Aug 292017
 
 August 29, 2017  Posted by at 8:15 am Finance Tagged with: , , , , , , , , ,  


MC Escher Still life and street 1937

 

China Is Going To Hit A Wall (FuW)
Nomi Prins: Big Bank Concentration and Counterparty Risk Expands (DR)
China’s Central Bank Is Working Hard to Stand Still (BBG)
Pundits And Politicians Are Tacitly Admitting They Lied About Russia (M.)
The Media Is the Villain – for Creating a World Dumb Enough for Trump (Taibbi)
The 5 Steps to World Domination (CHS)
Pure Rubbish? What The Buffett Indicator Is Really Predicting (Roberts)
When the Butterfly Flaps Its Wings (Jim Kunstler)
France, Germany, Italy, Spain Agree on Plan to Stem Migration Flows (BBG)
Debt Cut For Greece Not On Agenda For Now, Schaeuble Says (R.)
Chastised by EU, a Resentful Greece Embraces China’s Cash and Interests (NYT)
Kenya Gets World’s Toughest Plastic Bag Ban: 4 Years Jail Or $40,000 Fine (R.)

 

 

How much longer?

China Is Going To Hit A Wall (FuW)

Anne Stevenson-Yang, co-founder and research director at J Capital, warns that the monster bubble in the Chinese housing market is ripe to pop and that the Chinese currency will crash. There have been warnings about a bubble in China’s housing market for some time now. How hot is the real estate market? So far this year has been crazy, particularly in the area around Beijing. Just a few weeks ago I was in this little rustbelt city called Zhuozhou in the Hebei province where the steel mills are. It’s a very unpleasant place to spend time. It’s very polluted, there’s nothing to do, the food is bad and the landscape is awful. It’s just no place you want to be and yet property prices have doubled, tripled and in some places even quadrupled in a year.

What’s fueling this boom? It’s like in every property bubble: People build these stories. In Florida for example, the idea in the housing bubble was that all Americans are going to retire there. Florida has nice beaches, it’s warm and Americans are getting older, so everybody’s going to retire there. In China, the idea is that all these areas 200 miles outside of Beijing are going to be bedrooms for the working class of Beijing. So they’re going to build subways, schools, hospitals and other public facilities there and the prices are going to go up. The story goes that all these people who can’t afford to live in Beijing but work there are going to live in places like Zhuozhou instead and that they are going to take the high speed rail into Beijing. Everybody is speculating like mad but in the end nobody wants to live there.

And how are such ghost towns financed? There is probably no company that is more representative of the investment bubble than Evergrande. It’s the biggest pyramid scheme the world has yet seen. Evergrande is highly leveraged and has like 270 projects all over the country. I have been easily to 40 of them yet I have only seen one that was fully occupied. Many of these projects are megalomaniac visions and totally empty. Yet you go to these places and you see their sales room filled with young buyers. When I open my eyes I see crumbling stone and empty jungles or deserts. What they see is a future with wealthy Europeanized people strolling on modern paths. It’s just amazing. It’s a mass illusion and Evergrande more than any of these developers plays to this illusion by building developments that are specifically positioned for the investor, not to live there but to buy for some future appreciation in price.

How long can these crazy times last? I’ve been wondering that for years now. In a few places, property bubbles already have popped but the government keeps information from going out. Back in 2011 for instance, there was a property bust in the region of Ordos where most of China’s coal is. Prices dropped like 50% but if you looked at the official statistics they may have dropped 4%. Another place was in Wenzhou which is a place in China’s Zhejiang province where there is a lot of private money. After the bubble popped the central government had to go in and had to create a bailout fund. But nobody ever got information about it. In fact, all the newspapers put out information about how actually Wenzhou is fine. So will China’s housing frenzy ever come to an end at all? China is going to hit a wall. They’re not positioned to take the political pain that’s entailed by just stopping with all that madness.

So there will be a bust but it’s very hard to say exactly how long it takes. Basically, there are two paths. One of them is you break public confidence in some way. For that to happen you have to have a bank failure, a well-known investment product that doesn’t pay or some property developer that goes bust. You’ve had that locally in all sorts of places but you have to have a really big bust that everyone is aware of. And what would be the other path? The other thing that eventually has to happen is that the Chinese currency has to devalue. The reason why the developers can just keep on selling is because they keep getting refinanced. All the refinancing means that China has to keep on expanding the money supply and when you keep on expanding the money supply you have too much money and the value of the money declines. Obviously it’s not quite that simple but that’s basically what’s going on.

Read more …

Nomi is asked the same question: how much longer? She thinks it could be a few years yet.

Nomi Prins: Big Bank Concentration and Counterparty Risk Expands (DR)

Prins notes, “As we learned from the global financial crisis, the Federal Reserve has done a lousy job at regulating the risks that were coming into the financial system from the major private banks.” “Not only did it do a bad job at detecting risks, it did the opposite and deflected concerns from those highlighting the risks. From the standpoint of monetary policy, looking ten years out, its pursuit of policy with absolutely no limitation from the outside (printing money, buying securities) was a failure.” “If the Federal Reserve policies were able to make a real impact, we wouldn’t have needed them to go on for ten years following the financial crisis. What we are seeing right now is that there is no particular end in sight. The fact that there is no jurisdiction that can instruct the Fed what to do, where it is currently working under unconventional policy for artificial markets, has created more risk instead of less.”

“If we were to create an external benchmark that at the very least pulls them into some coordinated approach, that would be a better way of maintaining stability. Whether that is a standard currency approach or whatever that might be.” When speaking on how long the central banks might be able to stall and what tools in the face of another crisis Nomi Prins elaborates on her most recent research. “There has been collusion and collaboration amongst the G7 central banks. They have been ensuring that central banks like the Federal Reserve and others coordinate in their policy consortium moves. In effect we have seen a consistent global zero % interest rate policy and ongoing quantitative easing policy be unveiled, even if some banks reduce their engagement. That’s why we have been able to perpetuate this system for so long.”

