Jun 072017
 
 June 7, 2017  Posted by at 9:25 am Finance Tagged with: , , , , , , , , , ,  


Olivier Drot Morning in Downtown Athens June 7 2017

 

Spring Rally in Stocks, Bonds, Gold and Bitcoin Unnerves Investors (WSJ)
Trump’s America Is Facing a $13 Trillion Consumer Debt Hangover (BBG)
Bars Open Early Tomorrow So People Can Drink While Watching Comey Testify (BI)
Other Times Unemployment Has Been This Low, It Didn’t End Well (WSJ)
UK’s May Says She’d Rip Up Human Rights Law to Beat Terrorists (BBG)
Corbyn: UK Foreign Policy Increases Terrorism Risk. Most Britons Agree (Ind.)
Australia’s Economy Marks Record 26 Years Without Recession (AFP)
Australians Curb Spending As Household Debt Balloons (R.)
Is There A Magic Money Tree? Yes Children, But That’s The Wrong Question (G.)
Santander Buys Struggling Spanish Banco Popular For €1 (BBG)
Don’t Count on China as Next Climate Crusader (WSJ)
Gimme Shelter (Jim Kunstler)
98% Of Greeks Downbeat About Their Current Economic Situation (K.)

 

 

The inevitable result of no price discovery for years on end. Do note that no price discovery also means there are no investors.

Spring Rally in Stocks, Bonds, Gold and Bitcoin Unnerves Investors (WSJ)

Stocks, bonds, gold and bitcoin—assets that rarely move in unison—have all been surging this spring, an everything rally that leaves investors confounded about how to play the plodding U.S. expansion and vulnerable to sharp reversals in fortune. Major U.S. stock indexes have soared to records this month, reflecting some investors’ confidence in the continued U.S. economic recovery along with expectations that large technology firms will accrue further market-share gains. At the same time prices of bonds, which often decline when stocks are rising, have risen lately, as U.S. inflation readings cooled off alongside a slowdown in some key industries. Gold has gained following terror attacks in the U.K., and turmoil in U.S. politics centering on the administration’s legislative prospects and a key congressional hearing this week featuring former FBI director James Comey.

The simultaneous gains have begun to concern some investors. Many point to a wave of money that is driving up asset prices, tied in part to lower bond yields and a lower dollar—a confluence of events they say feels good while it lasts but can’t go on forever. “We do think there are distortions” in the markets, said Iman Brivanlou, who oversees high-income equities at asset manager TCW. The Dow Industrials this month have posted two record closes, their first since March, and the 30-stock index remains just 0.33% below its all-time high despite a decline Tuesday of 47.81 points to 21136.23. The Nasdaq Composite Index has hit more than three dozen new highs this year, reflecting the surge of red-hot tech stocks such as Alphabet and Amazon.com , both of which this month have surpassed $1,000 a share. Bitcoin has tripled this year, hitting a record high Tuesday.

At the same time, U.S. bond yields on Tuesday sank to their 2017 low at 2.147% and the price of gold, long viewed as a barometer of market concern about potential risks ahead, settled at $1,294.40, its highest in seven months. A Goldman Sachs Group index of financial conditions that takes into account credit spreads, equity prices and other market gauges, this month suggested the easiest conditions since early 2015, before the Federal Reserve began lifting rates. Another measure of stress in U.S. money markets fell to near its lowest in seven years, while measures of expected stock-market swings have been at the lowest in a decade.

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A global issue.

Trump’s America Is Facing a $13 Trillion Consumer Debt Hangover (BBG)

After bingeing on credit for a half decade, U.S. consumers may finally be feeling the hangover. Americans faced with lackluster income growth have been financing more of their spending with debt instead. There are early signs that loan burdens are growing unsustainably large for borrowers with lower incomes. Household borrowings have surged to a record $12.73 trillion, and the%age of debt that is overdue has risen for two consecutive quarters. And with economic optimism having lifted borrowing rates since the election and the Federal Reserve expected to hike further, it’s getting more expensive for borrowers to refinance. Some companies are growing worried about their customers. Public Storage said in April that more of its self-storage customers now seem to be under stress.

Credit card lenders including Synchrony Financial and Capital One Financial are setting aside more money to cover bad loans. Consumer product makers including Nestle posted slower sales growth last quarter, particularly in the U.S. Companies may have reason to be concerned. Consumer spending notched its weakest gain in the first quarter since the end of 2009, a problem in an economy where consumers account for 70% of spending, though analysts expect the dip to be transitory. And debt delinquencies are rising even as the job market shows signs of strength. “There are pockets of consumers that are going to be sorely tested,” said Christopher Low, chief economist at FTN Financial. “We’ve conditioned American consumers to use debt to close the gap between their wages and their spending. When the Fed hikes, riskier borrowers are going to get pinched first.”

Since the 2008 financial crisis, the Fed has kept rates low to encourage companies and consumers to borrow more and spur economic growth. Much of the gains in household debt since 2012 have come from student loans, auto debt and credit cards. Over that time, wage growth has averaged around 2.2% a year, and the pace has been slowing for much of this year. Even if economists forecast that income growth will accelerate, those pickups have remained elusive. Donald Trump won the U.S. presidential election in part by convincing voters that he understood their economic pain. Keeping up with household debt payments is still broadly manageable for consumers. As of the end of last year, the ratio of principal and interest payments to disposable income for Americans was just shy of 10%, less than the average going back to 1980 of 11.33%.

And it’s too soon to say whether growing signs of pain among borrowers are just a return to more normal levels of delinquencies or evidence of a more serious credit downturn. Loan delinquencies are creeping higher after plunging from 2010 until the middle of 2016, but are still below historical averages.

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This can only disappoint. The echo chamber is overcrowded.

Bars Open Early Tomorrow So People Can Drink While Watching Comey Testify (BI)

If you want to have a drink while watching former FBI director James Comey testify before the Senate Intelligence Committee on Thursday, you’re in luck. Bars in Washington, DC, San Francisco, and Houston, Texas, are opening early on Thursday to screen Comey’s testimony, which is scheduled to begin at 10 a.m. EST. “Come on… you know you want to watch the drama unfold this Thursday,” Shaw’s Tavern, which will be serving $5 Stoli vodka and “FBI” sandwiches, wrote on Facebook. “Grab your friends, grab a drink and let’s COVFEFE!”

