While there is still some fringe debate what companies will do with the hundreds of billions in offshore funds repatriated to the US as part of the recently passed Trump tax reform, the discussion is largely over, especially after last week’s Cisco results. The company, which has $68 billion of overseas cash, third after AAPL and MSFT, announced that it would raise its buyback authorization by $25 billion, and revealed plans to repurchase its entire authorization of $31 billion during the next 6-8 quarters, equal to roughly 15% of its current market cap. Call it a partial LBO, courtesy of Donald Trump.
[..] Here’s what Goldman’s David Kostin said in his latest Weekly Kickstart report: “Since December, S&P 500 firms have announced buybacks totaling $171 bn. YTD announcements of $67 bn represent a 22% increase versus the same period in 2017. The buyback window has re-opened and firms are taking advantage of the recent correction; the GS Buyback Desk reported that last week was the most active week in its history.” The $171 billion in YTD stock buyback announcements is the most ever for this early in the year. In fact, it is more than double the prior 10 year average of $77 billion in YTD buyback announcements.
[..] in addition to what we first pointed out over two years ago, namely that all net debt issuance in the 21st century has been used to pay for stock buybacks… here is what John Hussman commented on this record last hurrah in stock buybacks: “Though buybacks are primarily debt-financed, they are also highest at market peaks, and contract sharply at major market troughs. Corporations are still borrowing to buy the dip at peak valuations, within a few percent of extremes associated with prospective 10-12yr market losses.”
There’s no question that, in an economy and in a financial system where there’s the level of debt that we have and the sensitivity to interest rates, rising rates are kind of a pre-condition to equity market disruptions and selloffs. I think that the level of volatility selling and its integration into risk models across virtually every type of investment strategy are contributors. And, having gone through such a long period with very, very little movement, I’d say that many people’s trading books were robust for relatively small moves. But once you’ve passed a certain move – and I think in this case it was probably the S&P down 3-ish% that triggered a whole series of different adjustments that people needed to make to their books and their option books – that then amplified the move in volatility and led to this blowup in the VIX product.
But you have to remember that these VIX products were extremely ill-designed. And they were very vulnerable to this. They’re a rare thing that you see in our industry, which is they had a predefined stop loss. And markets are pretty good at finding stop losses and triggering them. I started my career in the commodity pits, and I witnessed firsthand how the commodity pit is built around finding stop losses on the top side of the bottom side of markets. So I think the market did a great job of finding the stops – and in this case finding the weakest ones, which were in the VIX complex – and hitting them. But I don’t think that that really explains why this move happened. Why did we get the first leg down, and why are markets starting to move with very little news flow? And, again, that’s something that’s difficult to explain for a lot of people that are trying to do it.
[..] The biggest problem in the investment industry today, the portfolio construct that investors have come to rely on, which is a brilliant construct really pioneered by Ray Dalio – he naturally has done incredibly well from this, and it’s been a fantastic strategy – this risk parity strategy. And, while there’s certainly more complexity to it that just being long equities and leveraged funds, let’s just view it as that strategy for a moment. It’s essentially what the dominant portfolio has become at all the major investors, pensions, endowments, etc. in the industry. And the beauty of that portfolio has been that you’ve been able to own risk assets and then you’ve been able to own a hedge, which is a leveraged bond portfolio, and that hedge has actually paid you a positive return.
The problem is when equity valuations become very high and interest rates get very low it’s difficult for that strategy to continue to perform very well. All else being equal. Now, however, if you add modest inflation into the formula, that portfolio actually becomes pretty toxic. That’s the environment I think we’re entering into. And that’s why, ultimately, I see some of these shocks like this most recent market shock as just being trail markers on this path to a much more difficult investment environment.
Deputy A.G. Rod Rosenstein: “There is no allegation in the indictment that the charged conduct altered the outcome of the 2016 election.”
Virginia State Senator Richard Black: “When you become a special counsel, you have an open checkbook for the US Treasury and you are guaranteed to become a mega-millionaire if you simply can drag out the proceedings,”
Russian Foreign Minister Sergey Lavrov has again dismissed claims of Russian meddling in the US election, saying that until facts are presented by Washington, they are nothing but “blather.” Speaking at the Munich Security Conference in Germany on Saturday, he said that “Until we see facts, everything else will be just blather.” When asked to comment on the indictment of Russian nationals and companies in the US over alleged meddling in the 2016 US election, the foreign minister answered:“You know, I have no reaction at all because one can publish anything he wants. We see how accusations, statements, statements are multiplying.”
On Friday, a US federal grand jury indicted 13 Russian nationals and three entities accused of interfering in the 2016 election and political processes. According to the indictment, those people were “supporting the presidential campaign of then-candidate Donald J. Trump… and disparaging Hillary Clinton” as they staged political rallies and bought political advertising, while posing as grassroots entities.
[..] Even US Deputy Attorney General Rod Rosenstein had to admit that there were “no allegations” that this “information warfare” yielded any results and affected the outcome of the presidential election. The underwhelming indictment was also slammed in the US. Virginia State Senator Richard Black accused FBI Special Counsel Robert Mueller of deliberately dragging out the Russian meddling probe for his own gain. “To a certain extent, I think, Robert Muller is struggling to keep alive his position of a special counsel. The special counsel has already earned seven million dollars. When you become a special counsel, you have an open checkbook for the US Treasury and you are guaranteed to become a mega-millionaire if you simply can drag out the proceedings,” Black told RT.
“Who’d be a retailer now?” That was the comment from City economist Jeremy Cook when the latest set of grim retail sales data was released by the Office for National Statistics last Friday. “The average Brit,” he added, “has spent the past few years living by the mantra ‘When the going gets tough, the tough go shopping.’” After a grim December, many had been hoping for a bounceback, but the figures showed that consumers were not as hardy as they once were, said Cook, and the retail sector was facing a long-term, continuing slowdown. Shoppers are being hit by declining real wages, record levels of consumer debt and the prospect of higher borrowing costs. But the wider problem is a structural shift in the way consumers spend their money.
This is threatening famous retailers and forcing a rethink about how high streets will look in years to come, and what might be done with retail parks and malls when retailers shut up shop. It is not just about shoppers preferring to buy online – although 20% of fashion sales, where the pressures are perhaps worst, have now moved to the internet. There’s been a seismic shift in the way we spend our time and money. Social media, leisure, travel, eating out, eating in – using takeaways and delivery services – and technology are all taking time and cash that would once have gone straight to shops. In food, increasing numbers of people now prefer to buy local and often. Fewer big weekly shops mean out-of-town superstores are under pressure and the big supermarkets are trying to lure in other retailers to take space they no longer need.
This rapid change in shopping habits is boosting sales at the likes of Amazon, Asos and Boohoo, but forcing radical change on British towns and cities as physical retail space becomes redundant. The past few months have seen a stream of collapses – from fashion store East to shoe chain Shoon and bed specialists Warren Evans and Feather & Black. Toys R Us is teetering on the brink of bankruptcy, while House of Fraser, Debenhams and New Look are all struggling, with all three considering large-scale closures of stores or space.
The Dutch government plans to hire at least 750 new customs agents in preparation for Britain’s exit from the European Union. The Dutch parliament’s Brexit rapporteur, Pieter Omtzigt, who had recommended the move, said both sides of the English Channel had been slow to wake up to the reality that Britain was on course to leave the EU in 14 months’ time. “If we need hundreds of new customs and agricultural inspectors, the British are going to need thousands,” he said. Omtzigt warned that “for a trading nation like the Netherlands, you just cannot afford for customs not to work, it would be a disaster”.
In a letter to parliament on Friday, the deputy finance minister, Menno Snel, said the cabinet had “decided that the Customs and Food and Wares agencies should immediately begin recruiting and training more workers”. He said the government was working on the basis of two scenarios: that Britain leaves the EU with no deal in place, or that it leaves on similar terms to those of the EU’s recent trade deal with Canada. “The results are that … around 930 or 750 full-time employees are needed,” Snel said. “It speaks for itself that the cabinet is following the negotiations closely in order to be able to react appropriately.”
Sir Howard Davies, chairman of the Royal Bank of Scotland (RBS), recently made an astonishing admission on BBC1’s Question Time when he stated that private finance initiatives (PFI) had been a “fraud on the people”. Beyond seemingly populist rhetoric, the real story of PFI reveals that RBS alongside other global banks, notably HSBC, were instrumental in what Sir Howard has effectively labelled a great heist. The past month has seen the demise of construction giant Carillion followed by the collapse of Capita’s market value: both firms having built huge empires by providing outsourced services to public authorities. These initial tremors might be the canary in the coal mine. Profit warnings have been issued for other government contractors, such as Interserve. The domino effect has shades of the 2007-08 financial crisis even though it is clearly not of the same magnitude.
All this has thrown up searching questions, not least around staff redundancies and pensions, bailouts, inflated dividends and executive remuneration. Yet even in the throes of this PFI and outsourcing crisis, public-private Partnerships (PPP) are far from dead and buried. On the contrary, the Naylor Review – a report recommending the disposal of NHS land and assets to generate investment – is rehabilitating PPP. Furthermore, the Government is pushing through Accountable Care Organisations (ACO), a form of PPP based on an American model of healthcare. The Government cites too the model of Alzira in Spain where a consortium of private companies not only financed and built facilities but also delivered health services.
Of course, PFI was not always a toxic brand. In 1997 it appeared to be New Labour’s magical solution to chronic underinvestment in public services in the wake of Thatcherism. As Alan Milburn – the former Labour Health Secretary described by Private Eye as an “almost maniacal convert to PFI” – put it: “It’s PFI or bust.” The argument went that Labour had inherited public services in such a diabolical state of neglect that there was no alternative to the private financing of whole swathes of infrastructure. It was a persuasive argument which seduced many. The Blairite Third Way would somehow square the circle by delivering new schools, hospitals, roads, railways and prisons without the debt or inefficiency of the public sector. It seemed too good to be true yet those who dared to question the orthodoxy du jour were swatted away.
U.S. investigators probing Mercedes maker Daimler have found that its cars were equipped with software which may have help them to pass diesel emissions tests, a German newspaper reported on Sunday, citing confidential documents. There has been growing scrutiny of diesel vehicles since Volkswagen admitted in 2015 to installing secret software on 580,000 U.S. vehicles that allowed them to emit up to 40 times legally allowable emissions while meeting standards when tested by regulators. Daimler, which faces ongoing investigations by U.S. and German authorities into excess diesel emissions, has said investigations could lead to significant penalties and recalls.
The Bild am Sonntag newspaper said that the documents showed that U.S. investigators had found several software functions that helped Daimler cars pass emissions tests, including one which switched off emissions cleaning after 26 km of driving. Another function under scrutiny allowed the emissions cleaning system to recognize whether the car was being tested based on speed or acceleration patterns. Bild am Sonntag also cited emails from Daimler engineers questioning whether these software functions were legal.
