Mar 242016
 
 March 24, 2016  Posted by at 9:28 am Finance Tagged with: , , , , , , , , , , ,  


John M. Fox National Peanut Corp. store on Broadway, NY 1947

Goldman to Fed: Stop Worrying So Much About the Stronger Dollar (BBG)
China Sends Fed A Warning: Devalues Yuan By Most In 2 Months (ZH)
Pimco Sees 7% Drop For Yuan, ‘No. 1 Risk For Global Economy This Year’ (BBG)
Kyle Bass Is Wrong On China: Policy Adviser Li (CNBC)
China’s Debt Bubble Threatens Global Economy (Nikkei)
China Online P2P Financing Firms Face More Regulation (WSJ)
There’s No Sign of a China Rebound (BBG)
China Exports Its Environmental Problems (BBG)
Liquidity Death Spiral Traps Credit Suisse (BBG)
Japan’s Bond Market Is Close to Breaking Point (BBG)
US Oil Falls After Big Jump In Stockpiles (Reuters)
Osborne’s Disability Cuts Are Devastating Families (G.)
Trump Is Right – Dump NATO Now (David Stockman)
Methane and Warming’s Terrifying New Chemistry (McKibben)
EU Border Agency Has Less Than A Third Of Requested Police (AFP)
Key Aid Agencies Refuse Any Role In ‘Mass Expulsion’ Of Refugees (G.)

Everybody knows a stronger dollar is inevitable. Priced in.

Goldman to Fed: Stop Worrying So Much About the Stronger Dollar (BBG)

It’s time for the Federal Reserve to end its dollar fixation. That’s the takeaway from a Goldman Sachs report Wednesday that suggests the U.S. currency poses little threat to the Fed’s inflation goals, challenging policy makers’ comments to the contrary. That’s good news for dollar bulls who are betting on expanded monetary-policy divergence between the U.S., Europe and Japan. Inflation is at the heart of the Fed’s debate about the timing of interest-rate increases as officials look to normalize monetary policy after seven years of near-zero interest rates. With a stronger dollar not translating into significantly cheaper import prices, Goldman Sachs suggests the central bank faces fewer headwinds to hiking rates than markets are currently pricing in.

“The majority of the effects of a stronger dollar on import prices have already been realized,” analysts Zach Pandl and Elad Pashtan wrote in the note. “Inflation data to date appears to be more closely tracking a path with less dollar pass-through to core inflation” than implied by the Fed’s projections for consumer prices. Investors agree. The gap between yields on Treasury Inflation-Protected Securities and nominal 10-year notes, known as the break-even rate, climbed to the highest since August earlier this week. The measure indicates inflation will average about 1.59% over the next decade, compared with 1.2% last month. The Bloomberg Dollar Spot Index, which tracks the currency versus 10 peers, advanced 0.7% on Wednesday, extending its longest streak of gains since the period ending Feb. 16.

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Fed must hike?!

China Sends Fed A Warning: Devalues Yuan By Most In 2 Months (ZH)

With the USD Index stretching to its longest winning streak of the year, jawboned by numerous Fed speakers explaining how April is ‘live’ (and everyone misunderstood the dovishness of Yellen), it appears that The PBOC wanted to send a message to The Fed – Raise rates and we will unleash turmoil on your ‘wealth creation’ plan. Large unexpected Yuan drops have rippled through markets in recent months spoiling the party for many and tonight, by devaluing the Yuan fix by the most since January 7th, China made it clear that it really does not want The Fed to hike rates and cause a liquidity suck-out again. The last 4 days have seen nearly a 1% devaluation in the Yuan fix with today’s drop the biggest in over 2 months…

 

And while everyone is quietly commenting on how “stable” the Yuan has been this year, the truth is that is only the case against the USD, the Yuan basket has been consistently devaluing since PBOC admitted it was more focused on that than the USD only…

The last time they sent a message, The Fed rapidly acquiesced and decided a rate hike was inadvisable due to global market turmoil… we wonder what happens this time.

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Only question is will it be voluntary.

Pimco Sees 7% Drop For Yuan, ‘No. 1 Risk For Global Economy This Year’ (BBG)

The offshore yuan dropped to a one-week low after China’s central bank weakened its daily fixing and Pimco. said it sees further depreciation for the currency. The People’s Bank of China lowered its reference rate by 0.33%, the most since Jan. 7, following an overnight advance in the dollar on comments from Federal Reserve officials on the possibility of an interest-rate increase as soon as April. The yuan, “by far the single biggest risk for the global economy and markets this year,” is expected to depreciate 7% against the dollar over the next year, according to a Pimco report issued Wednesday. “If the Fed raises interest rates in April, the dollar will rebound sharply and pressure the yuan weaker,” said Gao Qi at Scotiabank, who sees a June move as more likely. “We expect the yuan to depreciate modestly to 6.7 against the greenback by the end of this year” as capital leaves, the economy slows and the dollar advances.

The yuan’s share of global payments dropped to the lowest since October 2014, according to the Society for Worldwide Interbank Financial Telecommunications, with data affected by the one-week Lunar New Year holiday. China’s growth will likely decelerate as a trend, with mini-cycles of weak recovery and slowdown led by policy swings, Morgan Stanley economists Chetan Ahya and Elga Bartsch wrote in a note. China won’t devalue the yuan to boost exports, and is confident that the nation’s economy will expand by more than 6.5% annually in the next five years, Premier Li Keqiang said in a speech in Boao, Hainan province, on Thursday. Although pressures for the yuan to depreciate do exist, the nation will be able to keep the exchange rate basically stable as long as the economy stays sound, PBOC adviser Huang Yiping said on Wednesday.

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Saying it does not inspire confidence.

Kyle Bass Is Wrong On China: Policy Adviser Li (CNBC)

Many assumptions about China held by global market players, such as thinking Beijing wants a weaker yuan or that low oil prices are caused by the mainland’s slowing growth, are simply wrong, according to a leading Chinese policy adviser. Li Daokui, director of the Center for China at Tsinghua University and former member of the People’s Bank of China (PBOC) monetary policy committee, said prominent hedge fund managers, including the likes of Kyle Bass, have misunderstood the world’s second-largest economy. For one, focusing on the currency is “the biggest mistake in reading the Chinese economy,” said Li on the sidelines of Thursday’s Boao Forum for Asia conference. “There is no need for the Chinese economy to rely on a big boost of exports….the economy is still facing a big trade surplus.”

Ever since Beijing surprised the world by unexpectedly depreciating the renminbi in August, money managers such as Kyle Bass, David Tepper and Bill Ackman have ramped up bearish bets against the yuan. Goldman Sachs predicts the dollar will be fetching 7 yuan by the end of the year, from 6.5 currently, amid expectations for looser monetary policy and the government’s desire to boost sagging exports. But exports are no longer as important as before the global financial crisis, Li explained, adding that the sector now makes up 20% of GDP, compared with 35% previously. “The renminbi is already an international currency in the region, so when it devalues, everybody devalues. The net impact is almost zero,” he added.

Indeed, fears for an Asian currency war hit fever-pitch after August’s historic devaluation. Export-oriented economies, such as neighboring South Korea, are typically flagged as the most vulnerable to a weaker renminbi as their goods appear more expensive overseas, sparking worries that other central banks would weaken their own currencies to maintain trade competitiveness. “When the Chinese economy does devaluation, the momentum of financial markets will kick in to expect more devaluation. The game has no good ending for anyone,” Li said. Li’s views echo those of Premier Li Keqiang, who said on Thursday that depreciation would not help companies be more competitive, repeating that the government would not devalue the yuan to lift exports.

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Non-financial private debt is over 200% of GDP and counting. $21.5 trillion.

China’s Debt Bubble Threatens Global Economy (Nikkei)

Excessive debt held by Chinese companies and households is highlighting a grave reality behind the country’s economy. In a sign that this debt is being regarded as a risk to the global economy, it became a topic of discussion at a meeting of G-20 finance ministers and central bank governors held in February. China even appears to be taking steps similar to Japan’s moves in its own post-bubble era. Total credit to the Chinese private non-financial sector stood at $21.5 trillion at the end of September 2015, accounting for 205% of the country’s GDP, according to the Bank for International Settlements. In Japan, the figure accounted for more than 200% of the nation’s GDP at the end of September 1989, when the country was in the late stage of its economic bubble.

After that bubble burst, the number shot up to 221% by the end of December 1995. Japan had fallen victim to its own excessive debt, and banks wrestled with bad loans for the next 10 years. In the U.S., the boom in subprime housing loans for low-income borrowers evolved into a global financial crisis in 2008. At the end of September that year, total credit to the U.S. private sector reached its peak, accounting for 169% of the country’s GDP. It took U.S. banks about four years to overcome their bad loan problems. And now in China, the outstanding amount of total credit to the private sector has surged 300% from the end of December 2008. After the crisis triggered by the Lehman bankruptcy in 2008, Chinese companies began borrowing money and increasing investment, thanks to the Chinese government’s introduction of economic measures worth 4 trillion yuan (around $586 billion at the time).