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Oh boy, you can’t win, can you?

Other Times Unemployment Has Been This Low, It Didn’t End Well (WSJ)

There have been only three fleeting periods in the past half-century when the U.S. unemployment rate was as low as it is today. This would be cause for celebration but for one disturbing fact: in hindsight, each period was associated with boiling excesses that led to serious economic trouble. Low unemployment of the late 1960s preceded an inflation spiral in the 1970s. The late 1990s bred the Dot-com bubble and bust. The mid-2000s saw the buildup and collapse of U.S. housing. While there is reason to believe today’s economy isn’t boiling over as in the past, those episodes call for caution. “It’s not a matter of superstition, it’s a matter of being mindful of the history of what such a low unemployment rate usually is followed by,” said Michael Feroli, chief U.S. economist of J.P. Morgan Chase.

While initially a welcome development, low unemployment in the 1960s laid the groundwork for a buildup of wage and price pressures, spurred on by low interest rates and aggressive government spending programs. The unemployment rate dropped to 4.3% in September 1965 and then below 4%. Today’s unemployment rate, also at 4.3%, could drop below 4% in the next year if it maintains its present trajectory. Unemployment returned again to 4.3% in January 1999. This time the inflation rate remained below 2% and it seemed that, unlike the late 1960s, the economy wasn’t overheating. But asset prices—the stock market in particular—soared after what had already been a long climb. The DJIA shot above 10000 for the first time in March 1998. Highflying tech companies commanded billion-dollar valuations with no profits to report. In hindsight, an internet bubble grew out of control.

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Hoping to get the nazi vote?

UK’s May Says She’d Rip Up Human Rights Law to Beat Terrorists (BBG)

Prime Minister Theresa May said she’d be willing to tear up human rights legislation in the battle against terrorists, as security continued to dominate the final days of the U.K. election campaign. Speaking to supporters at a campaign event in Slough, west of London, the premier said she wanted to make it easier for the authorities to deport foreign terror suspects and to limit the freedoms of individuals who pose a threat but who can’t be prosecuted in court. “If our human rights laws stop us from doing it, we will change the laws so we can do it,” May said. “If I am elected as prime minister on Thursday, that work begins on Friday.” May is facing criticism over her record overseeing U.K. homeland security in the wake of two terrorist attacks in two weeks ahead of Thursday’s national vote.

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Those arms sales will be under heavy pressure no matter who wins.

Corbyn: UK Foreign Policy Increases Terrorism Risk. Most Britons Agree (Ind.)

An overwhelming majority of people agree with Jeremy Corbyn that British involvement in foreign wars has put the public at greater risk of terrorism, according to a new poll. The exclusive ORB survey for The Independent found 75% of people believe interventions in Iraq, Afghanistan and Libya have made atrocities on UK soil more likely. The poll – conducted before Saturday night’s devastating attack – comes after Mr Corbyn was lambasted for suggesting foreign policy decisions were linked to terrorism in the UK and that the “war on terror” had failed. The deadly strike at London Bridge and Borough Market, the third attack in Britain in as many months, has seen security dominate the final days of the election campaign, with cabinet ministers squabbling over whether it could have been stopped.

Theresa May’s record as Home Secretary has been questioned and she has faced a call to resign over the matter from Mr Corbyn, not to mention a former aide to ex-Prime Minister David Cameron. In the wake of the Manchester attack, which killed 22 people last month, the Labour leader highlighted the potential role foreign military interventions play in increasing the likelihood of atrocities in the UK. Despite experts like Baroness Eliza Manningham-Bullerformer, a former MI5 chief, and Baroness Pauline Neville-Jones, ex-chair of the Joint Intelligence Committee, expressing similar views, he was accused by Conservatives of making excuses for terrorism.

But the ORB survey for The Independent found three-quarters of people – taking in all age groups, political persuasions and social classes – agreed Britain’s military involvement in Iraq, Afghanistan and Libya had increased the risk of terrorist acts. Within that, some 68% of Tory voters agreed foreign wars have enhanced the risks of terrorism at home. So did 80% of Labour supporters and 79% of people that voted for the Liberal Democrats in 2015.

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This is hilarious in combination with the next article.

Australia’s Economy Marks Record 26 Years Without Recession (AFP)

Australia marked a world-record 26 years without a recession Wednesday, as the economy grew 0.3% in the first-quarter, official data showed. The Australian Bureau of Statistics put the annual rate of growth at 1.7%, down from 2.4% in the previous three months. The soft quarterly reading was widely expected by analysts amid the impact of category four Cyclone Debbie on eastern Australia in late March, weaker trade figures and tepid wages growth. “The results today demonstrate the continued resilience of the Australian economy,” Treasurer Scott Morrison told reporters. The Australian dollar rallied by a quarter of a US cent to 75.27 cents just after the data was released, as some analysts had predicted a negative first-quarter reading.

Australia last recorded two negative quarters of economic growth in March and June 1991, before enjoying 103 quarters without a recession to equal the record set by the Netherlands. Economists said the resources-rich nation’s long stretch of expansion was supported by economic reforms in the 1980s and 1990s, such as the floating of the local currency, a flexible labour market, financial sector and capital markets deregulation and lower tariffs. Australia has also benefited from China’s economic growth and hunger for natural resources, which led to an unprecedented mining investment boom and record commodity prices. But economists have warned that economic growth in the next few years may not be as rosy. “In the context of the past few years, it is still a fairly weak outcome,” JP Morgan economist Tom Kennedy told AFP of the latest figures.

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A record run without a recession entirly paid for with leveraged private debt: “They are all on a budget. Everyone’s got all their money in houses, that’s how it is.”

Australians Curb Spending As Household Debt Balloons (R.)

