008. Stockman headed the White House OMB during President Ronald Reagan’s first term.

Read more …

Creative accounting 2.0. Don’t like what you see? Just stop reporting it. The US learned this trick a long time ago.

“..the slide in foreign-currency assets held by Chinese financial institutions “is typically much larger than the decline in foreign reserves..”

China Lenders’ Foreign-Exchange Holdings Omitted From PBOC Data (BBG)

China’s central bank omitted details of financial institutions’ foreign-exchange holdings from monthly data that sheds light on the scale of its intervention to support the yuan. The change took effect in its report for January, when the currency’s slide to a five-year low roiled global financial markets and prompted the People’s Bank of China to step up efforts to boost the exchange rate amid record capital outflows. While the authority announced a $99.47 billion slide in its foreign-exchange reserves for last month, less than December’s record $107.9 billion drop, the figure may not represent the true extent of dollar sales if state-owned lenders were also used to intervene. “Sometimes it’s the commercial banks that sell a lot of dollars when the PBOC wants to prop up the yuan,” said Zhou Hao at Commerzbank in Singapore.

When this happens, the slide in foreign-currency assets held by Chinese financial institutions “is typically much larger than the decline in foreign reserves,” he said. In September, the assets dropped by a record $117 billion – almost triple the $43.3 billion decline in the nation’s reserves – as large state banks sold borrowed dollars for yuan and used forward contracts with the central bank to hedge those positions. Historically, the numbers tend to be broadly in line with one another. China used intervention, verbal warnings and a tightening of capital controls in its bid to quell speculative attacks on the yuan in the offshore market last month. The measures, which caused overnight borrowing costs for the currency to surge to an unprecedented 66.82% in Hong Kong, enjoyed some success and the offshore exchange rate has strengthened 3.6% to 6.5244 a dollar since sinking to a five-year low on Jan. 7. The onshore rate gained 1.2% to 6.5201 in Shanghai.

Read more …

More detail on this creative outburst in China. Funny thing is, this will backfire. Analysts have other ways of getting the data, and they will do so now with a lot more scrutiny and suspicion.

Sensitive Financial Data ‘Missing’ From PBOC Report On Capital Outflows (SCMP)

Sensitive data is missing from a regular Chinese central bank report amid concerns about capital outflow as the economy slows and the yuan weakens. Financial analysts say the sudden lack of clear information makes it hard for markets to assess the scale of capital flows out of China as well as the central bank s foreign exchange operations in the banking system. Figures on the “position for forex purchase” are regularly published in the People’s Bank of China’s monthly report on the “Sources and Uses of Credit Funds of Financial Institutions”. The December reading in foreign currencies was US$250 billion. But the data was missing in the central bank s latest report. It seemed the information had been merged into the “other items” category, whose January figure was US$243.9 billion a surge from US$20.4 billion the previous month.

Another key item of potentially sensitive financial data was altered in the latest report. The central bank also regularly publishes data on the forex purchase position in renminbi, which covers all financial institutions including the central bank. The December reading was 26.6 trillion yuan (HK$31.7 trillion). But the January data gave information on forex purchases made only by the central bank, detailing the lower figure of 24.2 trillion yuan. China’s foreign exchange reserves shrank almost US$100 billion last month as the central bank sells dollars and buys renminbi to shore up the country s weakening currency. It followed a record US$108 billion drop in December. Optimism for the yuan has taken a hit from continuous capital outflows amid growing concern about China s economic outlook.

The central bank has been criticised for contributing to the panic through its poor communication with the market and its foreign counterparts. PBOC governor Zhou Xiaochuan last week told Caixin the central bank was “neither a god nor a magician”, though it was very willing to improve communication with the public. This is not the first time the PBOC has tweaked items in its financial reports, but the unannounced changes come at a sensitive time as Beijing tries to stabilise the yuan exchange rate. “Its non-transparent method has left the market unable to form a clear picture about capital flows,” said Liu Li-Gang, ANZ’s chief China economist in Hong Kong. “This will fuel more speculation that China is under great pressure from capital outflows. It will hurt the central bank’s credibility.”

Read more …

He can bully his own people, unlike foreign investors.

Xi Jinping Demands ‘Absolute Loyalty’ From Chinese State Media (AP)

The Chinese president, Xi Jinping, has made a rare and high-profile tour of the country’s top three state-run media outlets, telling editors and reporters they must pledge absolute loyalty to the Communist party and closely follow its leadership in “thought, politics and action”. His remarks are the latest sign of Beijing’s increasingly tight control over the media and Xi’s unceasing efforts to consolidate his power as head of the party. Xi overshadowed the propaganda chief, Liu Yunshan, who accompanied him on his visits to the newsrooms of the party newspaper People’s Daily, state-run news agency Xinhua, and state broadcaster China Central Television (CCTV). At CCTV, Xi was welcomed by a placard pledging loyalty. “The central television’s family name is the party,” the sign read, anticipating remarks made by Xi at a later meeting.

“The media run by the party and the government are the propaganda fronts and must have the party as their family name,” Xi told propaganda workers at the meeting, during which he demanded absolute loyalty from state media. “All the work by the party’s media must reflect the party’s will, safeguard the party’s authority, and safeguard the party’s unity,” he said. “They must love the party, protect the party, and closely align themselves with the party leadership in thought, politics and action.” Willy Lam, an expert on elite Chinese politics at the Chinese University of Hong Kong, said Xi is raising standards for state media by requiring they obey the will of the Communist party’s core leadership, which is increasingly defined by Xi himself in another sign of how he has accrued more personal authority than either of his last two predecessors.

“This is a very heavy-handed ideological campaign to drive home the point of total loyalty to the party core,” Lam said. “On one hand, Xi’s influence and power are now unchallenged, but on the other hand, there is a palpable degree of insecurity.” Lam said Xi faces lurking challenges not only from within different party factions but also from among a disaffected public, who are unhappy with the slowing economy and a recent stock market meltdown. Zhang Lifan, a Beijing-based independent historian and political observer, said the tour of state media further added to Xi’s burgeoning personality cult. “I am afraid we will see more personal deification in the media in the future,” Zhang said. “I think Xi is declaring his sovereignty over the state media to say who’s really in charge.”

Read more …

Gentlemen, count your losses.

The Only Thing Worse Than Oil? Investing in It (WSJ)

One of the few assets performing worse than oil is a set of products used to bet on it. The $3.86 billion United States Oil Fund LP, an exchange-traded fund that goes by the ticker USO, is down 22% so far this year, while the $575 million iPath S&P GSCI Crude Oil Total Return Index exchange-traded note, known as OIL, is down 26% in that period. In comparison, U.S. crude-oil futures for March delivery settled at $29.64 a barrel on Friday, down 20% this year. The poor returns illustrate the difficulty of making such bets, particularly on oil prices, which have confounded investors by continuing to sink in 2016. Even after oil’s fall over the past year, investors in products that track crude have something else dragging on returns: it’s more costly to make long-term bets.

A glut of oil has shifted the dynamics of the futures market, which reflects the cost of holding oil, and that has further weighed on the performance of some of the products in recent weeks. Many commodity-investment products hold or track the nearest-month futures and regularly rebalance into the following month’s contracts. If the nearer-term contract costs less than the further-dated one, a condition known as contango, the rotation involves getting rid of cheaper contracts to buy more expensive ones. The bigger the difference between the two, the more this so-called roll cost drags on performance. Crude has been in contango since mid-2014, but the differential has risen sharply recently. The difference in the settlement price between March and April oil futures contracts has more than doubled since the end of last year.

At Thursday’s settlement, it cost $2.16 more to buy a barrel of West Texas Intermediate oil for April delivery than oil for March delivery, compared with 96 cents at the end of 2015. The differential was as high as $2.62 on Feb. 11. If left unchanged at Thursday’s settlement prices, the difference between the two contracts implies a monthly loss of 7.02% simply from roll costs, according to FactSet. It “hurts returns,” said Alan Konn at Uhlmann Price Securities, a wealth-management firm in Chicago. The firm has investments tied to the Rogers International Commodity Index, which tracks a basket of 37 commodities. The index is down close to 6% this year and more than 29% over the past 12 months.

Read more …

A longer quote than usual for a Debt Rattle of Tyler Durden describing how convoluted the position of the US, EU and NATO is becoming because of their support for Erdogan. Then again, our main export these days is failed states. I added the graph (Who fights what in Syria) from another source.

A Furious Turkey Says US Is “Acting Like An Enemy” (ZH)

As you might have noticed, Turkish President Recep Tayyip Erdogan is about to lose his mind with the situation in Syria. To be sure, the effort to usurp the Bashar al-Assad government wasn’t exactly going as planned in the first place. Regime change always takes time, but the conflict in Syria was dragging into its fifth year by the time the Russians got directly involved and although it did indeed look as though the SAA was on the verge of defeat, the future of the rebellion was far from certain. But to whatever extent the rebels’ fate was up in the air before September 30, the cause was dealt a devastating blow when Moscow’s warplanes began flying sorties from Latakia and while Ankara and Riyadh were initially willing to sit on the sidelines and see how things played out, once Russia and Hezbollah encircled Aleppo, it was do or die time.

The supply lines to Turkey were cut and without a direct intervention by the rebels’ Sunni benefactors, Moscow and Hassan Nasrallah’s army would ultimately move in on Aleppo proper and that, as they say, would be that. The problem for Turkey, Saudi Arabia, and Qatar is optics. That is, everything anyone does in Syria has to be justified by an imaginary “war on terror.” Turkey can’t say it’s intervening to keep the rebels from being defeated by the Russians, and similarly, Saudi Arabia, Qatar, the US, France and everyone else needs to preserve the narrative and pretend as though this all doesn’t boil down to the West and the Sunnis versus the Russians and the Shiites. Here’s what we said earlier this month: somehow, Turkey and Saudi Arabia need to figure out how to spin an attack on the YPG and an effort to rescue the opposition at Aleppo as an anti-ISIS operation even though ISIS doesn’t have a large presence in the area.