That stimulus has helped the country to account for half of the world’s crude steel production. Now, however, China is facing the difficult task of making production adjustments, which is putting deflationary pressure on overseas economies. At the opening session of the 12th National People’s Congress, which ended on March 16, Chinese Premier Li Keqiang announced that the country will accelerate the development of a new economy. He also stated that China will address overcapacity in steel, coal and other industries. Despite the positive stance, though, total credit to Chinese non-financial companies stood at $17.4 trillion at the end of September 2015, accounting for 80% of the total.

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Beijing has let shadow banking grow so big that regulating it is a risk to the economy.

China Online P2P Financing Firms Face More Regulation (WSJ)

China’s online lending companies are bracing for an industry shake-up this year as competition heats up, the economy slows further and regulatory scrutiny tightens following a bevy of scandals. Operators of online lenders, a hot sector in Chinese finance just two years ago, bemoaned the tougher operating environment and the industry’s battered reputation. Speaking at a forum on Wednesday, executives cited rising credit risks and potential new government restrictions on their ability to accept public deposits. They said those firms that aren’t adaptable and lack proper risk controls will likely fail. “When these guys can’t get access to capital, what will they do?” Simon Loong of online financing platform WeLab said at the Boao Forum for Asia, a gathering of business and government leaders.

“They’ll slowly go bust,” and that in turn could rattle the financial system, Mr. Loong said without elaborating. Having made investing easy, major Chinese Internet companies are now competing to sell financial products. Here’s an introduction to some of the popular online investment platforms. Online lending boomed over the past half-decade. Peer-to-peer, or P2P, financing soared, raising capital from wealthier investors and routing it to smaller businesses and consumers often overlooked by commercial banks. P2P platforms numbered 2,595 at the end of last year, up from 880 at the start of 2014, while outstanding loans rose 14-fold to 440 billion yuan ($66.8 billion), according to data provider Wind Information. After the fast rise, however, business conditions deteriorated and some P2P platforms imploded.

Most spectacular was Ezubo Ltd., which collapsed last year, leaving investors short of $7.6 billion and causing regulators to vow to tighten supervision of the sector. While saying greater oversight is welcome, the online lenders at Wednesday’s panel said defended their business models. “The P2P word now seems to have a negative connotation now,” said Yang Fan, CEO of Iqianjin (Beijing) Information. “But P2P financing supplements the existing financial system. It can more effectively direct resources.” The executives said regulators should distinguish between shady operators and credible firms that are trying to manage the risks of loan default. “Those who were accused of illegal fundraising had just put on the hat of P2P” and weren’t genuine operators, said Zhang Shishi, co-founder of online platform Renrendai.

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But they’ll paint the rosy picture anyway.

There’s No Sign of a China Rebound (BBG)

China’s monetary and fiscal stimulus have yet to spur a rebound in the world’s second-largest economy, according to the earliest private economic indicators for March. A purchasing manager’s index focused on small businesses, a gauge of corporate confidence and a new reading of the economy derived from satellite imagery all remained at levels signaling deterioration, though the pace of declines moderated. Sales manager sentiment was unchanged. The reports follow mixed official data showing investment and property sales recovered in the first two months of the year as trade plummeted and manufacturing remained weak. Meanwhile, the newest data show government reforms to slash industrial capacity and shift to a greater reliance on consumption and services haven’t been able to offset the slump.

“Confidence of companies is still slowly bottoming,” Jia Kang, director of the China Academy of New Supply-side Economics, said in a statement. “As long as the supply-side reforms can push forward, the effects will gradually show up.” That’s more unwelcome news for top officials who are gathered this week at the Boao Forum for Asia on the southern island of Hainan to discuss the challenges facing the economy and goals of the reform. Premier Li Keqiang will deliver a keynote speech Thursday and People’s Bank of China Governor Zhou Xiaochuan is scheduled to participate in a panel discussion with Commerce Minister Gao Hucheng and Foreign Minister Wang Yi.

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Obviously.

China Exports Its Environmental Problems (BBG)

One of the best pieces of news in years is that China’s finally getting serious about cleaning up its environment. Renewable energy use is growing rapidly while coal use is declining. Air pollution targets are being tightened. Contaminated farmland is finally getting high-level attention. Yet all that good could be undermined if China simply exports its environmental problems elsewhere. A case in point is China’s campaign to protect its forests. For years, logging ran rampant as the country transformed itself into the world’s biggest buyer of timber and wood products, including everything from furniture to paper. Denuded hillsides contributed to massive floods in 1998 that forced millions to evacuate their homes. Fortunately, according to a study published last week in Science, stricter enforcement of localized logging bans has reversed the trend: Between 2000 and 2010, tree cover increased over 1.6% of Chinese territory (and declined over .38%).

This year, China plans to cut its commercial logging quota another 6.8% and will expand a ban on logging natural forests nationwide. Here’s the problem, though: As China has quieted its chainsaws, the country has become the world’s largest importer of timber; the government predicts that by 2020 it will rely on imports for 40% of its needs. And as buyers, Chinese companies aren’t terribly discerning. According to the London-based think tank Chatham House, China’s purchases of illegally harvested timber nearly doubled between 2000 and 2013, growing to more than 1.1 billion cubic feet. The damage extends across the developing world. China buys up 90% of Mozambique’s timber exports, around half of which were harvested at rates too fast to sustain the forest over the long-term.

In 2013, the World Wildlife Fund declared that illegal logging in the Russian Far East had reached “crisis proportions” after finding that oak was being logged for export to China at more than twice the authorized volumes. That same year, Myanmar tripled the volume of endangered rosewood exported to China (where it’s particularly valued for its use in furniture). At those rates, some of Myanmar’s rosewood species could be extinct by 2017. Despite a total ban enacted in 2014, rosewood exports to China surged last year to levels reportedly not seen in a decade.

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This does not bode well for TBTF banks.

Liquidity Death Spiral Traps Credit Suisse (BBG)

Credit Suisse just got caught up in the same liquidity death spiral that has claimed a growing number of debt funds.Some of the bank’s traders increased holdings of distressed and other infrequently traded assets in recent months without telling some senior leaders, Credit Suisse CEO Tidjane Thiam said on Wednesday. This is bad on several levels. For one, it highlights some pretty poor risk management on the part of senior officers at the Swiss bank.But perhaps more important from a market standpoint, it exposes a trap in the current credit market: Traders are getting increasingly punished for trying to sell unpopular debt at the wrong time. The result has been a growing number of hedge-fund failures, increasing risk aversion by Wall Street traders and further cutbacks at big banks.

This all simply reinforces the lack of trading in less-common bonds and loans. At best, this spiral is inconvenient, especially for mutual funds and exchange-traded funds that rely on being able to sell assets to meet daily redemptions. At worst, it could set the stage for another credit seizure given the right catalyst – perhaps a sudden, unexpected corporate default or two, or the implosion of a relatively big mutual fund. To give a feeling for just how inactive parts of the market have become, consider this: About 40% of the bonds in the $1.4 trillion U.S. junk-debt market didn’t trade at all in the first two months of this year, according to data compiled from Finra’s Trace and Bloomberg. While corporate-debt trading has generally increased by volume this year, more of the activity is concentrated in a fewer number of bonds.

This has made it even harder for big banks to justify buying riskier bonds to make markets for their clients, the way they used to, because they could get stuck holding the bag. That’s what happened with Credit Suisse, apparently. The bank suffered $258 million of writedowns this year through March 11, and $495 million of losses in the fourth quarter, because of its holdings of distressed debt, leveraged loans and securitized products, including collateralized loan obligations [..] Credit Suisse is in a tough spot because it is trying to get out of its hard-to-trade assets at a bad time. It’s re-evaluating its business model under new leadership, higher capital requirements and the shadow of poor earnings. But it’s certainly not alone in feeling the pain from a brutal and unforgiving period in debt markets. JPMorgan Chase, Bank of America and Goldman Sachs are expected to report disappointing trading revenues in the first three months of the year, and Jefferies already reported its train wreck of a quarter.

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Abe’s run out of wiggle room. He can’t even turn around on a dime anymore.

Japan’s Bond Market Is Close to Breaking Point (BBG)

Signs of stress are multiplying in Japan’s government bond market, which is crumbling under pressure from the central bank’s unprecedented asset-purchase program and negative interest rates. BOJ Governor Haruhiko Kuroda has repeatedly said his policies are having the desired effect on markets, including suppressing JGB yields. His success is driving frenzied demand for longer-dated notes as investors avoid the negative yields offered on maturities up to 10 years. And as buyers hang on to debt offering interest returns, the BOJ is finding it harder to press on with bond purchases of as much as 12 trillion yen ($107 billion) a month, sparking sudden price swings leading to yield curve inversions that have nothing to do with economic fundamentals. “We hold a lot, and we’re not selling,” said Yoshiyuki Suzuki, the head of fixed income at Fukoku Mutual Life Insurance, which has $59 billion in assets. “We can get interest income. If we sell, there are no good alternatives.”