Australia’s economy may have achieved a remarkable winning streak, avoiding a recession for 25 years, but there are now clear signs that the consumers who have driven much of the growth are running out of puff. With cash interest rates at a record low and house prices near record highs, the nation’s household debt-to-income ratio has climbed to an all-time peak of 189%, according to the Reserve Bank of Australia (RBA). That means there are an increasing number of people who have little cash for discretionary spending – on everything from cars to electrical appliances and new clothes – as their pay packets get consumed by large mortgages and high rental payments in the country’s red-hot property market.

And it’s not as if a sudden plunge in home prices would help – it might well expose and exacerbate the problem, at least in the short run, squeezing many who have bought into the frothy market with high mortgage repayments and little equity in their homes. “We are seeing a considerable spike in stress even in more affluent households. Large mortgages, big commitments but no income growth,” said Digital Finance Analytics (DFA) Principal Martin North. “Stressed households are less likely to spend at the shops, which acts as a drag anchor on future growth.” North estimates a record 52,000 households risk default in the next 12 months and that 23.4% of Australian families are under mortgage stress, meaning their income does not cover ongoing costs. That compares with about 19% a year ago.

“People are up to their ears in mortgages,” said Brad Smith, a car sales consultant at MotorPoint Sydney which has seen a stark slowdown in sales in the past six months. “They are all on a budget. Everyone’s got all their money in houses, that’s how it is.” Australians are also facing a cash crunch because price inflation in essential items such as food, electricity and insurance is accelerating at a 3.4% annual rate at a time when Australian wages are rising at their slowest pace on record, just 1.9% in the year to March. Meanwhile, growth in retail sales, personal loans and luxury car sales are all at multi-year lows, suggesting the household sector – nearly 60% of Australia’s A$1.7 trillion ($1.3 trillion) economy – is under severe strain.

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Steve Keen’s efforts are having an effect.

Is There A Magic Money Tree? Yes Children, But That’s The Wrong Question (G.)

Does anyone who has witnessed the pomp and circumstance of the Queen’s Jubilee, the funnelling of public money into Syrian airstrikes, or the systematic cutting of taxes for the rich really think we’re not paying nurses properly because we simply don’t have the money? Absolutely not: we don’t pay nurses properly because the government makes a choice not to. This fact calls to mind the words of the Texan minister Robert Fulghum: “It will be a great day when our schools have all the money they need, and our air force has to have a bake-sale to buy a bomber”. But the magic money tree is not a just daft expression in terms of how governments spend public money, it’s also misleading in terms of how the economy works as a whole.

Since 2008, we’ve been encouraged to see the economy like a household budget: if households spend too much money, they need to cut down on living costs so they don’t get into too much debt. To that end, the magic money tree says that if we spend too much money, we can’t just simply grow more. But actually, a country’s whole economy can grow more money if it needs to. Since 2009 the Bank of England has created £453bn of new electronic money to buy debt from the private sector using a mechanism called quantitative easing. Yes, you read that right: the Bank of England has created £453,000,000,000 of new money in the last eight years. Turns out the magic money tree is pretty big. Growing money is possible because an economy is nothing like a household budget. In a household, money comes in via people’s wages and goes out via living costs.

But in an economy, we all pay each other’s wages. Money doesn’t just travel in one direction in the economy, it circulates around. It’s the difference between one car driving in one end of a tunnel and out of the other, and lots of cars zigzagging around Spaghetti Junction. The issue isn’t whether we can grow money or not (we can – that’s just a fact), it’s where the money goes once it’s been grown. And the problem is that it doesn’t go to nurses, teachers or the public services they work for. It goes to institutions such as banks. The nurse in the BBC debate was highlighting a problem that exists across the whole economy: real wages haven’t increased for more than a decade, and this has meant more people have been relying on credit cards, with personal debt now higher than it was before the 2008 crash.

In other words, the fact that the nurse hasn’t had a pay rise is not just bad for her, it’s bad for all of us – because if that nurse is not earning enough, she won’t be spending money. And if she does spend money, she’ll do it by getting into unsustainable debt – which is itself outrageous considering the important, skilled work nurses do.

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Raise €7 billion to buy a bank for €1.

Santander Buys Struggling Spanish Banco Popular For €1 (BBG)

Banco Popular Espanol has been taken over by Santander after European regulators deemed that the bank was likely to fail. Popular will continue to operate under “normal business conditions” after all the bank’s shares and capital instruments were transferred to Santander, said the EU’s Single Resolution Board. The purchase price was €1, according to a statement. Santander plans to raise about €7bn (£6.1bn) of capital as part of the transaction. Popular had been looking for a buyer or a possible share sale after its balance sheet was battered by soured real estate loans that eroded its capital.

Its shares have dropped 53pc since the beginning of last week. In a statement, the ECB, which oversees the largest banks in the eurozone, said: “The significant deterioration of the liquidity situation of the bank in recent days led to a determination that the entity would have, in the near future, been unable to pay its debts or other liabilities as they fell due. “Consequently, the ECB determined that the bank was failing or likely to fail and duly informed the Single Resolution Board (SRB), which adopted a resolution scheme entailing the sale of Banco Popular Espanol to Banco Santander.”

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That Paris accord is a hoax.

Don’t Count on China as Next Climate Crusader (WSJ)

For years, a wide spectrum of groups in the U.S. lectured, cajoled and entreated China to go green. Multinationals and nonprofits teamed up with Chinese environmental groups to promote eco-friendly causes; Coca-Cola restored forests in the upper Yangtze. U.S. labs offered scientific support. Academics collaborated on research. The former Treasury secretary, Hank Paulson, championed China’s disappearing wetlands, a haven for migratory birds. The well-funded effort amplified voices within China demanding the government take action. It was, says Orville Schell, a longtime China watcher and environmentalist, “the most effective missionary work in the past couple hundred years.” So it’s an irony of historic proportions how the roles have reversed: China, the world’s worst polluter by far, is now a convert on climate change while the White House under Donald Trump has turned apostate.