The world’s sea ice shrank to a record January low last month as the annual polar melting period expanded, experts say. The 5.04 million square miles of ice in the Arctic was 525,000 square miles below the 1981-to-2010 ice cover average, making it the lowest January total in satellite records, according to the US National Snow and Ice Data Center (NSIDC). Combined with low levels in the Antarctic, global sea ice amounted to a record low for any first month of the year, the organisation concluded. The news comes just days after researchers from the University of Colorado Boulder said the rate at which sea levels are rising was increasing every year, driven mostly by accelerated melting in Greenland and Antarctica.
The NSIDC, a respected authority on the Earth’s frozen regions, which researches and analyses snow, glaciers and ice sheets among other features, said that ice in the Arctic Ocean hit “a new record low” at both the start and end of last month. In an online post, the group said: “January of 2018 began and ended with satellite-era record lows in Arctic sea ice extent, resulting in a new record low for the month. Combined with low ice extent in the Antarctic, global sea ice extent is also at a record low.” It said the Arctic experienced a week of record low daily ice totals at the start of the month, with the January average beating 2017 for a new record low. “Ice grew through the month at near-average rates, and in the middle of the month daily extents were higher than for 2017,” the report went on. “However, by the end of January, extent was again tracking below 2017.”
The orangutan is one of our planet’s most distinctive and intelligent creatures. It has been observed using primitive tools, such as the branch of a tree, to hunt food, and is capable of complex social behaviour. Orangutans also played a special role in humanity’s own intellectual history when, in the 19th century, Charles Darwin and Alfred Russel Wallace, co-developers of the theory of natural selection, used observations of them to hone their ideas about evolution. But humanity has not repaid orangutans with kindness. The numbers of these distinctive, red-maned primates are now plummeting thanks to our destruction of their habitats and illegal hunting of the species. Last week, an international study revealed that its population in Borneo, the animal’s last main stronghold, now stands at between 70,000 and 100,000, less than half of what it was in 1995.
“I expected to see a fairly steep decline, but I did not anticipate it would be this large,” said one of the study’s co-authors, Serge Wich of Liverpool John Moores University. For good measure, conservationists say numbers are likely to fall by at least another 45,000 by 2050, thanks to the expansion of palm oil plantations, which are replacing their forest homes. One of Earth’s most spectacular creatures is heading towards oblivion, along with the vaquita dolphin, the Javan rhinoceros, the western lowland gorilla, the Amur leopard and many other species whose numbers are today declining dramatically. All of these are threatened with the fate that has already befallen the Tasmanian tiger, the dodo, the ivory-billed woodpecker and the baiji dolphin – victims of humanity’s urge to kill, exploit and cultivate.
As a result, scientists warn that humanity could soon be left increasingly isolated on a planet bereft of wildlife and inhabited only by ourselves plus domesticated animals and their parasites. This grim scenario will form the background to a key conference – Safeguarding Space for Nature and Securing Our Future – to be held in London on 27-28 February. The aim of the symposium is straightforward: to highlight ways of establishing sufficient reserves and protected areas to halt or seriously limit the major extinction event that humanity now faces. According to one recent report, the number of wild animals on Earth has halved in the past 40 years, as humans kill for food in unsustainable numbers and pollute or destroy habitats, and worse probably lies ahead.
[..] The current focus on protecting what humans are willing to spare for conservation is unscientific, they say. Instead, conservation targets should be determined by what is necessary to protect nature. This point is stressed by Harvey Locke, whose organisation, Nature Needs Half, takes a far bolder approach and campaigns for the preservation of fully 50% of our planet for wildlife by 2050. “That may seem a lot – if you think the world is a just a place for humans to exploit,” Locke told the Observer. “But if you recognise the world as one that we share with wildlife, letting it have half of the Earth does not seem that much.” The idea is supported by E O Wilson, the distinguished Harvard biologist, in his most recent book, Half Earth. “We thrash about, appallingly led, with no particular goal other than economic growth and unfettered consumption,” he writes. “As a result, we’re extinguishing Earth’s biodiversity as though the species of the natural world are no better than weeds and kitchen vermin.”
The solution, he says, is to fill half the planet with conservation zones – though just how this division is to be decided is not made clear in his book. In any case, Hoffman points out, simply setting aside huge chunks of land or marine areas will not, on its own, save the day. “We could earmark the whole of northern Canada as a wildlife reserve but, given the paucity of animals who live in these frozen regions, that would not have a significant effect on a great many species who live elsewhere,” he said.
Stocks fell sharply on Thursday as strong earnings and economic data were not enough to quell jitters on Wall Street about higher interest rates. The Dow Jones industrial average closed 1,032.89 points lower at 23,860.46, entering correction territory. The 30-stock index also closed at its lowest level since Nov. 28. The Dow is also on track to post its biggest weekly decline since October 2008. “This whole correction is really about rates. It’s really about inflation creeping up. It’s really about people thinking the Fed is either behind the curve or actually has to be more aggressive,” Stephanie Link, global asset management managing director at TIAA, told CNBC’s “Closing Bell.” “That fear, that unknown is really what’s driving a lot of the anxiety,” Link said.
This is the third drop for the Dow greater than 500 points in the last five days. Despite the decline Thursday, the average is still a ways from its low for the week hit on Tuesday of 23,778.74. American Express and Intel were the worst-performing stocks in the index, sliding more than 5.4%. J.P. Morgan Chase, meanwhile, was down by more than 4%. The S&P 500 pulled back 3.75% to 2,581, reaching a new low for the week. The index also broke below its 100-day moving average and closed under 2,600, two important thresholds. For the S&P 500, it is its third drop of greater than 2% in the last five days. The Nasdaq composite fell 3.9% to close at 6,777.16 as Facebook, Amazon and Microsoft all fell at least 4.5%.
The yield on the benchmark 10-year Treasury note has an effect on all parts of the economy, as it influences everything from borrowing costs for the smallest and biggest companies, to rates for fixed and adjustable mortgages, car loans and credit cards. For three decades, one thing everyone could count on was if you were patient enough, rates would eventually be lower. Not anymore. The scariest thing for investors and consumers is often the unknown. But while some market pundits acknowledge that a “new norm” for rates is in the works, it’s not that rates are expected to spike back up to where they were in the 1980s. Besides, some people, such as those living off a fixed income, should actually welcome the new trend.
T[..] Arbeter Investments president Mark Arbeter: From a “very long-term perspective, yields appear to be tracing out a “massive bottom.” If the 10-year yield gets above the 2013 high of 3.04%, a bullish long-term “double bottom” reversal pattern would be completed, opening the door for an eventual rise toward the 4.75% area. A double bottom, according to the CMT Association, the keepers of the Chartered Market Technician certification, is this: “The price forms two distinct lows at roughly the same price level. For a more significant reversal, look for a longer period of time between the two lows.” The two bottoms Arbeter refers to are the 2012 monthly low of 1.47% and the 2016 low of 1.45%. Arbeter noted that while rates may not yet be ready to soar, equity investors may have reason to be worried. When the yield bumped up against the downtrend line before, as happened in 1987, 1990, 1994, 2000 and 2007, bad things happened on Wall Street.
T[..] Frank Cappelleri, CFA, CMT, executive director of institutional equities at Instinet LLC: In the medium term, he believes the bullish “inverted head and shoulders” reversal pattern that has formed over the last few years suggests a return toward the peaks seen in 2008 through 2010.
The U.S. Senate approved a budget deal including a stopgap government funding bill early on Friday, but it was too late to prevent a federal shutdown that was already underway in an embarrassing setback for the Republican-controlled Congress. The shutdown, which technically started at midnight, was the second this year under Republican President Donald Trump, who played little role in attempts by party leaders earlier this week to head it off and end months of fiscal squabbling. The U.S. Office of Personnel Management advised millions of federal employees shortly after midnight to check with their agencies about whether they should report to work on Friday.
The Senate’s approval of the budget and stopgap funding package meant it will go next to the House of Representatives, where lawmakers were divided along party lines and passage was uncertain. House Republican leaders on Thursday had offered assurances that the package would be approved, but so did Senate leaders and the critical midnight deadline, when current government funding authority expired, was still missed. The reason for that was a nine-hour, on-again, off-again Senate floor speech by Kentucky Republican Senator Rand Paul, who objected to deficit spending in the bill. The unexpected turn of events dragged the Senate proceedings into the wee hours and underscored the persistent inability of Congress and Trump to deal efficiently with Washington’s most basic fiscal obligations of keeping the government open.
The U.S. stock market officially fell into correction territory Thursday and now we now the total damage: $2.49 trillion. That’s the market value that has been wiped out from the S&P 500 during its 10% rapid slide from a record on Jan. 26. The total is even bigger for global stock markets with $5.20 trillion gone as they followed the U.S. market’s lead. Both figures are from S&P Dow Jones Indices. Traders are worried the selling isn’t near over after the S&P 500 fell back below its Tuesday low during its 3.8% plunge Thursday. The benchmark is now at its lowest point since last November. The energy, health care, financials, materials and technology sectors are all in correction territory as well, according to S&P Dow Jones. President Donald Trump need not worry yet as the S&P 500 is still up $3.55 trillion since his election in November 2016, according to S&P Dow Jones.
There’s a not-so-quiet rebellion going on in the bond market, and it threatens to take 10-year yields above 3% much faster than expected just a few weeks ago. As a result, the bumpy ride for stocks could continue for a while. There are some powerful forces at work, with global growth strong, central banks moving to tighten policy and the government’s deficit spending creating more and more Treasury supply. So, the bond market has entered a zone of no return for now, where Treasurys are expected to price in higher yields in a global sea change for bonds. Thursday’s sharp sell-off in stocks, with the S&P 500 closing down 3.8% , reversed a sharp move higher in bond yields, as buyers sought safety. The 10-year yield was at 2.81% from a high of 2.88% earlier in the day and the rising yields had started the stock market spiral lower.
“There’s going to be an interplay, a bit of push and pull between the rates market and equity market,” said Mark Cabana at Bank of America Merrill Lynch. Cabana said his call for a 2.90% 10-year this year is clearly at risk. He said technicians are watching 2.98%, and then 3.28% on the charts. The bipartisan spending bill, expected to pass Congress, called for a higher-than-expected spending cap of $300 billion. Cabana said it was encouraging in that the deal was bipartisan and that means the debt ceiling won’t be an issue. But it also had a negative impact on the bond market and resulted in forecasts of more Treasury supply and higher $1 trillion deficits. “It signals that fiscal austerity out of D.C. is a thing of the past, and Republicans aren’t nearly as concerned with the overall trajectory of the deficit as they have been and the president is worried about it,” he said.