Yields on 40-year JGBs dipped below those on 30-year securities Tuesday, and a BOJ operation to buy long-term notes last week met the lowest investor participation on record. Bond market functionality has deteriorated, with 41% of respondents last month rating it as “low,” the highest proportion since the BOJ began the quarterly survey more than a year ago. “It wouldn’t be surprising to see some BOJ operations fail,” said Yusuke Ikawa at UBS in Tokyo. “The biggest risk of that is in superlong bonds.” A dearth of liquidity has driven a measure of bond-market fluctuations to levels unseen since 1999.

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Back on the way to $30 and beyond.

US Oil Falls After Big Jump In Stockpiles (Reuters)

U.S. oil prices fell in Asian trading on Thursday, adding to a slump in the previous session, after stockpiles rose for the sixth week to another record, sapping the strength of a two-month rally in prices. U.S. crude futures were down 10 cents at $39.69 a barrel at 0302 GMT, trading further below the important $40 level. It closed down $1.66, or 4%, at $39.79 a barrel on Wednesday. That marked the sharpest one-day drop for the front-month contract in U.S. crude since Feb. 11. Brent crude futures were up 7 cents at $40.54 a barrel, after trading lower earlier in the session. They finished the last session down $1.32, or 3.2%, at $40.47 a barrel. Earlier this week, both benchmarks had risen by more than 50% from multi-year lows that hit in January.

The U.S. government’s Energy Information Administration (EIA) said crude stockpiles climbed by 9.4 million barrels last week – three times the 3.1 million barrels build forecast by analysts in a Reuters poll. The continued rise in stockpiles is grinding away at the gains in prices that were largely driven by plans of major producers, including Saudi Arabia and Russia, to freeze production. “OPEC production is still high and Iran is expected to continue to ramp up,” said Tony Nunan at Mitsubishi in Tokyo. “I expect crude to come back down again and test the $35 level again if we continue to get builds,” he said. The market was also supported by a release showing crude stockpiles at the Cushing, Oklahoma, delivery hub – an important data point – fell for the first time in seven weeks.

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People die from austerity.

Osborne’s Disability Cuts Are Devastating Families (G.)

A few stabbings in SW1, a couple of careers seriously injured. Politicians and pundits are frantically trying to shrink the implications of Iain Duncan Smith’s resignation down to Westminster size. So it’s about cabinet feuds and leadership hopes, George Osborne’s snottiness and David Cameron’s way with a swearword. What the welfare secretary’s exit is not about, you understand, is a busted austerity programme that has missed nearly every goal and deadline set forward by its creators. It’s not about a benefits system in chaos – economic chaos being so much uglier a prospect than a flat-pack “Tory civil war”. And it’s certainly not about the people who actually have to use that benefits system.

People like Paul and Lisa Chapman. They won’t pop up in the coverage of the “great social reformer” – yet their story takes you to the heart of what’s wrong with our welfare system. It starts a decade ago when Paul, at only 39, started getting a tremor in his right hand. “Just a small one”, but then his eyes would swell up and his sense of smell disappeared. The doctors guessed what was wrong well before the scans picked it up, but a couple of years ago the diagnosis was confirmed: Parkinson’s disease. Incurable. Evil. Now Paul’s body won’t do what his brain tells it to. Miss any tablets and he shakes “really bad”. Even having taken them cramps still seize his neck, legs and arms. “My speech is going,” Paul begins. “I know what I want to say, but … ” Lisa picks up: “The words come out back to front.”

We were in the Chapmans’ small front room, gazing out on the same Northamptonshire town where Paul had worked for years. “I used to be the quickest postman in Irthlingborough!” He could knock off a round in two hours that would take his colleagues four. Even before taking medical retirement, he was slowing down, sometimes forgetting where he was. Now the same route would take “seven or eight hours”. Anyway, Lisa points out, he no longer has the strength to lift a letterbox. We met two days after Osborne’s announcement of the cuts to the personal independence payment (PIP). Disabilities such as Paul’s cost a lot, – in extra kit, travel and care – and PIP is meant to help. The Chapmans were worried that they’d lose out.

This, famously, was the cut too far for IDS. But the Chapmans told me another story, which underlined how this government’s welfare mess is so much bigger than just one line in a red book. Last summer they were summoned for a medical assessment, to be conducted by Capita for the Department for Work and Pensions. Capita employees apologised for not making a home visit, but said the £4.4bn multinational didn’t have sufficient staff to do one soon (Capita says it initially offered a home visit, which was rescheduled). Lisa asked the assessor if he was a GP. Yes, he said – but on the report he is described as a nurse. [..] The assessor found that Paul wasn’t as disabled as previously thought. He immediately lost £49 a week -a huge blow for the Chapmans.

In front of me, Paul remembered what he told Lisa: “The best thing we can do now is you go round your mum’s. I’ll clear off and I won’t take my tablets or my insulin. And it ll be over then. I won t be here. You go back to work and live your life as normal.” Paul: “I couldn’t face this much aggravation. I felt that bad. I’ve got something which anybody could get and I’m so used to doing 70-80 hours at work.” And now he was reduced to this. [..] A government assessment is made, a brown envelope of bad news is put in the post, and in a terraced house in a small town a sick man is driven to consider suicide.

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NATO does a lot of harm. Which makes a lot of sense given that it’s now 25 years over it’s best-by date.

Trump Is Right – Dump NATO Now (David Stockman)

If you want to know why we have a $19 trillion national debt and a fiscal structure that will take that already staggering figure to $35 trillion and 140% of GDP within a decade, just consider the latest campaign fracas. That is, the shrieks of disbelief in response to Donald Trump’s sensible suggestion that the Europeans pay for their own defense. The fact is, NATO has been an obsolete waste for 25 years. Yet the denizens of the Imperial City cannot even seem to grasp that the 4 million Red Army is no more; and that the Soviet Empire, which enslaved 410 million souls to its economic and military service, vanished from the pages of history in December 1991. What is left is a pitiful remnant -145 million aging, Vodka-besotted Russians who subsist in what is essentially a failing third world economy.

Its larcenous oligarchy of Putin and friends appeared to live high on the hog and to spread a veneer of glitz around Moscow and St. Petersburg. But that was all based on the world’s one-time boom in oil, gas, nickel, aluminum, fertilizer, steel and other commodities and processed industrial materials. Stated differently, the Russian economy is a glorified oil patch and mining town with a GDP the equivalent of the NYC metropolitan area. And that’s its devastating Achilles Heel. The central bank driven global commodity and industrial boom is over and done. As a new cycle of epic deflation engulfs the world and further compresses commodity prices and profits, the Russian economy is going down for the count; it’s already been shrunk by nearly 10% in real terms, and the bottom is a long way down from there.

The plain fact is Russia is an economic and military weakling and is not the slightest threat to the security of the United States. None. Nichts. Nada. Nope. Its entire expenditure for national defense amounts to just $50 billion, but during the current year only $35 billion of that will actually go to the Russian Armed Forces. On an apples-to-apples basis, that’s about 3 weeks of Pentagon spending! Even given its non-existent capacity, however, there remains the matter of purported hostile intention and aggressive action. But as amplified below, there has been none. The whole demonization of Putin is based on a false narrative arising from one single event. To wit, the February 2014 coup in Kiev against Ukraine’s constitutionally elected government was organized, funded and catalyzed by the Washington/NATO apparatus. Putin took defensive action in response because this supremely stupid and illegal provocation threatened vital interests in his own backyard.

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CH4 is some 22 times as powerful as CO2.

Methane and Warming’s Terrifying New Chemistry (McKibben)

Global warming is, in the end, not about the noisy political battles here on the planet’s surface. It actually happens in constant, silent interactions in the atmosphere, where the molecular structure of certain gases traps heat that would otherwise radiate back out to space. If you get the chemistry wrong, it doesn’t matter how many landmark climate agreements you sign or how many speeches you give. And it appears the United States may have gotten the chemistry wrong. Really wrong. There’s one greenhouse gas everyone knows about: carbon dioxide, which is what you get when you burn fossil fuels. We talk about a “price on carbon” or argue about a carbon tax; our leaders boast about modest “carbon reductions.” But in the last few weeks, CO2’s nasty little brother has gotten some serious press. Meet methane, otherwise known as CH4.