In pulling out of the 2015 Paris climate-change agreement, Mr. Trump has repudiated a signal accomplishment of the Obama presidency: persuading Beijing to become a partner in the effort to prevent the planet from heating up to the point of no return. Without China’s support, the Paris deal might have fallen apart. Mr. Paulson issued a statement saying he was dismayed and disappointed. “We have left a void for others to fill,” he said. When it comes to the environment, China is still torn by conflicting priorities. It has installed more solar and wind capacity than any other nation—and plans to invest another $360 billion in renewable energy between now and 2020. The economy is rebalancing away from heavy industry and manufacturing toward much cleaner services and consumption.

Coal consumption has declined for three straight years. On current trends, many scientists expect that China will reach peak carbon emissions well before its target date of 2030 under the Paris accord. Yet Beijing remains committed to rapid growth. And coal is still king. Just ask the residents of Beijing. Whenever economic policy makers set out to boost growth, spending flows to new real-estate and infrastructure projects, the steel mills around the capital fire up their coal furnaces—and commuters reach for their face masks. This winter was particularly hard on the lungs. A spending splurge meant that Beijing’s average pollution levels last year were double the national standard set by the State Council.

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“How could they fail to come up with a video of the Donald and Vladimir swatting each other playfully with birch switches in a Moscow banya?”

Gimme Shelter (Jim Kunstler)

“Have you all lost your mind?” Vladimir Putin replied to one of Megyn Kelly’s thrusts about alleged Russian perfidy toward the US in the gala interview that debuted her new Sunday Night star-chamber on NBC. Old Vlad put his finger on something there. His view of the late goings-on in America is like that of the proverbial detached Martian observer of strange Earthly doings, rattling his antennae and clicking his mouth-parts in mirth. To which retort, by the way, one would have to answer, ”Yes, absolutely.” The toils of slow economic collapse, accompanied by the ceaseless effort by various arms of the Deep State to spin “the narrative” around the voting public’s collective head, has driven the polity insane. And this, of course, is on view in the bedlam that US politics has become, Trump and all.

I’m waiting for The New York Times to run the three-column headline that says Russia Racist, Misogynist, and Islamophobic to finally bring together the programmed paranoia of NeoCon / DemProg alliance with the esprit de corp of the new collegiate Red Guard. Mr. Putin does not have to lift a finger to detonate the groaning garbage barge of US domestic affairs. It’s already ignited and is faring toward a very peculiar species of civil war. You can be sure that the NeoCon/DemProg axis is determined to get rid of Trump at all costs. Impeachment requires some sort of high crime or misdeamenor. So far, going on a year, they haven’t come up with any evidence that the Golden Golem of Greatness acted as a Russian agent in some fashion, and that itself has got to be a little suspicious, considering the thousands of clerks in the spinning mills of those legendary seventeen Intel outfits the government runs.

How could they fail to come up with a video of the Donald and Vladimir swatting each other playfully with birch switches in a Moscow banya? Five TV sitcom writers could surely come up with an angle — as long as it was a plausible entertainment. In the meantime, Trump prevails, the mad bull elephant of the Republican herd, majestically swinging his trunk against everything breakable in the political china shop while trumpeting “Covfefe! Covfefe!” Last week it was the Paris Climate Accords. The op-ed writers in the usual places bounced off the walls of their virtual rubber room in response. Paul Krugman had to be dragged down to hydrotherapy at the NYT after he set his hair on fire. And Rachel Maddow practically popped a carotid artery in her muscular neck from all that shrieking.

I’m a bit more sanguine about the US withdrawal. To me, the Paris Accords were just another feel-good PR stunt enabling politicians to pretend that they could control forces that are already way out-of-hand, an international vanity project of ass-covering. The coming economic collapse will depress global industrial activity whether anybody likes it or not, and despite anyone’s pretense of good intentions — and then we will have a range of much more practical problems of everyday life to contend with.

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It’s getting time to rise up.

98% Of Greeks Downbeat About Their Current Economic Situation (K.)

Greeks are among the most pessimistic people in the world, according to the findings of a survey by the Pew Research Center which found that many Europeans as well as Japanese and Americans feel better about their national economies now than before the global financial crisis nearly a decade ago. Questioned about their national economy, only 2% of Greeks were upbeat, the lowest rate among the 32 countries polled. The Dutch, Germans, Swedes and Indians see their national economies in the most positive light, with more than 80% expressing optimism. The Pew survey also detected widespread concern about the future. A median of just 41% said they believed that a child in their country today would grow up to be better off financially than their parents. The most pessimistic about prospects for the next generation are the French (9%), the Japanese (19%) and the Greeks (21%).

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Mar 052017
 
 March 5, 2017  Posted by at 10:40 am Finance Tagged with: , , , , , , , , ,  


Near The Hermitage, SaintPetersburg, Russia 1930

 

The Rich Already Have a UBI (Jacobin)
The Next Market To Break *Should* Be Stocks (MA)
America’s Miserable 21st Century (CM)
China Cuts GDP Growth Target to 6.5%, Targets Reforms, De-Leveraging (CNBC)
China Signals Slower Increase In Defense Spending (BBG)
The Priced-In Risk of Marine Le Pen’s Victory (BBG)
Self-Fulfilling Pessimism (Vox)
Only The Rich Are Poisoned (Taleb)
Austrian Chancellor Calls For EU-Wide Ban On Turkish Campaigning (R.)
Greece, Getting Smaller (Maria Katsounaki)
Canada: No Plans To Clamp Down At Border To Deter Migrants (R.)
America’s Millions Of Undocumented Mexicans Live In Fear Of Deportation (G.)
Mexico Opens Legal Aid Centers At US Consulates To Defend Migrants (R.)
Stranded Refugees Denied UK Asylum Face ‘Life In Limbo (O.)

 

 

Time to overhaul taxation. Away from income tax. Inevitable.