The 10-year Treasury is the one to watch, and while many strategists targeted rates under 3% for this year, they acknowledge the risk is to the upside with yields potentially climbing to 3.25%. The 10-year is the benchmark best known to investors, and its yield influences a whole range of loans, including home mortgages. Strategists say the level of the yield is not so much the problem. Rather, it’s the rapidity of the move that has proven unnerving for global stock markets.”We’re in a vicious cycle here. If the yields go up, you have to sell stocks. If you sell stocks, and they crash, yields come back down,” said Art Hogan at B. Riley FBR.
In a capitalist economy, the invisible hand serves a very important but underappreciated role: It is a signaling mechanism that helps balance supply and demand. High demand leads to higher prices, telegraphing suppliers that they’ll make more money if they produce extra goods. Additional supply lowers prices, bringing them to a new equilibrium. This is how prices are set for millions of goods globally on a daily basis in free-market economies. In the command-and-control economy of the Soviet Union, the prices of goods often had little to do with supply and demand but were instead typically used as a political tool. This in part is why the Soviet economy failed — to make good decisions you need good data, and if price carries no data, it is hard to make good business decisions. When I left Soviet Russia in 1991, I thought I would never see a command-and-control economy again. I was wrong.
Over the past decade the global economy has started to resemble one, as well-meaning economists running central banks have been setting the price for the most important commodity in the world: money. Interest rates are the price of money, and the daily decisions of billions of people and their corporations and governments should determine them. Like the price of sugar in Soviet Russia, interest rates today have little to do with supply and demand (and thus have zero signaling value). For instance, if the Federal Reserve hadn’t bought more than $2 trillion of U.S. debt by late 2014, when U.S. government debt crossed the $17 trillion mark, interest rates might have started to go up and our budget deficit would have increased and forced politicians to cut government spending. But the opposite has happened: As our debt pile has grown, the government’s cost of borrowing has declined.
The consequences of well-meaning (but not all-knowing) economists setting the cost of money are widespread, from the inflation of asset prices to encouraging companies to spend on projects they shouldn’t. But we really don’t know the second-, third-, and fourth derivatives of the consequences that command-control interest rates will bring. We know that most likely every market participant was forced to take on more risk in recent years, but we don’t know how much more because we don’t know the price of money. Quantitative easing: These two seemingly harmless words have mutated the DNA of the global economy. Interest rates heavily influence currency exchange rates. Anticipation of QE by the European Union caused the price of the Swiss franc to jump 15% in one day in January 2015, and the Swiss economy has been crippled ever since.
Americans have a healthy distrust of their politicians. We expect our politicians to be corrupt. We don’t worship our leaders (only the dead ones). The U.S. Constitution is full of checks and balances to make sure that when (often not if) the opium of power goes to a politician’s head, the damage he or she can do to society is limited. Unfortunately, we don’t share the same distrust for economists and central bankers. It’s hard to say exactly why. Maybe we are in awe of their Ph.D.s. Or maybe it’s because they sound really smart and at the same time make us feel dumber than a toaster when they use big terms like “aggregate demand.” For whatever reason, we think they possess foresight and the powers of Marvel superheroes.
The global market rout continued into Asia as Hong Kong and China shares fell sharply Friday after the U.S. stock market tanked overnight. The Hang Seng Index was down about 3.8% at 29,306.63 at 11.08 a.m. HK/SIN while the Shanghai composite was down 4.5% at 3,114.0472. Despite the sell-off, equities may just be in their “first leg of correction,” said William Ma, chief investment officer of Noah Holdings in Hong Kong. Even though the mainland market is not fully connected to the global market, fund managers on the mainland are talking about the global economy “half the time,” underscoring the international nature of markets that is causing a “synchronized collapse” in both Hong Kong and China, Ma told CNBC. With everything happening, it’s still too early to jump into the market for bargains, he said.
Ma recommends waiting for the Hang Seng Index to tank another 15% before putting money into the Chinese tech giant trio Baidu, Alibaba and Tencent — collectively known as BAT. Even amid the sharp slide, some experts recommended calm. One, Philip Li, senior fund manager at Value Partners, said the current market downturn appears to be technical in nature. Asia will be under pressure as long as its markets are correlated to the Dow, but earnings expectations for companies and the growth outlooks for regional economies are solid, so the current rout appears divorced from any fundamentals, Li added. The Chinese markets were already under pressure even before this week’s market sell-off as investors took profit ahead of the long Lunar New Year public holidays that start later next week.
China’s central bank said on Friday that it has released temporary liquidity worth almost 2 trillion yuan ($316.28 billion) to satisfy cash demand before the long Lunar New Year holidays. The People’s Bank of China had announced in December that it would allow some commercial banks to temporarily keep less required reserves to help them cope with the heavy demand for cash ahead of the festivities, which begin later next week. Interbank liquidity levels will remain reasonably stable, the PBOC said on its official microblog.
Last week, President Trump announced his proposal for a $1.5 trillion infrastructure program in his State of The Union address to the American people. He failed to mention that over the next decade, the federal government would provide very little money whatsoever for America’s crumbling bridges, rails, roads, and waterways. In fact, Trump’s plan counts on state and local governments working in tandem with private investors to fork up the cash for projects. In overhauling the nation’s crumbling infrastructure, the federal government is only willing to pledge $200 billion in federal money over the next decade, leaving the remainder of $1.3 trillion for cities, states, and private companies.
Precisely how Trump’s infrastructure program would work remains somewhat of a mystery after his Tuesday night speech, as state transportation officials warned that significant hikes to taxes, fees, and tolls would be required by local governments to fund such projects. To get an understanding of the severity of America’s crumbling infrastructure. The American Road & Transportation Builders Association (ARTBA) has recently published a shocking report specifying more than 50,000 bridges across the country are rated “structurally deficient. Here are the highlights from the report: • 54,259 of the nation’s 612,677 bridges are rated “structurally deficient.” • Americans cross these deficient bridges 174 million times daily. • Average age of a structurally deficient bridge is 67 years, compared to 40 years for non-deficient bridges. • One in three (226,837) U.S. bridges have identified repair needs. • One in three (17,726) Interstate highway bridges have identified repair needs.
Dr. Alison Premo Black, chief economist for the American Road & Transportation Builders Association (ARTBA), who conducted the analysis, said, “the pace of improving the nation’s inventory of structurally deficient bridges slowed this past year. It’s down only two-tenths of a% from the number reported in the government’s 2016 data. At current pace of repair or replacement, it would take 37 years to remedy all of them. ” Black says, “An infrastructure package aimed at modernizing the Interstate System would have both short- and long-term positive effects on the U.S. economy.” She adds that traffic jams cost the trucking industry $60 billion in 2017 in lost productivity and fuel, which “increases the cost of everything we make, buy or export.”
Other key findings in the ARTBA report: Iowa (5,067), Pennsylvania (4,173), Oklahoma (3,234), Missouri (3,086), Illinois (2,303), Nebraska (2,258), Kansas (2,115), Mississippi (2,008), North Carolina (1,854) and New York (1,834) have the most structurally deficient bridges. The District of Columbia (8), Nevada (31), Delaware (39), Hawaii (66) and Utah (87) have the least. At least 15% of the bridges in six states – Rhode Island (23%), Iowa (21%), West Virginia (19%), South Dakota (19%), Pennsylvania (18%) and Nebraska (15%)—fall in the structurally deficient category. As Staista’s Niall McCarthy notes, U.S. drivers cross those bridges 174 million times a day and on average, a structurally deficient bridge is 67 years old.
The Bank of England has signalled that an interest rate hike is coming from as early as May and that there are more to come, as the economy accelerates with help from booming global growth. Threadneedle Street said it would need to raise rates to tackle stubbornly high inflation “somewhat earlier and by a somewhat greater extent” than it had anticipated towards the end of last year. While the Bank’s rate-setting monetary policy committee (MPC) voted unanimously to leave rates at 0.50% this month, the tone of its discussion suggests the cost of borrowing will not remain this low for much longer. The Bank’s governor, Mark Carney, had previously suggested there could be two further rate hikes to curb inflation over the next three years – but speculation will now mount over the chance of additional rate hikes.
The pound rose on foreign exchanges following the interest rate decision, hitting almost £1.40 against the dollar. City investors give a 75% chance of a rate hike in May, after having previously given a 50-50 probability. The FTSE 100 sold off sharply, falling by more than 108.7 points to below 7,200, amid a global stock market rout triggered by concerns among investors that central banks will need to raise interest rates faster than expected to curb rising inflation. On Wall Street, the Dow Jones Industrial Average was down more than 400 points by lunchtime. Threadneedle Street said inflation would fall more gradually than it had previously anticipated, because workers’ pay is slowly beginning to pick-up and as the oil prices is rising. “The outlook for growth and inflation [is] likely to require some ongoing withdrawal of monetary stimulus,” the MPC said.
Over the past 12 months, the issue of privatisation has surged back into the news and the public consciousness in Britain. Driven by mounting concerns about profiteering and mismanagement at privatised enterprises, Jeremy Corbyn’s Labour party has made the renationalisation of key utilities and the railways a central plank of its agenda for a future Labour administration. And then, of course, there is Carillion, a stark, rotting symbol of everything that has gone wrong with the privatisation of local public services, and which has prompted Corbyn’s recent call for a rebirth of municipal socialism. Yet in all the proliferating discussion about the rights and wrongs of the history of privatisation in Britain – both from those determined to row back against the neoliberal tide and those convinced that renationalisation is the wrong answer – Britain’s biggest privatisation of all never merits a mention.
This is partly because so few people are aware that it has even taken place, and partly because it has never been properly studied. What is this mega-privatisation? The privatisation of land. Some activists have hinted at it. Last October, for instance, the New Economics Foundation (NEF), a progressive thinktank, called in this newspaper for the government to stop selling public land. But the NEF’s is solely a present-day story, picturing land privatisation as a new phenomenon. It gives no sense of the fact that this has been occurring on a massive scale for fully 39 years, since the day that Margaret Thatcher entered Downing Street. During that period, all types of public land have been targeted, held by local and central government alike.
And while disposals have generally been heaviest under Tory and Tory-led administrations, they definitely did not abate under New Labour; indeed the NHS estate, in particular, was ravaged during the Blair years. All told, around 2 million hectares of public land have been privatised during the past four decades. This amounts to an eye-watering 10% of the entire British land mass, and about half of all the land that was owned by public bodies when Thatcher assumed power.
UK negotiators have been warned that the EU draft withdrawal agreement will stipulate that Northern Ireland will, in effect, remain in the customs union and single market after Brexit to avoid a hard border. The uncompromising legal language of the draft agreement is likely to provoke a major row, something all parties to the negotiations have been trying to avoid. British officials negotiating in Brussels were told by their counterparts that there could be a “sunset clause” included in the legally binding text, which is due to be published in around two weeks. Such a legal device would make the text null and void at a future date should an unexpectedly generous free trade deal, or a hitherto unimagined technological solution emerge that could be as effective as the status quo in avoiding the need for border infrastructure.