In February, Harvard researchers published an explosive paper in Geophysical Research Letters. Using satellite data and ground observations, they concluded that the nation as a whole is leaking methane in massive quantities. Between 2002 and 2014, the data showed that US methane emissions increased by more than 30%, accounting for 30 to 60% of an enormous spike in methane in the entire planet’s atmosphere. To the extent our leaders have cared about climate change, they’ve fixed on CO2. Partly as a result, coal-fired power plants have begun to close across the country. They’ve been replaced mostly with ones that burn natural gas, which is primarily composed of methane. Because burning natural gas releases significantly less carbon dioxide than burning coal, CO2 emissions have begun to trend slowly downward, allowing politicians to take a bow.

But this new Harvard data, which comes on the heels of other aerial surveys showing big methane leakage, suggests that our new natural-gas infrastructure has been bleeding methane into the atmosphere in record quantities. And molecule for molecule, this unburned methane is much, much more efficient at trapping heat than carbon dioxide. The EPA insisted this wasn’t happening, that methane was on the decline just like CO2. But it turns out, as some scientists have been insisting for years, the EPA was wrong. Really wrong. This error is the rough equivalent of the New York Stock Exchange announcing tomorrow that the Dow Jones isn’t really at 17,000: Its computer program has been making a mistake, and your index fund actually stands at 11,000.

These leaks are big enough to wipe out a large share of the gains from the Obama administration’s work on climate change—all those closed coal mines and fuel-efficient cars. In fact, it’s even possible that America’s contribution to global warming increased during the Obama years. The methane story is utterly at odds with what we’ve been telling ourselves, not to mention what we’ve been telling the rest of the planet. It undercuts the promises we made at the climate talks in Paris. It’s a disaster—and one that seems set to spread.

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This is an established pattern.

EU Border Agency Has Less Than A Third Of Requested Police (AFP)

EU border agency Frontex on Wednesday said member states have provided less than a third of the personnel it requested to deal with the record influx of migrants. Frontex, which coordinates border patrols and collects intelligence about the bloc’s frontiers, had called on European countries Friday to provide 1,500 police and 50 readmission experts “to support Greece in returning migrants to Turkey.” Only 396 police officers and 47 re-admission experts have been offered, according to a statement released Wednesday by the Warsaw-based agency. “I am grateful to the countries who have offered (personnel)… but I urge other member states to pledge many more police officers if we want to be ready to support readmission to Turkey as agreed by the EU Council,” Frontex head Fabrice Leggeri said.

Leggeri had earlier said: “It is important to stress that Frontex can only return people once the Greek authorities have thoroughly analyzed each individual case and issued a final return decision.” The European Union struck a landmark deal with Turkey last week to stem the massive influx of migrants. The European Commission has said the implementation of the deal will require the mobilization of some 4,000 personnel, including a thousand security staff and military officers, and some 1,500 Greek and European police. Frontex spokeswoman Ewa Moncure told AFP the officers requested by the agency were part of this figure.

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“Nobody knows. Every five minutes, the orders change. So who knows. Maybe God knows. If you have any communication with God, you can ask him.”

Key Aid Agencies Refuse Any Role In ‘Mass Expulsion’ Of Refugees (G.)

A triple blow has been dealt to the EU-Turkey migration deal after five leading aid groups refused to work with Brussels on its implementation, a Turkish diplomat ruled out changing Turkish legislation to make the deal more palatable to rights campaigners, and a senior Greek official said nobody knew how the agreement was supposed to work. The UN refugee agency said it was suspending most of its activities in refugee centres on the Greek islands because they were now being used as detention facilities for people due to be sent back to Turkey. UNHCR was later joined by Médecins Sans Frontières, the International Rescue Committee, the Norwegian Refugee Council and Save the Children. All five said they did not want to be involved in the blanket expulsion of refugees because it contravened international law.

The UNHCR spokeswoman, Melissa Fleming, said: “UNHCR is not a party to the EU-Turkey deal, nor will we be involved in returns or detention. We will continue to assist the Greek authorities to develop an adequate reception capacity.” In a separate and stronger statement, Marie Elisabeth Ingres, MSF’s head of mission in Greece, said: “We will not allow our assistance to be instrumentalised for a mass expulsion operation and we refuse to be part of a system that has no regard for the humanitarian or protection needs of asylum seekers and migrants.” Over the past year, around 1 million people have crossed the narrow straits between Turkey and Greece to try to claim asylum in Europe. In an attempt to stop this flow, the EU and Turkey reached a deal last week that would see almost all asylum seekers returned to Turkish soil.

To do this, the EU has deemed Turkey a safe country for refugees; a decision strongly contested by rights groups. Turkey is not a full signatory to the UN refugee convention, and while it has accepted more Syrian refugees than any other country, it has sometimes forcibly returned Syrian, Iraqi and Afghan asylum seekers to their countries of origin. Just hours after the EU deal was signed, Amnesty International reported that 30 Afghan refugees were sent back to Afghanistan – in a sign, Amnesty said, of what could be to come. “The ink wasn’t even dry on the EU-Turkey deal when several dozen Afghans were forced back to a country where their lives could be in danger,” said John Dalhuisen, Amnesty’s Europe and Central Asia director.

[..] The deputy mayor of Lesbos, the island where most migrants land, said no Greek official knew exactly how the deportation process would work, nor what to do with the refugees while they waited. When asked by the Guardian if he had received any concrete instructions about how refugees would be processed and returned to Turkey, Giorgos Kazanos said: “No, not yet.” “Nobody knows. Every five minutes, the orders change. So who knows. Maybe God knows. If you have any communication with God, you can ask him.”

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Oct 172014
 
 October 17, 2014  Posted by at 11:15 am Finance Tagged with: , , , , , , , , , ,  


Marjory Collins 3rd shift defense workers, midnight, Baltimore April 1943

Greek Bond Rout Drags Down Markets From Ireland to France (Bloomberg)
World Braces As Deflation Tremors Hit Eurozone Bond Markets (AEP)
Greek Drama: Bond Yields Near 9% Threshold (CNBC)
Eurozone Crisis, 5 Years On: No Happy Ending For Greek Odyssey (Guardian)
European Bonds: It’s Every Country For Itself Now (CNBC)
Euro Economy’s Managers Aren’t Blinking in Market Rout (Bloomberg)
Volckerized Wall Street Dumping Bonds With Rest of Herd (Bloomberg)
Pimco To Blackstone Preparing To Feast On Junk Bonds (Bloomberg)
High-Speed Traders Put a Bit Too Much Gravy on Their Meat (Bloomberg)
10 States Where Foreclosures Are Soaring (MarketWatch)
‘Stunning’ Fed Move Put Bottom Under Stocks (CNBC)
Russia Takes EU To Court Over Ukraine Sanctions (FT)
The Big Perk Of Oil’s Wild Slide (CNBC)
Gloves Off Over Oil: Saudi Arabia Versus Shale (CNBC)
The New Defensives: High Yield And The Dollar (CNBC)
Is The ‘Lucky Country’ Headed For Gloomy Times? (CNBC)
Don’t Hold Your Breath Waiting For QE4 (CNBC)
Bank of England Chief Economist ‘Gloomier’ About UK Prospects (Guardian)
Is Asia Ready for Another Wild Ride? (Bloomberg)
Japan No.1 Pension Fund Would Be ‘Stupid’ to Give Asset Goals First (Bloomberg)
‘Ebola Epidemic May Not End Without Developing Vaccine’ (Guardian)
WHO Response To Ebola Outbreak Foundered On Bureaucracy (Bloomberg)

Greek bond yields have slid back into danger territory. They were at 9% last night, far higher than the 7% ‘barrier’ generally assumed to separate acceptable from unsustainable. Someone better do something quick. Left wing Syriza party chief Tsipras is waiting to take over.

Greek Bond Rout Drags Down Markets From Ireland to France (Bloomberg)

Greece’s government debt is back in the spotlight and investors are looking for the exit. As the four-day rout in Greek bonds sent yields to the highest since January, the selloff started to infect nations from Ireland to Portugal and even larger countries such as France. In Spain, a debt auction fell short of the government’s maximum target, and European stocks extended their longest losing streak since 2003. German 10-year bunds fell for the first time in three days, pushing the yield on the euro region’s benchmark securities up from a record low. “We are in a typical flight-to-quality environment with substantial losses in stock markets and wider spreads,” said Patrick Jacq, a fixed-income strategist at BNP Paribas SA in Paris. “The Spanish auction suffered from the environment, not from domestic reasons. It’s the market environment which is not favorable.”

[..] It’s five years since a change in government in Greece set in motion the debt crisis by unveiling a budget deficit that was larger than previously reported by its predecessor. The country was eventually granted a €240 billion lifeline that has kept it afloat since 2010. Markets slid this week after euro-area finance ministers clashed with the nation’s leaders over their plan to leave their safety net, sparking concern that Greece won’t be able to finance itself at sustainable rates without the support of its regional partners. The lack of supervision may lead to the country backtracking on reforms agreed with the EU and the IMF. “Whether that’s a bellwether for more problems to come or not, I’m doubtful of, but we certainly saw the periphery sell off,” Andrew Wilson at Goldman Sachs said in an interview with Bloomberg TV, referring to the slump in Greek bonds yesterday. “It was a flight to quality, it was a bit of a scary story for a while there and I think that’s all it’s reflecting.” Greek bonds have lost 17% in the past month, cutting their return this year through yesterday to 9.9%.