The Rich Already Have a UBI (Jacobin)

The universal basic income -a cash payment made to every individual in the country- has been critiqued recently by some commentators. Among other things, these writers dislike the fact that a UBI would deliver individuals income in a way that is divorced from working. Such an income arrangement would, it is argued, lead to meaninglessness, social dysfunction, and resentment. One obvious problem with this analysis is that passive income -income divorced from work- already exists. It is called capital income. It flows out to various individuals in society in the form of interest, rents, and dividends. According to Piketty, Saez, and Zucman (PSZ), around 30% of all the income produced in the nation is paid out as capital income. If passive income is so destructive, then you would think that centuries of dedicating one-third of national income to it would have burned society to the ground by now.

In 2015, according to PSZ, the richest 1% of people in America received 20.2% of all the income in the nation. Ten points of that 20.2% came from equity income, net interest, housing rents, and the capital component of mixed income. Which is to say, 10% of all national income is paid out to the 1% as capital income. Let me reiterate: one in ten dollars of income produced in this country is paid out to the richest 1% without them having to work for it. Even if you exclude the capital component of mixed income (since it is connected to work even if the income is not from labor) and housing rents (since these are imputed to homeowners rather than paid to them as cash), that still means that, from equity income and interest alone, the top 1% receives 7.5% of the national income without having to work for it. Put another way: the average person in the top 1% receives a UBI equal to 7.5 times the average income in the country.

If passive income is so destructive, then the income situation of the 1% surely is a national emergency! Where does the 1% get its meaning with all of that free cash flowing in? The fact is that capitalist societies already dedicate a large portion of their economic outputs to paying out money to people who have not worked for it. The UBI does not invent passive income. It merely doles it out evenly to everyone in society, rather than in very concentrated amounts to the richest people in society. The idea of capturing the 30% of national income that flows passively to capital every year and handing it out to everyone in society in equal chunks has been around since at least Oskar Lange wrote about it in the early parts of the last century. This is, to me, the best way to do a UBI, both practically and ideologically. Don’t tax labor to give money out to UBI “loafers.” Instead, snag society’s capital income, which is already paid out to people without regard to whether they work, and pay it out to everyone.

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Looks scary.

The Next Market To Break *Should* Be Stocks (MA)

From an intermarket perspective – and in the wake of the major breakdown in Treasuries that manifested last summer akin to 87′, we would argue that the move in equities is likely much more mature than the echo of the record January 1987 sounding that some have recently pointed to for more bullish intermediate bearings. Their reasonings being, that although the markets may be near-term extended, like in January 1987, they still gained another 30% over the following 8 months. The old market adage applied – overbought can still become more overbought. That said, what the data mining ignores here is similar to the benevolent rotation out of bonds and into equities that supported the reflationary blowoff that began after Treasuries broke down in the Spring of 1987, stocks have been under this same strong reflationary momentum since last summer.

What’s happened this week of note, and which has helped firm our own near-term expectations, is that several Fed presidents have more than candidly implied that the March meeting is very much in play for another rate hike. And although we had recently suspected that more hawkish posturing would adversely impact precious metals over the short-term, long-term Treasuries now again look vulnerable as well, which would closer resemble the final leg lower in Treasuries in 1987 and the curtain call for equities that fall.

In 1987, the initial breakdown leg in the 30-year Treasury bond registered a decline of ~14%. After remaining in a trading range for another 3 months, bond prices fell roughly another 10%, before finding a low as the equity markets broke down. Through the end of last year, the 30-year Treasury bond had fallen ~16% from its highs last summer. Although we still believe long-term Treasuries offer good relative value to investors as the limits of the US’s mature economic expansion become increasingly visible this year, the more than 2 month trading range now appears susceptible to further near-term weakness, akin to the final leg lower in 1987.

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Nice find from Tyler.

America’s Miserable 21st Century (CM)

Yes, things are very different indeed these days in the “real America” outside the bubble. In fact, things have been going badly wrong in America since the beginning of the 21st century. It turns out that the year 2000 marks a grim historical milestone of sorts for our nation. For whatever reasons, the Great American Escalator, which had lifted successive generations of Americans to ever higher standards of living and levels of social well-being, broke down around then—and broke down very badly. The warning lights have been flashing, and the klaxons sounding, for more than a decade and a half. But our pundits and prognosticators and professors and policymakers, ensconced as they generally are deep within the bubble, were for the most part too distant from the distress of the general population to see or hear it.

[..] In some circles people still widely believe, as one recent New York Times business-section article cluelessly insisted before the inauguration, that “Mr. Trump will inherit an economy that is fundamentally solid.” But this is patent nonsense. By now it should be painfully obvious that the U.S. economy has been in the grip of deep dysfunction since the dawn of the new century. And in retrospect, it should also be apparent that America’s strange new economic maladies were almost perfectly designed to set the stage for a populist storm. Ever since 2000, basic indicators have offered oddly inconsistent readings on America’s economic performance and prospects. It is curious and highly uncharacteristic to find such measures so very far out of alignment with one another.

We are witnessing an ominous and growing divergence between three trends that should ordinarily move in tandem: wealth, output, and employment. Depending upon which of these three indicators you choose, America looks to be heading up, down, or more or less nowhere. From the standpoint of wealth creation, the 21st century is off to a roaring start. By this yardstick, it looks as if Americans have never had it so good and as if the future is full of promise. Between early 2000 and late 2016, the estimated net worth of American households and nonprofit institutions more than doubled, from $44 trillion to $90 trillion. (SEE FIGURE 1.)

Although that wealth is not evenly distributed, it is still a fantastic sum of money—an average of over a million dollars for every notional family of four. This upsurge of wealth took place despite the crash of 2008—indeed, private wealth holdings are over $20 trillion higher now than they were at their pre-crash apogee. The value of American real-estate assets is near or at all-time highs, and America’s businesses appear to be thriving. Even before the “Trump rally” of late 2016 and early 2017, U.S. equities markets were hitting new highs—and since stock prices are strongly shaped by expectations of future profits, investors evidently are counting on the continuation of the current happy days for U.S. asset holders for some time to come.

