Nov 302017
 


Roger Viollet Great Paris Flood, Gare Saint-Lazare 1910

 

Goldman Warns Highest Market Valuations Since 1900 Mean Pain Is Coming (BBG)
The Last Time This Happened Was Just Months Before The Great Depression (ZH)
Pecking Order (Ben Hunt)
The Bitcoin Debate: Max Keiser vs. Steve Keen (RT)
Why We Can’t Trust Basic Economic Figures (Qz)
What Americans Spent The Most Money On In The Third Quarter (ZH)
Monetary Imperialism (Michael Hudson)
One In 10 London Families Rely On Food Banks To Survive (Ind.)
Half A Million UK Children Go To School Hungry Every Day (Ind.)
All Is Not Well In The Visegrad Economies (CER)
Pressure On Greece To Scrap Arms Deal With Saudi Arabia (G.)
Greece Moves Hundreds Of Asylum Seekers From Lesvos To Mainland (R.)
Common Pesticide Can Make Migrating Birds Lose Their Way (G.)
‘Shocking’ Rise In Rubbish Washing Up On UK Beaches (G.)
Lobster Found With Pepsi Logo ‘Tattoo’ (G.)

 

 

Bubble, anyone?

Goldman Warns Highest Market Valuations Since 1900 Mean Pain Is Coming (BBG)

A prolonged bull market across stocks, bonds and credit has left a measure of average valuation at the highest since 1900, a condition that at some point is going to translate into pain for investors, according to Goldman Sachs. “It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,” Goldman Sachs International strategists including Christian Mueller-Glissman wrote in a note this week. “All good things must come to an end” and “there will be a bear market, eventually” they said. As central banks cut back their quantitative easing, pushing up the premiums investors demand to hold longer-dated bonds, returns are “likely to be lower across assets” over the medium term, the analysts said.

A second, less likely, scenario would involve “fast pain.” Stock and bond valuations would both get hit, with the mix depending on whether the trigger involved a negative growth shock, or a growth shock alongside an inflation pick-up. “Elevated valuations increase the risk of draw-downs for the simple reason that there is less buffer to absorb shocks,” the strategists wrote. “The average valuation percentile across equity, bonds and credit in the U.S. is 90%, an all-time high.” A portfolio of 60% S&P 500 Index stocks and 40% 10-year U.S. Treasuries generated a 7.1% inflation-adjusted return since 1985, Goldman calculated – compared with 4.8% over the last century. The tech-bubble implosion and global financial crisis were the two taints to the record.

Low inflation has prevailed in the current period, just as it did alongside economic growth in the 1920s and 1950s, according to the Goldman report. “The worst outcome for 60/40 portfolios is high and rising inflation, which is when both bonds and equities suffer, even outside recessions.” An increase in policy rates triggered by price pressures “remains a key risk for multi-asset portfolios. Duration risk in bond markets is much higher this cycle,” they wrote.

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Bubble? Hell, no.

The Last Time This Happened Was Just Months Before The Great Depression (ZH)

As Goldman observes: “we are closing in on the longest 60/40 bull market in history – there has been no 10% drawdown in real terms since 2009. A passive long-only balanced portfolio has delivered attractive risk-adjusted returns since the 90s. A favourable ‘Goldilocks’ macro backdrop, supported by the ‘Great Moderation’ and the central bank put, has boosted returns in both equities and bonds. However, after the recent ‘bull market in everything’, valuations across assets are as expensive as they have been this century, which reduces the potential for returns and diversification in balanced portfolios. Some more statistics: “We are nearing the longest bull market for balanced equity/bond portfolios in over a century – a simple 60/40 portfolio (60% S&P 500, 40% US 10-year bonds) has not had a drawdown of more than 10% since the GFC trough (8.7 years) and has delivered a 143% return (11% p.a.) since then.”

And when was the last time a balance portfolio had such a tremendous return? Goldman answers again: “The longest run has been during the Roaring 20s, ending with the Great Depression. The second longest run was the post-war ‘Golden age’ in the 50s – the 90s Boom has been in third place but is now fourth, after the current run. In other words, one would have to go back to some time in early 1929 to be looking at the kind of returns that a balanced “60/40” portfolio is generating today. In fact, the current period of staggering returns without a 10% total drawdown is now 8.7 years. How long was the comparable period in the 1928s? 9.1 years. Which means that if history is any guide, the second great depression is just around the corner.

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If we can agree that trickle down is just a ruse invented to trick the gullible, we should also agree that any and all QE is robbery in plain daylight.

Pecking Order (Ben Hunt)

Step One in the Pecking Order Lie is to promote a narrative of trickle-down economics — that making the rich even richer is a good thing for the non-rich. This is exactly what Ben Bernanke is saying here, that the Fed’s extraordinary efforts to prop up the stock market aren’t just good for the rich, but will be good for everyone once the “wealth effect” kicks in and the rich start spending their money. Whenever someone uses the phrase “wealth effect”, they are promoting a trickle-down narrative. How does trickle-down monetary policy work? By spending TRILLIONS of dollars to buy financial assets, the world’s central banks have inflated the prices of ALL financial assets, EVERYWHERE in the world. This is not a secret plan. This is not a hidden agenda. This is the avowed purpose of what central bankers call Large Scale Asset Purchases (LSAPs).

The goal is to force us to “reach for yield”. The goal is to force us to buy more and more risky assets (stocks) at higher and higher prices. The Fed is trying to make the stock market go up. And they’re succeeding. Here’s a great chart from TCW showing how this works. The orange line is the growth rate of the US economy. The blue line is the growth rate of how rich we are. By tripling the stock market, the Fed has made us much richer than our economy has grown … SOOO much richer than our economy has grown. But the goodies of a trebled stock market aren’t evenly distributed. Who owns stocks? If we’re talking about households, leaving aside pension funds and endowments and other institutional investors, it’s the rich, mostly. And that household share of the Central Bankers’ Bubble doesn’t increase linearly with wealth, but exponentially, meaning that the really rich own a lot more stocks than the merely rich, so the really rich have gotten a lot richer than the merely rich.