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“The yields are not just discounting a protracted slump, they are also starting to price default risk yet again, or even EMU break-up risk.”

World Braces As Deflation Tremors Hit Eurozone Bond Markets (AEP)

Eurozone fears have returned with a vengeance as deepening deflation across Southern Europe and fresh turmoil in Greece set off wild moves on the European bond markets. Yields on 10-year German Bund plummeted to an all-time low on 0.72pc on flight to safety, touching levels never seen before in any major European country in recorded history. “This is not going to stop until the European Central Bank steps up to the plate. If it does not act in the next few days, this could snowball,” said Andrew Roberts, credit chief at RBS. Austria’s ECB governor, Ewald Nowotny, played down prospects for quantitative easing, warning that the markets had “exaggerated ideas about purchase volumes” and that no asset-backed securities (ABS) would be bought before December. Calls for action came as James Bullard, the once hawkish head of St Louis Federal Reserve, said the Fed may have to back-track on bond tapering in the US, hinting at yet further QE to fight deflationary pressures and shore up defences against a eurozone relapse.

“The forces of monetary deflation are gathering,” said CrossBorderCapital. “Global liquidity is declining and central banks are not doing enough, either in the West or the East to offset the decline. This may not be a repeat of 2007/2008, but it is starting to look more and more like another 1997/1998 episode.” This is a reference to the East Asia crisis and Russian default triggered by withdrawal of dollar liquidity. Ominously, French, Italian, Spanish, Irish, and Portuguese yields diverged sharply from German yields in early trading today, spiking suddenly in a sign that investors are again questioning the solidity of monetary union. The risk spread between Bunds and Italian 10-year yields briefly jumped 38 basis points. This was the biggest one-day move since the last spasm of the debt crisis in 2012. This sort of price action suggests that the markets fear deflation is becoming serious enough to threaten the debt dynamics of weaker EMU states. The yields are not just discounting a protracted slump, they are also starting to price default risk yet again, or even EMU break-up risk.

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” … well beyond the 7%-threshold which many analysts believe is unsustainable”.

Greek Drama: Bond Yields Near 9% Threshold (CNBC)

Greek government bond yields spiked beyond 8% on Thursday, in a sign of growing concern about the country’s economic stability given the possibility of snap elections and plans to exit its bailout early. The 10-year note yielded 8.9% on Thursday at Europe market close, well beyond the 7%-threshold which many analysts believe is unsustainable. It is the first time yields have passed this point since January. On Wednesday evening, the sovereign note yielded 7.863%. The volatility comes amid growing concerns about Athens’ plans to exit its bailout ahead of schedule. On Saturday, Prime Minister Antonis Samaras won a confidence vote in parliament, forcing lawmakers to back his plans to exit its international aid program early – a prospect that is looking increasingly unlikely. Samaras’ government has also been plagued by the prospect of snap elections early next year if the prime minister fails to gain the support of opposition lawmakers for his candidate for president. A promise to exit the painful program early was key in securing that backing.

The concerns have led to a turbulent few days for Greek markets, with the Athens’ benchmark index tanking up to 9% on Wednesday. On Thursday, the ASE closed down around 2.2% lower and is now down around 25% this year. It also proved to be the spark that turned markets south on Thursday morning after equities bounced back slightly at the session open. “This smacks of the ‘risk off’ move of old,” Richard McGuire, a senior rate strategist at Rabobank told CNBC via email. “The peripherals are under pressure across the board which is potentially an alarming sign that fundamental risk is returning.” In a bid to free up some more money for the country’s banks, the European Central Bank cut the haircut it applies on bonds submitted by Greece’s banks as collateral to raise money. The new discount meant an extra 12 billion euros of liquidity could be tapped by Greek banks, the country’s central bank governor Yannis Stournaras told reporters.

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There we go again.

Eurozone Crisis, 5 Years On: No Happy Ending For Greek Odyssey (Guardian)

Greece loves its epic tales and the greatest of them is the story of Odysseus, the hero who took 10 years to find his way back to Ithaca at the end of the Trojan War. A modern version of the Odyssey began in Greece five years ago this weekend when the government in Athens admitted that it had cooked the books to make its budget deficit look much smaller than it actually was. Few thought then that the scandal would have serious ramifications or that the journey through the stormy seas of crisis would have taken so long. Back in October 2009, the mood in the eurozone was one of cautious optimism.

The year had started with Europe caught up in the global economic crash that followed the collapse of Lehman Brothers, but co-ordinated action by the G20 during the winter of 2008-09 had created the conditions for a recovery in growth that appeared to be gaining strength as the year wore on. The admission by George Papandreou’s new socialist government of a black hole in Greece’s public finances was unwelcome but not viewed as something to be unduly worried about. But the policy makers in Brussels and Frankfurt were wrong. Greece did matter. What has become clear subsequently is that the eurozone crisis is similar to Scylla, the monster that devoured many of Odysseus’s men: a many-headed beast.

The first sign of the crisis to come was the deterioration in government finances, not just in Greece but in other eurozone countries. In truth, though, rising deficits were symptoms of three bigger problems. The first was that many countries in the eurozone had a competitiveness problem. Monetary union had given all the members of the single currency a common interest rate and no freedom to adjust their exchange rates. This meant that if a country had a higher inflation rate than its neighbour, its goods for export would gradually become more expensive. This is what had happened regularly to Italy during the post-war period, when its inflation rate was invariably higher than that in Germany. This time, however, Italy could not devalue.

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Samaras’ game is up.

European Bonds: It’s Every Country For Itself Now (CNBC)

The honeymoon for European bond rates appears to be over for the Continent’s most-troubled economies. After more than a year of interest rates across the Continent moving lower in lockstep—regardless of the country—the last 24 hours show a breakdown in the relationship. Investors are still pouring into German bunds, much as they are still moving into U.S. Treasurys. But they are selling Italian, Spanish, Portuguese and especially Greek debt. Doug Rediker, CEO of International Capital Strategies, told CNBC that the differentiation represents “a more rational recognition of both credit risks and economic performance within the euro zone.” Investors are once again differentiating between countries based on the ability of their economies to grow—and for their governments to eventually pay back their debts.

Peter Boockvar, chief market analyst at The Lindsey Group, said that the end of easy money from quantitative easing and the “impotence” of the European Central Bank have alerted investors to a region that is not growing and where “debt-to-GDP ratios continue to rise.” Regarding Europe’s biggest economy, Rediker noted that “the German economy is underperforming, but overall its domestic economic performance is considered strong. Countries like Italy and France have far less to shout about in terms of economic performance and reform efforts.” The rise in Greek bond yields is particularly sharp. The country’s 10-year yield stood at nearly 9% on Thursday, after being below 6% just last month. The current Greek government, led by Antonis Samaras, is trying to make an early exit from a bailout program it got from the European Union and International Monetary Fund, but investors are nervous about the country’s ability to live without a financial backstop that would provide them cheap money in the event of a shortfall.

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“They’ll be hoping this turmoil will pass on its own.”

Euro Economy’s Managers Aren’t Blinking in Market Rout (Bloomberg)

German Chancellor Angela Merkel and European Central Bank President Mario Draghi aren’t blinking yet. The longest losing streak in European stocks in 11 years and the weakest inflation since 2009 has intensified pressure on the managers of the euro area’s already ailing economy to deliver fresh stimulus programs. Battle-hardened by the debt crisis that almost broke the euro two years ago, policy makers are refusing to panic as they argue enough help is in the pipeline. The lesson of that last turmoil is nevertheless that investors may ultimately force action with taboo-busting quantitative easing from the ECB likely drawing closer as deflation fears intensify. “The main story really is that the recovery is very weak, very fragile, and something has to happen,” said Martin Van Vliet, an economist at ING Groep NV in Amsterdam. “Markets are increasingly expecting they’ll have to do sovereign QE.”

The euro area is again at the epicenter of a global rout in financial markets as investors increasingly fret its toxic mix of weak growth and sliding inflation may become the norm elsewhere as central banks run out of ways to provide support. With Europe straining amid tit-for-tat sanctions on Russia, Germany this week showing fresh signs that it is no longer immune to the slowdown in its neighbors. Confirmation yesterday that inflation slowed to just 0.3% in September helped drive down the Stoxx Europe 600 Index for an eighth day. Germany’s 10-year bond yield hit a record low. For the moment, policy makers are holding to their view that the region needs time rather than new stimulus even with prices already shrinking in Italy, Spain, Greece, Slovakia and Slovenia. “I think they’re surprised by the market correction,” Michael Schubert, an economist at Commerzbank AG in Frankfurt, said in a telephone interview. “They’ll be hoping this turmoil will pass on its own.”