A rather less cheering picture, though, emerges if we look instead at real trends for the macro-economy. Here, performance since the start of the century might charitably be described as mediocre, and prospects today are no better than guarded. The recovery from the crash of 2008—which unleashed the worst recession since the Great Depression—has been singularly slow and weak. According to the Bureau of Economic Analysis (BEA), it took nearly four years for America’s GDP to re-attain its late 2007 level. As of late 2016, total value added to the U.S. economy was just 12% higher than in 2007. (SEE FIGURE 2.) The situation is even more sobering if we consider per capita growth. It took America six and a half years—until mid-2014—to get back to its late 2007 per capita production levels. And in late 2016, per capita output was just 4% higher than in late 2007—nine years earlier. By this reckoning, the American economy looks to have suffered something close to a lost decade.

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It all means very little without new debt data. Are they still trying to borrow growth? You bet.

China Cuts GDP Growth Target to 6.5%, Targets Reforms, De-Leveraging (CNBC)

China is aiming to expand its economy by around 6.5% in 2017 as it continues to implement a proactive fiscal policy and maintain a prudent monetary policy, Premier Li Keqiang said on Sunday. Top leaders at the National People’s Congress are tolerating slightly slower economic growth this year to give them more room to push through reforms to deal with a build-up in debt. A lending binge and increased government spending last year have fueled worries about high debt levels and an overheating housing market. GDP officially grew 6.7% in 2016, the slowest in 26 years, but within the government’s target range of 6.5 to 7%. That 6.5% growth target is “needed to achieve the employment objective,” Li said in his prepared remarks.

The government announced ambitious jobs plans, including to ensure that every family has at least one breadwinner, which is key as jobs are cut in major state-owned enterprises. As the government moves away from manufacturing-led growth, Beijing is tasked with quickly finding new employment for millions of workers, or risk the possibility of social unrest as unemployment looms China says it expects 11 million new urban jobs will be created this year, but that still wont keep pace with the 15 million new workers the government estimates will enter the market, according to prepared remarks. The government will continue to focus on the coal and steel sectors, with plans in place to cut steel production capacity. But experts were skeptical of the idea that certain economic growth levels would be “needed” for employment reasons.

“There is not now nor has there ever been any magical connection between GDP and jobs. You can have capital-intensive 6.5% GDP growth and not create enough jobs and you can have 3.5% labor-intensive GDP growth and create more than enough jobs,” said Derek Scissors, a resident scholar at the American Enterprise Institute and chief economist of the China Beige Book. “The Chinese government’s position for the past 20 years has been that the nutrition content of food doesn’t matter at all, only the number of calories.” This doesn’t make any sense economically, but it’s perfectly clearly politically,” he said, noting that China had said it needed greater GDP growth when its labor force was actually expanding, as opposed to its current contraction.

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Becoming unaffordable?

China Signals Slower Increase In Defense Spending (BBG)

China indicated a continued slowdown in defense spending growth this year, as President Xi Jinping presses ahead with a sweeping military overhaul. The defense budget will rise “about 7%,” National People’s Congress spokeswoman Fu Ying told a briefing ahead of China’s annual legislative session in Beijing. An actual spending target wasn’t expected until Sunday, when the Ministry of Finance releases its 2017 budget at the start of the 11-day legislative gathering. Last year, the country budgeted a 7.6% uptick in military spending to 954.4 billion yuan (equal to $147 billion at the time), the slowest increase since a 7.3% rise in 2010. Seven% would be the slowest expansion in more than a decade, tracking the broader trend in the country’s economy.

The increase consolidates China’s lead as the world’s second-largest military spender, accounting for more than 10% of the global arms total, said Siemon Wezeman, a senior researcher with the Stockholm International Peace Research Institute. More than two decades of expansion have helped China build a modern military capable of projecting force further from its coasts, while spurring anxious neighbors to upgrade their own defenses. Fu said China was committed to peace and described tensions in the South China Sea, where the country’s land reclamation campaign has been criticized by the U.S. and rival claimants, as “easing.” “We advocate dialogue and peaceful solutions to disputes of sovereignty and maritime rights,” said Fu, a former vice foreign minister and ex-ambassador to the U.K. “Meanwhile, we should possess the capacity to protect our sovereignty and interests.”

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Don’t count her out.

The Priced-In Risk of Marine Le Pen’s Victory (BBG)

Markets trade in the probability of certain events happening. In case an event has high risk, a “tail” is priced in. Those tail risks typically show up in certain corners of the markets. Today, tail risks are priced in for a potential unexpected outcome in the French elections. That tail risk is on the rise now that polls of the second round of voting indicate a tight race between center candidate Emmanuel Macron and the far-right candidate Marine Le Pen. Tail risks can be viewed in a linear way. For example, the German 2-year bond (“Schatze”) reached an all-time negative yield of -92 basis points when Le Pen recently gained in the polls.

As a result, the German 2-year yield became negatively correlated with the price of French bonds and stocks. A generic view is that German bonds are a reflection of the “tail risk” that Le Pen is victorious. However, there are technical reasons to explain the fall of German 2-year bonds. Those technicalities are a scarcity of German bond collateral in the repurchase market and the ECB’s purchase of German bonds yielding less than the deposit rate. This is what makes the 2-year German bond “overvalued” and therefore not as accurate a reflection of the true tail risk in France. There are other areas in markets that provide a better idea of how much of a Le Pen win is priced in.

Tail risks can be seen in currency options. The options market use a measure called “skew.” This is the difference between the implied volatility of puts and calls. A negative skew means currency markets price euro puts with higher implied volatility than the currency’s calls. In the case of negative skew, the currency market thinks the risk for depreciation of a currency is large. The skew of the euro currency has been on a steady decline since President Donald Trump was elected in November, as seen in Fig. 1. On the other hand, the French bond market has seen a surge in yields discounted to the second round of the presidential election, on May 7. Rising yields are a sign of uncertainty about the outcome of the election. Fig. 1 shows how markets are pricing a “tail risk” of an adverse election outcome. And this tail risk seems to be increasing by the day.

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I like Blanchard’s notion that “the reason unemployment is decreasing is productivity growth is so low.” But I don’t get that he overlooks, when saying “why is demand growth not stronger?”, that so many people have simply lost the means to spend. That seems to be a curious blind spot for an IMF economist. it’s not about pessimism, it’s about not having any money.