“This is not one individual central bank but a coordinated, collusive approach. Can that continue? The guidance, as well as the actions of the central banks has indicated there could be multiple years of this to come. Because there is no external limitation on their policy and there’s no voting them out I’d say this could go on for at least a few more years. For the most part the people in power are going to stay in power. Even in the case of the U.S, if we were to see Janet Yellen leave and Gary Cohn step in at the Fed, I’d expect we would see much of the same.”

Read more …

Control illusion.

China’s Central Bank Is Working Hard to Stand Still (BBG)

While some of the biggest central banks are agonizing over changing direction, the People’s Bank of China is working hard to stay right where it is. That’s because, as the U.S. Federal Reserve or the European Central Bank are heading into phases of tighter policy, China’s monetary authority is engaged in an increasingly complex effort to preserve the status quo while the world changes around it. According to 60 % of economists in a Bloomberg survey conducted this month, the PBOC’s broad policy stance will remain “roughly the same” through the end of 2017. It’s how they maintain the hold, though, that matters. Through the use of a wide range of monetary instruments, the PBOC is attempting to meet two seemingly conflicting goals at once – weed out excessive borrowing in the financial system while ensuring credit to an economy that’s on a long-term slowdown.

The need to maintain the balance is especially acute amid the political sensitivity around the approaching leadership transition of the 19th Party Congress in the fall. “High leverage has put the central bank in a dilemma where easing could further expand the scale of debt and where tightening pushes up interest expenses and weighs on growth,” said Wen Bin at China Minsheng Banking in Beijing. “The PBOC is using open-market monetary tools to stay flexible and strike a balance.” Achieving those aims, without a change in the benchmark lending rate, in practice means constant fine-tuning of daily conditions in the inter-bank money market. Over the past year, the PBOC has poked and prodded traders using an array of lending and cash-absorbing instruments of different maturities. Here’s that process in charts:

Using different tenors to inject and withdraw funds from markets is the practical aspect of the PBOC’s stated policy of keeping liquidity “neither tight nor loose.” Yet at the same time, for much of the past year, gradually-rising interbank rates have been desirable amid a push to stabilize debt — crimping incentives to lend short-term within the financial system, while remaining wary of choking off credit to the real economy. The PBOC’s preference for longer-dated tools such as 28-day reverse repo has raised borrowing costs. Now, as the economy may be set for deceleration in the second half of the year and some progress in debt reduction has been achieved, use of longer-dated repurchase agreements has been pared back.

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“You need to either thoroughly refute every single argument against the narrative you’ve been spinning or admit publicly that you’ve been catastrophically wrong. ”

Pundits And Politicians Are Tacitly Admitting They Lied About Russia (M.)

It has been nearly three weeks since The Nation pushed an explosive memo from the Veteran Intelligence Professionals for Sanity into mainstream consciousness with an article detailing the evidence that the DNC leaks last year could not have been the result of a Russian hack. By continuing to ignore it, the US intelligence community and all the pundits and politicians who have advanced the Russian hacking narrative are tacitly admitting that they lied. The report is unequivocal. Not only could Russian hackers not have obtained the DNC emails in the way they are alleged to have obtained them, but metadata was in fact manipulated to implicate Russia in the leak. Since publication of the viral Nation article, even more evidence has come to light showing that a hack is far more improbable even than originally suspected. This means that there is currently more publicly-available evidence indicating that Russia did not hack the DNC than there is that it did.

These earth-shattering revelations have gone all but ignored by the mainstream media, which had until the report surfaced been pummelling the American psyche with relentless fearmongering about the Great Russian Menace. The unquestioned narrative that Russia attacked American democracy in what many establishment politicians have horrifyingly labeled an “act of war” quickly transformed into ridiculous unsubstantiated claims about the Kremlin having taken over the highest levels of the US government and McCarthyite witch hunts against anyone who questioned these baseless assertions. This fact-free hysteria was used to manufacture support for new cold war escalations which remain in place to this day, threatening the existence of all life on earth.

Far from addressing the massive, gaping plot holes that have suddenly emerged in its frenzied narrative, the mass media has all but ghosted from the scene. Russia gets an occasional mention now and again, but the fever-pitch shrieking panic has unquestionably been dialed down by several orders of magnitude. This is unacceptable. You don’t get to lie to the American people for nine months, terrify them with fact-free ghost stories that their nation has been taken over by a hostile foreign body, use their terror to manufacture support for a new cold war, and then change the subject to Nazis and Joe Arpaio as soon as evidence emerges that you’ve been reporting blatant falsehoods. That is not a thing. You need to either thoroughly refute every single argument against the narrative you’ve been spinning or admit publicly that you’ve been catastrophically wrong.

You need to either (A) prove that you have not knowingly and/or unknowingly deceived the world, or (B) do everything you can to fix the damage that you have done. Until the US intelligence community, the mainstream media, and the politicians who’ve been advancing this Russian hacking narrative do one of these two things, their silence on the matter should be interpreted as a tacit admission that they’ve been lying to us this entire time. After Iraq there was already no reason to give these institutions the benefit of the doubt, and since the VIPS report there is every reason in the world to believe that they’ve been lying to advance domestic and foreign agendas. They either refute the VIPS report in its entirety, or we must treat their refusal to do so as a tacit admission of nothing less than a crime against humanity.

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I like Taibbi. He’s a good writer. But he’s gotten awkwardly close to the whole anti-Trump frenzy. Suggesting that CNN has been covering Trump ‘responsibly’ is simply not credible. See article above. CNN et al go after Trump because it’s profitable in the echo chamber. Where it doesn’t matter whether what you say is true.

The Media Is the Villain – for Creating a World Dumb Enough for Trump (Taibbi)

No news director would turn off the feed in the middle of a Trump-meltdown. This presidency has become the ultimate ratings bonanza. Trump couldn’t do better numbers if he jumped off Mount Kilimanjaro carrying a Kardashian. This was confirmed this week by yet another shruggingly honest TV executive – in this case Tony Maddox, head of CNN International. Maddox said CNN is doing business at “record levels.” He hinted also that the monster ratings they’re getting have taken the sting out of being accused of promoting fake news. “[Trump] is good for business,” Maddox said. “It’s a glib thing to say. But our performance has been enhanced during this news period.” Maddox, speaking at the Edinburgh TV festival, added that most of the outlets that have been singled out by Trump are doing a swimming business.