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Risk off.

Volckerized Wall Street Dumping Bonds With Rest of Herd (Bloomberg)

Corporate bond values are swinging the most in more than a year and here’s one reason why: Wall Street’s biggest banks are following the crowd and selling, too. Take junk bonds, which have lost 2% in the past month. Dealers, which traditionally used their own money to take bonds off clients desperate to sell during sinking markets, sold about $2 billion of the securities during the period, according to data compiled by Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Banks have cut debt holdings in the face of higher capital requirements and curbs of proprietary trading under the U.S. Dodd-Frank Act’s Volcker Rule. Their lack of desire to take risks has had the unintended consequence of exacerbating price swings amid the rout now, said Jon Breuer, a credit trader at Peridiem Global Investors LLC in Los Angeles, California.

“There just isn’t the appetite and ability to warehouse the risk anymore,” he wrote in an e-mail. “Everyone is afraid to catch the falling knife.” High-yield bonds have lost 1.1% this month, following a 2.1% decline in September. That was the worst monthly performance since June 2013 for the $1.3 trillion market that’s ballooned 82% since 2007, according to the Bank of America Merrill Lynch U.S. high-yield index. Debt of speculative-grade energy companies has been particularly hard hit along with oil prices, tumbling 3.4% this month with relatively few buyers willing to step in to mitigate the drop. For example, notes of oil and gas producer Samson Investment Co. have lost 25% since the end of August. The market’s indigestion was brought on by many reasons: signs of a global economic slowdown, Ebola spreading and concern that U.S. energy companies will struggle to meet their debt obligations after financing their expansion by issuing bonds.

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But obviously there’s money to be made in a rout like this.

Pimco To Blackstone Preparing To Feast On Junk Bonds (Bloomberg)

In a junk-bond market that has been anything but high-yield for almost two years, the world’s biggest debt-fund managers have been stockpiling cash for a selloff. After the worst one in three years, they’re getting ready to pounce. Firms from Pacific Investment Management Co. to Blackstone Group LP say they are poised to scoop up speculative-grade corporate bonds after yields rose to the highest levels in more than a year. They’re looking for bargains after building up the highest levels of cash in almost three years. “Credit is a buy here, specifically high yield” bonds and loans, Mark Kiesel, one of three managers who oversee Pimco’s $202 billion Total Return Fund, said yesterday in a Bloomberg Television interview. At Blackstone, Chief Executive Officer Stephen Schwarzman told investors yesterday that the firm’s $70.2 billion credit unit is ready to “feast” on lower-rated, long-term debt, particularly in Europe, after “waiting patiently for something bad to happen.”

Taxable corporate-bond mutual funds tracked by the Investment Company Institute increased the proportion of cash and cash-like instruments they set aside to 8.5% of their $1.96 trillion of assets in August. That’s up from a three-year low of 4.9% in April 2013 and the most since November 2011, ICI data show. By amassing cash or parking money in easy-to-sell debt such as Treasuries, fund managers have been maintaining flexibility to swoop in and buy securities at discounts. Average yields on speculative-grade bonds sold by companies from the U.S. to Japan climbed to 6.67% yesterday, jumping more than 1 percentage point from a record-low 5.64% in June, according to Bank of America Merrill Lynch index data. The debt is now paying 5.3 percentage points more than government bonds, the widest spread since July 2013 and up from 3.6percentage points in June. The market hasn’t moved that much since the European debt crisis in 2011, the index data show.

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“The SEC caught Athena ‘placing a large number of aggressive, rapid-fire trades in the final two seconds of almost every trading day during a six-month period to manipulate the closing prices of thousands of Nasdaq-listed stocks.’ ”

High-Speed Traders Put a Bit Too Much Gravy on Their Meat (Bloomberg)

One good general rule is that it’s harder than you think it is to figure out what’s market manipulation and what isn’t. Trading a lot, cancelling a lot of orders, putting in orders or doing trades on both sides of the market, trading a lot right before a close or fixing — all of those things could be signs of nefarious manipulation, or just normal risk management. No single event or pattern proves manipulation. You often need to look for subtle clues to figure out whether a trade is actually manipulative One subtle clue is, if you name your algorithms “Meat” and “Gravy,” there is probably something wrong with you! And your trading, I mean. But also your aesthetic sensibilities. Here is a Securities and Exchange case against Athena Capital Research, which the SEC touts as “the first high frequency trading manipulation case.”

The SEC caught Athena “placing a large number of aggressive, rapid-fire trades in the final two seconds of almost every trading day during a six-month period to manipulate the closing prices of thousands of Nasdaq-listed stocks.” That period was in late 2009, by the way. Athena settled for $1 million, and while it did so “without admitting or denying the findings,” the SEC’s order has the usual litany of dumb, so you can tell that Athena was fairly caught. In fact, the SEC is kind enough to put the dumb quotes in boldface, so they’re easy to find,1 though somehow this didn’t make it into bold: Athena referred to its accumulation immediately after the first Imbalance Message as “Meat,” and to its last second trading strategies as “Gravy.

Heehee that’s dumb. What is going on here? It starts with the fact that Nasdaq basically does two sorts of trading in the late afternoon. One is just its regular continuous order book trading, the kind it does all day. There are bids, there are offers, and there are lots of little trades that are constantly updating the price of every stock. Someone trades 100 shares at $20.01, 100 shares at $20.02, 200 shares at $20.03, 100 more at $20.02 again, etc., all within a fraction of a second. There is also the closing auction, which is more or less a separate institution. This is an auction that occurs at a single point in time, just after the 4:00 p.m. close. People put in buy orders and sell orders throughout the day, and then they all trade with each other simultaneously just after 4 p.m. at the clearing price of the auction.

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This ain’t over by a long shot. Wait till prices start dropping.

10 States Where Foreclosures Are Soaring (MarketWatch)

The property market is improving and foreclosures are falling — except in these 10 markets. Some 317,171 U.S. properties had foreclosure filings in the third quarter, down 16% on the same period last year, according to real-estate website RealtyTrac. However, default notices in the third quarter increased from a year ago in certain states, including Indiana (up 59%), Oklahoma (up 49%), Massachusetts (up 38%), New Jersey (up 19%), Iowa (up 12%) and New York (up 2%). States with the five highest foreclosure rates in the third quarter were among those hit hardest by the 2008 property crash: Florida, Maryland, New Jersey, Nevada, and Illinois. Some 58,589 Florida properties had a foreclosure filing in the third quarter of 2014.

That was down 4% from the previous quarter and down 17% from a year ago, but it still meant that in every 153 housing units had a foreclosure filing. Orlando, Fla., Atlantic City, N.J., and Macon, Ga., had the top metro foreclosure rates in the third quarter. With one in every 117 housing units with a foreclosure filing, Orlando had the highest foreclosure rate among metropolitan areas with a population of 200,000 or more. A total of 8,052 Orlando-area properties had a foreclosure filing, down 1% on the quarter but up 16% from a year ago.

While the Ohio property markets have seen a decline in the number of available foreclosures on the market over the last year, “We have equally noticed an increase in activity of lender servicers acquiring properties at sheriff sales and deed-in-lieu workouts,” says Michael Mahon, who covers the Cincinnati, Columbus and Dayton markets as executive vice president at HER Realtors. One explanation: Many Americans are choosing foreclosure over short sales. A couple of years ago, 18 out of 20 clients underwater who couldn’t afford to keep their home chose a short sale, says Frank Duran, a broker in Denver, but now only 2 out of 20 opt for a short sale. One explanation: In a short sale, canceled debt — or the difference between the value and sale price of the house — is often treated as taxable income.

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Why anyone would trust even one word from the Fed anymore is beyond me.

‘Stunning’ Fed Move Put Bottom Under Stocks (CNBC)

After a swift and serious selloff, stocks have managed to rise on Thursday’s session with help from the soothing words of St. Louis Federal Reserve President James Bullard. And after dropping just shy of 10% from high to low, the S&P 500 looks to have finally bottomed out, some traders say. “Whether the complete correction is over I’m not positive yet, but there looks to be some relative calm,” said Jim Iuorio of TJM Institutional Services. “I think the next leg is going to be higher.” Iuorio is focusing on the comments Bullard made Thursday morning on Bloomberg TV, where he discussed the quantitative easing program, which the Fed is currently winding down.

He said, “We have to make sure that inflation expectations remain near our target. And for that reason, I think a reasonable response by the Fed in this situation would be to … pause on the taper at this juncture, and wait until we see how the data shakes out in December.” Bullard’s comments come two days after those of San Francisco Fed President John Williams (who, like Bullard, is a non-voting member of the Fed Open Market Committee). Williams told Reuters “If we get a sustained, disinflationary forecast… then I think moving back to additional asset purchases in a situation like that should be something we seriously consider.”