Well it turns out that’s an impossible task and so, Turkey has resorted to Plan B: a possible false flag bombing and the old “blame the Kurds” strategy. The attack on military personnel in Ankara this week was claimed by The Kurdistan Freedom Hawks (an offshoot of the PKK) in retaliation for Turkey’s aggressive campaign in Cizre (as documented here), but Erdogan has taken the opportunity to remind the world that the PKK and the YPG are largely synonymous. That is, they’re both armed groups of non-state actors and if one is a terrorist organization, then so is the other. Erdogan’s anti-Kurd stance is complicated immeasurably by the fact that both the US and Russia support the YPG out of sheer necessity. The group has proven especially adept at battling ISIS and has secured most of the border with Turkey.

As we noted way back in August, it was inevitable that Washington and Ankara would come to blows over the YPG. After all, the US only secured access to Incirlik by acquiescing to Erdogan’s crackdown on the PKK, but some of the missions the US was flying from Turkey’s air base were in support of the YPG. The whole thing was absurd from the very beginning. Well now, Turkey is not only set to use the fight against the YPG as an excuse to intervene in Syria on behalf of the Sunni rebels battling to beat back the Russian and Iranian advance, but Ankara is also demanding that the US recognize the YPG as a terrorist group. If Washington refuses, “measure will be taken.” “If the Unites States is really Turkey’s friend and ally, then they should recognize the PYD — a Syrian branch of the PKK — as a terrorist organization.

If a friend acts as an enemy, then measures should be taken, and they will not be limited to the Incirlik Airbase, Turkey has significant capabilities,” Erdogan advisor Seref Malkoc told Bugun newspaper. So yeah. Turkey just threatened the US. It’s notable that Malkoc specifically said actions would go “beyond Incirlik,” because pulling access to the base would be the first thing any regional observers would expect from Ankara in the event of a spat with Washington. For Turkey to say that measures will go beyond that, opens the door for Erdogan to become openly hostile towards his NATO allies. “The only thing we expect from our U.S. ally is to support Turkey with no ifs or buts,” PM Ahmet Davutoglu told a news conferenceon Saturday. “If 28 Turkish lives have been claimed through a terrorist attack we can only expect them to say any threat against Turkey is a threat against them.”

In other words, Turkey is explicitly asking the US to support Ankara’s push to invade Syria and not only that, Erdogan wants Washington to sanction attacks on the YPG which the US has overtly armed, trained, and funded. “The disagreement over the YPG risks driving a wedge between the NATO allies at a critical point in Syria’s civil war,” Reuters wrote on Saturday. “On Friday, a State Department spokesman told reporters Washington would continue to support organizations in Syria that it could count on in the fight against Islamic State – an apparent reference to the YPG.”

Right. “Washington will continue to support organizations in Syria that it can count on in the fight against Islamic State.” So we suppose that means the US will support Russia. And Iran. And Hezbollah. But most certainly not Turkey, who is the biggest state sponsor of the Islamic State on the face of the planet.

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Japan ag works fine, so that should be destroyed.

TPP, Abe Set To Demolish Japan’s Small Scale Agriculture Model (FT)

It is a source of national angst: why is Japan — culinary superpower and undisputed champion of the Michelin guide — so terrible at exporting food? In 2014, Japan’s food exports were about $5bn. The Netherlands, a country with a fraction of Japan’s population, exported food worth $103bn — with all the delights of sushi, green tea and wagyu beef generating about the same export sales as Edam cheese. For the government of Prime Minister Shinzo Abe, a missed economic opportunity is now colliding with the political imperative to help Japan’s farmers survive the Trans-Pacific Partnership trade deal, which will slash tariffs on ultra-efficient farmers in the US and Australia. The government has set a goal of more than doubling agricultural exports to Y1trn from 2012 to 2020.

Despite an emerging market slowdown that is hurting Japan’s exports overall, this week trade minister Nobuteru Ishihara said there was a chance of hitting the target early. In yen terms, food exports surged by 24.3% to Y599bn last year, even as overall exports rose by a disappointing 3.5%. Masayoshi Honma, professor of agricultural economics at the University of Tokyo, said the reason for low exports is not complicated. “Japanese exports are so low because they’re expensive,” he says. “There’s a huge differential between the Japanese price and the overseas price.” Japan’s obsession with rice production, a longstanding focus on national self-sufficiency in food and the low productivity of its small-scale, highly-subsidised farms all contribute to high prices.

For years, the importance of rural votes to the ruling Liberal Democratic party meant agriculture was sacred, but as the farming population ages — the average farmer is now 70 — it is one area where Mr Abe has proved willing to grasp the nettle on reforms. One of the few measures his government hopes to pass before upper house elections this summer will permit corporate ownership of agricultural land. That is regarded as crucial to allowing more efficient, large-scale agriculture. Mr Honma is cautious about the Y1trn exports target. “It’s not really agricultural exports because it includes marine and processed products,” he says. Most of Japan’s existing agricultural exports are seafood caught by its vast fishing fleet.

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And the same goes for France.

EU-US TTIP Talks Seen By The French Threatening Small Farms (BBG)

For Bruno Dufayet, the latest round of trade talks between the European Union and the U.S. could sound the death knell for France’s small cattle farms. “For a beef farmer in Europe now, the biggest threat is massive imports of U.S. beef produced in feedlots,” said Dufayet, who notes that his 50 beef-cattle farm in south-central France is typical for the country. “The end could be nigh for this type of livestock farm in France.” French farmers and lawmakers fear free-trade talks with the U.S. will pit Europe’s small family operations against intensive American animal farming. Dufayet is a member of French meat lobby Interbev, which hosted senators and members of parliament at a meeting in Paris on Tuesday that finished over beef canapes and red Bordeaux wine.

European farmers would be unable to compete with a “massive opening” of the region’s markets to U.S. operations that handle thousands of animals at a time, the lobby said. The 12th round of negotiations on the Transatlantic Trade Investment Partnership, or TTIP, starts in Brussels on Feb. 22. The contents of any proposed deal are still to be discussed, and there will be no full liberalization for agricultural products, said Daniel Rosario, a spokesman for the EC. The trade concerns come as farmers across France, Europe’s largest agricultural producer, are protesting against plunging prices of everything from pork to milk. The EU needs to protect its family-owned livestock farms based on extensive grazing and beef should be excluded from the talks, Jean-Paul Denanot, a member of the European Parliament and a substitute member on its agriculture committee, said at the Interbev meeting.

“This is a face-off between systems that have nothing in common,” Jean-Pierre Fleury, who heads the beef working group at EU farm lobby Copa-Cogeca. In addition to differences in scale, the EU tracks animals from birth, while U.S. traceability only applies to livestock moving interstate and exempts beef cattle under 18 months. While the EU banned antibiotics as growth promoters in animal feed in 2006, many U.S. states still allow the routine use of the drugs to promote growth in cows, chickens and pigs. There’s also the argument of higher animal welfare standards in the EU than in the U.S., according to the U.S.-based Humane Society International.

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The French were ‘only’ some 300% off in their estimates. That tells you something about their priorities.

Calais ‘Jungle’ Eviction Postponed Because Of Risk To Lone Children (G.)

The forced eviction of thousands of migrants and refugees from the sprawling “Jungle” camp on the outskirts of Calais has been put on hold by the French authorities, the Observer has learned. French courts have postponed Tuesday’s planned eviction after a census conducted by the charity Help Refugees found that far more refugees were living in the area of the camp earmarked for demolition than French authorities had calculated. Researchers for the charity counted 3,455 people living in the southern stretch of the Jungle, which is scheduled to be destroyed. Of these, 445 were children and 315 were without their parents, the youngest was a 10-year-old Afghan boy. By contrast, French authorities had estimated between 800 and 1,000 people were living there.

The eviction has been placed on hold until a judge visits the camp on Tuesday morning to re-assess the situation, with the case being heard in Lille later that afternoon. Under the previous expulsion order, refugees had been ordered to remove their makeshift homes and possessions by 8pm on Tuesday, while camp shops, cafes, churches and mosques would be razed. Josie Naughton, co-founder of Help Refugees, said: “Hopefully it’s all going to be OK. The judge will decide yes or no, so we hope they show compassion. The figures highlight the brutality of destroying these homes before proper child protection schemes have been put in place. These children have post-traumatic stress, you can’t just put them on a bus, they are going to be in danger.”

George Gabriel of Citizens UK, a group involved in the growing campaign calling for children stranded in the jungle to be allowed into the UK said: “It’s great news that the French courts have put the breaks on the demolition of wide sections of the Jungle. Day after day we find more refugee children living in that terrible camp and risking their lives each night as they try to reach their families. “They have a full legal right to do so, and so for as long as the British and French governments refuse to properly implement the law, it’s vital those boys aren’t dispersed away from the legal advice they so badly need.” However Naughton warned that if the judge does decide that the eviction can go ahead as French authorities want, then the bulldozers would arrive at the Jungle on Wednesday morning.

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How long does it take to figure this out?

Razor Wire Fence Fails To Keep Migrants Out Of Hungary (BBC)

Police in Hungary say increasing numbers of migrants are breaching a razor wire fence built to stop them crossing the border from Serbia. In January, 550 people were caught getting through – up from 270 in December. More than 1,200 were caught in the first 20 days of February. Hungary caused controversy with the 4m barrier, completed in September. However, several other countries have since introduced tough border controls to stop the influx of migrants. The number of people crossing from Serbia dropped after Hungary built the fence along the 175km border with its neighbour last year. But police say migrants are now increasingly getting through, mostly by cutting through or climbing over the barrier. Most are from Pakistan, Iran and Morocco, who are no longer admitted through other routes.

It follows moves by Austria, Slovenia, and Balkan countries to limit the nationalities and the numbers of those being allowed through. More than a million people arrived in the EU in 2015, creating Europe’s worst refugee crisis since World War Two. The majority of migrants and refugees have headed for countries like Germany and Sweden via Hungary and Austria after crossing from Turkey to Greece. Many are fleeing the conflict in Syria. Far fewer migrants are entering Hungary than Austria but the sharply increasing trend of people breaching the border fence is alarming the authorities, reports the BBC’s Central Europe correspondent, Nick Thorpe.