As it stands, however, the UK is expected by Brussels to sign off on the text which will see Northern Ireland remain under EU law at the end of the 21-month transition period, wherever it is relevant to the north-south economy, and the requirements of the Good Friday agreement. The move is widely expected to cause ructions within both the Conservative party and between the government and the Democratic Unionist party, whose 10 MPs give Theresa May her working majority in the House of Commons. The UK will be put under even greater pressure to offer up a vision of the future relationship that will deliver for the entire UK economy, but the inability of that model to ensure frictionless trade is likely to be exposed. A meeting of the cabinet to discuss the Irish border on Wednesday failed to come to any significant conclusions.
“There will be no wriggle room for the UK government,” said Philippe Lambert MEP, the leader of the Greens in the European parliament, who was briefed in Strasbourg earlier this week by the EU’s chief negotiator, Michel Barnier. “We are going to state exactly what we mean by regulatory alignment in the legal text. It will be very clear. This might cause some problems in the UK – but we didn’t create this mess.”
European Commissioner for Economic and Financial Affairs Pierre Moscovici said on Thursday he was “especially optimistic” about efforts to reach a solution on Greek debt relief. Greece’s third bailout ends in August and debt relief is expected to come up in negotiations over its bailout exit terms in the coming months. Athens and its eurozone lenders are expected to flesh out a French-proposed mechanism that was presented in June and which will link debt relief to Greek growth rates. The economy is forecast to grow by up to 2.5% this year and in 2019.
“On the issue of debt relief I am especially optimistic and I believe that our efforts will be implemented and they will be successful,” Moscovici said, through an interpreter, at a meeting with Greek President Prokopis Pavlopoulos. Greek public debt is forecast at 180% of GDP this year. Greece has received a record 260 billion euros in three bailouts since 2010. Moscovici, who is in Greece for talks on the next steps in the program, said it was up to Athens to devise a strategy for exiting its bailout and the post-bailout surveillance period. “The exit from the bailout is becoming apparent and under very good circumstances,” Moscovici said.
One in three pensioners has to live on less than 500 euros a month at a time when pensions in Greece have been constantly falling, according to the Helios online data system’s monthly reports. The Labor Ministry platform showed that the average income of Greek retirees amounts to 894 euros per month: The average main pension from all social security funds comes to 722 euros a month while the average auxiliary pension amounts to just 171 euros a month. The average dividend from the funds comes to 98 euros. More than two in three pensioners (66.39%) are on less than 1,000 euros a month, and 31.03% of pensions do not exceed 500 euros. In December the number of pensioners fell by 3,311 from November to 2,586,480. Compared to October’s 2,592,950, that’s a reduction of 6,470 pensioners.
Monthly expenditure on pensions decreased by 1.44 million euros from November and by 4.07 million from October. In total, 117,148 people were issued with new and definitive main and auxiliary pensions as well as dividends in 2017. As the year drew to a close, more and more new pensions issued were calculated according to the law introduced in 2016, meaning that the benefits handed out were considerably smaller. Therefore, while the average new pension for retirees who paid into the former Social Security Foundation (IKA) amounted to 640.66 euros in January 2017, this dropped to just 521.01 euros in December. Even the average IKA pension for those for whom it was first issued before May 2016 shrank considerably over the year, dropping to 618 euros per month.
Notably, more than a quarter of pensioners (26.32%) are under 65, while the distribution of retirees per age and pension category shows that the younger a person retires, the higher a pension they will receive. Meanwhile the Hellenic Statistical Authority (ELSTAT) announced on Thursday that the unemployment figures for last November showed no improvement from October, staying put at 20.9%. In November 2016 the jobless rate came to an upwardly revised 23.3%.
Ten thousand migrants are living in “deplorable” conditions in Italy without shelter, food and clean water, Médecins Sans Frontières (MSF) has warned in a damning indictment of the country’s border practices. “Inadequate” reception policies are forcing refugees into slums, squats and abandoned buildings with limited access to basic services, the charity said. Increasing marginalisation of asylum seekers and a growing prevalence of forced evictions has led to small groups of migrants living in increasingly hidden places, the charity found, exposing them to “inhumane” living conditions. The findings, released as part of the second edition of the charity’s Out of Sight report, reveal the torturous reality facing huge swathes of Italy’s migrant population. But the survey shows Italians are increasingly uneasy over the numbers of refugees that have reached their country’s shores by boat over the past four years.
The report’s release coincides with a spike in anti-immigration rhetoric ahead of the 4 March parliamentary elections. On Saturday, a far-right extremist was arrested on suspicion of shooting six Africans in a racially motivated attack in Macerata. Days later, Silvio Berlusconi, the former Prime Minister whose Forza Italia (Go Italy!) party has entered a coalition with the Northern League and the smaller Brothers of Italy, promised to deport 600,000 migrants if their coalition came to power. “These 600,000 people, we will pick them up using police, law enforcement and the military… everyone can help identify them by pointing them out, and they will be picked up,” he said, claiming immigration was a “social bomb” linked to crime. Northern League leader Matteo Salvini also promised “irregular” migrants would be rounded up and sent home “in 15 minutes” if he and his allies take power.
If crude’s slump back to a six-year low looks bad, it’s even worse when you reflect that summer is supposed to be peak season for oil. U.S. crude futures have lost 30% since the start of June, set for the biggest drop since the West Texas Intermediate crude contract started trading in 1983. That beats the summer plunges during the global financial crisis of 2008, the Asian economic slump in 1998 and the global supply glut of 1986. It even surpasses the decline of 2011, when prices fell as much as 21% over the summer as the U.S. and other large oil-importing nations released 60 million barrels of oil from emergency stockpiles to make up for the disruption of Libyan exports during the uprising against Muammar Qaddafi.
WTI, the U.S. benchmark, fell to a six-year low of $41.35 a barrel Friday. It may slide further, according to Citigroup Inc. “Summer is when refineries are all running hard, so actual demand for crude is as good as it gets,” Seth Kleinman at Citigroup said. OPEC’s biggest members are pumping near record levels to defend their market share and U.S. production is withstanding the collapse in prices and drilling. The oil market is still clearly oversupplied and “it will get more so as refiners go into maintenance,” Kleinman said. Oil demand usually climbs in the summer as U.S. vacation driving boosts purchases of gasoline and Middle Eastern nations turn up air-conditioning.
Crude has sunk this year even U.S. gasoline demand expanded, stimulated by a growing economy and low prices. Total gasoline supplied to the U.S. market rose to an eight-year high of 9.7 million barrels a day last month, according to U.S. Department of Energy data. Crude could fall to $10 a barrel as OPEC engages in a “price war” with rival producers, testing who will cut output first, Gary Shilling, president of A. Gary Shilling Co., said in an interview on Bloomberg Television on Friday. “OPEC is basically saying we’re not going to cut production, we’re going to see who can stand lower prices longest,” Shilling said. “Oil is headed for $10 to $20 a barrel.”
Credit traders have an uncanny knack for sounding alarm bells well before stocks realize there’s a problem. This time may be no different. Investors yanked $1.1 billion from U.S. investment-grade bond funds last week, the biggest withdrawal since 2013, according to data compiled by Wells Fargo. Dollar-denominated company bonds of all ratings have lost 2.3% since the end of January, even as the Standard & Poor’s 500 index gained 5.7%. “Credit is the warning signal that everyone’s been looking for,” said Jim Bianco. “That is something that’s been a very good leading indicator for the past 15 years.”
Bond buyers are less interested in piling into notes that yield a historically low 3.4% at a time when companies are increasingly using the proceeds for acquisitions, share buybacks and dividend payments. Also, the Federal Reserve is moving to raise interest rates for the first time since 2006, possibly as soon as next month, ending an era of unprecedented easy-money policies that have suppressed borrowing costs. All of this has corporate-bond investors concerned enough that they’re demanding 1.64 percentage points above benchmark government rates to own investment-grade notes, the highest since July 2013, Bank of America Merrill Lynch index data show.
That’s also the biggest premium relative to a measure of equity volatility since March 6, 2008, 10 days before Bear Stearns was forced to sell itself to JPMorgan, according to Bank of America analysts in an Aug. 13 report. “Unlike the credit market, the equity market well into 2008 was very complacent about the subprime crisis that led to a full blown financial crisis,” the analysts wrote. “While we are not predicting another financial crisis, we believe it is important to keep highlighting to investors across asset classes that conditions in the high grade credit market are currently very unusual.” So if you’re very excited about buying stocks right now, just beware of the credit traders out there who are sending some pretty big warning signs.
There is an economic and financial trainwreck rumbling through the world economy. Namely, the Great China Ponzi. In all of economic history there has never been anything like it. It is only a matter of time before it ends in a spectacular collapse, leaving the global financial bubble of the last two decades in shambles. But here’s the Wall Street meme that is stupendously wrong and that engenders blind complacency with respect to the impending upheaval. To wit, the same folks who brought you the myth of the BRICs miracle would now have you believe that China is undergoing a difficult but doable transition – from an economy driven by booming exports and monumental fixed asset investment to one based on steady as she goes US-style consumption and services.
There may well be some bumps and grinds along the way, we are cautioned, such as the recent stock market and currency turmoil. But do not be troubled – the great locomotive of the world economy will come out the other side better and stronger. That’s because the wise, pragmatic and powerful leaders and economic managers who deftly guide China’s version of capitalism have the capacity to make it all happen. No they don’t! China is not a clone-in-the-making of America’s $18 trillion consume till you drop economy – even if that model were stable and sustainable, which it is not. China is actually sui generis – a historical freak accident that has no destination other than a crash landing. It’s leaders are neither wise nor deft economic managers.
In fact, they are a bunch of communist party political hacks who have an iron grip on state power because China is a crude dictatorship. But their grasp of the fundamentals of economic law and sound finance can not even be described as negligible; it’s non-existent. Indeed, their reputation for savvy and successful economic management is an unadulterated Wall Street myth. The truth is, the 25 year growth boom in China is just a giant, credit-driven Ponzi. Any fool can run a central bank printing press until it glows white hot. At the end of the day, that’s all the Beijing suzerains of red capitalism have actually done. They have not created any of the rudiments of viable capitalism. There are no honest financial markets, no genuinely solvent banks, no market driven allocation of capital and no financial discipline which comes from the right to fail as well as succeed.