Self-Fulfilling Pessimism (Vox)

Why is it that demand growth is not stronger? In this video, Olivier Blanchard discusses his research on long-run forecasts and unexpected decreases in consumption. This video was recorded at the American Economic Association in Chicago in January 2017.

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“..one is more likely to be drinking poison in a golden cup than an ordinary one.”

Only The Rich Are Poisoned (Taleb)

When people get rich, they shed their skin-in-the game driven experiential mechanism. They lose control of their preferences, substituting constructed preferences to their own, complicating their lives unnecessarily, triggering their own misery. And these are of course the preferences of those who want to sell them something. This is a skin-in-the-game problem as the choices of the rich are dictated by others who have something to gain, and no side effects, from the sale. And given that they are rich, and their exploiters not often so, nobody would shout victim. I once had dinner in a Michelin-starred restaurant with a fellow who insisted on eating there instead of my selection of a casual Greek taverna with a friendly owner operator, his second cousin as a manager and his third cousin once removed as a receptionist.

The other customers seemed, as we say in Mediterranean languages, to have a cork plugged in their behind obstructing proper ventilation, causing the vapors to build on the inside of the gastrointestinal walls, leading to the irritable type of decorum you only notice in the educated upper classes. I note that, in addition to the plugged corks, all men wore ties. Dinner consisted in a succession of complicated small things, with microscopic ingredients and contrasting tastes that forced you to concentrate as if you were taking some type of exam. You were not eating, rather visiting some type of museum with an affected English major lecturing you on some artistic dimension you would have never considered on your own. There was so little that was familiar and so little that fit my taste buds: once something on the occasion tasted like something real, there was no chance to have more as we moved on to the next dish.

Trudging through the dishes and listening to some b***t by the sommelier about the paired wine, I was afraid of losing concentration. I costs a lot of energy to fake that I was not bored. In fact I discovered an optimization in the wrong place: the only thing I cared about, bread, was not warm. It appears that this is not a Michelin requirement. I left the place starving. Now if I had a choice I would have had some time-tested recipe (say a pizza with very fresh ingredients, or a juicy hamburger) in a lively place –for a twentieth of the price. But because the fellow dinner partner could afford the expensive restaurant, we ended up the victims of some complicated experiments by a chef judged by some Michelin bureaucrat. It would fail the Lindy effect: food does better through minute variations from Sicilian grandmother to Sicilian grandmother. It hit me that the rich people were natural targets; as the eponymous Thyestes shouts in Seneca’s tragedy, thieves do not enter impecunious homes, and one is more likely to be drinking poison in a golden cup than an ordinary one.

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The Turkish foreign minister claims the right to campaign among Turkish residents in Germany and Holland. Nobody wants that. Imagine if Mexico would take its political campaigns to US streets.

Austrian Chancellor Calls For EU-Wide Ban On Turkish Campaigning (R.)

Austrian Chancellor Christian Kern on Sunday called for a European Union-wide ban on campaign appearances by Turkish politicians to avoid having individual member countries like Germany come under pressure from Ankara. Turkey said on Saturday it would defy opposition from authorities in Germany and the Netherlands and continue holding rallies in both countries to urge Turks living there to back an April 16 referendum to boost President Tayyip Erdogan’s powers. Turkish Foreign Minister Mevlut Cavusoglu criticized German and Dutch restrictions on such gatherings as undemocratic, and said Turkey would press on with them in the run-up to the vote. Kern, in an interview published in the Welt am Sonntag newspaper, said the measure would weaken the rule of law in Turkey, limit the separation of powers, and violate the values of the EU.

He also called for the EU to end discussions with Turkey about membership in the bloc and scrap or restrict €4.5 billion in aid planned for Turkey through 2020. “We should reorient relations with Turkey without the illusion of EU membership,” Kern told the newspaper. “Turkey has moved further and further away from Europe in the past few years. Human rights and democratic values are being trampled. Press freedom is a foreign word,” he said. Kern criticized Ankara’s arrest of German-Turkish journalist Deniz Yucel, a correspondent for Die Welt newspaper, and many other journalists, academics and civil servants, and called for Yucel’s immediate release. At the same time, he said, Turkey remained an important partner in issues of security, migration and economic cooperation, and said Ankara had lived up to its obligations under the migrant deal struck with the EU.

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The demise of a nation.

Greece, Getting Smaller (Maria Katsounaki)

“Instead of ‘Little Greece’ we need a serious Greece,” former Prime Minister Costas Simitis told the Delphi Economic Forum on Friday. As he spoke, Athens was suffocating again because of a mass transit strike, “unknown persons” were destroying ticket validating machines on buses, Eurostat’s figures showed that Greece is the consistent champion in unemployment, at 23% (with the next country, Spain, at 18.2% and the eurozone average at 9.6%), while a report from the Cologne Institute for Economic Research (IW) named Greece the leader in the percentage rise of poverty. The talks between the Greek government and its creditors show more differences than convergence, while Politico reported that the government has asked the World Bank for technical and financial assistance…

Each of the issues we mentioned has a past, present and future. They are not the same – some are tied to the economic crisis, other are not. One could argue that putting them together is aimed at making an impression. But let’s ask ourselves how the destruction of ticket validating machines was allowed to become a hobby. How have illegality and criminality become normal? How will unemployment and poverty be reduced when every investment crashes against denial, suspicion and compulsive behavior? When the only thing that grows is the amount of taxes and social security fees that we must pay? Let us ask ourselves this: When did the discussion that for a strike to be held “50% plus 1” of employees must agree, so as to put an end to the impunity of minorities?

Why has union leadership that is allied to political parties become “the right to strike” whereas any effort at reform serves the interests of the “economic oligarchy”? How can anyone trust a government that, while “negotiating hard” at the same time declares “the crisis is over,” while behaving as if this were a Third World country? Every day we are further gone in our illness and further from recovery. Little Greece is neither honest nor serious. It is not size that makes her lack credibility, but the ever-deeper national autism, the constant repetition of the performance “we are fighting for solutions” while caring nothing for solutions.

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Got to keep that border open.