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The proper theater for these matters. Courts require proof.

Russia Takes EU To Court Over Ukraine Sanctions (FT)

Russia is taking the EU to court over sanctions imposed on some of its biggest companies. The move is a sign of the pain that the companies’ exclusion from global capital markets is inflicting on the Russian economy. Rosneft, the state oil company, and Arkady Rotenberg, a long-time friend and former judo sparring partner of President Vladimir Putin, have both launched legal challenges to the sanctions, imposed over Russia’s actions in Ukraine. The EU bans, with similar measures adopted by the U.S., have all but frozen Russian companies and banks out of western capital markets, at a time when they have to refinance more than $130 billion of foreign debt due for redemption by the end of 2015. Rosneft filed a case against the EU’s European Council in the general court under the European Court of Justice on October 9, requesting an annulment of the council’s July 31 decision that largely barred it and other Russian energy companies and state banks from raising funds on European capital markets.

Mr Rotenberg, who was hit with an EU visa ban and asset freeze in July, filed a legal case in the same court on October 10 challenging the move. The challenges follow verdicts that have gone against the council in relation to similar measures imposed on Iran and Syria. In particular, the court has ruled that in implementing sanctions, European states have been too reliant on confidential sources, which impair the targets’ ability to mount an effective defense. A Russian lawyer who advises one company on legal strategies over sanctions said the challenges by Rosneft and Mr Rotenberg might help sway some EU member states when the bloc begins to discuss whether to renew its sanctions against Russia next spring.

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Oh, yeah, big-screen TVs for everyone!

The Big Perk Of Oil’s Wild Slide (CNBC)

Crude oil is plummeting – down some $25 bucks a barrel from the yearly high set just a few months ago. And those lower prices mean lower gasoline prices for people like you and me, which should result in a few extra dollars in your pocket. This is big news, guys, because the biggest and most celebrated holiday of the year is coming up for many of you — Black Friday! (Oh, you thought I was going to say something like Thanksgiving or Christmas. Please! Those holidays are just a goofy excuse to miss work.) I digress. But if the current trend remains intact, we’re going to hear about record breaking sales on Black Friday, which is awesome for retailers and the economy. I say spend, spend, spend those pennies you’re saving while gassing up the F-150. And, according to Moody’s, you should have a lot of dough to play with.

A 10-cent decrease in gas prices translates to an extra $93.25 in gasoline and diesel expenditures per year for the average American household, which equates to $11 billion in consumer spending. Over the past month, gasoline prices have declined 6%, or 20 cents per gallon. That, Mr. math wizard, is $22 billion in available cash. And, knowing many Americans prefer to spend than save, I would be thinking about opening a big-screen TV store if I were you. If you prefer happy endings and would rather stay away from reality, I would suggest stop reading; because this is where I tell you lower gas prices will likely have a dramatic and terrifying impact on violence around the globe.

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These guys sure don’t understand the Saudis. or shale, for that matter.

Gloves Off Over Oil: Saudi Arabia Versus Shale (CNBC)

Oil prices might have halted their earlier slide below $80 a barrel this week but analysts believe the dog fight between major oil producers over reducing the supply of oil could lead to lower prices yet. Oil markets have seen prices fall sharply over the last four months, as faltering global growth in major economies has cut demand at a time of over-supply. On Thursday, WTI crude fell below $80 a barrel for the first time since June 2012 before recovering to 82.88 on Friday. The global oil benchmark Brent crude climbed by almost a dollar to near $86 a barrel on Friday morning – up from a near four-year low at below $83 on Thursday – after more positive economic data from the U.S. Prices have fallen over 20% since June, however, when turmoil in Iraq lifted prices to $116 a barrel.

“The bearishness in the global oil market is all being driven by the U.S. shale revolution,” Seth Kleinman, head of Global Energy Strategy at Citi, told CNBC. “It’s being driven by this massive infrastructure build out that we’ve seen over the last few years and it’s taken the market a lot more time to catch up and act more rationally.” The U.S. shale gas industry has boomed over the last decade with shale gas and oil producers proliferating and production surging in the country, becoming a competitor for major oil-exporting countries such as Saudi Arabia.

The drop in oil prices has led to expectations that OPEC could cut output in an attempt to shore up prices, but OPEC members Saudi Arabia and Kuwait played down such a move at the start of the week. That could pile pressure on the U.S. shale industry and its producers to cut supply themselves if and when prices decline further. “Everyone was assuming that the Saudis were going to pull back and defend prices,” Kleinman told CNBC Europe’s “Squawk Box” on Friday. “They probably could have defended $100 but they sent the message loudly, clearly and by every venue possible of ‘we’re not going to defend prices here.’ In fact, they started slashing prices to Asia.”

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Stay with the dollar.

The New Defensives: High Yield And The Dollar (CNBC)

As world markets tumble and the euro zone crisis seemingly reared its head once more, investors have scrambled to find somewhere safe to house their cash. Equities on both sides of the Atlantic have been hammered as volatility has peaked to 2011 levels amid worries over global growth and the spread Ebola. A flight to traditional safe haven U.S. Treasurys pushed yields down around 1.8% on Thursday, levels not seen since 2013 – making it an expensive option for investors as prices move inverse to yields. “Sometimes, when markets fall, you get to a ‘no-brainer’ moment, when you can afford to ignore short-term concerns and take advantage of sudden decline in prices. This is not such a moment for equities,” chief investment officer at Cazenove Capital Management, Richard Jeffrey said. “Markets are not cheap, and could fall further. Indeed, although we might expect it to remain so, the U.S. market looks quite expensive,” he said.

Cash levels jumped and bearish sentiment reached levels not seen for two years according to Bank of America’s monthly fund manager survey, but managers have also taken another look at high yield bonds as stocks have been hit. “The current environment presents the opportunity to take another look at asset classes that had sold off and now look more attractive,” BlackRock’s global chief investment strategist Russ Koesterich said. One such asset class is high yield bonds as the yield difference between high yield bonds and higher-quality, lower-yielding U.S. Treasurys has widened out to the highest level in a year, he said. “This indicates high yield bonds offer better value. Given that corporate America remains strong and default rates low, high yield now looks likely to provide a reasonable level of income relative to the rest of the fixed income market,” he said.

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Australia will get badly hurt by China’s rising tariffs and falling economic reality.

Is The ‘Lucky Country’ Headed For Gloomy Times? (CNBC)

Sentiment in the so-called ‘lucky country’ has deteriorated sharply, analysts told CNBC. Australia’s stock market has fallen 8% since the start of September, weighed by concerns over global economic growth, steep declines in commodity prices and the state of Australia’s property market. “Investor sentiment has certainly collapsed across a range of measures,” Shane Oliver, head of investment strategy at AMP Capital, told CNBC. Investors are much more concerned about the prospect of a market downturn and the state of Australia’s housing market than they were in the second quarter of this year, a survey of fixed income investors by Fitch Ratings showed on Wednesday. 79% of respondents flagged a downturn as a high or moderate risk, up from 43% in Fitch’s second quarter survey.

The frothy housing market was high on respondents’ worry list; 53% expect house prices to rise by 2 to 10% in 2015. “The concerns demonstrated in the Fitch Ratings survey are very clearly the case,” said Evan Lucas, market strategist at IG. “Housing is a major part of Australia confidence, [so] any issues around housing and wages are going to see sentiment fall.” Australian dwelling values rose 9.3% over the 12 months to September, spurred by a record 15-month run of historically low interest rates. Values in Sydney and Melbourne rose 14.3% and 8.1%, respectively, over that period, RP Data figures show. And in recent months, the Reserve Bank of Australia warned of regulatory steps to rein in loans to investors.

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Indeed. Not going to happen.

Don’t Hold Your Breath Waiting For QE4 (CNBC)

Suggestions quantitative easing (QE) might go on a reunion tour in the U.S. helped to staunch market losses Thursday, but don’t hold your breath waiting for the Federal Reserve to whip out the checkbook, analysts said. “It’s part of a strategy to calm markets down, to remind them that ‘we still have your back and we’re on top of this’ from a central bank point of view,” Mikio Kumada, global strategist at LGT Capital Partners, told CNBC. “Whether they will actually do it, I’m not so sure. At least as far as the U.S. is concerned, the economic conditions are decent enough.”

Stocks bounced back Thursday after a rough opening, with the S&P 500 ending the day less than a point higher, after St. Louis Federal Reserve President James Bullard Thursday morning suggested to Bloomberg TV, that the Fed should consider pausing its taper of the quantitative easing program. “We have to make sure that inflation expectations remain near our target. And for that reason, I think a reasonable response by the Fed in this situation would be to… pause on the taper at this juncture, and wait until we see how the data shakes out in December,” Bullard said. The Federal Reserve had expected to complete the taper later this month. Those comments come two days after those of San Francisco Fed President John Williams (who, like Bullard, is a non-voting member of the Fed Open Market Committee).