Perhaps it’s a case of something getting lost in translation (so to speak), but Chinese authorities have a remarkable propensity for saying absurd things in a very straightforward way as though there were nothing at all odd or amusing about them. For example, here’s what the CSRC said on Friday about the future for China Securities Finance (aka the plunge protection team): “For a number of years to come, the China Securities Finance Corp. will not exit (the market).” For anyone who hasn’t followed the story, Beijing transformed CSF into a trillion-yuan state-controlled margin lender after a harrowing unwind in the half dozen or so backdoor leverage channels that helped inflate Chinese equities earlier this year caused stocks to plunge 30% in the space of just three weeks.
CSF has since become something of an international joke, as the vehicle, along with an absurd effort to halt trading in nearly three quarters of the country’s stocks, came to symbolize the epitome of market manipulation – and that’s saying something in a world where everyone is used to rigged markets. And because Beijing wanted to get the most manipulative bang for their plunge protection buck (err… yuan) the PBoC went on to count loans made to CSF by banks towards total loan growth in July. In other words, China acted as is if forced lending to a state-run stock buying entity represented real, organic growth in demand for credit. Now, apparently, the practice of using CSF to “stabilize” stocks and artificially prop up loan “demand” will become standard procedure. Here’s more from AFP:
China’s market regulator on Friday vowed to stabilise the volatile stock market for a “number of years”, saying a state-backed company tasked with buying shares will have an enduring role. “For a number of years to come, the China Securities Finance Corp. will not exit (the market). Its function to stabilise the market will not change,” the China Securities Regulatory Commission (CSRC) said in a statement on its official microblog. The China Securities Finance Corp. (CSF) has played a crucial role in Beijing’s stock market rescue, which was launched after Shanghai’s benchmark crashed 30% in three weeks from mid-June.
The regulator’s comments were the first time it has given any indication of how long it would intervene to support equities. Authorities gave the CSF huge funding to buy shares and subsequent speculation the government was preparing to withdraw from the stock market has spooked investors. The statement added the CSF will only enter the market during times of volatility. “When the market drastically fluctuates and may trigger systemic risk, it will continue to play a role to stabilise the market in many ways,” said the statement, which quoted CSRC spokesman Deng Ge.
Although the country escaped the worst of the global financial crisis six years ago, it did so on the back of a borrowing binge by local governments, which spent heavily on new but often unprofitable infrastructure projects. Now, many local governments are mired in debt. In Weifang, a city known for seafood processing and an annual kite-flying festival, rapid urbanization over the last decade has saddled the local government with debts totaling 88.4 billion renminbi, or $14.2 billion, as of June 2013, the most recent data available. Since 2007, China’s overall local government debt has risen at an annual rate of 27%. It now totals almost $3 trillion, according to estimates from the consulting firm McKinsey & Company.
Companies, too, have gorged on cheap credit in recent years. Altogether, China’s total debt stands at 282% of its gross domestic product — a high level that raises the risk of a financial crisis should borrowers prove unable to repay and a wave of defaults ensue. It has created a conundrum for the country. China’s leaders want to wean the country from this debt-fueled growth model. But they also need to continue stimulating the economy, particularly at a time when growth is slowing. Part of Beijing’s solution has been to help local governments lower their borrowing costs through refinancing. Local government-controlled companies that are struggling to pay bonds are being encouraged to exchange them for new loans at lower interest rates from state-run banks.
China’s Ministry of Finance recently expanded this local government debt refinancing program to 3 trillion renminbi, or nearly $500 billion, up from 1 trillion renminbi just a few months ago. China has also begun a national campaign to encourage private investment in local infrastructure projects. In May, the nation’s top economic planning agency released a list of more than 1,000 projects worth 2 trillion renminbi that local governments across the country are seeking to finance with outside investment. Analysts estimate that is on top of roughly 1,500 other projects worth 3 trillion renminbi that had been previously announced by the local authorities.
A decade ago, the MTR Corporation, the Hong Kong subway operator, was an investor in Beijing’s fourth metro line. Beijing had won the right to host the 2008 Summer Olympics and was expanding its transport network at a blinding pace. By the time it opened in 2009, passenger flows on the new line were much higher and revenue much lower than either party had forecast. This prompted huge subsidy payments from the Beijing government to the MTR, which did not sit well with local officials. So city officials simply rewrote the contract. The new terms reduced subsidy payments to the MTR, and were on balance more favorable to the city government. MTR, as the minority shareholder, had little room to object.
Finance ministers from the eurozone gave their final blessing to lending Greece up to €86 billion after the parliament in Athens agreed to stiff conditions overnight. After six hours of talks in Brussels, ministers said in a statement: “The Eurogroup considers that the necessary elements are now in place to launch the relevant national procedures required for the approval of the ESM financial assistance.” Assuming final approval next week by the German and some other national parliaments, an initial tranche of €26 billion would be approved by the European Stability Mechanism next Wednesday. Of that, €10 billion would be reserved to recapitalise Greek banks ravaged by economic turmoil and the imposition of capital controls in June, and €13 billion would be in Athens on Thursday to meet pressing debt payment obligations.
Some issues still need to be ironed out following a deal struck with Greece on Tuesday by the EC, ECB and IMF. They include keeping the IMF involved in overseeing the new eurozone programme while delaying satisfying the Fund’s calls for debt relief for Greece until a review in October. IMF Managing Director Christine Lagarde, who took part in the meeting by telephone, said in a statement that the Fund believed Europe would need to provide “significant” debt relief as a complement to reforms Athens is taking to put Greece’s finances on a sustainable path. “I remain firmly of the view that Greece’s debt has become unsustainable and that Greece cannot restore debt sustainability solely through actions on its own,” she said.
Euro-area finance ministers shielded Greek bank depositors from any losses resulting from the restructuring of the nation’s financial system, as part of Friday’s deal on an€ 86 billion bailout. Senior bank bondholders will be in the crosshairs if Greek lenders tap into any of the financial stability funds set aside in the new bailout. Euro-area finance ministers agreed to a deal that would next week place €10 billion in Greece’s bank recapitalization fund, with another €15 billion available if needed. “Bail-in of depositors will be explicitly excluded” from EU rules to make private investors share the cost of fixing troubled banks, Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem told reporters after the six-hour meeting in Brussels.
By shielding all depositors, the euro area will protect small and medium-sized enterprises who have more than 100,000 euros in their accounts and aren’t covered by government deposit insurance, Dijsselbloem said. This prevents “a blow to the Greek economy” that ministers wanted to avoid, he said. Instead, the focus will turn to bond investors. “When so much money must be invested in banks, in the first place, banks must take part of the risks,” Dijsselbloem said. Alpha Bank AE’s €400 million of 3.375 percent notes due 2017 traded at 70.5 cents on the euro Friday to yield 25.4 percent. Those securities are up from a low this year of 27.5 cents in July.
At the start of the new aid program, the bank funds will be placed in a designated account at the European Stability Mechanism, the currency bloc’s firewall fund. Bank supervisors can tap the money as required once Greece’s banks have gone through stress tests and an asset-quality review. After Greece’s lenders are recapitalized, the subsequent bank holdings will be transferred to the nation’s planned privatization fund, which will then be able to sell off the stakes and use the proceeds to pay back bailout funds. By shielding deposits, account holders won’t have “anything to worry about,” Greek Finance Minister Euclid Tsakalotos told reporters. “The process of reversing the negative effects of capital controls will start very quickly and will speedily return the banks to where they were before and hopefully on a far firmer footing.”
Greek Prime Minister Alexis Tsipras faced the widest rebellion yet from his leftist lawmakers as parliament approved a new bailout programme on Friday, forcing him to consider a confidence vote that could pave the way for early elections. After lawmakers bickered for much of the night on procedural matters, Tsipras comfortably won the vote on the country’s third financial rescue by foreign creditors in five years thanks to support from pro-euro opposition parties. That cleared the way for euro zone finance ministers to approve the deal. This they did on Friday evening, albeit with stringent conditions. The vote laid bare the anger within Tsipras’s leftist Syriza party at the austerity measures and reforms which he accepted in exchange for the bailout loans.
Altogether 43 lawmakers – or nearly a third of Syriza deputies – voted against or abstained. The unexpectedly large contingent of dissenters, including former finance minister Yanis Varoufakis, heaped pressure on Tsipras to clear the rebels swiftly from his party and call early elections in the hope of locking in popular support. Tsipras remains hugely popular in Greece for trying to stand up to Germany’s insistence on austerity before relenting under the threat of a euro zone exit. He would be expected to win again if snap polls were held now, given an opposition that is in disarray. “I do not regret my decision to compromise,” Tsipras said in parliament as he defended the bailout from euro zone and IMF creditors. “We undertook the responsibility to stay alive over choosing suicide.”
But the vote left the government with support from within its own coalition below the threshold of 120 votes in the 300-seat chamber, the minimum needed to command a majority and survive a confidence vote if others abstain. In response, government officials said Tsipras was expected to call a confidence vote in parliament after Greece makes a debt payment to the ECB on Aug. 20 – a move that could trigger the government’s collapse and snap elections. Still, some of those who rebelled on Friday could still opt to support the government in a confidence vote, as could other pro-European parties such as the centrist Potami and the centre-left PASOK, leaving the final outcome unclear.
Friday’s vote was only the latest in a series of events highlighting the rift within Syriza, which stormed to power this year on a pledge to end austerity once and for all, before Tsipras accepted the new bailout to avoid a banking collapse. The leader of Syriza’s far-left rebel faction, former energy minister Panagiotis Lafazanis, took a step toward breaking away from the party by calling for a new anti-bailout movement. “Syriza accepted a new, third bailout – austerity that goes against its programme and pledges,” Lafazanis told Efimerida Ton Syntakton newspaper, adding that this “will open the way for a mutation of Syriza with an uncertain ending”. Syriza would be weakened by the departure of the faction led by Lafazanis.
Greek activists are warning that the privatisation of state water companies would be a backward step for the country. Under the terms of the bailout agreement approved by the Greek parliament today, Greece has pledged to support an existing programme of privatisation, which includes large chunks of the water utilities of Greece’s two largest cities – Athens and Thessaloniki. There is an ongoing debate about water privatisation and the role of business. Across Europe a wave of austerity-driven privatisation proposals have led to protests in Ireland, Italy, Greece and Spain. At the same time, some of northern Europe’s largest cities, including Paris and Berlin, are buying back utilities they sold just last decade.
President of the Thessaloniki water company trade union George Argovtopoulos said a move to a for-profit model would raise prices for consumers and degrade services. “It’s not any more a democracy or equality in the European Union. It’s a kind of business,” he said, adding that austerity measures that require water privatisation smacked of a “do as I say, but not as I do” approach from Germany. “We know that in Berlin, just two years ago they remunicipalised the water there, although they paid just under €600m to Veolia [to buy back its stake]. It’s clear that the model of privatisation of water has failed all around the world,” he said.