“If you look at the groups that Trump has primarily targeted: CNN, The New York Times, The Washington Post, Saturday Night Live, Stephen Colbert,” he said, “every single one of those has seen a quite remarkable growth in their viewing figures, in their sales figures.” Everyone hisses whenever they hear quotes like these. They recall the infamous line from last year by CBS chief Les Moonves, about how Trump “may not be good for America, but he’s damn good for CBS.” Moonves was even cheekier than Maddox. He laughed and added, “The money’s rolling in, and this is fun. They’re not even talking about issues, they’re throwing bombs at each other, and I think the advertising reflects that.” For more than two years now, it’s been obvious that Donald Trump is a disaster on almost every level except one – he’s great for the media business.

Most of us who do this work have already gone through the process of working out just how guilty we should or should not feel about this. Many execs and editors – and Maddox seems to fall into this category – have convinced themselves that the ratings and the money are a kind of cosmic reward for covering Trump responsibly. But deep down, most of us know that’s a lie. Donald Trump gets awesome ratings for the same reason Fear Factor made money feeding people rat-hair tortilla chips: nothing sells like a freak show. If a meteor crashes into jello night at the Playboy mansion, it doesn’t matter if you send Edward R. Murrow to do the standup. Some things sell themselves.

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All you need is the power to print money.

The 5 Steps to World Domination (CHS)

1. Turn everything into a commodity that can be traded on the global market: land, leases on land, options to purchase land, houses, buildings, rooms in slums, labor, tools, robots, water, water rights, mineral rights, rights to air routes, ships, aircraft, political power, shares in corporations, government bonds, municipal bonds, corporate bonds, student loans that have been bundled into debt-based instruments, the income from city parking meters, electricity, software, advertising, marketing, media, social media, food, energy, insurance, gold, metals, credit, interest-rate swaps and last but not least, financial instruments that control and/or pyramid all the real-world goods and assets that have been commoditized (i.e. almost everything).

Why is this the essential first step in World Domination? Once something has been commoditized, it can be bought and sold in the global marketplace in fiat currencies–currencies that are not backed by any real-world asset and that can be created out of thin air by central and private banks. You see the dynamic, right? Create credit-currency out of thin air, and then use this “free money” to buy up the real world. Quite a trick, isn’t it? Get a means of exchange for essentially nothing (i.e. money at near-zero interest rates) and then trade this for assets that produce goods and services everyone else needs or wants. Now we understand steps 2 and 3:

2. Enable private banks to create money out of thin air via fractional reserve banking. You know the drill: banks can issue $15 in new loans for every $1 in cash they hold in reserve. (Depending on the current regulations, it might as little as $10 or as much as $35 that can be created and lent out for every $1 held in cash reserve.) In the current zero-interest rate environment, this new money can be borrowed for near-zero carrying costs by corporations and financiers.

3. Establish a central bank with essentially unlimited ability to bring money into existence and use it to backstop the private banking sector. If the private banks get in trouble, no problem, the central bank is there to bail them out with unlimited lines of credit and an unlimited ability to create new money.

4. Undermine/destroy local economies’ ability to organize production and consumption without using credit and fiat currencies (i.e. money controlled and issued by central and private banks). Trading goods on barter? Get rid of that. Using social ties rather than cash or bank credit to organize production and consumption? Eliminate that capability. Locally issued currencies? That’s against the law. Using cash? bad, very bad–everyone must use banks and bank credit instead. Once these four steps are in place, the 5th step is easy:

5. Buy up all the productive assets and income streams of the world with nearly free credit-money. No saver can compete with corporations and financiers with access to billions of dollars in nearly-free credit-money. It doesn’t matter if you earn $1,000 or $100,000 a year–you will be outbid.

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Too much focus on Buffett. Like there was on Greenspan.

Pure Rubbish? What The Buffett Indicator Is Really Predicting (Roberts)

While we are indeed currently in a very bullish trend of the market, there are two halves of every market cycle. “In the end, it does not matter IF you are ‘bullish’ or ‘bearish.’ The reality is that both ‘bulls’ and ‘bears’ are owned by the ‘broken clock’ syndrome during the full-market cycle. However, what is grossly important in achieving long-term investment success is not necessarily being ‘right’ during the first half of the cycle, but by not being ‘wrong’ during the second half.” Will valuations currently pushing the 3rd highest level in history, it is only a function of time before the second-half of the full-market cycle ensues. That is not a prediction of a crash. It is just a fact.

[..] valuations DO NOT predict market crashes. Valuations are predictive of future returns on investments from current levels. Period. I recently quoted Cliff Asness on this issue in particular: “Ten-year forward average returns fall nearly monotonically as starting Shiller P/E’s increase. Also, as starting Shiller P/E’s go up, worst cases get worse and best cases get weaker. If today’s Shiller P/E is 22.2, and your long-term plan calls for a 10% nominal (or with today’s inflation about 7-8% real) return on the stock market, you are basically rooting for the absolute best case in history to play out again, and rooting for something drastically above the average case from these valuations.” We can prove that by looking at forward 10-year total returns versus various levels of PE ratios historically.

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“Ordinarily, failure to raise the debt ceiling would lead to a government shut-down, including hurricane recovery operations, unless the president invoked some kind of emergency powers.”

When the Butterfly Flaps Its Wings (Jim Kunstler)

It remains to be seen what the impact will be from Mother Nature putting the nation’s fourth largest city out-of-business. And for how long? It’s possible that Houston will never entirely recover from Hurricane Harvey. The event may exceed the physical damage that Hurricane Katrina did to New Orleans. It may bankrupt large insurance companies and dramatically raise the risk of doing business anywhere along the Gulf and Atlantic coasts of the USA — or at least erase the perceived guarantee that losses are recoverable. It may even turn out to be the black swan that reveals the hyper-fragility of a US-driven financial system.