Williams told Reuters: “If we get a sustained, disinflationary forecast… then I think moving back to additional asset purchases in a situation like that should be something we seriously consider.” Some are extremely skeptical of a QE encore performance. “The only thing that could justify QE4 is a high probability of a downturn in the real economy and/or falling core inflation,” said Eric Chaney, chief economist at AXA Group, in a note. “The probability of a U.S. recession is close to zero,” he said. “Overall, there is not one single indicator flashing red, as far as the risk of recession is concerned,” he added, citing indicators such as the consumer debt-to-income ratio back at end-2002 levels, high corporate profitability and even the declining federal deficit.

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That’s what you get for telling fairy tales all teh time.

Bank of England Chief Economist ‘Gloomier’ About UK Prospects (Guardian)

The chances of an early rise in UK interest rates have fallen, says the Bank of England’s chief economist, Andrew Haldane, who admits he is “gloomier” about the prospects for the economy than he was a few months ago. In a speech on Friday morning, which will reinforce market views that rates are unlikely to rise from their record low of 0.5% until the middle of next year, Haldane said: “That reflects the mark-down in global growth, heightened geo-political and financial risks and the weak pipeline of inflationary pressures from wages internally and commodity prices externally. “Taken together, this implies interest rates could remain lower for longer, certainly than I had expected three months ago, without endangering the inflation target,” said Haldane, a member of the Bank’s nine-member interest rate setting committee. The prospect that interest rates will stay lower for longer sent sterling tumbling on the foreign exchanges, with the pound losing half a cent against the dollar.

Haldane also warned that Britain was vulnerable to another explosion in the eurozone crisis. He told ITV News: “It’s a concern. It [the eurozone] is our biggest trading partner by far. We know we’ve seen recently that any event on the continent laps back to the UK very quickly through our trade links, but also through our financial links and, indeed, increasingly just because of confidence. If confidence is ebbing on the continent, it appears to leak across here pretty quickly.” In June, Haldane had put even weight on moving interest rates sooner and moving them later. He used the cricketing terms “being on the front foot” and being on the “back foot”. On Friday, he said: “While still a close-run thing, the statistics now appear to favour the back foot. Recent evidence, in the UK and globally, has shifted my probability distribution towards the lower tail. Put in rather plainer English, I am gloomier.”

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No, but it will come anyway.

Is Asia Ready for Another Wild Ride? (Bloomberg)

From Ebola to debt to deflation, fear once again stalks the global economy. With bewildering speed, concerns about of credit defaults, slowing demand and political instability have eclipsed exuberance over America’s falling jobless rate and Alibaba’s record-breaking IPO. The most-asked question isn’t where to make profits, but where to find a safe haven from the coming storm. Could it be Asia again? Sadly, unlike during the most recent global recession, even this region finds itself in an increasingly dangerous position this time around. That’s not to say Asia doesn’t have enviable fundamentals. Even given China’s worsening data, the stalling of “Abenomics” in Japan and structural headwinds that challenge officials almost everywhere, Asia may yet ride out renewed turbulence better than the West — just as it did in 2008. If one thinks of investment destinations as beauty contestants, Asia is still hands-down the least ugly candidate.

But the region’s growth over the last six years has been driven more by asset bubbles than genuinely sustainable economic demand. Already, we are seeing structural slowdowns from Seoul to Jakarta. These strains will become even more pronounced as Europe’s debt troubles re-emerge and the Federal Reserve’s record stimulus loses potency. Asian policymakers also have less latitude going forward to support growth. “A full recovery of demand in the West, sufficient to pull Asia out of its malaise, remains a distant prospect,” says Qu Hongbin, Hong Kong-based co-head of Asian economic research at HSBC Holdings. “Rather, reviving growth in Asia, whether in China, Japan, India or anywhere in between, requires deep structural reforms: pruning subsidies, spending more on quality infrastructure, boosting education, opening further to foreign direct investment, and, perhaps most important of all, introducing greater competition in local markets. These are politically tough choices to make. But they will grow only more difficult, the longer they are put off.”

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GPIF moving away from Japan sovereign bonds is Abe’s riskiest move yet. And it will end where all his policies lead: into misery.

Japan No.1 Pension Fund Would Be ‘Stupid’ to Give Asset Goals First (Bloomberg)

Japan’s $1.2 trillion retirement fund would be “stupid” to announce its new investment strategy before adjusting asset allocations, said Takatoshi Ito, a top government adviser on overhauling public pensions. Publishing target weightings in advance would move markets, forcing the Government Pension Investment Fund to buy at highs and sell at lows, Ito said in an interview in Tokyo on Oct. 14. GPIF should shift holdings as much as possible now, he said, while noting that the fund doesn’t seem to be doing so. Deciding the new asset split is taking time partly due to a debate on whether to make it public before or after changing the portfolio, Ito said.

Investors are waiting for the bond-heavy fund to confirm it will cut Japanese debt to buy local stocks and overseas assets, after a government-picked panel led by Ito advised GPIF to sell bonds in a report last year. Yasuhiro Yonezawa, the chairman of GPIF’s investment committee, said in July that while it would be ideal to adjust the fund’s assets before the announcement, it must also avoid disrupting markets. “Saying ‘we’re going to purchase as much as whatever%’ before buying anything is a stupid idea,” Ito said. “It’s tantamount to not fulfilling their fiduciary responsibilities and not appropriately investing the money entrusted to them. It’s wrong, and I’m against it.”

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“Something that is easy to control got completely out of hand …”

‘Ebola Epidemic May Not End Without Developing Vaccine’ (Guardian)

The Ebola epidemic, which is out of control in three countries and directly threatening 15 others, may not end until the world has a vaccine against the disease, according to one of the scientists who discovered the virus. Professor Peter Piot, director of the London School of Hygiene and Tropical Medicine, said it would not have been difficult to contain the outbreak if those on the ground and the UN had acted promptly earlier this year. “Something that is easy to control got completely out of hand,” said Piot, who was part of a team that identified the causes of the first outbreak of Ebola in Zaire, now the Democratic Republic of Congo, in 1976 and helped bring it to an end. The scale of the epidemic in Sierra Leone, Liberia and Guinea means that isolation, care and tracing and monitoring contacts, which have worked before, will not halt the spread. “It may be that we have to wait for a vaccine to stop the epidemic,” he said.

On Thursday night, a Downing Street spokesman said a meeting of the government’s emergency response committee, Cobra, was told the chief medical officer still believed the risk to the UK remained low. “There was a discussion over the need for the international community to do much more to support the fight against the disease in the region,” the spokesman said. “This included greater coordination of the international effort, an increase in the amount of spending and more support for international workers who were, or who were considering, working in the region. The prime minister set out that he wanted to make progress on these issues at the European council next week.” Dr Tom Frieden, director of the Centers for Disease Control (CDC), in evidence to Congress, said he was confident the outbreak would be checked in the US, but stressed the need to halt the raging west African epidemic. “There are no shortcuts in the control of Ebola and it is not easy to control it. To protect the United States we need to stop it at its source,” he said.

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How we blunder our way into disaster. Time and again.

WHO Response To Ebola Outbreak Foundered On Bureaucracy (Bloomberg)

Poor communication, a lack of leadership and underfunding plagued the World Health Organization’s initial response to the Ebola outbreak, allowing the disease to spiral out of control. The agency’s reaction was hobbled by a paucity of notes from experts in the field; $500,000 in support for the response that was delayed by bureaucratic hurdles; medics who weren’t deployed because they weren’t issued visas; and contact-tracers who refused to work on concern they wouldn’t get paid. Director-General Margaret Chan described by telephone how she was “very unhappy” when in late June, three months after the outbreak was detected, she saw the scope of the health crisis in a memo outlining her local team’s deficiencies. The account of the WHO’s missteps, based on interviews with five people familiar with the agency who asked not to be identified, lifts the veil on the workings of an agency designed as the world’s health warden yet burdened by politics and bureaucracy.

“It needs to be a wakeup call,” said Lawrence Gostin, a professor of global health law at Georgetown University in Washington. The WHO is suffering from “a culture of stagnation, failure to think boldly about problems, and looking at itself as a technical agency rather than a global leader.” Two days after receiving the memo about her team’s shortcomings, Chan took personal command of the agency’s Ebola plan. She moved to replace the heads of offices in Guinea, Liberia and Sierra Leone, and upgraded the emergency to the top of a three-tier level, said the five people, who declined to be identified because the information isn’t public. Chan agreed to respond to their accounts in an interview. “I was not fully informed of the evolution of the outbreak,” she said today. “We responded, but our response may not have matched the scale of the outbreak and the complexity of the outbreak.”

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