Here’s a chart from Deutsche Bank showing the impact (it’s a year old, so the effect is even more pronounced today with the stock market 20% higher). Thirty years ago, the non-rich (the bottom 90% of American households by income) owned 35% of American household wealth. Today they own about 22%. Forty years ago, the really rich (the top 1/10th of 1% of American households by income) owned about 7% of American household wealth. Today they, too, own about 22%. Moreover, the gains of the really rich have mirrored the losses of the non-rich, which means that the well-off and merely rich (the remaining 9.9% of American households) haven’t seen much of a change one way or another.

Now this shift in relative wealth of the non-rich and the really rich didn’t start with the Central Bankers’ Bubble and its narrative of trickle-down wealth effects from monetary policy. It started roughly in 1980 with the Reagan narrative of trickle-down wealth effects from fiscal policy. And before we make overly facile comparisons with the 1920s and 1930s, this chart isn’t taking into account pensions and social security and other safety net features of the modern semi-sorta-welfare state. So I don’t know how historically abnormal today’s level of significant wealth inequality might be, whether it’s Louis XVI level inequality or simply robber baron level inequality. But I know that it IS.

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Love Max (as does Steve), but he doesn’t look good here. You don’t enter a discussion with Steve Keen without even trying to listen. And I remember Max pushing silver the same way he does bitcoin.

The Bitcoin Debate: Max Keiser vs. Steve Keen (RT)

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Netherlands as a (quasi-) legal money launderer.

Why We Can’t Trust Basic Economic Figures (Qz)

Donald Trump doesn’t know what he’s talking about when he decries America’s trade deficits with countries around the world—and that’s not his fault. None of us do. Thanks to offshoring practices like those revealed in the Paradise and Panama Papers, global investment figures are “a big black hole,” says Daniel Haberly, an economic geographer at the University of Sussex. “We don’t really know what the world economy actually looks like. That’s the big burning question for me. We have this picture of what it looks like on paper but in reality it’s probably something completely different.” Look no further than the UK for an example of how crazy investment statistics are. The first name on its list of top foreign direct investors doesn’t surprise—it’s the world’s biggest economy, the United States.

Second place, however, isn’t such a behemoth. According to British government stats, the Netherlands supposedly shoveled £139.8 billion ($186 billion), 28% of its GDP, into the UK in 2015. Anglo-Dutch ties run long and deep, but can a country of just 17 million people really be investing so much cash into Britain alone? Quite simply, no. The Netherlands is not just a smallish European trading nation—it’s also one of the world’s biggest conduits for cash going to and from tax havens. When the British government broke down its FDI statistics this year (chapter 6), it realized that only 34.5% of that money actually came from the Netherlands; much of the rest being from European subsidiaries of big US companies or… from British companies rerouting their money.

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The US political system failing to tackle healthcare, with a ton of examples how to do it across the world, tells you all you need to know about how morally bankrupt it is.

What Americans Spent The Most Money On In The Third Quarter (ZH)

One month ago, when the BEA released its first estimate of the hurricane-impacted economy during the third quarter (which came in at a stronger than expected 3.0%) we were surprised to report that according to the Department of Commerce, in the third quarter the biggest driver of marginal spending was car sales (technically Motor Vehicles and Parts), which increased by $15.6 billion to $463.5 billion. Which, as we said at the time and considering recent US and global automakers data, was paradoxical in light of the ongoing decline in overall sales in the second half of 2017, and it was far too early to expect the post-hurricane spending spree. It was also surprising because as Americans splurged on cars, they pulled back on gasoline purchases, which was the single biggest detractor to spending, subtracting a marginal $3.5 billion in PCE, to $283.6 billion.

In any case, we concluded by saying that “we now await for the revisions to this initial estimate over the coming two months, because something tells us that the auto spending spree will be thoroughly revised well lower.” One month later, when the BEA released its second Q3 GDP estimate, it appears we were right: the contribution from motor vehicles was indeed revised lower, but not nearly as dramatically as we expected, only from a marginal increase of $15.6 million to $13.5 million. And yet, many other line items did see a downward revision, which means that something had to increase sharply to compensate for the downward revisions among other spending components.

Sure enough, something did: the old faithful “plug” which has saved the US economy every quarter for the past 4 years: Healthcare, or as it is better known, Obamacare, because with Trump failing to repeal Obama’s signature health law, it means that Healthcare will merrily “contribute to GDP” for years to come, by being the single biggest marginal spending item for the foreseeable future.

Finally, for a comparison of how dramatically the contribution of “Healthcare” was revised higher, here is a chart showing side by side the change in spending among all key line items. One can almost hear the orders “from above” to make GDP 3% or higher at any cost when looking at this chart.

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Must. Read. Like anything Hudson.

Monetary Imperialism (Michael Hudson)

In theory, the global financial system is supposed to help every country gain. Mainstream teaching of international finance, trade and “foreign aid” (defined simply as any government credit) depicts an almost utopian system uplifting all countries, not stripping their assets and imposing austerity. The reality since World War I is that the United States has taken the lead in shaping the international financial system to promote gains for its own bankers, farm exporters, its oil and gas sector, and buyers of foreign resources – and most of all, to collect on debts owed to it. Each time this global system has broken down over the past century, the major destabilizing force has been American over-reach and the drive by its bankers and bondholders for short-term gains.

The dollar-centered financial system is leaving more industrial as well as Third World countries debt-strapped. Its three institutional pillars – the IMF, World Bank and World Trade Organization – have imposed monetary, fiscal and financial dependency, most recently by the post-Soviet Baltics, Greece and the rest of southern Europe. The resulting strains are now reaching the point where they are breaking apart the arrangements put in place after World War II. The most destructive fiction of international finance is that all debts can be paid, and indeed should be paid, even when this tears economies apart by forcing them into austerity – to save bondholders, not labor and industry. Yet European countries, and especially Germany, have shied from pressing for a more balanced global economy that would foster growth for all countries and avoid the current economic slowdown and debt deflation.