Houston also happens to be the center of the US oil industry. Offices can be moved elsewhere, of course, but not so easily the nine major oil refineries that sprawl between Buffalo Bayou over to Beaumont, Port Arthur, and then Lake Charles, Louisiana. Harvey is inching back out to the Gulf where it will inhale more energy over the warm ocean waters and then return inland in the direction of those refineries. The economic damage could be epic. Much of the supply for the Colonial Pipeline system emanates from the region around Houston, running through Atlanta and clear up to Philadelphia and New York. There could be lines at the gas stations along the eastern seaboard in early September.

The event is converging with the US government running out of money this fall without new authority to borrow more by congress voting to raise the US debt ceiling. Perhaps the emergency of Hurricane Harvey and its costly aftermath will bludgeon congress into quickly raising the debt ceiling. If that doesn’t happen, and the debt ceiling is not raised, the federal government might have to pretend that it can pay for emergency assistance to Texas and Louisiana. That pretense can only go so far before government contractors balk and maybe even walk.

Ordinarily, failure to raise the debt ceiling would lead to a government shut-down, including hurricane recovery operations, unless the president invoked some kind of emergency powers. That would be decisive action, but it could also be the beginning of something that looks like a full-out dictatorship. Powers assumed are often not surrendered when the original emergency is over. And what would the president use for money if a substantial enough number of congresspersons and senators are prompted by their distaste for Mr. Trump to drag out the process of financially re-liquefying the government? (And nevermind even passing a budget.)

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Kabuki theater for the home front. Empty nonsense.

France, Germany, Italy, Spain Agree on Plan to Stem Migration Flows (BBG)

France, Germany, Italy and Spain agreed a plan to stem migration across the Mediterranean at talks with Libya, Chad and Niger in Paris, as summit host President Emmanuel Macron called for asylum seekers to be processed on African soil. Safe zones should be set up in Chad and Niger to “identify” asylum seekers in Africa, under the supervision of the United Nations High Commissioner for Refugees, Macron told reporters after the talks in the Elysee Palace Monday. “There’s a lot of work to be done, but I think we have a framework in which we can move forward,” German Chancellor Angela Merkel said at the briefing.

Leaders said in a joint statement that they would work with countries of origin and transit to boost the fight against smuggler networks. France, Germany, Italy and Spain stressed their commitment “to stopping irregular migration flows well ahead of the Mediterranean coast.” In reaction to reports about poor humanitarian conditions in refugee camps in Libya, leaders also promised to set up “facilities with adequate humanitarian standards” for refugees stranded there. France, Germany and Spain remained committed to giving further help to Italy – which has often complained in the past that it was left alone to cope with the migrant flows – by stepping up relocations and appropriately staffing the European Union’s Frontex border management force, they said.

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Maybe Greece’s best hope is for Merkel to dump him.

Debt Cut For Greece Not On Agenda For Now, Schaeuble Says (R.)

Greece must press ahead with implementing its reforms-for-aid program and become more competitive, German Finance Minister Wolfgang Schaeuble was quoted as saying, adding that debt relief for Athens was “currently” not on the agenda. Eurozone finance ministers and the IMF reached an agreement on Greece in June, paving the way for new emergency loans for Athens while leaving the contentious issue of debt relief for later. Asked in an interview with the newspaper Mannheimer Morgen if he could envisage a partial cut in debt for Greece, Schaeuble said, “That’s currently not on the agenda at all.” Chancellor Angela Merkel and Schaeuble do not want to discuss any details of debt relief for Greece before federal elections on September 24, in which the far-right euro-skeptic AfD party is forecast to enter parliament for the first time.

Starting a discussion about debt relief would send the wrong signal to Athens at a time when the economy was doing better and recovering, Schaeuble told Mannheimer Morgen. “The country doesn’t need a debt cut now, but it must continually work on its competitiveness,” Schaeuble said. He pointed out that Greece’s borrowing costs for the next 10 to 15 years were already relatively low. “Above all, as long as member states are responsible for financial and economic policy, they must also bear the consequences of their own decisions themselves”, he said. Schaeuble, whose insistence on reforms to public finances in Athens have long made him a hate figure for many Greeks, has signaled his readiness to deepen eurozone integration as long as risks and liabilities arising from political decisions remain linked.

Merkel’s conservative Christian Democrats are leading the center-left Social Democrats by about 15 percentage points in opinion polls and are the heavy favorites to retain power after the election. Schaeuble, who has been finance minister since 2009 and will turn 75 on September 18, has signaled his willingness to continue as finance minister. But Merkel could be forced to sacrifice him to secure a coalition deal.

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Strange innuendo-laced piece from NYT. It’s all they do these days. “While the Europeans are acting towards Greece like medieval leeches, the Chinese keep bringing money..” Varoufakis made a deal with China in spring 2015. Merkel called Beijing to say: keep your hands off. That should have been part of this article.

Chastised by EU, a Resentful Greece Embraces China’s Cash and Interests (NYT)

After years of struggling under austerity imposed by European partners and a chilly shoulder from the United States, Greece has embraced the advances of China, its most ardent and geopolitically ambitious suitor. While Europe was busy squeezing Greece, the Chinese swooped in with bucket-loads of investments that have begun to pay off, not only economically but also by apparently giving China a political foothold in Greece, and by extension, in Europe. Last summer, Greece helped stop the European Union from issuing a unified statement against Chinese aggression in the South China Sea. This June, Athens prevented the bloc from condemning China’s human rights record. Days later it opposed tougher screening of Chinese investments in Europe.

Greece’s diplomatic stance hardly went unnoticed by its European partners or by the United States, all of which had previously worried that the country’s economic vulnerability might make it a ripe target for Russia, always eager to divide the bloc. Instead, it is the Chinese who have become an increasingly powerful foreign player in Greece after years of assiduous courtship and checkbook diplomacy. Among those initiatives, China plans to make the Greek port of Piraeus the “dragon head” of its vast “One Belt, One Road” project, a new Silk Road into Europe. When Germany treated Greece as the eurozone’s delinquent, China designated a recovery-hungry Greece its “most reliable friend” in Europe. “While the Europeans are acting towards Greece like medieval leeches, the Chinese keep bringing money,” said Costas Douzinas, the head of the Greek Parliament’s foreign affairs and defense committee and a member of the governing Syriza party.