Deputy finance minister Jens Spahn told German breakfast television on Tuesday that sell offs of the electricity and rail sectors had benefited Germans. “Privatisation isn’t just about raising money, it’s about changing parts of the economy,” he said. The new bailout requires Greece to sell off €50bn worth of public assets. Manuel Schiffler, a former project manager for the World Bank and author of the book Water, Politics and Money, said privatisation only made sense where there was a need to improve efficiency. In the case of Thessaloniki in particular, he said, the water system was already quite well run. “I think it’s a privatisation for the wrong reasons. It’s only for fiscal reasons and not in order to improve the services provided by the utility,” he said.
Maude Barlow, the chair of Food & Water Watch said that years of experimentation with privatisation in developing countries had shown: “The best answer to bad government is good government. Don’t hold out for privatisation. It’s not a perfect system and I know Greece has it’s problems, but privatising their water systems is not a good answer to the crisis there.”
Russia boosted natural gas supplies to Germany by almost 50% in the second quarter as prices plunged, while the world’s largest natural gas exporter struggled with weaker demand from its former Soviet allies. Gazprom’s deliveries to Germany jumped to 11.7 billion cubic meters compared with 7.8 billion a year earlier, the highest quarterly level since at least 2010, according to data on the Moscow-based exporter’s website. Gazprom’s average gas price at the German border fell 36% this year as crude plunged. The European Union, which gets about 30% of its gas from Russia, may be Gazprom’s only growing market this year, the government in Moscow said last month. Gazprom has boosted fuel sales to the 28-nation bloc since the end of May as Brent crude slumped 21%.
Most of the company’s gas contracts are linked to the price of oil. “Germany has been a loyal customer for Russia for years,” said Alexander Kornilov, an oil and gas analyst at Alfa Bank in Moscow. “Such relationships stay in place, though volumes depend on a price – business is business.” Gazprom’s price to Germany fell to $6.68 per million British thermal units in July, the lowest level since December 2009, according to the IMF. Germany is importing almost all of its gas from Russia now, energy broker Marex Spectron said in a July 29 note. Germany was the only nation among Gazprom’s key clients that increased Russian gas purchases in the first half.
The company’s total shipments of the fuel fell 10% to 222.8 billion cubic meters through June, mainly because of lower sales in Italy, Turkey, Central Europe, Ukraine and Russia, Gazprom said in its earnings report under Russian accounting standards on Friday. Gazprom cut its 2015 output forecast for at least the third time this year, reducing its outlook to 444.6 billion cubic meters, according to the report. That’s only 0.1% higher than last year’s record-low output. Russia’s Economy Ministry predicted last month the gas company would cut output to 414 billion cubic meters for 2015.
Germany enjoyed robust if unspectacular growth in the second quarter while the French economy stagnated, leaving policymakers looking at a fragile euro zone recovery and risks from volatile Chinese markets. The German economy, Europe’s largest, grew by 0.4% on the quarter – a slight acceleration from 0.3% in the first three months of the year but below expectations for a 0.5% expansion as weak investment acted as a drag. In France, a jump in exports was not strong enough to offset the impact of weak consumer spending and changes in inventories and growth came to a standstill after a strong first quarter.
The readouts from the euro zone’s two largest economies came a day after the minutes of the ECB’s last meeting showed it was concerned that volatility in Chinese markets may have more impact than expected on the euro zone. China has seen a run of weak economic data. The ECB described the recovery in the 19-country euro zone as moderate and gradual, a trend it called “disappointing”, and said an increase in U.S. interest rates might slow the upturn. Private sector economists are also concerned that Germany, Europe’s powerhouse economy, is not growing faster despite favorable conditions.
“The fact that record low interest rates, low energy prices and the weak euro have not led to a stronger expansion in our view shows that the German economy has simply reached the end of its long positive virtuous circle of structural reforms and growth,” said Carsten Brzeski at ING. “Normally, such a cocktail of strong external steroids should have given wings to the economy. This is not the case.” Germany’s Federal Statistics Office said weakness in investment and a marked drop in inventories weighed on growth in the second quarter, while the weaker euro helped support exports.
The reason why an assisted Grexit was never offered seems clear: Greece’s European creditors were vehemently opposed to the idea. But it is not clear that the IMF should have placed great weight on these concerns. Back in 2010, creditor countries were concerned about contagion to the rest of the eurozone. If Grexit had succeeded, the entire monetary union would have come under threat, because investors would have wondered whether some of the eurozone’s other highly indebted countries would have followed Greece’s lead. But this risk is actually another argument in favor of providing Greece with the option of leaving. There is something deeply unappealing about yoking countries together when being unyoked is more advantageous.
More recently, creditor countries have been concerned about the financial costs to member governments that have lent to Greece. But Latin America in the 1980s showed that creditor countries stand a better chance of being repaid (in expected-value terms) when the debtor countries are actually able to grow. In short, the IMF should not have made Europe’s concerns, about contagion or debt repayment, decisive in its decision-making. Instead, it should have publicly pushed for the third option, which would have been a watershed, for it would have signaled that the IMF will not be driven by its powerful members to acquiesce in bad policies. Indeed, it would have afforded the Fund an opportunity to atone for its complicity in the creditor-driven, austerity-addled misery to which Greeks have been subject for the last five years.
Above all, it would have enabled the IMF to move beyond being the instrument of status quo powers – the United States and Europe. From an Asian perspective, by defying its European shareholders, the IMF would have gone a long way toward heralding the emergence of a new institution: a truly International Monetary Fund, in place of today’s Euro-Atlantic Monetary Fund. All is not lost. If the current strategy fails, the third option – assisted Grexit – remains available. The IMF should plan for it. The Greek people deserve some real choices in the near future.
The recently released PwC “Global Financial Markets Liquidity Study”, sounds a warning. Financial regulation, while perhaps well-intentioned, has gone too far. Banks may be safer but markets are more fragile. At the moment, this fragility is masked by the massive liquidity operations of world central banks. But it will soon be revealed as, led by the Fed, central banks attempt to exit. Now, before it is too late, additional regulatory measures under consideration should be halted (Ch. 5). And existing regulations should be urgently revisited with an eye to achieving better balance between two social goods, financial stability and market liquidity, rather than the current focus on stability at the expense of liquidity (Ch. 3).
The bulk of the report consists of market-by-market empirical documentation of the reduction in market liquidity in past years (Ch. 4). Pretty much all markets have been affected, even sovereign bond markets, but especially markets that were already not so liquid. “There is clear evidence of a reduction in financial markets liquidity, particularly for less liquid areas of the financial markets, such as small and high-yield bond issues, longer-term FX forwards and interest rate derivatives. However, even relatively more liquid markets are experiencing declining depth, for example US and European sovereign and corporate bonds” (p. 104) “Bifurcation”, meaning widening difference between vanilla markets now supported by central clearing and everything else, is a repeated watchword, as well as “liquidity fragmentation” across different jurisdictions.
Both are taken to be obvious bads. But are they? The central analytical frame of the report is that market liquidity is always and everywhere a good thing, and that more of it is always and everywhere better than less. “We consider market liquidity to be invariably beneficial” (p. 8, 17). “We consider market liquidity to be beneficial in both normal times and times of stress. For this study we therefore work on the premise that market liquidity is invariably beneficial” (p. 23). Accept this premise, and everything else follows. But why accept the premise? To be sure, economics quite regularly adopts the simplifying assumption that all markets are fully liquid, so that supply always exactly equals demand and markets always clear. (On page 17, the report cites the venerable Varian microeconomics text as authority.)
It’s a good assumption if you are concerned about something other than market liquidity. It is a terrible assumption, and a terrible premise, if you are concerned exactly about market liquidity. In fact, the idealization of full liquidity in every market is logically impossible in a world where market liquidity is provided by profit-seeking market makers. In such an ideal world, market-making profit would be zero, so no market-maker would be willing to participate! The idealization thus makes most sense as a world where liquidity is provided for free by government. It is thus quite inappropriate as a measure of how far current reality falls short of optimum.
“There’s nothing more depressing than knowing when those big tankers come on to your farm you are paying Fonterra to take your milk away.” Depression is not a word New Zealanders associate with dairy farming, but Farmers of NZ operations director Bill Guest is stating the obvious. Fonterra’s price signal for the coming year of $3.85 per kg of milksolids is nearly $2/kg short of what the average dairy farmer needs to cover costs. On an average-size farm with annual costs of around $900,000, that’s an operating deficit of $260,000, Dairy NZ estimates. For most, that spells increased borrowing but that option won’t be there for the heavily indebted. “I would say people with $1 million of debt are not going to survive,” Guest says.
There will scarcely be a profitable dairy farm in New Zealand this year in cashflow terms and the effects of farmer belt-tightening will ripple through service industries and provincial towns and on to the Government’s coffers. The Government may play down the effects – Finance Minister Bill English says the dairy sector accounts for only 20% of exports; Dairy NZ says it’s 29% – but some analysts predict a $1.5 billion fall in GDP. That’s similar to the effect of the one-in-50-year drought that hit rural New Zealand in 2013. Right now, though, all the weight is being borne by dairy farmers as banks ponder the balance sheet implications of another year of low incomes and associated declines in stock and land values.
It’s the lowest farmgate price since 2002, and some analysts say Fonterra will struggle to make the $3.85 forecast. Dairy NZ is estimating $3.65. Last year’s payments were well below recent norms, although the blow was cushioned by deferred payments from the record 2013/14 price. But in July, for the first time, farmers received no retrospective payments – meaning no income until milking gears up. While only a few dairy farms are now on the block, many more farmers are expected to attempt an “orderly exit” from the industry in the coming months – before they are forced out.
Whether it’s discussion of debt, or the argument for austerity, it’s hard to find good economics communication, where the language is rinsed free of jargon. Take this as an example, from an excited Telegraph journalist describing the Greek financial crisis: “Late on Wednesday night, the governing council of the ECB decided that it would no longer accept Greek sovereign debt as collateral for its loans. Greece’s junk-rated bonds had been the subject of a “waiver”, where the central bank accepted sovereign and bank debt as security in return for cheap ECB funding.” I’m a fairly intelligent man. I am deeply interested in foreign affairs. Yet I have only the vaguest sense of what the above means.
Does “sovereign debt” or “junk-rated bonds” or, in this context, “collateral” mean much to the average person? Have any of these phrases truly entered the public consciousness? I would argue not. A recent survey of 1,500 University of Manchester students would agree with me. Only 40% of them could even properly define GDP. Politicians aren’t much better. Here’s George Osborne presenting his latest budget: “While we move from deficit to surplus, this [new fiscal] charter commits us to keeping debt falling as a share of GDP each and every year – and to achieving that budget surplus by 2019-20 … Only when the OBR judge that we have real GDP growth of less than 1% a year, as measured on a rolling four-quarter basis, will that surplus no longer be required.” Eh?