Canada: No Plans To Clamp Down At Border To Deter Migrants (R.)

Canada will not tighten its border to deter migrants crossing illegally from the United States in the wake of a U.S. immigration crackdown because the numbers are not big enough to cause alarm, a government minister said on Saturday. Public Safety Minister Ralph Goodale said the issue had not risen to a scale that required hindering the flow of goods and people moving across the world’s longest undefended border. Hundreds of people, mainly from Africa and the Middle East, have defied winter conditions and walked across the border, seeking asylum. They are fleeing President Donald Trump’s immigration crackdown, migrants and refugee agencies say.

It is not common to have so many asylum seekers in the United States looking for refuge in Canada over such a short period. The influx poses a political risk for Prime Minister Justin Trudeau, who faces pressure from the left, which wants more let in, and from the right, which fears an increased security risk. “We are concerned and we will deal properly with the extra hundreds (crossing illegally),” Goodale told reporters at a televised news conference in Emerson, Manitoba. “But the full border deals with 400,000 people moving in both directions every day. It also handles C$2.5 billion in trade every day. “It is critically important for us to make sure that it is strong and secure. At the same time, it needs to be efficient and expeditious.”

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Since it’s impossible to deport millions of people, clearer heads are called for.

America’s Millions Of Undocumented Mexicans Live In Fear Of Deportation (G.)

The queue starts outside the consulate gate soon after dawn and stretches up Park View street. The visitors speak in low murmurs, exchanging the latest rumours. A dragnet in Glendale. Checkpoints in Highland Park. People deported for jaywalking. For speaking Spanish. Some visitors say they have sold their furniture to create an emergency fund. Others wonder if they should stop going to work and pull their kids from school. Overreactions? Wise precautions? No one knows. They’ve come here for answers. Inside the gate hulks a nondescript, cream-coloured office block. Lights flicker into life on a pale winter day and by 7am all is aglow: the consulate general of Mexico in Los Angeles is open for business. It is a lighthouse, of sorts, for undocumented Mexicans caught in the political maelstrom that is Hurricane Trump.

“I’m here to make a plan,” said Juana Sanchez, 53, a seamstress who has stitched and sewed in LA’s fashion district for 29 years. A plan for what? She managed a tight smile. “Deportation.” The immigration policies gusting out of the White House have chilled the US’s estimated 11 million undocumented people, half of whom are Mexican. The new president has vastly widened the numbers deemed priorities for expulsion. “As we speak tonight we are removing gang members, drug dealers that threaten our communities and prey on our very innocent citizens,” he told a joint session of Congress last week. “Bad ones are going out as I speak and as I promised throughout the campaign.”

The Mexicans who flock to the LA consulate say that in reality Immigration and Customs Enforcement (ICE) is sweeping up caretakers, students, mothers – anyone who entered the US illegally, and is thus a law-breaker. “Trump is the world’s worst terrorist. He has the Latino community terrorised,” said Rosa Palacios, a careworker with a nine-year-old granddaughter who weeps in fear at losing relatives. The hostility outdid previous anti-immigrant crackdowns, she said. “It is worse than when they thought we were infected.”

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Mexico may well come out of this a stronger country.

Mexico Opens Legal Aid Centers At US Consulates To Defend Migrants (R.)

Mexico opened legal aid centers at its 50 consulates across the United States on Saturday to defend its citizens, the Mexican government said, amid worries of a crackdown on illegal immigration under U.S. President Donald Trump. Foreign Minister Luis Videgaray exhorted the U.S. government to respect the rights of Mexicans and called for the United States to allow a path to legality for undocumented migrants. “We are not promoting illegality,” Videgaray said, according to a video of an event at the Mexican consulate in New York provided by the foreign ministry, saying that Mexico supported following the law, but that means respecting human rights. Trump has issued orders to initiate tougher deportation procedures during his first month in office, following up on campaign vows to fight illegal immigration and to build a wall on the U.S.-Mexico border.

“Today we are facing a situation that can paradoxically represent an opportunity, when suddenly a government wants to apply the law more severely,” Videgaray said. “It is becoming more than evident that to apply the law, which is the obligation of any state, would also imply a real economic damage to this country which highlights the need for immigration reform, an immigration reform that resolves once and for all the legal status of the people,” Videgaray said. The Pew Research Center estimates there are nearly 6 million undocumented Mexicans living in the United States. Late last month, Videgaray expressed “worry and irritation” about Trump’s new policies to U.S. Secretary of State Rex Tillerson and Homeland Security chief John Kelly when they visited Mexico for talks on immigration and security.

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There is so much international law concerning the rights of refugees, written especially after wars, but none of it seems to matter much.

Stranded Refugees Denied UK Asylum Face ‘Life In Limbo (O.)

Almost half of the refused asylum seekers who are unable to leave the UK have considered committing suicide, according to new research that criticises government rules for forcing individuals into destitution and a life in limbo. Interviews with asylum seekers refused permission to remain, in the UK but who cannot go home because they lack a passport, their nationality is disputed or there is no viable route back to their country, also found that half have considered or are applying for statelessness. The British Red Cross charity said such individuals should be allowed temporary leave to remain and work if they meet Home Office requirements, sparing people from years living in penury.

The charity said it knew of cases where women trapped in this situation had resorted to paying for a place to sleep with sex. It cited one Algerian who has been in the UK for 17 years who wassleeping on the streets and warned that those stuck in such limbo frequently suffer periods of homelessness alongside debilitating mental health issues, and that survival depended on the goodwill of friends and charities. Analysis by the Guardian last week revealed that Britain is one of the worst destinations in western Europe for people seeking asylum. Based on in-depth interviews with 15 people, the British Red Cross report found chronic stress, insomnia, anxiety and depression, with one refused asylum seeker from Sudan, a victim of torture, describing that he self-harms by banging his head against the wall.

No conclusive figures exist on the numbers of people who cannot leave the UK, although a freedom of information response from the Home Office reveals that 1,096 people lodged an application for statelessness in the UK after being refused asylum, following the introduction of new guidance in April 2013.

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