China has already used its economic muscle to stamp a major geopolitical footprint in Africa and South America as it scours the globe for natural resources to fuel its economy. If China was initially welcomed as a deep-pocketed investor — and an alternative to America — it has faced growing criticism that it is less an economic partner than a 21st-century incarnation of a colonialist power. If not looking for natural resources in Europe, China has for years invested heavily across the bloc, its largest trading partner. Yet now concerns are rising that Beijing is using its economic clout for political leverage. Mr. Douzinas said China had never explicitly asked Greece for support on the human rights vote or on other sensitive issues, though he and other Greek officials acknowledge that explicit requests are not necessary. “If you’re down and someone slaps you and someone else gives you an alm,” Mr. Douzinas said, “when you can do something in return, who will you help, the one who helped you or the one who slapped you?”

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We need Kenya to show us how to do this?!

Kenya Gets World’s Toughest Plastic Bag Ban: 4 Years Jail Or $40,000 Fine (R.)

Kenyans producing, selling or even using plastic bags will risk imprisonment of up to four years or fines of $40,000 (£31,000) from Monday, as the world’s toughest law aimed at reducing plastic pollution came into effect. The east African nation joins more than 40 other countries that have banned, partly banned or taxed single use plastic bags, including China, France, Rwanda, and Italy. Many bags drift into the ocean, strangling turtles, suffocating seabirds and filling the stomachs of dolphins and whales with waste until they die of starvation. “If we continue like this, by 2050, we will have more plastic in the ocean than fish,” said Habib El-Habr, an expert on marine litter working with the UN environment programme in Kenya.

Plastic bags, which El-Habr says take between 500 to 1,000 years to break down, also enter the human food chain through fish and other animals. In Nairobi’s slaughterhouses, some cows destined for human consumption had 20 bags removed from their stomachs. “This is something we didn’t get 10 years ago but now it’s almost on a daily basis,” said county vet Mbuthi Kinyanjui as he watched men in bloodied white uniforms scoop sodden plastic bags from the stomachs of cow carcasses. Kenya’s law allows police to go after anyone even carrying a plastic bag. But Judy Wakhungu, Kenya’s environment minister, said enforcement would initially be directed at manufacturers and suppliers.[..] Kenya is a major exporter of plastic bags to the region.

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Jul 302016
 
 July 30, 2016  Posted by at 7:59 am Finance Tagged with: , , , , , , , , ,  


Jack Delano Street scene on a rainy day in Norwich, Connecticut 1940

US GDP Grew a Disappointing 1.2% in Q2 As Q1 Revised Down to 0.8% (WSJ)
Rescue Package In Place For Europe’s Oldest Bank, Weakest In Stress Tests (G.)
ECB Bond Buying Risks Blocking Debt Restructurings (R.)
Chinese Capital Outflows May Still Be Happening – But In Disguise (BBG)
Bank of Japan’s Quest for 2% Inflation (BBG)
The Bank of Japan Is At A Crossroads (BBG)
US Authorities Subpoena Goldman In 1MDB Probe (R.)
Australia Headed For Recession As Early As Next Year – Steve Keen (ABC.au)
‘Sell The House, Sell The Car, Sell The Kids’ – Gundlach (R.)
British Columbia Violates NAFTA With Its Foreign Property Tax (FP)
Another “Smoking Gun” Looms As Hillary Campaign Admits Server Hacked (ZH)
Greek Islands Appeal For Measures To Deal With Influx Of Refugees (Kath.)
England’s Plastic Bag Usage Drops 85% Since 5p Charge Introduced (G.)

 

 

Only positive is consumer spending. But without knowing how much of that is borrowed (let alone manipulated), it’s a meaningless number.

US GDP Grew a Disappointing 1.2% in Q2 As Q1 Revised Down to 0.8% (WSJ)

Declining business investment is hobbling an already sluggish U.S. expansion, raising concerns about the economy’s durability as the presidential campaign heads into its final stretch. GDP, the broadest measure of goods and services produced across the U.S., grew at a seasonally and inflation adjusted annual rate of just 1.2% in the second quarter, the Commerce Department said Friday, well below the pace economists expected. Economic growth is now tracking at a 1% rate in 2016—the weakest start to a year since 2011—when combined with a downwardly revised reading for the first quarter. That makes for an annual average rate of 2.1% growth since the end of the recession, the weakest pace of any expansion since at least 1949.

The output figures are in some ways discordant with other gauges of the economy. The unemployment rate stands at 4.9% after a streak of strong job gains, wages have begun to pick up, and home sales hit a post-recession high last month. Consumer spending also remains strong. Personal consumption, which accounts for more than two-thirds of economic output, expanded at a 4.2% rate in the second quarter, the best gain since late 2014. On the downside, the third straight quarter of reduced business investment, a large paring back of inventories and declining government spending cut into those gains. “Consumer spending growth was the sole element of good news” in the latest GDP figures, said Gregory Daco at Oxford Economics. “Weakness in business investment is an important and lingering growth constraint.”

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“This is a market operation that will reinforce the capital position of the bank and free it completely of bad loans…” If it’s that easy, do it all over the place, I’d think. Who do they think they’re fooling?

Rescue Package In Place For Europe’s Oldest Bank, Weakest In Stress Tests (G.)

A rescue package of the world’s oldest bank has been announced after a health check of the biggest banks across the EU showed that Banca Monte dei Paschi di Siena’s financial position would be wiped out if the global economy and financial markets came under strain. The much-anticipated result of the stress tests – for which there was no pass or fail mark – of 51 banks showed that Italy’s third largest bank emerged weakest from the assessment. But the test – which exposed banks to headwinds in the global economy and dramatic movements in currency markets – also underlined the drop in the capital position of bailed-out Royal Bank of Scotland and the hit taken by Barclays observed under the imaginary scenarios. Banks from Italy, Ireland, Spain and Austria fared worst.