After World War I the U.S. Government deviated from what had been traditional European policy – forgiving military support costs among the victors. U.S. officials demanded payment for the arms shipped to its Allies in the years before America entered the Great War in 1917. The Allies turned to Germany for reparations to pay these debts. Headed by John Maynard Keynes, British diplomats sought to clean their hands of responsibility for the consequences by promising that all the money they received from Germany would simply be forwarded to the U.S. Treasury. The sums were so unpayably high that Germany was driven into austerity and collapse. The nation suffered hyperinflation as the Reichsbank printed marks to throw onto the foreign exchange also were pushed into financial collapse. The debt deflation was much like that of Third World debtors a generation ago, and today’s southern European PIIGS (Portugal, Ireland, Italy, Greece and Spain).

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Medieval third world.

One In 10 London Families Rely On Food Banks To Survive (Ind.)

One in 10 London families are relying on charity handouts to eat and food banks are facing unprecedented strain in the run-up to Christmas, new figures reveal. One in four London parents worry about being able to afford to feed their children, the research found, while almost one in five have to choose between heating their homes or feeding their family. The exclusive poll, conducted by Kellogg’s to mark the start of The Independent and Evening Standard Help a Hungry Child campaign, exposed the devastating choices facing parents around the country as food banks struggle to keep up with growing demand. At least 146,798 three-day emergency parcels were handed out by Trussell Trust foodbanks in December 2016, a 47% spike compared to the average for the overall 2016/17 financial year, according to the charity.

Children accounted for 61,093 of those affected. Now the charity is warning 2017 could herald an even higher increase, following a 13% surge in food bank usage during the first six months of this year. The figures are revealed as a Labour MP urges the Government to accurately measure the number of people going hungry with a food insecurity bill. Emma Lewell-Buck, a member of the All-Party Parliamentary Group on Hunger, will present the cost-neutral bill to the Commons on Wednesday. It will ask the Government to incorporate questions about how often people go without food into national surveys. She called rising food bank usage a “massive dereliction of state duty” and is urging Theresa May to take urgent action to recognise the scale of the problem.

“They have to admit what everybody already knows that the levels of hunger are far higher than we have realised,” she said. “It is the duty of the state, there is no way food banks should have filled the gap left by the welfare state that this Government has created.” She added: “Now food banks are becoming a pillar of the welfare state and they should not be and they should never have been.” The South Shields MP said getting a measure on the true scale of the numbers going hungry would force the Government into taking a more proactive stance in tackling hunger.

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Talk about a failed society…

Half A Million UK Children Go To School Hungry Every Day (Ind.)

When money is tight eight-year-old Emma’s parents are forced to send their daughter to school, tummy rumbling, without any breakfast. In the evening, she fills up on plain pasta or reduced microwave meals – cheap food her parents can afford. Emma says she often feels too tired to concentrate on her schoolwork. The situation Emma lives with is the devastating reality faced by the 500,000 children across the UK who go to school hungry each day. Eight million people in Britain – the world’s sixth largest economy – are living in food poverty, according to the United Nations (UN). And an estimated 870,000 children in England may be going to bed hungry each night because their parents are unable to provide the meals they need.

But not eating isn’t the only problem – access to nourishing and nutrient-filled food is simply out of reach for thousands of families living on the breadline, with far-reaching consequences for too many of Britain’s children. Dr George Grimble, a medical scientist at University College London, said the situation was “disastrous” for developing children, resulting in malnourishment, obesity and squandered potential. “When people are in poverty they are forced to buy the cheapest foods – filling but nutrient-lacking food,” Dr Grimble told The Independent. “Food poverty in the community overlays to a large extent on disease malnutrition.” More than 60% of paediatricians believe food insecurity contributed to the ill health among children they treat, according to a 2017 survey by the Royal College of Paediatricians and Child Health.

The harrowing hunger stats sit juxtaposed with the fact 100 million tons of food is wasted each year across the EU. More than 400 million meals’ worth of edible food was sent to landfill in 2016 which could have been redistributed to feed hungry people across Britain, according to the Government’s waste advisory body, Wrap.

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“..succumbed to populists..” is too easy a cop-out. These countries will define Europe going forward.

All Is Not Well In The Visegrad Economies (CER)

On the face of it, the Visegrad countries – the Czech Republic, Hungary, Poland and Slovakia – are doing well economically. The data for GDP per head suggest a gradual convergence in living standards with Western Europe. They continue to attract a disproportionate share of inward investment in EU manufacturing, and their integration into EU-wide supply chains helps to explain why they are now collectively Germany’s most important trade partner, ahead of China and the US. But the political situation across the Visegrad is anything but rosy. Voters in all four countries have succumbed to populists. The reasons for this populism are complex, but economics probably provides a bigger part of the explanation than the positive headline numbers suggest.

In 2016, GDP per head in the Visegrad four (adjusted for price differences) ranged from 64% of eurozone levels in Poland to 82% in the Czech Republic. The Czech Republic, Slovakia and Poland have experienced significant convergence in GDP per head with the eurozone over the last ten years (though it should be noted that the dire performance of the eurozone economy over that period was a major reason for this). But what matters to the average person is not GDP growth, but personal income growth, and hence living standards. And here the Visegrad picture is less reassuring. In 2016 worker ‘compensation’ (wages and salaries and other benefits) ranged from just 50% of the eurozone’s in Hungary to 59% in the Czech Republic. And the rate of convergence of compensation with the eurozone average has been slower than the rate of convergence of GDP.