You could argue that because the Telegraph example featured in its finance pages, some of its technical language could be forgiven on the basis of audience suitability. But Osborne’s budget announcement was to the country. The whole country. The whole country whose lives his decisions profoundly influence. Yet he makes no attempt whatsoever to remove the jargon in order to effectively relay what is essentially a generation-defining message. It’s simply not good enough. So why does he, and many of his establishment peers, do this? Some of the answer can be found in the old Einsteinian cliche: “If you can’t explain something simply, you don’t understand it well enough.”
Economics is clearly very difficult and solving its problems is an extremely demanding task, particularly for someone with no formal training like our dear chancellor. In Osborne’s defence, it seems to me that if the answers were obvious, then more people would agree on them. But because he – like many of his colleagues in Westminster – doesn’t really understand what he is talking about, he simply can’t describe his economic policies in simple enough terms. And into this vacuum of insight George pumps his jargon, which gives him an air of understanding that is just about convincing enough to maintain power. The other part of the explanation is that politicians deliberately use jargon to diffuse our ire and frustrations.
They pitch their speeches and briefings at a level most of us will never understand in order to limit public scrutiny. Their reasoning is thus: if we can’t understand what they’re talking about then how can we possibly begin to question them? Advertisers do the same thing when they use pseudoscience to market their products. They say things like “the pentapeptides in our anti-ageing cream are the active ingredient” or “our makeup remover contains micellar water to give you a fresher look”. Although this is complete drivel, the advertisers know that many of us are happy to accept the claims as fact because we don’t have the capacity to challenge them.
While many in Europe are sunning themselves on beaches, a group of young tech entrepreneurs and investors have grouped together to address the crisis of refugees, many from Syria, which have come to European shores in wave after wave this Summer. The initiative was started by Paula Schwarz, an entrepreneur based in Berlin, who’s family owns a house on the the Greek island of Samos where thousands of refugees have landed in the last few weeks. Up to 800 people land in Samos every day, according to the island’s mayor Michaelis Angelopoulos. Schwarz brought together people from startups from Germany, Greece and South Africa to tackle the refugee crisis with a typical startup approach, forming a group called Startupboat, to come up with new ideas.
The idea was to conduct research on the status quo of political refugees on Samos Island and “develop tools to improve the status quo of irregular migrants on Greek islands” Web site, Twitter, Facebook). She put out the call to her network and was joined by 20 others, including venture capitalist David Rosskamp, formerly with Earlybird Capital in Berlin and Franziska Petersen, the German client manager for Facebook’s European headquarters in Dublin, Ireland. Rosskamp told me: “People were from Facebook, Saving Global (and formerly Index Ventures), Wings University, other VC funds, Academia, the Lufthansa Innovation Hub, McKinsey and Entrepreneurs from Greece, Berlin and South Africa. We wanted to understand the situation and human tragedy, show civil engagement and think about local help.
On top of this, we feel that the European public is clearly missing a transparent discussion of the issue. Most refugees here are from Syria, they are well educated and could actually be ‘us’.” “We are on Samos as the island is seeing close to 800 refugees per day. They arrive through Turkey and are taken out of the water by the Coast Guards or strand on remote rocks somewhere on the island. From here, their journey through Europe begins. We have followed their odyssey over the island and have organized ad hoc support, including the involvement of local authorities and press to raise awareness and dialogue. We have also set up information websites for both migrants and the Samos public. He says the StartupBoat group is a private initiative. “We saw what was happening on the European borders and got together a set of people equally concerned.”
But the ideas morphed into action as the people — normally used to chatting about business models and innovation — toured the refugee camps and realized they had to do something practical as well. They’ve now launched a website called First-contact. This explains to refugees arriving on Samos what do to do when they arrive, as many of the refugees have cell phones and can go online, according to Schwarz. They’ve ben supplying them with food, speaking to officials and organizing an “awareness walk” through the capital (led by the mayor of the island). [..] Christian Umbach, one of Startupboat’s members who works for Lufthansa Innovation Hub in Berlin, believes the EU should address the issue head on, and also lobby to stop the war in Syria. Quoted in an article in Handelsblatt, Umbach said: “After meeting these people, you start to understand that they don’t come here because they want to benefit economically from us,” he said. “They come here because they are under fire and bomb attacks at home.”
I‘ve previously mentioned that the most important thing I learned from 37 years in the business world is that in large organizations of every kind, almost all valuable work is done by workarounds, i.e. people on the front lines doing what they know is best for the organization, even when this ignores or (often) contravenes what they’ve been told to do (or not to do) by senior executives. Or which contravenes the executives’ surrogate, the policy and procedures manual, which is now substantially embedded in the software these poor front-line employees have to use, and which forces them to tell you “sorry I am not authorized to do that for you; is there something else I can help you with today?”.
This is a cynical view, but it actually makes sense when you understand the nature of complex systems. No one can know what to do or how to effectively intervene in large, complex systems — there are far too many variables, too many moving parts, and too many unknowns, and the further removed you are from the customers, citizens or clients of the organization, the less likely you are to know what they want or need, or the cost/benefit of giving it to them. The belief that ‘experienced’ executives, ‘experts’, consultants or other highly-paid (often obscenely so) people know anything more about what to do is sheer hubris. As Charles Handy has pointed out, modern capitalism (and the modern organizational model) are inherently anti-democratic.
He also noted that, as any student of history can tell you, nobody gives up power voluntarily. And as Joel Bakan’s The Corporation explained (and Hugh Macleod’s cartoon above satirizes), large profit-driven organizations are necessarily pathological. So how does this weird power dynamic in organizations arise? If hierarchy is so unhealthy, why is it the prevailing model in almost all human social systems and organizations? My theory is that it arose to exploit the fundamental human loathing for complexity and the fear-driven desire to believe that everything can be controlled. Shareholders don’t want to hear that “nobody knows anything”; they want to know that their investment is going to rise in value.
As organizations grow in size, they inevitably grow exponentially more dysfunctional. Paradoxically, this growth also conveys the power to outspend, out-market, and acquire smaller, more innovative, more agile, customer- and citizen-focused organizations. Acquisitions of small companies by larger ones almost always destroy value (any honest M&A practitioners will tell you that ‘economies of scale’ don’t actually exist — what exists is ‘power of scale’ — and oligopoly)
Apple is important. Perhaps the most important company not only for the Dow Jones, but because it also happens to be the largest company by market cap, in the world. As such nobody will be happy that moments ago AAPL reported results which were in a word, lousy. It wasn’t so much the earnings, because the EPS of $1.85 was a modest beat of expectations of $1.81, while revenues also beat consensus of $49.4 billion fractionally, printing at $49.6 billion; the margin also beat slightly coming at 39.7% above the exp. 39.5%. The problem was in the detail, with 47.5 million iPhone shipments missing expectations by 1.3 million units, even as both iPad (whose ASP came at $415 below the $426 expected), and Mac units coming in as expected.
But the biggest surprise was in China, where as we warned previously, the Apple euphoria appears to have ended with a bang, with greater China sales tumbling by 21% from $16.8 billion to $13.2 billion. And keep in mind this was in the quarter when the Composite was hitting multi year highs, and the July crash was not even on the horizon. As for the cherry on top it was the company’s guidance which now sees Q4 revenue at $49-$51 billion, or below the $51.1 bn consensus estimate, with the CFO adding that the strong USD is finally getting to the company, warning that Apple “faced a difficult foreign exchange environment.” And all this happened in a quarter in which AAPL bought back $10 billion of its own stock. [..] And here, from the WSJ, is a reminder why AAPL is so very crucial to not only the tech sector, but the entire market:
No company produces bigger profits than Apple Inc. Likewise, no company contributes more to the profit picture of the S&P 500 than Apple. Apple is a leviathan of a company that is a major contributor of profits in corporate America. Its fortunes, also, are inextricably intertwined with two of the biggest growth markets that exist, smartphones and China. That makes it a bellwether. Because of its success, Apple is also an out-sized member of the S&P 500. We noted yesterday that the stock comprises about one%age point of the S&P 500’s 3.5% gain for this year (before Tuesday’s selloff).
It is also, due to its massive profits and market-cap weighting within the index, the largest single contributor to S&P 500 profits. By a long shot. Now, there certainly isn’t anything to be worried about here. Apple is expected to earn about $1.80 a share, or about $10.4 billion, on nearly $50 billion in sales, and as usual with this company, the only real question is by how far will it exceed Street estimates. Apple is projected to single-handedly give the tech sector all of its earnings growth this quarter, just edging it up by 0.2%. Without Apple, the sector would see a contraction of 6%.
The dollars of New Zealand, Australia and Canada are among the worst-performing major currencies this year and all face further losses, but the land of Hobbits may offer the best short. Known as the Kiwi, Aussie, and Loonie, respectively, all three have tumbled to six-year lows in recent sessions, with year-to-date losses of 10-15%. “Despite the fact that they have already fallen a long way, we expect them to weaken further,” said Capital Economists in a recent note. The three nations are large producers of commodities: energy is Canada’s top export, iron ore for Australia and dairy for New Zealand. Prices for all three commodities have declined significantly over the past year, worsening each country’s terms of trade and causing major currency adjustments.
Worsening the outlook, the greenback is climbing again on the prospect of higher U.S. interest rates later this year. Federal Reserve Chair Janet Yellen confirmed last week that the central bank will tighten its purse strings if the economy continues to strengthen, helping the dollar index hit a three-month high on Monday, which in turn, hit dollar-denominated commodities. Out of the three, New Zealand’s central bank has the most room to ease policy further, a key catalyst for further currency depreciation. The Reserve Bank of New Zealand (RBNZ) could slash rates by 50 basis points on Thursday— its second consecutive rate cut— as souring milk prices and low inflation hit growth in a country dubbed 2014’s “rock star economy.”
“From a monetary policy view, we expect three further rate cuts from the RBNZ this year, including one this week. The recent fall in milk prices has been much larger and severe compared to the commodity exports of Australia or Canada,” said Khoon Goh, ANZ senior FX strategist. But analysts warn of a possible short-term spike in the Kiwi: “The IMM futures market is in a record net short position for the New Zealand dollar. In comparison, positioning in the Australian dollar and the Canadian dollar do not appear nearly as stretched,” remarked Greg Gibbs, head of Asia Pacific markets strategy at the Royal Bank of Scotland.
He’d spent years touting his vision that America would one day dominate one of the world’s most powerful markets. And when Harold Hamm, a pioneer in discovering vast reserves of shale oil under American soil, took the stage in front of several hundred oil luminaries, he never acknowledged that the narrative was in doubt. “For the next 50 years, we can expect to reap the benefits of the shale revolution,” Hamm said one day this spring. “It’s the biggest thing that ever happened to America.” But away from the stage, the US oil industry – and Hamm – was in crisis. In the previous six months, Hamm, founder of oil giant Continental Resources, had lost $6.5bn, more than one-third of his net worth.