More people crossed from Serbia into Hungary in the first 20 days of February than in the same period in 2015, before a fence was even contemplated, our correspondent adds. Once in Hungary, they face criminal charges or deportation. Meanwhile Interior Minister Sandor Pinter has renewed the closure of three railway crossings to Croatia, for fear that migrants and refugees will again start walking down the tracks into Hungary. On Friday Austria introduced a daily cap on the number of migrants and refugees allowed into the country. Just 80 asylum applications will be accepted each day at the country’s southern border, in a move condemned by critics as incompatible with European law.

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Oh God almighty… How do we sleep?

Despite Aegean Rescuers’ Best Efforts, Not All Migrants Are Saved (NPR)

It’s just before midnight on a February night when the crew of the Responder gets word from the Greek coast guard that a boat with migrants aboard is nearby. It’s in trouble somewhere in Greek territorial waters in the Aegean Sea. “There’s a light, a flash,” says Eugenio Miuccio, a 38-year-old Italian doctor, pointing to a flicker in the pitch-black sea. He and an Italian nurse, 27-year-old Roberto Pantaleo, pull on red life jackets as the ship heads toward the light. Iain Brown, a volunteer rescue diver from Scotland, is also ready. He’s listening, trying to make out people’s voices. “We can hear them screaming before we see them,” he says. “The boats they are in are so thin. We can hear them breaking up.” They’re ready to jump into a small speedboat piloted by Dominic “Mimmo” Vella, a 44-year-old father of three from Malta and a member of the Responder’s crew.

“If something happens and people fall in the water,” Vella says, “with the big boat, we cannot go near them, so we go with the small ones.” The Responder arrives where the migrant boat is supposed to be. But there is no boat, no people. Just empty sea. “False alarm,” Brown says. “We found nothing,” Vella says. “So we’re going to keep on patrolling.” The Responder, a 167-ft. search and rescue tug vessel has been patrolling these waters for the past two months. False alarms come with the territory, but the dangers for which the crew remains prepared are real. The boat is leased by a Malta-based nonprofit called the Migrant Offshore Aid Station (MOAS). An American businessman, Christopher Catrambone, and his Italian wife, Regina, started MOAS in early 2014 to help rescue asylum seekers crossing the Mediterranean between Libya and Italy.

Then, last September, 3-year-old Alan Kurdi washed up on a Turkish beach. The Syrian toddler had drowned trying to reach Greece with his family. The image of his lifeless body jolted the world’s empathy. Donations flooded into MOAS. The charity leased the Responder, hired a crew and recruited volunteers. The Responder arrived in the Aegean at the end of December. The two speedboats aboard are named after Alan and his 5-year-old brother, Galip, who also drowned in September. Brown, the diver, heard about MOAS on the news. He’s 51 and volunteers with the Coast Guard back home in Ayr, Scotland. “I couldn’t stand it anymore, sitting at home while kids were drowning here,” he says. “So I [took] time off and came here. I can help. I understand the sea.”

The Responder patrols a stretch of the Aegean Sea between Turkey and the tiny Greek islet of Agathonissi, just south of the larger island of Samos. The distance between Greece and Turkey is relatively short, as close as 8 miles here. But the sea can look deceptively calm to migrants. “They could leave from a sheltered bay,” says MOAS search and rescue operations officer John Hamilton, as he monitors a radar on deck. “Once they get out of this bay, they come across rough seas.” More than 400 people fleeing war and poverty have died or gone missing in the Mediterranean since the beginning of this year, according to the U.N. refugee agency. At least 311 have drowned in the Aegean, according to the International Organization for Migration. The Responder has been backing up the Greek coast guard in the southern Aegean Sea, and has rescued 739 people here so far. And since 2014, MOAS crews have rescued nearly 12,000 people.

But the crew can’t stop thinking about a boat that capsized on January 15. “That night, we got a call that there was a boat,” Vella says. “And when we arrived to where the boat was supposed to be, we didn’t find the boat. But we found the people. They were screaming.” As the boat sank, people hung onto its blue-and-white hull, moaning loudly for help. “It was so cold that night, so very cold,” Vella says. “I prayed there were no kids in the water.” Miuccio, the Italian doctor, did too. He worried about hypothermia. “Children and babies can only stay in such cold water for a few minutes,” he says. A diver jumped into the sea and swam to the people clinging to the hull. “Children? Children?” the diver screamed. “Babies?”

The first baby was a chubby-cheeked little boy, no more than 2-years-old. Miuccio, on the speedboat that night, remembers that the little boy’s face was blue and he was foaming at the mouth. He had no pulse. “I gave him CPR for 15 minutes,” he says. “But nothing worked.” Pantaleo, the nurse, tried to revive another little boy, also to no avail. A third child, a 4-year-old girl, was also found dead. Then two more children, a boy and a girl, arrived — unconscious but with a pulse. “They responded immediately [after] CPR,” Miuccio recalls. “They started crying, which is a good sign. We took off their wet clothes and immediately wrapped them in isothermal blankets.”

[..] The morning after the three children died in January, Mimmo Vella called his own kids back in Malta. He told them he loved them so much. He told them they were lucky to be safe at home. As MOAS begins yet another patrol, he calls them again. His youngest son’s tiny voice rises above the wind and the waves.

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Feb 152016
 
 February 15, 2016  Posted by at 9:05 am Finance Tagged with: , , , , , , , , ,  8 Responses »
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John M. Fox Garcia Grande newsstand, New York 1946

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

So Nikkei up 7%, more mad stimulus expected.

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

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

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

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

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

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

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

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Whatever it takes revisited.

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

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

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

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

PBoC Governor Zhou Breaks Long Silence (BBG)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Not a small detail.

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

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

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

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

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Stick a fork in it?!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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A ways to go.

Oil Resumes Drop as Iran Loads Europe Cargo (BBG)

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

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

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

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

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

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

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

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

Renewables: The Next Fracking? (JMG)

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

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

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

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

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Mar 102015
 
 March 10, 2015  Posted by at 11:18 am Finance Tagged with: , , , , , , , , , , ,  11 Responses »
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William Henry Jackson Tunnel 3, Tamasopo Canyon, San Luis Potosi, Mexico 1890

The entire formerly rich world is addicted to debt, and it is not capable of shaking that addiction. Not until the whole facade that was built to hide this addiction must and will come crashing down along with the corpus itself.

Central banks are a huge part of keeping the disease going, instead of helping the patient quit and regain health, which arguably should be their function. In other words, central banks are not doctors, they’re crack dealers and faith healers. Why anyone would ever agree to that role for some of the world’s economically most powerful entities is a question that surely deserves and demands an answer. But no such answer is forthcoming.

Instead, we all pretend Yellen, Kuroda and Draghi are in fact curing us of our ailments. Presumably because that feels better. That our health deteriorates in the process is simply ignored and denied. But then, that’s what you get when you allow for a bunch of shaky goalseeked economic rules to be taken as some sort of gospel. People one thought leeches healed too, or bloodletting, exorcism, burning at the stake, you name it. Same difference, just a few hundred years later.

What’s happening today is that central bankers start to find that their goalseeked ideas are no longer working. What might work for one may backfire for another. That this might be the direct result of their own mindless policies will never even cross their minds. And so they will continue making things worse, until that facade they operate on cannot hold any longer.

The EU started its braindead QE program yesterday. If it gets to purchase the entire €1.14 trillion in bonds it aims for, that will be a bad thing. If it doesn’t, that will be an arguably worse thing. Draghi should have stayed away from this heresy, but it’s too late now: the die is cast.

Why banks and funds would sell their long maturity bonds, with a relatively high yield, to him, is not clear. On the other hand, that many funds will compete with the ECB for the few bonds that are available, is clear. Draghi simply attempts to turn the sovereign bond market into casino with zero price discovery. Whether he will succeed in that is not clear. To get it done, though, he will have to make some very peculiar moves. That again is clear. Durden:

Presenting The Buyers Of Over 100% Of New German And Japanese Bond Issuance

Back in December, when the total amount of annual ECB Q€ was still up in the air and and consensus expected a lowly €500 billion annual monetization number, we calculated that based on Germany’s capital key contribution of about 26%, the ECB would monetize some €130 billion of German gross issuance, or about 90% of the total scheduled issuance for 2015. Subsequently, the ECB announced that the actual amount across all ECB asset purchasing programs, will be some 44% higher, or €720 billion per year (€60 billion per month). So what does that mean for the revised bond supply and demand across two of the most important developed markets?

Well, we already know that the Bank of Japan will monetize 100% or just over of all Japanese gross sovereign bond issuance (source). As for Germany, on a run-rate basis, and assuming allocation based on the abovementioned capital key, it means that for the next 12 month period, assuming no major funding changes in Germany, the ECB will swallow more than a whopping 140% of gross German [Bund] issuance! Or, said otherwise, the entities who will buy more than all gross German and Japanese issuance for the next 12 months, are the ECB and the Bank of Japan, respectively.

This also means that to fulfill its monthly purchase mandate, the ECB will have to push the price to truly unprecedented levels (such as the -0.20% yield across the curve discussed previously, or even lower) to find willing sellers. That said, please don’t tell your average Hinz and Kunz that more than all German bond issuance in 2015 will be monetized. It will bring back some very unpleasant memories.

Japan’s Abenomics are a huge failure, and so it looks like another double or nothing is in the offing. They’ll keep doing it until they can’t, because that’s their whole repertoire. Though it is a little weird to see Bill Pesek, and BoJ chief Kuroda, claim that Japan’s QE failed because it wasn’t big enough. Seen Japanese debt numbers lately, Bill? Not big enough yet?

Three Reasons Japan Will Get More Stimulus

With annualized growth of 1.5% between October and December after two straight quarters of contraction, Japan is hobbling out of recession far more slowly than hoped. A third dose of quantitative easing is almost certain. Here are three reasons why.

First, the initial rounds of QE weren’t potent enough. “In order to escape from deflationary equilibrium, tremendous velocity is needed, just like when a spacecraft moves away from Earth’s strong gravitation,” Kuroda recently explained. “It requires greater power than that of a satellite that moves in a stable orbit.”

Although the Bank of Japan managed to lower the value of the yen by more than 20% beginning in April 2013, that clearly hasn’t provided enough of a boost to the economy.