Growth in consumption across the Visegrad countries has lagged behind growth in GDP, resulting in a sharp fall in consumption as a share of overall spending. This has happened in nearly all developed economies over the last decade, but the scale of the decline in all four Visegrad economies has been much greater. Average households have not seen enough of the fruits of economic growth. Those rewards have gone disproportionately to the owners of capital, and in these countries, that tends to mean foreigners. In the Czech Republic, Hungary, and Slovakia, the most important sectors are largely or wholly foreign-owned. The Polish economy is much bigger and more diversified than the other three, but the level of foreign ownership is still very high.

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How about the pressure on US, France, UK?

Pressure On Greece To Scrap Arms Deal With Saudi Arabia (G.)

The Greek government has announced it will abide by any EU embargo on Saudi Arabia as it faces criticism over a controversial arms deal, including from its own MPs. As cracks appeared in the leftist-led coalition over the €66m weapons agreement with the kingdom, the administration’s spokesman said Athens would apply the law “by the letter” if EU sanctions were announced. “We are waiting to see the decisions of the European parliament and will act accordingly,” said Dimitris Tzannakopoulos. “The process is frozen.” Mounting tensions within the ruling Syriza party have matched international condemnation of the agreement by human rights groups. Amnesty International has said the munitions could end up being used by the Gulf state in its war against neighbouring Yemen, where civilian populations have borne the brunt of the conflict.

“[We] call on Greece to immediately rescind the sale and transfer of military equipment to Saudi Arabia and to refuse approval of the transport of every type of conventional weapons, ammunitions and war material to point of conflicts in Yemen,” the rights group said. Prominent members of the ruling Syriza party have questioned the morality of selling arms to Saudi Arabia, and on Tuesday the Greek parliament’s military procurements committee also hinted it may scrap the deal. “Greece is a hub of stability, peace and friendship in the greater region and that is what it should be exporting,” the former deputy European affairs minister Nikos Xydakis told the Guardian. “There is no need for this [deal] to go through and frankly when we’re talking about €66m, not €66bn, it isn’t worth the trouble. It’s not the sort of money that will save Greece.”

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Whose initiative? Brussels, Berlin?

Greece Moves Hundreds Of Asylum Seekers From Lesvos To Mainland (R.)

Greek authorities on Thursday said they have moved a few hundred asylum seekers from the island of Lesvos to the mainland in an effort to ease overcrowding in its camps. Thousands of asylum seekers have become stranded on Lesbos and four other islands close to Turkey since the European Union agreed a deal with Ankara in March 2016 to shut down the route through Greece. “I came to heaven from hell,” said 30-year old Mohammad Firuz, who lived for two months in a state-run camp in Lesvos.

Firuz was among 300 people, many of them women and children, aboard a ferry that reached the port of Piraeus early on Thursday morning. The asylum seekers would be taken to camps and apartments in the mainland, authorities said. Lesvos is now hosting some 8,500 asylum-seekers, nearly three times the capacity of state-run facilities. Violence often breaks out, mainly over delays in asylum procedures and poor living standards. Lesvos residents went on strike earlier this month to protest against European policies they say have turned it into a “prison” for migrants and refugees.

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This is just too nuts. Ban the shit.

Common Pesticide Can Make Migrating Birds Lose Their Way (G.)

The world’s most widely used insecticide may cause migrating songbirds to lose their sense of direction and suffer drastic weight loss, according to new research. The work is significant because it is the first direct evidence that neonicotinoids can harm songbirds and their migration, and it adds to small but growing research suggesting the pesticides may damage wildlife far beyond bees and other insects. Farmland birds have declined drastically in North America and Europe in recent decades and pesticides have long been suspected as playing a role. The first evidence for a link came in 2014 when a study in the Netherlands found that bird populations fell most sharply in the areas where neonicotinoid pollution was highest, with starlings, tree sparrows and swallows among the most affected.

“The reason our new study is special is this is not a correlation – it is actual experimental evidence,” said Prof Christy Morrissey, at the University of Saskatchewan in Canada, who said the results shocked her. “The effects were really dramatic. We didn’t anticipate the acute toxicity, because the levels [of neonicotinoid] we gave them were so low. Three neonicotinoids were banned from use on flowering crops in the European Union in 2013 due to unacceptable risks to bees and other pollinators and a total outdoor ban is being considered. Canada is also considering a total ban. Neonicotinoids now pollute the environment across the world and pressure is growing to slash pesticide use, which research shows would not reduce food production on almost all farms.

The new research, published in the peer-reviewed journal Scientific Reports, analysed the effect of the neonicotinoid imidacloprid on white-crowned sparrows that migrate from the southern US and Mexico to northern Canada in summer. Birds were given doses equivalent to less than a single corn seed and within hours became weak, developed stomach problems and stopped eating. They quickly lost 17-25% of their weight, depending on the dose, and were unable to identify the northward direction of their migration. “Basically, these birds became lost,” said Morrissey. Control birds that were not exposed to the insecticide were unaffected.

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Again: ban the shit.

‘Shocking’ Rise In Rubbish Washing Up On UK Beaches (G.)

The rubbish washing up on the UK’s beaches is continuing to increase, rising by 10% in 2017, the Marine Conservation Society’s (MCS) annual beach clean has revealed. Much of the waste is plastic, leading the MCS to call on the government to urgently introduce a charge on single-use plastic items, such as straws, cups and cutlery. The chancellor, Philip Hammond, recently announced the government is considering such action. About 12m tonnes of plastic litter enters the oceans every year, killing millions of marine animals. People are also believed to be inadvertently eating the plastic, potentially contaminated with toxic chemicals, via seafood. The MCS beach clean in September saw 7,000 volunteers scour 340 beaches and collect an average of 718 pieces of rubbish every 100 metres.

The survey uses a standard methodology and data from the last decade and shows a rising tide of litter along the coast. Most of the litter is small, unidentifiable fragments of plastic, broken down in the sea from larger objects and often mistaken for food by fish and birds. But 20% of the rubbish is packaging from “on the go” food and drink, such as cups, bottles, cutlery, stirrers and sandwich packets. “Our beach clean evidence shows a shocking rise in the amount of litter this year,” said Sandy Luk, MCS chief executive. “Our oceans are choking in plastic. We urgently need a levy on single-use plastic as a first step.” “We are concerned we are continuing on this upwards trend,” said Lizzie Prior, beach and river clean project officer at the MCS. “Plastic never goes away – it does not decompose. It just goes to smaller and smaller pieces and becomes much more harmful for our marine environment.”