Regulators said that the tests showed that the bank sector was much stronger than it had been at the time of the 2008 financial crisis, which led to the introduction of the stress tests. Even so, the European Banking Authority (EBA), which conducted the tests on lenders, acknowledged that more needed to done.Under the latest stress test scenario, some €269bn (£227bn) would be wiped off the capital bases of the banks. “The EBA’s 2016 stress test shows the benefits of capital strengthening done so far are reflected in the resilience of the EU banking sector to a severe shock,” said Andrea Enria, EBA chair. “This stress test is a vital tool to assist supervisors in accelerating the process of repair of banks’ balance sheets, which is so important for restoring lending to households and businesses.

“The EBA’s stress test is not a pass [or] fail exercise. While we recognise the extensive capital raising done so far, this is not a clean bill of health. There remains work to do which supervisors will undertake.” The bank that fared the worst was MPS, which suffered a dramatic 14 percentage point fall in its capital position. It had been expected to perform badly and talks had already been underway before the results of the stress tests were published to try to find a way to bolster its capital. New EU regulations prevented the Italian government from pumping any taxpayer money into MPS so efforts were needed to try to stop of tens of thousands of ordinary Italians – who had bought its bonds – losing their savings. Italy’s banks are in the spotlight as they are weighed down by €360bn of bad debts.

Italy’s finance minister, Pier Carlo Padoan – who as recently as Sunday said there was no crisis in Italy – endorsed the deal put together to raise €5bn from private investors and sell €9.2bn of bad debts. “The government is greatly satisfied with the operation [the deal] launched … by Monte dei Paschi of Siena,” he said. “This is a market operation that will reinforce the capital position of the bank and free it completely of bad loans. The operation will allow the bank to develop a solid industrial plan, thanks to which it will boost its support for the real economy through lending to families and businesses.”

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Unintended consequences. Hilarious, really.

ECB Bond Buying Risks Blocking Debt Restructurings (R.)

The European Central Bank could scupper future eurozone debt restructurings if it increases the amount of a country’s bonds it can buy under its economic stimulus program, a top debt lawyer warned. The problem, on the radar of European authorities suffering a hangover from the 2012 crisis, has been pushed to the fore by expectations the ECB will need to raise limits on its bond purchases to keep its quantitative easing scheme on track.

Kai Schaffelhuber, a partner at law firm Allen & Overy, said that if the ECB permitted itself to buy more than a third of a country’s debt it would make a restructuring of privately-held bonds more difficult, a move that could increase the likelihood of taxpayer rescues. In a debt restructuring, a quorum of investors has to agree the terms of a deal. The ECB cannot participate because it is forbidden from directly financing governments. “They (the ECB) should avoid a situation where they are holding so much (of a) debt that a restructuring becomes virtually impossible,” said Schaffelhuber, whose firm worked on Greece’s 2012 debt restructuring.

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Samoa….

Chinese Capital Outflows May Still Be Happening – But In Disguise (BBG)

When there’s a will to get money out of China, there’s a way: overpay. Authorities in the world’s second-largest economy have been able to pursue a policy of managed depreciation for the Chinese yuan without spooking markets and eliciting expectations of major foreign-exchange volatility, the way the one-off devaluation did last August. One big reason is that Beijing seems to have had success in cracking down on the flood of money leaving the country, which had been prompting sizable drawdowns in the central bank’s foreign currency reserves, to prop up the value of the yuan. But a report from a Nomura team led by Chief China Economist Yang Zhao says these capital outflows have merely taken another form: the over-invoicing of imports from select locales.

And this time, it’s not just a Hong Kong story. “A detailed breakdown by region shows imports from some tax haven islands or offshore financial centres surged” in the first half of the year, he writes, “against the backdrop of a large decline in overall imports.” Now, it may be the China’s appetite for copra and coconut oil, two key Samoan exports, has indeed surged. But Zhao has a different explanation. “This suggests to us that capital outflows may have been disguised as imports in China’s trade with these tax-haven or offshore financial centres, though the precise volumes are unknown,” according to the economist. “With stronger capital controls in place we believe continued capital outflows via the current account are likely.”

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Exposing the uselessness of the whole idea.

Bank of Japan’s Quest for 2% Inflation (BBG)

The U.S. Federal Reserve, the Bank of England and the ECB are among the world’s monetary authorities that have set an inflation target right around 2%. Nowhere, though, does the quest for this special number carry drama like it does in Japan, where Bank of Japan Governor Haruhiko Kuroda has vowed to do whatever it takes to stimulate prices. On Friday in Tokyo, the BOJ indicated there were risks to achieving this target anytime soon.

1. What’s so special about 2%? The BOJ set its current inflation target in January 2013, less than a month after Prime Minister Shinzo Abe came to power with a plan to pull the economy out of two decades of stagnation. In Japan and many other developed economies, prices rising by 2% a year is seen as optimal for encouraging companies to invest and consumers to spend. It’s also thought to be low enough to avoid sparking the runaway inflation that crippled Germany’s Weimar Republic in the 1920s and Zimbabwe in more recent times.

2. How close has Japan gotten to 2% inflation? Not very. What Japan has had, on-and-off since the late 1990s, is deflation – inflation below 0% – with prices dropping across a wide range of goods.

3. What caused deflation? It began with the bursting of a real estate and asset-price bubble. Wounded banks curbed lending, companies focused on cutting debt, wages stagnated and consumers reined in spending. Households became accustomed to falling prices and put off purchases. The global financial crisis of 2008, and the devastating earthquake, tsunami and nuclear meltdown at the Fukushima Daiichi plant in 2011, entrenched what Kuroda describes as a “deflationary mindset” among consumers and companies in Japan. The nation’s aging and shrinking population is now making matters worse.

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I think they passed that crossroads long ago. Just didn’t recognize it for what it was.

The Bank of Japan Is At A Crossroads (BBG)

After more than three years of pumping out wave after wave of cheap money that’s failed to secure its inflation target, the Bank of Japan has signaled a rethink. Instead of buying yet more government bonds, cutting interest rates or pushing further into uncharted territory, the BOJ disappointed some Friday when its policy meeting concluded with only a modest adjustment. Governor Haruhiko Kuroda, 71, and his colleagues declared it was time to assess the impact of their policies, which have variously spurred strong criticism from bankers, bond dealers and some lawmakers and former BOJ executives. The next gathering, on Sept. 20-21, offers a chance to either provide greater evidence that the current framework should continue, head further into uncharted territory, or scale back.