Maybe you can’t boost the 20-year coma the Japanese economy has been in by hammering the currency? Just a thought, Bill. And sure, Kuroda’s spacecraft metaphor is mighty cute, but what tells you economies are just like rocket ships? I like this piece from Deutsche Welle much better:

Central Bank Blues

On Monday the European Central Bank begins its long-anticipated program to buy sovereign bonds on secondary bond markets – i.e. previously issued government bonds held by institutional investors like banks or insurance funds. In central bankers’ jargon, this is called “quantitative easing,” or QE. The ECB’s plan is to pump €60 billion euros into the financial markets each month, by trading central bank reserve money (a form of electronic cash) for bonds. That’s set to continue until at least September 2016, which means at least €1.1 trillion will be put into the hands of investment managers – who will have to find some alternative investments to make with the money.

On Thursday last week, at the ECB’s governing board meeting in Nicosia on Cyprus, the central bank revised its projections for both GDP growth and inflation in the eurozone upward: The inflation rate is projected to go up to 0.7% for this year, and GDP growth from 1.0 to 1.5%. But are the new projections just a case of whistling in the dark? There are in fact serious doubts as to whether the ECB will actually be able to meet its targets, or if, instead, the bond-purchasing program will have effects that will make a structural recovery of the eurozone more difficult.

For a start, many observers doubt whether the ECB will even be able to find willing sellers for €60 billion a month of bonds. Sovereign bonds – especially those of the core eurozone member states, like Germany – may soon become rather scarce on secondary markets. Neither domestic banks and insurance funds, nor foreign central banks, will have much incentive to sell their government bond holdings to the ECB. The older bonds with long maturities and decent interest rates, in particular, will probably be held rather than sold. Moreover, experts question whether a flood of central bank reserve money, pumped into the hands of players in secondary financial markets, can generate a stimulus at all.

It probably won’t lead to any boost in their lending activities to real-economy businesses or households, for two reasons: First, banks have recently been obliged to increase their core capital reserves – the amount of shareholders’ money, including retained earnings, which is available to cover possible loan losses – and they’re still adjusting their balance sheets accordingly. That means they’re being cautious about lending.

That’s the basic question, isn’t it? “..whether a flood of central bank reserve money, pumped into the hands of players in secondary financial markets, can generate a stimulus at all.” But how do we answer it? Lots of people will want to point to the ‘success’ story of the US and the Fed, but there’s no way we can have any confidence in the numbers coming from the US. As for the EU and Japan, the failures are more obvious, but that may be because they’re less skilled in ‘massaging’ the data. All in all, the evidence, if it exists at all, is flimsy at best.

Oh, and then there’s China:

China’s ‘Money Garrote’ May Choke Us All

In this new era of all-powerful central banks, it is hard for investors to look past who will be next to take out the big gun of quantitative easing. This week, all eyes are on the ECB, which follows the Bank of Japan as the latest of the major monetary-policy makers to embark on its own aggressive bond-buying program. In contrast, China appears to be entering a “new normal” era, in which its central bank only has a pea-shooter [..] the benchmark money-supply growth target of 12% was the lowest in decades. Another part of China’s new normal is not just lower growth, but also an era where the central bank is no longer able to magically speed its money-printing presses.

Conventional wisdom holds that the People’s Bank of China (PBOC) has a gargantuan monetary arsenal, given that the country has the world’s largest stash of foreign reserves at $3.89 trillion [..] according to some analysts, this reserve accumulation is merely a byproduct of another form of quantitative easing. Rather than strength, its size indicates just how staggeringly large China’s domestic credit expansion has become in recent decades. According to strategist Albert Edwards at Société Générale, such foreign-reserve accumulation — which typically takes place in emerging markets — is equivalent to quantitative easing.

The PBOC’s historic mass-printing of money to buy foreign currency and depress the yuan’s value is little different from what the Federal Reserve and others have done, Edwards said. [..] the recent reversal in such reserve accumulation points to a significant turning point in monetary conditions. Indeed, Joe Zhang, author of “Inside China’s Shadow Banking System,” argues that China’s credit expansion has in fact been far more aggressive than the QE attempted in the U.S. or Europe.

Zhang, a former PBOC official, calculated that China’s money supply is already 372% of what it was at the beginning of 2006. And if you add up official data between 1986 and 2012, China’s benchmark M2 money supply has grown at a compound rate of 21.1%. While 7% economic growth is slow for China compared to the double-digit rates of the past, such data makes 12% money-supply growth looks positively measly. Another reason to believe that China is at the tail end of a huge monetary expansion is found in a recent study by McKinsey. They estimated that total credit in China’s economy has quadrupled since 2008, reaching 282% of GDP.

But now the conditions that enabled this debt habit have turned. Edwards argues that foreign-exchange accumulation by central banks is the key measure of global liquidity to pay attention to — and it is currently in free-fall. [..] while markets are focusing on the ECB’s easing announcement, they are missing this Chinese liquidity garrote that is strangling the global economy. Data from the IMF shows that central-bank foreign-reserve accumulation has been declining rapidly. China is at the center of this, with a $300 billion annualized decline over the last six months

The stress point for China is now its currency, which has fallen to a 28-month low against the dollar. The dilemma facing the PBOC is how to keep growth and liquidity sufficiently strong, while also maintaining its loose currency peg to a resurgent dollar. As China defends its currency regime, it must do the opposite of printing new money: using foreign reserves to buy yuan, contracting the money supply in the process.

The People’s Bank of China is a crack dealer with a client that no longer can afford its fix. Or perhaps it’s more accurate to say that all central banks are now crack dealers with such clients, and the PBOC is the first one that’s forced to admit it. And it now looks as if perhaps it can’t win back its market without spoiling it. And that is all about the dollar. A lot is about the dollar, and the looming shortage of them. And there’s nothing (central) banks can do. Not that they won’t try, mind you. Durden:

The Global Dollar Funding Shortage Is Back With A Vengeance

[..].. one can be certain that the current fx basis print around – 20 bps will most certainly accelerate to a level never before seen, a level which would also hint that something is very broken with the financial system and/or that transatlantic counterparty risk has never been greater. Unlike us, JPM hedges modestly in its forecast where the basis will end up:

.. different to previous episodes of dollar funding shortage such as the ones experienced during the Lehman crisis or during the euro debt crisis, the current one is not driven by banks. It is rather driven by the monetary policy divergence between the US and the rest of the world. This divergence appears to have created an imbalance in funding markets and a shortage in dollar funding. It is important to monitor how this dollar funding shortage and issuance patterns evolve over time even if the currency implications are uncertain.

And to think the Fed’s cheerleaders couldn’t hold their praise for the ECB’s NIRP (as first defined on these pages) policy. Because little did they know that behind the scenes the divergence in Fed and “rest of the world” policy action is leading to two things: i) the fastest emergence of a dollar shortage since Lehman and ii) a shortage which will be arb[itrage]ed to a level not seen since Lehman, and one which assures that over the coming next few months, many will be scratching their heads as to whether there is something far more broken with the financial system than merely an arbed way by US corporations to issue cheaper (hedged) debt in Europe thanks to Europe’s NIRP policies.

If and when the market finally does notice this gaping dollar shortage (as is usually the case with the mandatory 3-6 month delay), the Fed will once again scramble to flood the world with USD FX swap lines to prevent the global dollar margin call from crushing a matched synthetic dollar short which according to some estimates has risen as high as $10 trillion.

Until then, just keep an eye on the Fed’s weekly swap line usage, because if the above is correct, it is only a matter of time before they are put to full use once again. Finally what assures they will be put to use, is that this time the divergence is the direct result of the Fed’s actions…

And then, again with Tyler, we return to Albert Edwards:

“Ignore This Measure Of Global Liquidity At Your Own Peril”

With all eyes squarely on the ECB as Mario Draghi prepares to flood the EMU fixed income market with €1.1 trillion in new liquidity starting Monday, Soc Gen’s Albert Edwards reminds us that “another type of QE” is drying up thanks largely to the relative strength of the US dollar. The printing of currency to buy US dollar denominated assets in an effort to prop up “mercantilist export-led growth models [is] no different to the Fed’s QE,” Edwards says, explicitly equating EM FX intervention with the asset purchase programs employed by the world’s most influential central banks in the years since the crisis. Via Soc Gen:

Clearly when the dollar is declining sharply, global FX intervention accelerates as the Chinese central bank, for example, needs to debauch its own currency at the same rate. Conversely, when the dollar rallies strongly, as is the case now, FX intervention rapidly dries up and can even reverse, exerting a massive monetary tightening on emerging economies,

.. and ultimately the entire over-inflated global financial complex… The swing in global foreign exchange reserves is one key measure of the global liquidity tap being turned on and off, with the most direct and immediate effect being felt in emerging economies.

The bottom line is that in a world of over-inflated asset values, the strength of the dollar is resulting is a rapid tightening of global liquidity as emerging economies (and indeed the Swiss) stop printing money to buy the US dollar. This should be seen for what it is a clear tightening of global liquidity. Traditionally these periods of dollar strength are highly disruptive to emerging markets and often end in the weakest links blowing up the entire EM and commodity complex and sometimes much else besides! Investors ignore this at their peril.

So: the ECB has started doing its painfully expensive uselessness , the Fed refuses to do anymore and even threatens to derail the whole idea by hiking rates, both Japan and its central bank are so screwed after 20 years of having an elephant sitting on their lap for afternoon tea that nothing they do makes any difference anymore even short term, and China is faced with the riddle that what it thinks it should do to look better in the mirror mirror on the Great Wall, only makes it look old and bitter.

But as Edwards rightly suggests, the first bit of this battle will be fought in, and lost by, the emerging markets. And there will be nothing pretty about it. They’re all drowning in dollar denominated loans and ‘assets’, and it gets harder and more expensive all the time to buy dollars as all this stuff must be rolled over. And the game hasn’t even started yet.