She said the tax on plastic bags introduced in 2015, which has seen their use drop by 85%, had a rapid impact, with the number of bags found on beaches down by 40% since 2014. “It is really fantastic to see that small charge completely changed people’s behaviour,” she said. “A levy [on other single use plastic] would be a fantastic next step.”

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Any day now, McDonald’s will start beaming ads onto the surface of the moon.

Lobster Found With Pepsi Logo ‘Tattoo’ (G.)

Concerns over debris littering the world’s oceans are back in the spotlight after a Canadian fishing crew found a lobster with the blue and red Pepsi logo imprinted on its claw. Trapped in the waters off Grand Manan, New Brunswick, the lobster had been loaded onto a crate to have its claws banded when Karissa Lindstrand came across it. Lindstrand, who drinks as many as 12 cans of Pepsi a day, quickly spotted the resemblance. “I was like: ‘Oh, that’s a Pepsi can,’” she said. On closer look, it seemed more like a tattoo on the claw. “It looked like it was a print put right on the lobster claw.” Neither she or any of the crew had seen anything like it. More than a week after the find, debate has swirled over how it might have come to be: some believe the lobster might have grown around a can that ended up at the bottom of the ocean.

Others speculate that part of a Pepsi box somehow become stuck on the lobster. Lindstrand disputes these theories. The image on the claw was pixelated, she said, suggesting it couldn’t have come from a can. And the image on a Pepsi box is far too large to be what she saw on the claw. The logo looked like it came from a printed picture, but paper would have deteriorated in the ocean. “I’m still trying to wrap my brain around what exactly it was,” she said. The find comes amid growing concerns over the amount of debris accumulating in the world’s oceans. Between 5m and 13m tonnes of plastic leak into the world’s oceans each year to be ingested by sea birds, fish and other organisms, leading the record-breaking sailor Dame Ellen MacArthur to warn that by 2050 the sea could have more plastic in it than fish, by weight.

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Sep 032017
 


Edward Hopper Sunday 1926

 

America’s Superstar Companies Are a Drag on Growth (BBG)
Forget Wall Street – Silicon Valley Is The New Political Power In DC (G.)
Google To Be Hit With Record EU Fine Over Claims Of Phone Software Abuse (T.)
North Korea Quake Seems Related To Nuclear Test (BBG)
Bitcoin Tumbles To Pre Korea-Missile-Launch Level After Topping $5000 (ZH)
China Sees New World Order With Oil Benchmark Backed By Gold (ANR)
Why Houston Doesn’t Need Federal Flood Relief (Mises)
Harvey Could Bankrupt The Federal Flood-Insurance Program (ZH)
Harvey Makes Landfall in Saudi Arabia (BBG)
Pesticides Linked To Birth Abnormalities In Major New Study (Ind.)
France Votes Against The Use Of Pesticide Glyphosate (FarmingUK)

 

 

The perfect recipe for strangling an economy: “..as a result of this increased market power, the big superstar companies have been raising their prices and cutting their wages. This has lifted profits and boosted the stock market, but it has also held down real wages, diverted more of the nation’s income to business owners, and increased inequality. It has also held back productivity, since raising prices restricts economic output.”

America’s Superstar Companies Are a Drag on Growth (BBG)

Here’s a story about the U.S. economy that more people are telling these days. Since the 1980s, antitrust enforcement has gotten weaker. As a result, a few big companies have managed to capture a much bigger share of the market in various industries. Technology may have helped too, by letting big companies spread their geographic reach, and by creating network effects that keep customers locked in to platforms like Facebook. Anyway, as a result of this increased market power, the big superstar companies have been raising their prices and cutting their wages. This has lifted profits and boosted the stock market, but it has also held down real wages, diverted more of the nation’s income to business owners, and increased inequality. It has also held back productivity, since raising prices restricts economic output.

Like all big, sweeping theses about the economy, this story can’t be proven or disproven with a single research paper, or even a dozen papers. But like detectives, economists can probe various pieces and see how each one checks out. In the past few years, researchers have found that industrial concentration – measured by the market share of the four biggest companies in an industry – has indeed been increasing in most parts of the U.S. economy. They’ve documented a correlation between industrial concentration and a decline in labor’s share of national income. They’ve confirmed that profits have risen substantially. They’ve documented a slackening in the enforcement of antitrust law. And they’ve found some evidence that after mergers, prices go up while productivity doesn’t improve.

Now, a series of new papers provides even more support for key aspects of the story. The first, a paper by economists Jan de Loecker and Jan Eeckhout, has caused quite a stir in the economics press and on the blogs. De Loecker and Eeckhout find that markups – the amount that companies charge over and above their costs – have been on the rise since about 1980. Back then, according to the authors’ estimates, the average company charged a price that was about 18% above costs – now, the number is 67%.

The authors then use some very simple econ models to link a rise in markups to declines in labor’s share of national income, low-skilled workers’ wages, reduced labor force participation and a slowdown in the broader economy. It all fits with basic economic theory – less competition leads to increased market power, leading in turn to all sorts of bad economic outcomes. The second paper, by German Gutierrez and Thomas Philippon, looks at declining levels of business investment. Basic theory suggests that when top companies get more market power, they invest less in their businesses as they restrict output and raise prices. Market power could therefore be one big reason for the decline in U.S. business investment:

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But these ‘superstar’ companies can do what they want; they have the power, both politically and economically.

Forget Wall Street – Silicon Valley Is The New Political Power In DC (G.)