Regardless of the decision, this isn’t where one of the world’s most aggressive central bankers wanted to be in his fourth year in office. In early 2013, he expressed confidence the BOJ had the power to ensure its 2% inflation target could be reached within about two years. This year, with the shock adoption of a negative interest rate policy backfiring through a welter of warnings from commercial banks, there’s a growing perception monetary policy is losing effectiveness. “We are at a turning point” for the BOJ, because “it can no longer assume that stepping harder on the gas pedal would make this car go faster,” said Stephen Jen, co-founder of hedge fund SLJ Macro Partners and a former IMF economist. “Arrow 2 will take the lead now,” he said, in a reference to the three arrows of Abenomics – monetary, fiscal and structural-reform policies.

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Yeah, that’ll result in some jail time….

US Authorities Subpoena Goldman In 1MDB Probe (R.)

U.S. authorities have issued subpoenas to Goldman Sachs for documents related to the bank’s dealings with scandal-hit Malaysian state fund 1MDB, the Wall Street Journal reported late on Friday. Goldman received the subpoenas earlier this year from the U.S. Department of Justice and the Securities and Exchange Commission , the Journal reported, citing a person familiar with the matter. The authorities also want to interview current and former Goldman employees in connection with the inquiries, but none of those meetings had occurred by Friday, WSJ said.

1MDB, which was founded by Malaysian Prime Minister Najib Razak in 2009 shortly after he came to office, is being investigated for money-laundering in at least six countries including the United States, Singapore and Switzerland. Najib has consistently denied any wrongdoing. U.S. law enforcement officials are attempting to identify whether Goldman violated federal law after failing to flag a transaction in Malaysia, the Journal reported in June. New York state regulators have also asked the Wall Street bank for details about probes into billions of dollars it raised in a bond offering for 1MDB, Reuters reported in June, citing a person familiar with the matter.

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Note – Steve says: “I’ve said “as early as” 2017 and “between 20% & 70% fall” but all people hear is 2017 & 70%..”

Australia Headed For Recession As Early As Next Year – Steve Keen (ABC.au)

Australia’s credit binge will lead to a bust as soon as next year, with house prices to fall between 40 and 70% and unemployment to rise sharply, Professor Steve Keen says. The professor famously lost a bet when he predicted a catastrophic crash in Australian house prices following the GFC and had to walk from Canberra to Mount Kosciusko as a result. But he says, this time, he is right and does not have his hiking boots at the ready. “We have borrowed ourselves so much to the hilt that we are now dependent on that continuing to rise over time and it simply won’t,” he told the ABC’s The Business.

Many believe the Reserve Bank has been a steady guiding hand to the Australian economy in the years since the GFC, but Professor Keen believes it has guided the economy “straight toward the shoals” by encouraging households to borrow with low rates which has led to asset bubbles. “They don’t know what they’re doing,” he said. “Our debt level according to the Bank of International Settlements, private debt level, has gone from 150% of GDP to 210% of GDP.” He argued that means a large part of the growth that Australia has enjoyed since the GFC, while many other countries plunged into recession, has been fuelled by a 60% rise in household debt. “Ireland did the same thing when they called themselves the Celtic Tiger and they don’t call themselves that anymore,” he said.

“Spain was doing the same thing during its housing bubble and we’ve replicated the same mistakes. He believes the Reserve Bank will be forced to take rates down to zero from their current level of 1.75% as the economy continues to slow, but that will not stop the collapse of the credit binge that has kept the country afloat until now. “[Lower rates] will suck more people in, it will suck more people in for a while and the [Reserve Bank] can delay this for a while by cutting the rates,” he said. He said the catalysts for the recession were the declining terms of trade, the continued fall in investment into the economy and the Federal Government’s “stupid” pursuit of a budget surplus. “The Government is frankly stupid about the economy and is obsessed about running surpluses when it is bad economics.”

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“The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.”

‘Sell The House, Sell The Car, Sell The Kids’ – Gundlach (R.)

Jeffrey Gundlach, the chief executive of DoubleLine Capital, said on Friday that many asset classes look frothy and his firm continues to hold gold, a traditional safe-haven, along with gold miner stocks. Noting the recent run-up in the benchmark Standard & Poor’s 500 index while economic growth remains weak and corporate earnings are stagnant, Gundlach said stock investors have entered a “world of uber complacency.” The S&P 500 on Friday touched an all-time high of 2,177.09, while the government reported that U.S. GDP in the second quarter grew at a meager 1.2% rate. “The artist Christopher Wool has a word painting, ‘Sell the house, sell the car, sell the kids.’ That’s exactly how I feel – sell everything. Nothing here looks good,” Gundlach said in a telephone interview.

“The stock markets should be down massively but investors seem to have been hypnotized that nothing can go wrong.” Gundlach, who oversees more than $100 billion at Los Angeles-based DoubleLine, said the firm went “maximum negative” on Treasuries on July 6 when the yield on the benchmark 10-year Treasury note hit 1.32%. “We never short in our mainline strategies. We also never go to zero Treasuries. We went to lower weightings and change the duration,” Gundlach said. Currently, the yield on the 10-year Treasury note is 1.45%, which has translated into some profits so far for DoubleLine. “The yield on the 10-year yield may reverse and go lower again but I am not interested. You don’t make any money. The risk-reward is horrific,” Gundlach said. “There is no upside” in Treasury prices.

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The perks of trade agreements.

British Columbia Violates NAFTA With Its Foreign Property Tax (FP)

The British Columbia government has suddenly introduced a penalty tax forcing non-Canadian purchasers of residential real estate in the Greater Vancouver Regional District to pay a 15% tax on all purchases registered from Aug. 2, 2016. This penalty tax discriminates by definition against foreign investors buying residential real estate in the Greater Vancouver Area: Canadian citizens buying residential real estate are exempt; foreign buyers must pay the tax. That discrimination is a glaring violation of our trade treaties. The North American Free Trade Agreement (NAFTA) and other Canadian trade agreements prohibit governments from imposing discriminatory policies that punish foreigners while exempting locals.