Feb 072015
 
 February 7, 2015  Posted by at 11:20 am Finance Tagged with: , , , , , , ,  4 Responses »
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NPC Minker Motor Co, 14th Street NW, Washington, DC 1922

Currency Devaluations Are an Undeclared War (Bloomberg)
The PBOC – How To Fail In Business Without Really Flying (Russell Napier)
The Diverging Fates of China’s Provinces (Bloomberg)
Goldman Raises Alarm Over The Scariest Chart In The Jobs Report (Zero Hedge)
Stop Squeezing Syriza. We Can’t Afford Another Wrong Turn In Europe (Guardian)
Troika Trojan Horse: Will Syriza Capitulate In Greece? (Pepe Escobar)
Greece Seeks Plan C After Eurogroup Rules Out Bridge Loan (Bloomberg)
Syriza Vows To Fight Pressure To Stick To Bailout Terms (Guardian)
Greece: We Want No More Bailout With Strings (Reuters)
Defiance and Charm: A Measured First Week for New Greek Leader (Spiegel)
It’s Merkel Legacy Moment (Bloomberg)
Irish Fighting Bankers Show It’s Not Just Greeks Protesting Debt (Bloomberg)
The Biggest Loss for Scotland Since Independence Fail (Bloomberg)
Oil Production Increases Ahead: Alberta Premier (CNBC)
A Modest Proposal To Save The World (Charles Gave)
The TTIP US-EU Trade Deal -A Briefing (Guardian)
Pentagon 2008 Study Claims Putin Has Asperger’s Syndrome (USA Today)
US Navy Sailors Search for Justice after Fukushima Mission (Spiegel)
The Stuff Paradox: Dealing With Clutter (BBC)
American Sniper Is A Movie Hitler ‘Would Have Been Proud To Have Made’ (Ind.)

“The reason why this is a war is that it is ultimately a zero-sum game – someone gains only because someone else will lose.”

Currency Devaluations Are an Undeclared War (Bloomberg)

The global currency war is threatening to prove a silent killer. So says David Woo, head of global rates and currencies research at Bank of America Merrill Lynch in New York. While some question the existence of any conflict – arguing that falling exchange rates merely reflect efforts by central banks to spur lackluster domestic economies – Woo expresses concern. “There is a growing consensus in the market that an unspoken currency war has broken out,” he said in a report to clients this week. “The reason why this is a war is that it is ultimately a zero-sum game – someone gains only because someone else will lose.” The standard view on war-mongering is that by easing monetary policy, central banks from Asia to Europe are hoping to weaken their currencies to boost exports and import prices.

Trade rivals then retaliate, creating a spiral of devaluations as witnessed in the 1930s. Just this week, Reserve Bank of Australia Governor Glenn Stevens said “a lower exchange rate is likely to be needed” after he unexpectedly cut interest rates to a record low. With more than a dozen central banks injecting extra stimulus so far this year, currencies will be discussed when finance ministers and central bankers from the Group of 20 meet next week in Istanbul. For much of the past two years the G-20 has formally committed to refrain from targeting “exchange rates for competitive purposes.” That leaves Woo, a former IMF economist, declaring the war is one of “stealth” and warning the fallout from it is already roiling financial markets in a way undetected by most.

By measuring the volatility of currencies, which he calculates as the difference between the maximum and minimum exchange rate over a 26-week period, Woo estimates the dollar has been swinging about 20% against both the yen and the euro. In the past 15 years it was only higher following the collapse of Lehman Brothers in 2008. A second gauge of volatility that weighs currencies based on the gross domestic product of 20 major economies delivers the third-highest reading in two decades, topped only by the Asian crisis of 1997-98 and Lehman’s demise, he said.

Read more …

“.. the Costa Rican central bank has just announced that they will be floating the Colon. Those of a squeamish disposition should certainly not try googling “floating colon”..”

The PBOC – How To Fail In Business Without Really Flying (Russell Napier)

“Terrain seems a bit unstable…and there seems to be no sign of intelegent life anywhere” – Buzz Lightyear (Toy Story) “That wasn’t flying…that was falling with style” – Woody (Toy Story)

Another day, another central bank failure. In a world of currencies backed only by confidence, every failure is masqueraded as success. Like the ballet dancer who transforms the stumble into a pirouette, central bankers, knocked to the ground by market forces, smile and pretend that this was all part of the routine. Financial market participants, having bet everything on the promised omnipotence of central bankers, do indeed seem happy to see genius in every stumble. However a fall is a fall regardless of the style of the descent. So when will investors see that the earth is rapidly approaching and that style is just style? The key for investors today is to see behind the masquerade and the mask, the façade of those putting up a front behind a public face, and be able to tell the difference between the soaring flight of reflation and the perilous fall of deflation.

The more attitude you hear from policy makers, the more you can be sure it’s style compensating for the lack of real substance and that this is falling and not flying. And as the attitude becomes more high-handed, the lower the altitude gets. The attitude quotient is rising rapidly. Two weeks ago we noted the ‘flying’ undertaken by the Swiss National Bank as the market forced them to abandon their exchange-rate target. Deposit rates in Swiss Banks are now at such a low level that investors are better off converting deposits into bank notes and placing them under the bed. The Danish Central Bank has also instituted negative interest rates with the consequence that deposits in Denmark might also fly into paper. As the central bank managed to create over DKK106bn (US$16.3bn) in bank reserves, trying to stop a revaluation of their exchange rate last month, there will be no shortage of banknotes to go round should a ‘bank run’ from deposits to banknotes begin.

Taking interest rates so negative that they threaten a run on bank deposits should not be seen as success – it is failure. Creating bank reserves at that pace should not be seen as success – it is failure. The next failure may well be some government-inspired restriction on capital inflows. Well, you could call such restrictions, and risking the liquidity of banks, monetary success if you like, but then you probably also think it’s a success to throw the ball one yard from the touchline. Last week the Monetary Authority of Singapore was apparently “flying”, definitely not falling, when it cut interest rates and tried to devalue the SGD to defeat deflation. The Central Bank of Russia reduced interest rates while defending its exchange rate and, guess what, the currency fell. Most people, of course, would recognize that as simply falling, but as it was Russia you do have to ask did it just fall, or was it pushed ?

You may even have missed the news, that the Costa Rican central bank has just announced that they will be floating the Colon. Those of a squeamish disposition should certainly not try googling “floating colon” but, just take their word for it, the Colon will float. Elsewhere there were examples of more conventional falling, disguised as controlled flying, in the form of cuts in interest rates from Australia, Canada, Egypt, India, Pakistan, Peru and Turkey. The Turkish President has the perfect style for this sport and declared that interest rates had to fall as they were the cause and not the cure for inflation. As our hero himself remarked, ‘Buzz Lightyear to star command, I have an AWOL space ranger.’

Read more …

“The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown in GDP’..’

The Diverging Fates of China’s Provinces (Bloomberg)

From the biting-cold northeast bordering Siberia to the humid southwest next to Thailand, China’s growth rates are diverging almost as much as its geography. While the world’s second-largest economy slowed to a 7.4% expansion last year – just squeaking into the communist government’s “about 7.5%” target range – regional data presents a fractured landscape more akin to Europe’s than the rising-tide-floats-all-boats numbers we’re used to from China. There’s still a Germany: the wealthier export-focused and high-end manufacturing coastal region spanning Jiangsu, Zhejiang and Fujian. All were within about half a percentage point of their 2014 growth goals. The emerging provinces of Chongqing and Guizhou – later developers than their coastal cousins – look OK, too.

Let’s mark them down as China’s Poland, with lower labor and land costs attracting factories and helping exports. Both posted plus-10-percent expansions last year. The population-heavy Hunan, Hubei and Henan — with a combined 219 million people – almost matched their growth targets, with investment sustaining these massive economies. They’re way too populous to fit our European analogy, though. There’s even an Iceland-like outperformer: Tibet. The vast, mountainous region – which is about 12 times the size of tiny Iceland – was the only one of China’s 31 provinces and municipalities to match its 2014 target, racing ahead at 12%. Government-led infrastructure investment is behind its boom. Then we come to the sick men. While an expansion of about 5% would be stellar by European standards, in China that’s a slump.

The coal-dependent northern province of Shanxi missed its expansion target by a full 4 percentage points last year. Three other heavy industry and commodities driven north-eastern provinces – Heilongjiang, Jilin, Liaoning – all lagged with expansions near 6%, below targets of 8 or 9%. While policymakers in Beijing don’t have to contend with Grexit-like threats, there are headaches ahead. “Given the sluggish economic growth and fiscal pressure from dropping land sales, local governments have become much less ambitious than before,” Deutsche Bank AG’s chief China economist Zhang Zhiwei wrote in a Jan. 30 note. “The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown in GDP” to 6.8% this quarter. Like Europe, the slowdown may prompt more monetary easing after this week’s reduction in banks’ reserve ratio requirements.

Read more …

No good US jobs report without hidden secrets.

Goldman Raises Alarm Over The Scariest Chart In The Jobs Report (Zero Hedge)

Following the January jobs report, Goldman’s chief economist Jan Hatzius appeared on CNBC but instead of joining Steve Liesman in singing the praises of the “strong” the report (which apparently missed the memo about the crude collapse), he decided to do something totally different and instead emphasize the two series that none other than Zero Hedge has been emphasizing for years as the clearest indication of what is really happening with the US labor market: namely the recession-level civilian employment to population ratio and the paltry annual increase in average hourly earnings. This is what Hatzius said:

“The employment to population ratio is still 4% below where it was in 2006. You can explain 2% of that with the aging of the population that still leaves quite a lot of room potentially, and the wage numbers are telling us we are just not that close, although we are getting closer.”

Closer to what? Why the most dreaded event for any FDIC-backed hedge fund in the world: the Fed not only ending some $3 trillion of liquidity injections but actively starting to remove liquidity by tightening monetary conditions and rising rates. Hatzius’ punchline: “I think the case for “patience” is still quite strong.” In other words, the US may be creating almost 300K jobs per month, but stocks are still not high enough. So how should one look at today’s BLS report: well, for political purposes the data is great – just look at those whopping revisions; but when it comes to the markets, please focus on the the unadjusted, ugly details beneath the headlines. Those which we have been showing for months and months.

Because there always has to be something that prevent the Fed from hiking, and killing Chuck Prince’s proverbial music, in the process ending Wall Street’s 6-year-old “dance” ever since the 666 S&P lows. At this rate soon Goldman Sachs will become a bigger “skeptical realist” than Zero Hedge. Finally, which chart is Hatzius talking about? The one below, showing the uncanny correlation between the US civilian employment to population ratio and the annual rate of increases in hourly earnings, and the fact that neither is capable of actually increasing under the “NIRP Normal” recovery.

Read more …

And that’s how simple it is.