Funding thinktanks is just one of the ways that America’s most powerful industries exert their influence over policymakers. Much of the work takes place a quarter of a mile from the White House, in a lesser-known political power base: Washington’s K Street corridor, the epicenter of the lobbying industry. In addition to thinktanks, K Street is packed with slick corporate representatives, hired guns, and advocacy groups. The lobbyists spend their days swarming over members of Congress to ensure their private interests are reflected in legislation and regulation. While the big banks and pharma giants have flexed their economic muscle in the country’s capital for decades, there’s one relative newcomer that has leapfrogged them all: Silicon Valley. Over the last 10 years, America’s five largest tech firms have flooded Washington with lobbying money to the point where they now outspend Wall Street two to one.

Google, Facebook, Microsoft, Apple and Amazon spent $49m on Washington lobbying last year, and there is a well-oiled revolving door of Silicon Valley executives to and from senior government positions. Tech companies weren’t always so cozy with Capitol Hill. During its 1990s heyday, Microsoft accumulated enormous wealth and market share. Despite being one of the world’s largest companies, the PC software pioneer mostly kept away from Washington, spending just $2m on lobbying in 1997. However, the company’s size and anticompetitive business practices attracted the scrutiny of regulators in Clinton’s administration, whipped up by the lobbying of disgruntled competitors including Sun Microsystems, IBM and a company called Novell. The following year, the Department of Justice sued Microsoft, accusing it of using a Windows operating system monopoly to push its Internet Explorer browser to the disadvantage of rivals.

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US ‘superstar’ companies’ power has not yet fully pervaded Europe. A matter of time?!.

Google To Be Hit With Record EU Fine Over Claims Of Phone Software Abuse (T.)

Google faces a multibillion-euro fine by the European Commission for using its Android smartphone software to stifle competition. The record-breaking penalty could be imposed as soon as this month, according to industry and legal sources in Brussels. Other insiders said the commission may wait until later in the year before sanctioning Google. Brussels has accused the world’s second-biggest company of breaking anti-trust laws by forcing mobile phone manufacturers to pre-load Google apps on their devices. The fine will escalate the company’s regulatory woes in Europe, where the commission has waged a long-running campaign to try to ensure competition flourishes in the digital economy. In June, the competition commissioner Margrethe Vestager fined Google €2.4bn (£2.2bn) for doctoring search results to favour its price-comparison shopping service.

Vestager also ordered the company to change how it presents search results. It has until the end of the month to comply with the demand, or face daily fines of 5% of its global turnover. Sources expect the Android fine to be substantially higher than the shopping penalty. The software is a central pillar of the $650bn (£502bn) empire of Alphabet, Google’s owner. It powers an estimated 80% of smartphones. About half of all internet traffic is through phones. Last year Vestager, 49, accused Google of using Android as a tool to “protect and expand its dominant position in internet search”. The company allows handset makers to use the software without paying a fee, but they must pre-install Google’s Chrome browser, search bar and other apps. This stipulation “harms consumers” and prevents digital rivals “from competing on their own merits”, according to Vestager.

In addition to fining Google, she is expected to demand a fundamental overhaul of its relationship with smartphone makers, such as Samsung. That could undermine the big profits Google earns through Android. It monetises the software platform by analysing the mountains of data generated by its apps and selling targeted adverts to clients. [..] the company has strenuously denied breaking competition laws. Last year it said giving away Android “keeps manufacturers’ costs low, while giving consumers unprecedented control of their mobile devices”.

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The pressure on Xi will rise a lot. And US should sit down with Putin. Urgently.

North Korea Quake Seems Related To Nuclear Test (BBG)

North Korea said it successfully tested a hydrogen bomb with “unprecedentedly big power” on Sunday that can be loaded onto an intercontinental ballistic missile, in its first nuclear test under U.S. President Donald Trump’s watch. The test, ordered by Kim Jong Un, was a “perfect success” and confirmed the precision and technology of the hydrogen bomb, according to the Korean Central News Agency. Kim’s regime has defied Trump’s warnings as it seeks the capability to strike America with an atomic weapon. “The creditability of the operation of the nuclear warhead is fully guaranteed,” KCNA said. South Korea’s weather agency said it detected a magnitude 5.7 earthquake around 12:29 p.m. local time near the Punggye-ri nuclear test site in northeast North Korea. Energy from Sunday’s explosion was about six times stronger in force than the nuclear test conducted by Pyongyang last September, the weather agency said.

“All options are on the table,” Japanese Foreign Minister Taro Kono said on public broadcaster NHK. Prime Minister Shinzo Abe said a North Korea nuclear test would be “absolutely unacceptable and we must protest it strongly.” Pyongyang’s actions are set to further increase tensions in Northeast Asia, where concerns have grown this year that a war of words between Trump and Kim could set off a military conflict. It was the sixth nuclear test by Pyongyang since 2006 and the first since the U.S. and South Korea elected new leaders. Trump had no immediate response to the nuclear test, though he sent a tweet thanking relief workers after Hurricane Harvey devastated states in the southern U.S. He has repeatedly lashed out at North Korea since taking office, warning last month of “fire and fury” if Kim’s regime continues to threaten the U.S.

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“Chinese market regulators have begun cracking down on ICOs as “illegal fundraising vehicles” in disguise..“

Bitcoin Tumbles To Pre Korea-Missile-Launch Level After Topping $5000 (ZH)

Shortly after topping $5,000 (according to several exchanges), Bitcoin began to tumble dramatically – now down almost $500 – erasing all the post-North-Korea missile anxiety gains.

Ethereum has crashed even more.

Meanwhile, one of the world’s largest bitcoin exchange, Shanghai-based BTC China, announced it had suspended ICOCoin deposits as well as trading and withdrawals, starting 6pm on Sunday, while Caixin reports that authorities shut down a blockchain conference over the weekend on concerns unregulated Initial Coin Offerings were being used to raise funds illegally, adding that Chinese market regulators have begun cracking down on ICOs as “illegal fundraising vehicles” in disguise, and in taking a page out of the SEC playbook, will soon issue official rules on ICOs. As CoinTelegraph adds, the self-regulatory group National Internet Finance Association of China warned its members about the dangers in participating in initial coin offerings (ICO).