NAFTA’s national treatment obligation requires that citizens from other NAFTA partners investing in B.C. receive the same treatment from the government as the very best treatment received by Canadian investors. Americans and Mexicans forced to pay the 15% penalty tax would be able to pursue direct compensation for B.C.’s discriminatory tax from an independent international tribunal. [..] While the vast majority of Vancouver’s foreign property buyers might be Chinese, who were apparently the provincial government’s main target, enough investors from our dozens of treaty partners, comprising of hundreds of affected foreigners with trade rights, could be caught up in this tax, leading to mass claims. Those claims would be against the Canadian government, the signatory to NAFTA and the other international trade treaties, not B.C. Canadian taxpayers could be on the hook for hundreds of millions, or even billions, of dollars.

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Big kahuna remains: the classified mails on Hillay’s server(s).

Another “Smoking Gun” Looms As Hillary Campaign Admits Server Hacked (ZH)

In the third cyberattack on Democratic Party-related servers, Reuters reports that the computer network used by Democratic presidential candidate Hillary Clinton’s campaign was hacked. This follows hacks of the DNC and the DCCC (the party’s fund-raising committee) in the past week. Who to blame this time? Well with US intelligence head Jim Clapper having exclaimed that he was “somewhat taken aback by the hyperventilation [blaming Russia]” by Democratic surrogates, we suspect another scapegoat will need to be found. The latest attack, which was disclosed to Reuters on Friday, follows reports of two other hacks on the Democratic National Committee and the party’s fundraising committee for candidates for the U.S. House of Representatives.

“The U.S. Department of Justice national security division is investigating whether cyber hacking attacks on Democratic political organizations threatened U.S. security, sources familiar with the matter said on Friday. The involvement of the Justice Department’s national security division is a sign that the Obama administration has concluded that the hacking was state sponsored, individuals with knowledge of the investigation said. The Clinton campaign, based in Brooklyn, had no immediate comment and referred Reuters to a comment from earlier this week by campaign senior policy adviser Jake Sullivan criticizing Republican presidential candidate Donald Trump and calling the hacking “a national security issue.”

It was not immediately clear what information on the Clinton campaign’s computer system hackers would have been able to access, but the possibility of more ‘smoking guns’ only rises with each hack. Of course the finger will inevitably be pointed at Vladimir Putin (and his media-designated puppet Trump) but even The Director of Nation Intelligence has urged that an end be put to the “reactionary mode” blaming it all on Russia…

“We don’t know enough to ascribe motivation regardless of who it might have been,” Director of National Intelligence James Clapper said speaking at Aspen’s Security Forum in Colorado, when asked if the media was getting ahead of themselves in fingering the perpetrator of the hack. Speaking on Thursday, Clapper said that Americans need to stop blaming Russia for the hack, telling the crowd that the US has been running in “reactionary mode” when it comes to the numerous cyber-attacks the nation is continuously facing. “I’m somewhat taken aback by the hyperventilation on this,” Clapper said, as cited by the Washington Examiner. “I’m shocked someone did some hacking,” he added sarcastically, “[as if] that’s never happened before.”

Of course that won’t stop the endless distraction and guilt-mongering to avoid any accountability for actual content of anything that is released. Finally, does it not seem a little “reckless” that so many Democratic servers have been hacked so easily?

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It’s starting to increase again.

Greek Islands Appeal For Measures To Deal With Influx Of Refugees (Kath.)

As the influx of migrants from neighboring Turkey continues – with a slight but noticable increase – regional authorities and tourism professionals are calling for measures to support communities on the Aegean islands. Over the past two weeks, following a failed coup in Turkey on July 15, the influx of migrants has increased, according to government figures. Overall, more than 1,000 migrants landed on the five so-called hot spots: Lesvos, Chios, Kos, Samos and Leros since the failed coup. Those islands are now accommodating 9,313 migrants in camps, many of whom have been there for several months awaiting the outcome of asylum applications or deportation.

In a letter to Migration Policy Minister Yiannis Mouzalas and Alternate Defense Minister Dimitris Vitsas, the governor of the northern Aegean region, Christiana Kalogirou, asked for immediate steps to decongest the islands. “We are seeing a constant and apparently increasing flow of migrants and refugees toward the islands of the northern Aegean,” she wrote, noting that the maximum capacity of state reception centers has been exceeded on all the islands. A representative of an aid agency working on Lesvos said that the increase in migrant arrivals on the island has not yet fuelled tensions in the camps. “But if they keep arriving at the same rate, we’ll have a problem soon,” according to the worker who asked not to be identified.

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That’s how hard that is. 5p.

England’s Plastic Bag Usage Drops 85% Since 5p Charge Introduced (G.)

The number of single-use plastic bags used by shoppers in England has plummeted by more than 85% after the introduction of a 5p charge last October, early figures suggest. More than 7bn bags were handed out by seven main supermarkets in the year before the charge, but this figure plummeted to slightly more than 500m in the first six months after the charge was introduced, the Department for Environment, Food and Rural Affairs (Defra) said. The data is the government’s first official assessment of the impact of the charge, which was introduced to help reduce litter and protect wildlife – and the expected full-year drop of 6bn bags was hailed by ministers as a sign that it is working.

The charge has also triggered donations of more than £29m from retailers towards good causes including charities and community groups, according to Defra. England was the last part of the UK to adopt the 5p levy, after successful schemes in Scotland, Wales and Northern Ireland. Retailers with 250 or more full-time equivalent employees have to charge a minimum of 5p for the bags they provide for shopping in stores and for deliveries, but smaller shops and paper bags are not included. There are also exemptions for some goods, such as raw meat and fish, prescription medicines, seeds and flowers and live fish. Around 8m tonnes of plastic makes its way into the world’s oceans each year, posing a serious threat to the marine environment. Experts estimate that plastic is eaten by 31 species of marine mammals and more than 100 species of sea birds.

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