Stop Squeezing Syriza. We Can’t Afford Another Wrong Turn In Europe (Guardian)

With Syriza having won Greece’s election on a platform to reject the Troika-imposed bailout, the eurozone has reached yet another fork in the road. Let us hope it does not take the wrong turn, again. Squeezing Syriza and humiliating Greece further, as appears to be the strategy in Germany and other powers in the EU, could be the straw that breaks the eurozone’s back. Cutting Greece any slack is opposed by a majority of Germans, even while support for Alexis Tsipras in Greece soared after his election as he fought for concessions on debt. Political space in the eurozone has shrunk to a point where it may no longer be possible to implement sensible economic policy. Which wrong turns did we take? How can we choose wisely this time?

At the outbreak of the crisis, EU leaders insisted on national solutions to what was essentially a European problem: the fragility of large often pan-European banks. This increased the final bill, as countries refused to bite the bullet and delayed recognising that their banks were bust. Even as leaders came under domestic fire for rescuing banks with taxpayer money, Greece’s fiscal problems provided a godsend distraction. Many northern Europeans promoted a narrative of “lazy Greeks” who had been “fiscally profligate”. While the unsustainability of Greek debt was recognised by many, intensive lobbying by German and French banks which owned large amounts of Greek bonds meant that the much-needed restructuring of this debt was vetoed. An ill-designed programme was imposed as condition of financial aid to Greece.

This was essentially a bailout of European banks at the expense of Greek citizens and European taxpayers. Even worse, the narrative of “lazy southerners” and a “fiscal crisis” promoted by Germany and EU institutions crowded out the reality of an untreated banking crisis. Ireland, having foolishly guaranteed its insolvent banks, was then forbidden from imposing losses on bank bondholders by the ECB. Private debt became public and the banking crisis became a fiscal one. Even though the failure to repair and restructure banks was the biggest problem in countries such as Spain, many were treated as though they had been fiscally irresponsible and prescribed austerity.

As bank uncertainty and fiscal cuts were biting and driving the eurozone into a deep recession, the narrative of a “fiscal crisis” became self-fulfilling as debt-to-GDP ratios climbed because of both bank rescues and collapsing GDPs. The problem was compounded by Angela Merkel and Nicolas Sarkozy threatening to push Greece out of the eurozone, which in turn made markets question the viability of the single currency and fuelled panic, driving Spanish and Italian spreads up to record levels. Thus the downward spiral of a badly misdiagnosed and deliberately miscommunicated problem, and a tragically ill-conceived treatment began. Bailing out the supposedly lazy southerners has stoked anti-EU sentiment in creditor economies like Germany, who want to see more, not less austerity in debtor economies. Suffering under Troika-imposed excessive austerity has fuelled the rise of anti-austerity parties such as Syriza and Podémos.

Read more …

“The ECB bought Greek public debt from private banks for a fortune [..] private banks had found the cash to buy Greece’s public debt exactly from…the ECB. This is outright theft. ”

Troika Trojan Horse: Will Syriza Capitulate In Greece? (Pepe Escobar)

The 2015 Greek tragedy is a sorry (financial) remix of the Trojan War. But now the troika (ECB, EC, IMF) has replaced Greece, and Greece is the new Troy. It is now crystal clear the ECB will pull no punches to turn Greece into a European failed state. The rationale: others – from Spain to even, in the near future, France – must not entertain funny ideas. Toe the austerity line, or we’ll get medieval on you. It was so predictable that the destiny of Athens – and in fact the euro – would ultimately rest in the hands of ECB Governor Mario ‘Master of the Universe’ Draghi, purveyor of the latest QE which in thesis will grant an austerity-ravaged Europe a little extra time to pursue ‘reforms’.

Some background is essential. The troika sold Greece an economic racket, but it’s the Greek people that are paying the price. Essentially, Greece’s public debt went from private to public hands when the ECB and the IMF ‘rescued’ private (German, French, Spanish) banks. The debt, of course, ballooned. The troika intervened, not to save Greece, but to save private banking. The ECB bought public debt from private banks for a fortune, because the ECB could not buy public debt directly from the Greek state. The icing on this layer cake is that private banks had found the cash to buy Greece’s public debt exactly from…the ECB, profiting from ultra-friendly interest rates. This is outright theft. And it’s the thieves that have been setting the rules of the game all along.

Read more …

“The next showdown is scheduled for Feb. 11 in Brussels..”

Greece Seeks Plan C After Eurogroup Rules Out Bridge Loan (Bloomberg)

Euro-area governments won’t grant Greece’s request for a short-term financing agreement to keep the country afloat while it renegotiates the terms of its financial support, said Jeroen Dijsselbloem, chairman of the bloc’s finance ministers’ group. “We don’t do” bridge loans, Dijsselbloem told reporters in The Hague on Friday, when asked about Greece’s request. “A simple extension is possible as long as they fully take over the program.” The European Union’s latest rebuff raises the stakes for Greece’s new government, which has already failed in its demands for a debt writedown. The next showdown is scheduled for Feb. 11 in Brussels, when Greek Finance Minister Yanis Varoufakis faces his 18 euro-area counterparts in an emergency meeting after Prime Minister Alexis Tsipras delivers a major policy speech on Sunday.

“After an aggressive start, which resulted in a reality check for the new government, I think they are becoming more pragmatic,” said Aristides Hatzis, an associate professor of law and economics at the University of Athens. “No matter what they say to their internal audience, what they do abroad matters most.” Varoufakis has said his government won’t accept any more cash under the terms of Greece’s existing bailout, leaving €7 billion euros of potential aid on the table, rather than complying with demands for more austerity attached to the country’s international bailout agreement.

“Practically speaking, our proposal is that there should be a bridging program between now and the end of May, which would give us space – all of us – to carry out these deliberations and in a short space of time come to an agreement” Varoufakis said after meeting German Finance Minister Wolfgang Schaeuble in Berlin on Feb. 5. The standoff risks leaving Europe’s most-indebted state without any funding as of the end of this month, following the Jan. 25 election victory of Tsipras’s Syriza party. “It will be a first step in how we want to proceed together in the next weeks, months,” Dijsselbloem said, as he cautioned that a discussion over the terms of the bailout program would mean “we no longer talk about a simple extension.”

Read more …

Why does even the Guardian choose to speak of ‘Greece’s radical Syriza government’?

Syriza Vows To Fight Pressure To Stick To Bailout Terms (Guardian)

Greece’s radical Syriza government has vowed to keep fighting pressure from its eurozone neighbours to stick to the strict terms of its bailout package as battle lines were drawn ahead of crunch debt talks next week. Eurozone finance ministers have called an emergency meeting for Wednesday night in Brussels to discuss the Greek crisis after a whistlestop tour of Europe by Yanis Varoufakis, Greece’s finance minister, made little headway. Germany wants Greece to arrive with a plan on the repayment of €240bn (£180bn) in bailout loans it received from the international community.

The special debt meeting will be followed on Friday by a summit of European leaders, the first with Alexis Tsipras, the Greek prime minister. But a government official ruled out accepting a plan based on the old bailout and said Varoufakis would ask for a bridge agreement to tide Athens over until it can present a new debt and reform programme. “We will not accept any deal which is not related to a new programme,” an official told Reuters news agency.

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“It is … necessary that Greece is given the possibility to issue T-bills, beyond the (current) €15 billion threshold, in order to cover any extra needs..”

Greece: We Want No More Bailout With Strings (Reuters)

Greece’s new leftist-led government, isolated in the euro zone and under pressure from the European Central Bank, said on Friday it wanted no more bailout money with strings attached from the EU and IMF. Instead, a government official said, it wanted authority from the euro zone to issue more short-term debt, and to receive profits that the European Central Bank and other central banks have gained from holding Greek bonds. The official said Greece was in effect asking for a “bridge agreement” to keep state finances running until Athens can present a new debt and reform program, “not a new bailout, with terms, inspection visits, etc.”.

“It is … necessary that Greece is given the possibility to issue T-bills, beyond the (current) €15 billion threshold, in order to cover any extra needs,” said the official, asking not be named. Finance Minister Yanis Varoufakis returned empty-handed from a tour of European capitals in which even left-leaning governments in France and Italy insisted Greece must stick to commitments made to the European Union and IMF and rejected any debt write-off. The Athens official made clear that the new government, which came to power on a wave of anti-austerity anger in elections last month, now wanted to forego remaining bailout money that had austerity strings attached: “Greece is not asking for the remaining tranches of the current bailout program – except the €1.9 billion that the ECB and the EU member states’ central banks must return.”

Euro zone finance ministers will discuss how to proceed with financial support for Athens at a special session next Wednesday ahead of the first summit of EU leaders with the new Greek prime minister, Alexis Tsipras, the following day. However, the chairman of the finance ministers said the following meeting of the Eurogroup on Feb. 16 would be Greece’s last chance to apply for a bailout extension because some euro zone countries would need to consult their parliaments. “Time will become very short if they (Greece) don’t ask for an extension (by then),” said Jeroen Dijsselbloem. The current bailout for Greece expires on Feb 28. Without it the country will not get financing or debt relief from its lenders and has little hope of financing itself in the markets.

Read more …

Surprisingly positive piece from Der Spiegel, which just last week was very pro-Merkel. “..his left-wing government is already busy getting down to work. Many of its first moves have been the right ones.”

Defiance and Charm: A Measured First Week for New Greek Leader (Spiegel)

Syriza’s victory in the recent Greek elections set off a wave of concern in Europe. But even as the new prime minister tries to woo other leaders, his left-wing government is already busy getting down to work. Many of its first moves have been the right ones. [..] Something has happened in Greece that has not happened like this anywhere else in Europe: A handful of neophyte politicians, intellectuals and university professors have taken over the government. It feels like a small revolution instead of a handover of duties. And that’s not only because many members of the previous administration deleted their hard drives and took their documents with them, or that there initially wasn’t even any soap in the government headquarters.