The group claimed that ICOs could be using misleading information as part of fundraising campaigns. In a statement in late August 2017, the online finance organization further warned its member companies to exercise extreme caution when dealing with the new fundraising mechanism. Part of the statement reads: “China Internet Finance Association members should take the initiative to strengthen self-discipline, to resist illegal financial behavior.” [..] an official for Russia’s national legislature said that new laws regulating the exchange of cryptocurrencies will be complete by the end of the fall. Anatoly Aksakov, who leads the State Duma’s financial markets committee, told Russian media this week that next steps involve the formation of a dedicated working group to address the issue.

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Sounds overcooked. But yes, US sanctions are not helping. Still, physical delivery in gold is not what anyone wants, far too clumsy for real trade. And who trusts paper gold? Even better: no-one trusts the yuan.

China Sees New World Order With Oil Benchmark Backed By Gold (ANR)

China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold in what analysts say could be a game-changer for the industry. The contract could become the most important Asia-based crude oil benchmark, given that China is the world’s biggest oil importer. Crude oil is usually priced in relation to Brent or West Texas Intermediate futures, both denominated in U.S. dollars. China’s move will allow exporters such as Russia and Iran to circumvent U.S. sanctions by trading in yuan. To further entice trade, China says the yuan will be fully convertible into gold on exchanges in Shanghai and Hong Kong. “The rules of the global oil game may begin to change enormously,” said Luke Gromen, founder of U.S.-based macroeconomic research company FFTT.

The Shanghai International Energy Exchange has started to train potential users and is carrying out systems tests following substantial preparations in June and July. This will be China’s first commodities futures contract open to foreign companies such as investment funds, trading houses and petroleum companies. Most of China’s crude imports, which averaged around 7.6 million barrels a day in 2016, are bought on long-term contracts between China’s major oil companies and foreign national oil companies. Deals also take place between Chinese majors and independent Chinese refiners, and between foreign oil majors and global trading companies. Alan Bannister, Asia director of S&P Global Platts, an energy information provider, said that the active involvement of Chinese independent refiners over the last few years “has created a more diverse marketplace of participants domestically in China, creating an environment in which a crude futures contract is more likely to succeed.”

China has long wanted to reduce the dominance of the U.S. dollar in the commodities markets. Yuan-denominated gold futures have been traded on the Shanghai Gold Exchange since April 2016, and the exchange is planning to launch the product in Budapest later this year. Yuan-denominated gold contracts were also launched in Hong Kong in July – after two unsuccessful earlier attempts – as China seeks to internationalize its currency. The contracts have been moderately successful. The existence of yuan-backed oil and gold futures means that users will have the option of being paid in physical gold, said Alasdair Macleod, head of research at Goldmoney, a gold-based financial services company based in Toronto. “It is a mechanism which is likely to appeal to oil producers that prefer to avoid using dollars, and are not ready to accept that being paid in yuan for oil sales to China is a good idea either,” Macleod said.

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The size of both Texas and Houston Metro GDP is quite something.

Why Houston Doesn’t Need Federal Flood Relief (Mises)

In his article today, Christopher Westley noted that Texas’s economy — when measured by GDP — is larger than Canada’s. In other words: If Texas were an independent country, it would be the world’s 10th largest economy (totaling $1.6 trillion), and its citizens would be more than capable of addressing natural disasters of the magnitude of a major flood. Texas’s economy is also larger than those of Russia and Australia. By why stop our analysis at the state of Texas? Indeed, if we look at the GDP of the Houston metropolitan area, we find it comes in at $503 billion. This total is similar to the GDPs of Poland, Belgium, and Austria. It’s significantly larger than the GDPs of Norway and Denmark. Nor is Texas’s GDP largely driven by federal spending — so we can’t say that Texas’s economy depends on federal spending to stay afloat.

When we look at federal spending in Texas compared to the federal taxes paid by Texans, we find it’s nearly a one-for-one relationship. So, if the Federal government stopped spending in Texas — but allowed Texans to keep their money, Texas would be fine. [..] Of course, we’ll be told that federal disaster relief programs are all about “sharing” and “cooperation” and “kindness.” In reality, it’s all just about forcing one group of people to hand over money to another group of people. There is no doubt that Texas and Houston now face significant challenges in rebuilding after the flood. But, when we demand that other regions and states pay for the rebuilding of Texas, we’re acting as if those other states and communities don’t have problems of their own. Needs related to poverty, infrastructure, and education in, say, Michigan did not magically disappear because Texas experienced a flood.

The only reason it now seems right to take money from people in Michigan, and hand it over to Houstonians, is because Houston’s problems are in the headlines, and Michigans mundane daily problems are not. The central planners have decided that Houstonians deserve Michigan’s money. But the rationale for this decision is purely political, and thus arbitrary. This isn’t to say real sharing and kindness are a bad thing. It’s excellent that private charities have already been hard at work helping with the cleanup in Houston. If one wants to insist that governments be involved, there’s nothing stopping other states from handing over funds to Texas directly. The federal government need not be involved at all.

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Which is why the possibility of a second hurricane hitting the US this year is intriguing.

Harvey Could Bankrupt The Federal Flood-Insurance Program (ZH)

Hurricane Harvey may solve the auto industry’s inventory problem. But right now, it’s about to create a giant headache for the federal government. Based on the latest estimates from Irvine, California-based CoreLogic, insured flood losses for homes in the affected areas of Texas and Louisiana could total between $6.5 billion to $9.5 billion. Since private insurers typically don’t provide personal flood insurance, all but $500 million of that will fall to the Federal Emergency Management Agency’s National Flood Insurance Program, or NFIP. According to the Street, if insured damages reach the high end of this range, it would totally deplete the $7.5 billion of cash and available credit available to the 49-year-old government program, which provides about 98% of residential flood insurance. The program is already about $25 billion in debt to the US Treasury Department and would need Congressional authorization for additional funding.

To be sure, final totals could be much, much higher given the severity of the the “1-in-1000-year” flood. The potential funding shortfall could create problems if Congress doesn’t act quickly this month to shore up the financially-troubled flood-insurance program. As we’ve reported, Congress already has a full agenda in September – a month where lawmakers must pass a funding bill to keep the government open, and another to raise the debt limit and stave off a technical default on US debt. Initially, President Trump said he would force a government shutdown if Congress didn’t approve funding for his border wall in its next budget. However, it appears that he has backed away from this, as the Washington Post reported today that the administration has quietly notified Congress that the $1.6 billion in wall funding would not need to be included in the September continuing resolution.

Furthermore, Congress must explicitly pass legislation to keep the NFIP intact. Without it, the entire program will lapse. To be sure, there are some signs that Republicans are taking steps to ensure that emergency disaster-relief funding is approved as quickly as possible. According to a report in the Wall Street Journal, some Republican lawmakers are raising the possibility that funding for the cleanup effort could be attached to the debt-ceiling bill, giving both measures a strong chance of passing. But it didn’t say if funding for the flood-insurance program would be included. Thanks, in part, to the hurricane, and the perceived political consequences of failing to aid the disaster victims (though Texas has proven to be a reliably red state), Goldman has cut its odds of a government shutdown to 15%.

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“..even as Saudi Arabia sees prices of the end products of its industry spiking, by and large it is not capturing that windfall for itself..”

Harvey Makes Landfall in Saudi Arabia (BBG)

Hurricane Harvey has devastated the Gulf Coast, and its impact is now spreading out to the rest of the U.S., chiefly at gas pumps. But America’s resurgent role in the global energy trade means the ripples extend far beyond its own shores. One place they are lapping onto is Saudi Arabia.In theory, the de-facto leader of efforts by OPEC, Russia and other members of the so-called Vienna Group stands to gain from disruption at the nerve center of the shale boom that has helped to suppress oil prices. In practice, things are a bit more complicated.

The shale boom has moved a lot of U.S. oil production inland and contributed to a glut of barrels building up in storage. So Harvey’s biggest impact on the region’s energy industry has been the closure of ports, refineries and pipelines – and keeping many drivers off highways that have turned into lakes and streams.The net result is depressed demand for crude oil due to absent refiners and panic buying of refined products such as gasoline for the same reason. So even as Saudi Arabia sees prices of the end products of its industry spiking, by and large it is not capturing that windfall for itself:

The disruption should cause U.S. inventories of refined products to fall as they are used to cover shortages and stocks of crude oil and products to drop elsewhere as, for example, European refiners run flat-out to send fuel to the U.S. to capture higher prices. This ultimately helps Saudi Arabia.Again, though, there’s a complicating factor.Saudi Arabia has explicitly targeted the U.S. in its strategy to drain the glut; shipments of its oil to America have dropped noticeably this summer:

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Will we ever stop poisoning ourselves? No high hopes here.

Pesticides Linked To Birth Abnormalities In Major New Study (Ind.)

High exposure to pesticides as a result of living near farmers’ fields appears to increase the risk of giving birth to a baby with “abnormalities” by about 9%, according to new research. Researchers from the University of California, Santa Barbara, compared 500,000 birth records for people born in the San Joaquin Valley between 1997 and 2011 and levels of pesticides used in the area. The average use of pesticides over that period was about 975kg for each 2.6sq km area per year. But, for pregnant women in areas where 4,000kg of pesticides was used, the chance of giving birth prematurely rose by about 8% and the chance of having a birth abnormality by about 9%. Writing in the journal Nature Communications, the researchers compared this to the 5 to 10% increase adverse birth outcomes that can result from air pollution or extreme heat events.

“Concerns about the effects of harmful environmental exposure on birth outcomes have existed for decades,” they wrote. “Great advances have been made in understanding the effects of smoking and air pollution, among others, yet research on the effects of pesticides has remained inconclusive. “While environmental contaminants generally share the ethical and legal problems of evaluating the health consequences of exposure in a controlled setting and the difficulties associated with rare outcomes, pesticides present an additional challenge. “Unlike smoking, which is observable, or even air pollution, for which there exists a robust network of monitors, publicly available pesticide use data are lacking for most of the world.”

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Addicted farmers: “More than half of British farmers say they are concerned that a ban could cost them more than £10,000 every year.”

France Votes Against The Use Of Pesticide Glyphosate (FarmingUK)

The French government has voted against the renewal of an EU Commission license for the pesticide glyphosate. The decision by the French government comes as evidence emerges of the risk of birth defects caused by exposure to pesticides. Monsanto is the major supplier of products containing glyphosate, with ‘Roundup’ being the best-known product. The product is widely used by farmers, gardeners and local authorities to control weeds. In 2015 the World Health Organisation’s (WHO) classified glyphosate as a probable carcinogen. But in March, the EU’s chemicals agency said glyphosate should not be classed as a carcinogen. And a survey has shown that a ban on glyphosate in the UK could force one in five wheat farms into ‘serious financial difficulty’. More than half of British farmers say they are concerned that a ban could cost them more than £10,000 every year.

Speaking at Cereals 2017, NFU Vice President Guy Smith said: “This year looks like being a watershed year for classical chemistry for arable farms with these three decisions on the horizon from Europe. “A poor decision on endocrine disruptor definition could see an end to the availability of around 26 active ingredients; the European Commission is proposing a ban on the use of neonicotinoids on all outdoor crops; and a decision on the reauthorisation of glyphosate is due by the end of the year. “The NFU will continue to make the case for evidence-based decisions to be made in all three of these areas, and we will continue to work with our members to help them make the case to politicians and other decision makers about the importance of these products and to demonstrate the damage that bad decisions will have on farming and our food supply.”

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