No, the new government has upended the rules of the Greek political system – and spurred into action a Europe that is still unsure how it should react to the rebels. In Athens you can also see the euphoria reflected in the city’s traffic, which is a yardstick for the crisis. The streets had often been half empty, because fewer people were traveling to work, the gasoline was expensive, the mood gloomy. But now the city center is just as clogged as before. The people are once again in motion. Even though only 36% of voters chose Syriza, 60% of Greeks are happy with new government’s first few days. If there were new elections, support for the party could grow and Tsipras could renounce his coalition partner. Although he may be entertaining that scenario privately, members of the government deny that it is in the cards. But to maintain this enthusiasm, Tsipras now needs to show a real accomplishment: an end of the German “austerity mandate.” Which means that he doesn’t merely need to convince the Greeks, he needs to conquer Europe.

Read more …

“So either Tsipras turns 180 degrees or the euro area’s post-crisis, anti-contagion defenses will get their stiffest test.”

It’s Merkel Legacy Moment (Bloomberg)

It’s a legacy moment for Angela Merkel. How the German chancellor navigates the two-front crisis emanating from Moscow and Athens could determine whether she rises to her role as Europe’s dominant leader or slips into history as a risk-averse manager who couldn’t hold the region together. “The immediacy and urgency of taming the dual Greek and Ukraine nightmares are defining moments for Europe and for Merkel,” said Bud Collier, professor at the John F. Kennedy Institute of Berlin’s Free University. “The stakes are enormous.” An abundance of caution is the complaint she’s faced from the moment Greece spawned the euro financial crisis – forcing needy nations to take their medicine and suffer for budgetary sins in the name of becoming more competitive. In return, she slowly brought her reluctant electorate along and pried open her government’s checkbook.

Now the Greeks are as fed up as the Germans. They elected Alexis Tsipras as prime minister on the promise the days of pension, wage and job cuts were over. They’re also trying to get under Merkel’s skin. Standing in Germany’s finance ministry, the stone behemoth that was Herman Goering’s headquarters in Adolf Hitler’s regime, Greek Finance Minister Yanis Varoufakis touched the most sensitive spot in Germany’s collective consciousness: “Germany must and can be proud that Nazism has been eradicated here, but it’s one of history’s most cruel ironies that Nazism is rearing its ugly head in Greece, a country which put up such a fine struggle against it.” Remarks like that may explain Merkel’s exasperation with the new leaders in Athens and why she’s waiting for them to come around to see things her way. If they don’t, neither she nor her allies have expressed much interest in a middle ground.

So either Tsipras turns 180 degrees or the euro area’s post-crisis, anti-contagion defenses will get their stiffest test. The next signals are likely at the EU’s Feb. 12 summit. Also on the agenda at that gathering is what to do about Putin. As with Tsipras, she’s not optimistic. Unlike with Greece, though, Merkel has few cards to play. She’s stuck between the U.S. and Russia, herding the EU’s 28 governments and is largely the point person because of geography. She has stopped seeing Putin as a rational actor, according to German government officials, but is the closest to an interlocutor that she has. As she arrives for talks in Moscow with French President Francois Hollande and the fighting intensifies, the united anti-Putin front is at risk amid dwindling options: tougher sanctions that many EU leaders are resisting, arming the government in Kiev or yielding to the breakup of Ukraine.

Read more …

“About 117,000 home-mortgage accounts are in arrears, according to central bank figures, and the Free Legal Advice Centres group said last month that a “substantial spike” in repossessions may be on the way.”

Irish Fighting Bankers Show It’s Not Just Greeks Protesting Debt (Bloomberg)

Byron Jenkins says he would rather destroy his home than hand it over to the banks. The former builder owes about €750,000 euros on his house in a Co. Kildare town about 40 miles west of Dublin. After 15 court appearances, he’s still fending off repossession. “All they’ll get back is a pile of bricks,” Jenkins said. “I’ve told them that.” Banks lodged 10,000 applications to foreclose on family homes in the year through September, a legal rights group said last month, four times as many as in the previous year. The legacy of western Europe’s worst real estate crash is entering a new phase, bringing with it a very Irish version of the backlash against the establishment sweeping Europe.

As Greeks turned to Alexis Tsipras to reverse five years of austerity, and anti-immigrant parties gain ground in countries like France and Sweden, in Ireland, homeowners are increasingly organizing resistance. Jenkins is part of a group of activists allied to the Land League, named after a 19th century organization that battled with landlords when Ireland was ruled from London. In the 21st century, the fight is against bankers. “We have been creating mayhem, if by mayhem you mean keeping people in their homes,” said Jerry Beades, a developer who has spent almost a decade in disputes with banks and financial regulators and is now leading the League. “We are reflecting the anger that’s out there about the level of debt that just can’t be serviced.” About 117,000 home-mortgage accounts are in arrears, according to central bank figures, and the Free Legal Advice Centres group said last month that a “substantial spike” in repossessions may be on the way.

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“Aberdeen has been the focus of a classic oil boom..”

The Biggest Loss for Scotland Since Independence Fail (Bloomberg)

In Aberdeen, a city built out of granite on Scotland’s North Sea coast, a diamond merchant checks the price of oil every day. Until recently, the dealer, Oscar Ozdaslar, had been accustomed to North Sea oil workers stopping in to buy 3,500-pound ($5,260) diamond rings and earrings in his store on Union Street. “This Christmas was very quiet compared to the Christmas before,” said Ozdaslar, 50. “The oil guys didn’t come in.” Just six months ago, Aberdeen was the economic linchpin of Scotland’s campaign to split from the U.K. as oil traded above $100 a barrel. In the wake of the independence referendum’s failure, it serves as a microcosm of how crude’s slump to nearer $50 is hurting cities from Calgary to Kuala Lumpur.

“Aberdeen has been the focus of a classic oil boom,” said Gordon Hughes, a professor of economics in the University of Edinburgh. “There’s no doubt that the city will go through a bad period now that it’s over.” What’s more, the North Sea basin is among the most expensive in the world from which to extract oil. About 20% of U.K. production is “uneconomic” at $50 a barrel, trade group Oil & Gas U.K. says. After rallying this week, brent for March settlement traded at $57.72 a barrel on the ICE Futures Europe exchange on Friday. BP CEO Bob Dudley said this week it feels like the 1980s when he was living in Aberdeen working as an artificial lift engineer for Amoco before it merged with BP. Prices fell about 70% in a few months after Saudi Arabia increased production and didn’t recover until 1990. Regions worldwide that depend on the industry are having an “enormous shock,” he said.

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“We’ll actually be experiencing production increases over the next two years, notwithstanding low oil prices.”

Oil Production Increases Ahead: Alberta Premier (CNBC)

The steep drop in oil prices will lead to some slowdown of economic activity in Alberta, Canada, and the deferral of large capital investments in its oil sands, but Alberta Premier Jim Prentice told CNBC Friday its economy is resilient and will weather the rout. “This will be a difficult time. We’re assuming this will carry on for next 18 months or so and that we’ll be in a low-price environment,” he said in an interview. “We expect there will be some falloff in conventional drilling activity, shale drilling activity as well, clearly, but at the end of the day our economy is resilient.” Canadian rig count is down 13 rigs from last week, to 381, according to Baker Hughes. It is down 240 rigs from last year. However, oil production is going to increase. “We’ll actually be experiencing production increases over the next two years, notwithstanding low oil prices.”

Most of the oil in the region comes from oil sands, which produce about 1.9 million barrels of oil a day. In fact, Alberta’s oil sands are the third-largest crude oil reserve in the world. The province has proven oil reserves of 170 billion barrels. Prentice expects to see economic to slow down in cities like Calgary, but said Alberta has a strong public balance sheet and strong companies. About 121,500 citizens are directly employed in Alberta’s mining, oil, and gas extraction sectors. “I think there will be some consolidation to strength as we work our way through this. And certainly there will be implications and we’re concerned about that and we’re planning for that,” he said. That said, while he’s seen a deferral of large capital investments on new increments of oil sands investments and a reduction in capital expenditure in traditional oil and gas activity, Prentice sees a light at the end of the tunnel. “This will be part of a cycle, and we’ll eventually see the other side of this.”

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“..the final mission of any truly modern government must be to redirect the inventory of savings for the benefit of the rich (while, of course, claiming it is acting for the poor).”

A Modest Proposal To Save The World (Charles Gave)

As such, it seems that the ultimate aim of policy must be to transfer the nation’s entire wealth to an ever smaller number of rich people, most of who work in finance. Perhaps this is as it should be, since as already noted, money and only money can create value. Hence, the final mission of any truly modern government must be to redirect the inventory of savings for the benefit of the rich (while, of course, claiming it is acting for the poor). Interestingly, Europe’s socialists and the Democrats in the US have the ideal political cover to carry out this important exercise. And this, of course, brings us to Greece and my own big solution.

The lack of final demand in that benighted country shows that Alexis Tsipras must manage an economy suffering from not enough government spending. In response, Athens should issue unlimited sums of perpetual zero coupon bonds, which will be bought by the ECB. Next, the Italian, French and Spanish governments should follow suit. The proceeds can be transferred to local government districts in order for civil servants to be hired in earnest. The effect would be to greatly boost the local GDP, by the amount of the salaries paid to the civil servants, while the debt-to-GDP ratio will fall accordingly. The Bundesbank will be happy. Of course, the simple minded (non-economist fellows) might wonder who will buy this paper.

The answer is simple: the authorities must slap a 100% reserve requirement on all products held by insurance companies, banks and pension funds, and ‘hey presto!’ bond issues will be oversubscribed. Of course, if the choice is between a zero coupon perpetual bond and shares in the stock market, I have no doubt that the Dow will be at 100,000 in no time. At the same time, since the only competition for the perpetual zeros will be cash, the use of bank notes will need to be outlawed. Some smart fellows have already started working on this highly progressive idea. The only thing that I do not understand is why it has not yet been adopted. It must be the fault of incompetent politicians, advised by poorly trained economists. There is no other explanation.

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Again: the resistance to TTIP is not nearly strong enough.

The TTIP US-EU Trade Deal -A Briefing (Guardian)

What’s the story? It’s been called the most contested acronym in Europe, a putative free-trade deal between the world’s two richest trading powers that will either unleash untold prosperity or economic and cultural ruin, depending on your point of view. The Transatlantic Trade and Investment Partnership (TTIP) is an ugly mouthful, and not just in name. The aim is not just to reduce tariffs between the EU and US but to remove regulatory barriers and standardise rules so that companies can access each other’s market more easily. It has the potential to be the biggest trade deal ever concluded. But there are formidable pitfalls and obstacles along the way. Europeans hope the talks, which embark on an eighth round this week after almost two years of deliberation, will result in access to financial services in the US.

Washington is resisting. The Americans are eyeing up the food markets that serve the EU’s 500 million mouths. Europeans are concerned this will bring lower US food standards to a continent that prizes its Italian hams and French champagnes. Above all, public scepticism to the trade accord is spreading across Europe, where growing numbers are suspicious of their political leadership and disenchanted by two decades of globalisation. The treaty has been in the works for 12 years, and came about as it became apparent that bigger global trade deals would be hard to achieve. Negotiations started in 2013 and involve at least 100 participants. [..]

The biggest problem with TTIP is that the most significant gains are to be made from an area that the public is queasiest about: deregulation. Negotiators know that just removing tariffs is the easy bit – and not worth nearly as much as reforming, reducing and/or harmonising the differing regulations that govern business and industry in the US. But one person’s regulation is another’s protection, and opponents of TTIP argue that it could threaten consumer protection, social rights, health, the environment and data protection. Some even fret that it could open the door to privatisation by allowing, for example, US health companies to run parts of Britain’s publicly owned National Health Service.

The Europeans have already secured the exclusion of audio-visual services to protect the French film industry, a neuralgic issue for leaders in Paris. The question is: will the long list of other exceptions that already include GM food and hormone-fed beef dilute the deal to make it less worthwhile? An even bigger stumbling block is another clunky acronym, ISDS (Investor State Dispute Settlement), which would allow businesses to sue governments for action that would hurt future profits. Supporters of the bill have argued that ISDS plays an essential role in ensuring smooth transatlantic negotiations. Critics fret that it would bypass national laws and subjugate the interest of governments to those of big business.

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Fun with sketchy ‘science’.

Pentagon 2008 Study Claims Putin Has Asperger’s Syndrome (USA Today)

A study from a Pentagon think tank theorizes that Russian President Vladimir Putin has Asperger’s syndrome, “an autistic disorder which affects all of his decisions,” according to the 2008 report obtained by USA TODAY. Putin’s “neurological development was significantly interrupted in infancy,” wrote Brenda Connors, an expert in movement pattern analysis at the U.S. Naval War College in Newport, R.I. Studies of his movement, Connors wrote, reveal “that the Russian President carries a neurological abnormality.” The 2008 study was one of many by Connors and her colleagues, who are contractors for the Office of Net Assessment (ONA), an internal Pentagon think tank that helps devise long-term military strategy.

The 2008 report and a 2011 study were provided to USA TODAY as part of a Freedom of Information Act request. Researchers can’t prove their theory about Putin and Asperger’s, the report said, because they were not able to perform a brain scan on the Russian president. The report cites work by autism specialists as backing their findings. It is not known whether the research has been acted on by Pentagon or administration officials. The 2008 report cites Dr. Stephen Porges, who is now a University of North Carolina psychiatry professor, as concluding that “Putin carries a form of autism.” However, Porges said Wednesday he had never seen the finished report and “would back off saying he has Asperger’s.”

Instead, Porges said, his analysis was that U.S. officials needed to find quieter settings in which to deal with Putin, whose behavior and facial expressions reveal someone who is defensive in large social settings. Although these features are observed in Asperger’s, they are also observed in individuals who have difficulties staying calm in social settings and have low thresholds to be reactive. “If you need to do things with him, you don’t want to be in a big state affair but more of one-on-one situation someplace somewhere quiet,” he said.

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And what do they meet, of course? Denial.

US Navy Sailors Search for Justice after Fukushima Mission (Spiegel)

On March 11, 2011, the American aircraft carrier USS Ronald Reagan received orders to change course and head for the east coast of Japan, which had just been devastated by a tsunami. The Ronald Reagan had been on its way to South Korea when the order reached it and Captain Thom Burke, who was in charge of the ship along with its crew of 4,500 men and women, duly redirected his vessel. The Americans reached the Japanese coastline on March 12, just north of Sendai and remained in the region for several weeks. The mission was named Tomodachi. The word tomodachi means “friends.” In hindsight, the choice seems like a delicate one. Three-and-a-half years later, Master Chief Petty Officer Leticia Morales is sitting in a café in a rundown department store north of Seattle and trying to remember the name of the doctor who removed her thyroid gland 10 months ago.

Her partner Tiffany is sitting next to her fishing pills out of a large box and pushing them over to Morales. “It was something like Erikson,” Morales says. “Or maybe his first name was Eric, or Rick. Oh, I don’t know. Too many doctors.” In the last year-and-a-half, she has seen oncologists, radiologists, cardiologists, blood specialists, kidney specialists, gastrointestinal specialists, lymph node experts and metabolic specialists. “I’m now spending half the month in doctors’ offices,” she says. “This year, I’ve had more than 20 MRTs. I’ve simply lost track.” She swallows one of the pills, takes a sip of water and smiles wryly. It was the endocrinologist who asked her if she had been on the Ronald Reagan. During Tomodachi? Yes, Morales told her. Why?

The doctor answered that he had removed six thyroid glands in recent months from sailors who had been on that ship, Morales relates. Only then did Morales make the connection between the worst accident in the history of civilian atomic power and her own fate. The Fukushima catastrophe changed the world. Nuclear reactors melted down on live television and twice as much radioactive material was released as during the Chernobyl accident in 1986. The disaster drove 150,000 people from their towns and villages, poisoned entire landscapes for centuries and killed hundreds of thousands of farm animals. It also led countries around the world to rethink their usage of nuclear energy. Fukushima is more than just a place-name, it is an historical event – and it would seem to have changed the life of Leticia Morales as well.

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“It doesn’t make them happy – it’s a cover-up. We get so busy maintaining stuff, keeping it, making sure there’s a place for it. It’s not greed. It’s trying to fill up a hole that’s so big it will never be filled..”

The Stuff Paradox: Dealing With Clutter In The US (BBC)

While more and more Americans struggle to make do with less due to economic hardship, others are making a conscious choice to shed their possessions. When Courtney Carver was diagnosed with multiple sclerosis in 2006, she took a long, hard look at her life and decided to focus on only the things that were really important. And that meant reducing the amount of “stuff” cluttering her space and her time. “At first it seemed completely overwhelming and not manageable,” she recalls. “Even the thought of decluttering my closet felt like this huge accomplishment, and paying off tens of thousands of dollars of debt felt impossible.” But Carver persevered and discovered that casting off her possessions also reduced her stress levels and she began to feel better. “I’m not saying crazy lifestyles cause illness, but they certainly exacerbate issues,” she says.

“Freeing up a lot of resources allows me to give more of my time and attention and money to things that I care about.” She began blogging about her experience and eventually left her advertising job in Salt Lake City, Utah, to launch a website BeMoreWithLess.com. Her Project 333 – how to pare down a wardrobe to just 33 items – has attracted a large online following and she has just launched a similar initiative to reduce food in the kitchen. The point is to free up time and mental energy that would otherwise be spent on the everyday preoccupation of eating and fashion. Of course minimalism itself is nothing new. Some of the ancient Greek philosophers were advocates, most religions extol the virtues of austerity and figures as diverse as the Russian novelist Leo Tolstoy and the Indian civil rights leader Mahatma Gandhi have preached the benefits of a simple life. But a recent survey reveals that 54% of Americans feel overwhelmed by clutter and 78% have no idea what to do with it. [..]

Bev Hitchins is the founder of Align, a professional decluttering service based in Alexandria, Virginia. She has never met some of her clients and often provides counselling online. “I work with people who are poised to make a change,” she says. “They realise they’re stuck and have to do something about it. One of the easiest ways to get unstuck is to declutter.” That’s because most people accumulate possessions for psychological reasons, she says. “People gather stuff to protect themselves. It’s an illusion though. It doesn’t make them happy – it’s a cover-up. We get so busy maintaining stuff, keeping it, making sure there’s a place for it. It’s not greed. It’s trying to fill up a hole that’s so big it will never be filled. “But there’s a tremendous transformation that goes on if they stay with the process. You can go into therapy or you can start decluttering.”

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“I think when you make a film like American Sniper you have to be in decline.. You’re not a world leader any more..”

American Sniper Is A Movie Hitler ‘Would Have Been Proud To Have Made’ (Ind.)

The British documentarian Nick Broomfield has said that the controversial biopic American Sniper is a film which Adolf Hitler would have been proud to have made. In an interview for The Independent Magazine, the award-winning filmmaker branded it an example of ‘American fascism’ that made him question his decision to live in the United States. “After you’ve watched a film like American Sniper, you think “My God, what the fuck am I doing here?” He went on to say: “I think Adolf would have been proud to have made it”. Directed by Clint Eastwood, American Sniper is a biopic of the Navy SEAL sniper Chris Kyle, played by Bradley Cooper. Based on Kyle’s memoir, the film tells the story of how he rose to legendary status within the armed forces by making 164 confirmed “kills” during four tours in Iraq.

The film has been a runaway success at the US box office. American sniper Chris Kyle had over a 100 ‘kills’ to his name American sniper Chris Kyle had over a 100 ‘kills’ to his name Asked whether he agreed with criticism of America Sniper as propagandist Broomfield – who is promoting his new documentary Tales of the Grim Sleeper – labelled it a product of a country locked in an existential struggle with its own history and future. “It’s been amazing watching the whole Obama thing. Just seeing how deep-rooted it [American fascism] is. That’s really what Tales of the Grim Sleeper is about: incredible racism that really goes back to slavery and the country has not in any way got over it. “I think when you make a film like American Sniper you have to be in decline,” he added.

“You’re holding on to your bootstraps and you’re turning inwards. You’re not a world leader any more. I think it makes people very insecure and they sort of retreat to their most basic fears .The fact that that film has been such a touchstone here is worrying.” [..] Broomfield’s new documentary, Tales of a Grim Sleeper, investigates the murders of over 150 prostitutes, mostly African-American, in South Central Los Angeles. It is Broomfield’s 30th documentary – a number of which have been set in the US. “If you were making films in the 1850s when the British Empire was pre-eminent, you would undoubtedly be more interested about making films in Britain, about British people,” he explained. “But I think, in a way, it’s about to change. People look to the United States for things that are about to happen in the future.”

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