The industry that Hamm had helped create was facing its greatest test in a frantic race to stay profitable as rival Saudi Arabia worked to drive down oil prices and, according to some analysts, undermine America’s oil industry at the most important moment in its history. Behind the low price of a gallon of gas at the pump this summer lies a competition worth trillions of dollars that is capable of swinging the geopolitical balance of power. On one side are Hamm, a famous wildcatter, and other American oilmen who rode the discovery of hydraulic fracturing to tens of billions of dollars of wealth and a promise of, in Hamm’s words, ending the “disastrous” days of Saudi Arabian control.
On the other are the Saudis and their allies in OPEC, which are trying to stem rising US oil power and maintain their 40 years of dominance. This month, the cost of West Texas Intermediate oil, a US benchmark, has been hovering at just over $50 a barrel – down from about $110 over the past year. Meanwhile, the number operating oil rigs in the country has fallen to just 645. That was lowest rig count in almost five years, down from more than 1,500 a year ago. Opec said last month that it would continue to pump 30m barrels a day, despite low prices, sending a strong signal to US competitors that it had no plans to let up the pressure on the Americans.
And now there is a new pressure on the scene. The decision to strike a nuclear agreement with Iran, which has more oil reserves than all but four Opec countries, will over the coming months unleash new Iranian oil into the markets. Analysts expect Iran to pump 1m or more barrels a day as a result, so the prospect of the deal has been driving prices down in recent weeks – by about 15% – interrupting a stabilising in the price of oil since the big plunge last year.
China may have the world’s second-biggest stock market after the U.S., but at one point during a roller-coaster ride for investors this month only 93 of 2,879 listed companies were freely tradable—about the same number as trade in Oman. On July 9, a day after the market hit bottom, just 3.2% of Chinese-listed companies could be traded normally, according to an analysis by The Wall Street Journal using FactSet data. The rest of the shares on the Shenzhen and Shanghai stock exchanges either were suspended or hit their daily limit. China’s market rules prevent share prices from moving freely once they rise or fall by 10%. The findings are supported by an independent analysis by Gottex Fund Management, done at the behest of the Journal.
The daily-limit rule affected thousands of companies as the Shanghai market slid 32% in less than four weeks through the July 8 bottom, then rebounded 15% since then, while the smaller Shenzhen market slid 40% and then rebounded 20.2%—crossing the 20% threshold that defines a bull market on Tuesday. Most markets, including the New York Stock Exchange, employ “circuit breakers” to prevent wild swings in share prices over a short period, which can happen as a result of rapid-fire trading algorithms or human error. But in China, the limit rule was impeding trading of many companies at the same time investors were locked out of hundreds more that used an exchange rule allowing them to apply for trading halts ahead of major news that might cause a drastic price fluctuation.
At the height of suspensions, 51% had taken themselves off the market, according to the Journal’s analysis. An additional 46% were halted because of limit rules. As the selloff started to turn on July 9, trading volume declined sharply in Shenzhen, after trading in the majority of stocks had been halted. However, in the larger Shanghai market, shares still were trading at the same frenzied pace seen before the selling started. Investors were chasing an ever-dwindling pool of securities, which only got worse as more stocks hit limit up.
There is no euro zone crisis. It’s impossible to understand what’s going on now if you start out with the assumption that there is a single community of nations experiencing the same historic moment. There isn’t. If, for example, Germany seems detached from the sufferings of the more peripheral euro-zone countries, it’s not because Germans are hard-hearted. It’s because their own current experience is not of crisis but of bonanza. The euro may look like a disastrous project for Ireland or Greece but in Germany it’s an enormous success. The German branch of the consultants McKinsey calculated the economic benefits of the euro’s first decade when the currency had 17 members. Those benefits were divided 50/50: half went to Germany, the other half to the remaining 16 countries.
Those were the good years, but what of the euro’s bad times? For Germany, they don’t exist. The euro’s weakness has been a jackpot for Germany. It has made German exports, especially to China and the US, much cheaper than they would have been otherwise. In 2014, total German exports swelled to €1.1 trillion, with an 11% rise in sales to China and 6.5% to the US. Even the Greek crisis has been fabulous news for Germany’s finances. The longer the crisis goes on, the more investors sail to the “safe haven” of German government bonds and the more Germany saves on the costs of borrowing. This year alone, Berlin has saved an estimated €20 billion in borrowing costs because of the Greek crisis.
It would be cynical to suggest that Wolfgang Schäuble as finance minister has an interest in keeping the threat of Grexit alive (as he did again last week), but in terms of hard cash, he does. All of this has many implications but one of them is that, as Hamlet put it, the time is out of joint. There is a complete disjunction between what “now” means in Germany and in much of the rest of the European Union. Germany’s now is not Ireland’s now or Portugal’s now or Italy’s now. This is not a moment in European history – it is at least two parallel moments, one of loss and anxiety, one of economic and political triumph. And in this divergence something crucial is lost – a sense of history itself. When the present means such different things, the past loses its meaning too.
Fast forward to today, when Citi’s Guillaume Menuet repeats what Citi (and many others) said back then: without a debt haircut, Greece was doomed, is doomed, and explains “Why Greece’s Third Bailout Will Probably Fail (Eventually.)” The punchline of the analysis, as before, is that Greece desperately needs one simple thing to survive: a massive debt “haircut” and lots of it. In fact, far more than even the IMF (which now is also wearing its own tinfoil hat with honor) recommends and which eliminates between €110 and €130 billion (or 60%-72% of GDP) in debt. Citi’s thoughts:
The Euro Summit proposal does not include a clear commitment to debt restructuring, and essentially blames previous policy failures for Greece’s ‘insurmountable’ debt problems. It notes that “there are serious concerns regarding the sustainability of Greek debt. This is due to the easing of policies during the last twelve months, which resulted in the recent deterioration in the domestic macroeconomic and financial environment.” The proposal offers an agreement to consider ‘soft’ debt restructuring after the first positive assessment of the programme implementation, noting that “the Eurogroup stands ready to consider, if necessary, possible additional measures (possible longer grace and payment periods) aiming at ensuring that gross financing needs remain at a sustainable level”, and highlighting that “nominal haircuts on the debt cannot be undertaken”.
This position contrasts noticeably with that of the Greek government and the IMF. According to Greek PM Tsipras, the institutions had agreed to start discussing a reprofiling of Greek public liabilities this coming autumn, by ‘transferring’ to the ESM €27bn in ECB debt and €20bn in IMF debt. This process would have been conditional on full compliance with the bailout targets in the next few months (both in terms of budget and structural reforms). In an update of IMF staff’s preliminary debt sustainability analysis, the IMF concluded that an upfront debt relief agreement is needed because Greece’s public debt “has become highly unsustainable”.
The IMF noted that Greek public debt is projected to peak close to 200% of GDP by 2017, and to remain elevated (170% of GDP) by 2022, while pointing to considerable downside risks to these projections. The IMF calls for debt relief on a scale that would need to go well beyond what has been considered to date, noting three main options: i) a “dramatic” extension with grace periods of, say, 30 years on the entire stock of European debt (including new assistance), ii) explicit annual transfers to the Greek budget, or iii) deep upfront haircuts.
“The legal questions are by no means settled, but a leading decision of the Court of Justice of the EU on a related matter, the compatibility of ESM assistance with Art. 125 TFEU, gives some guidance.”
German finance minister Wolfgang Schäuble continues to emphasise that a Greek exit from the Eurozone would be the better option after agreement was reached at the Eurozone summit of 12 July. Schäuble stated that Greece’s debt could then be restructured, while a ‘debt cut is incompatible with membership of the currency union’. Indeed, as has been reported in the financial press, Berlin has signalled that ‘Germany would generously support Athens, including with a debt cut’ in the case of a Grexit. The problem with this logic is that it is based on a false premise: that there is one evidently correct interpretation of Art. 125 TFEU, and this interpretation prohibits debt relief of a Eurozone Member State. The legal questions are by no means settled, but a leading decision of the Court of Justice of the EU on a related matter, the compatibility of ESM assistance with Art. 125 TFEU, gives some guidance.
In Pringle, the Court explains that Art. 125 TFEU ‘is not intended to prohibit either the Union or the Member States from granting any form of financial assistance whatever to another Member State’. The Court therefore distinguishes between the assumption of an existing commitment and the creation of a new one. The latter is in line with the Treaty, ‘provided that the conditions attached to [the] assistance are such as to prompt that Member State to implement a sound budgetary policy.’ Thus, neither financial support in the form of a credit line or loans, nor purchases of government bonds on the primary market amount to the assumption of a Member State’s existing debts. Similarly, the purchase of bonds on the secondary market is not in breach of the no-bailout clause because the price paid is determined by the ‘rules of supply and demand on the secondary market of bonds’, i.e. the risk of default is presumably already priced in.
It is controversial whether Art 125 TFEU should be interpreted as literally as the quotes above seem to indicate. The Court itself in Pringle may be interpreted as raising some doubts when it mentions that under the ESM Treaty, ‘any financial assistance… must be repaid to the ESM by the recipient Member State and… the amount to be repaid is to include an appropriate margin’. However, it is clear from the judgment that the permissibility of assistance measures should be assessed against the objective of Art. 125 TFEU. The provision is intended to address the problem of moral hazard that arises when debts are mutualised by incentivising Member States to maintain budgetary discipline.
To achieve this aim, it is essential that the Member State is subject to market discipline ex ante, i.e. the market does not price government bonds on the basis of the expectation that the Member State will receive financial assistance when it experiences a liquidity crisis. On the other hand, whether the ESM is repaid in full, and whether it charges an appropriate margin, does not influence the expectations of the market and, hence, the incentives of Member States to maintain budgetary discipline before a liquidity crisis occurs.
Under Alexis Tsipras, Greece slid back into recession, sank deeper into debt and found itself pushed to the brink of bankruptcy. Then after rejecting one painful bailout deal, the radical left leader agreed to a new one with possibly just as harsh terms. It wouldn’t be surprising to find Greeks calling for his head by now. But the telegenic prime minister is more popular than ever – testament to how his defiance of Europe has struck a chord with a nation fed up with sacrifices imposed from outside. The 40-year-old has an approval rating of nearly 60%, more than 10 points clear of his closest rival – leading to speculation about a possible snap election in the fall. A weekend opinion poll suggested his hard-left SYRIZA party would win a landslide victory if elections were held today.
Many Greeks like Tsipras’s message of hope – even if his actions may be leading to a harder life. “People are under tremendous pressure,” said Aleka Tani, who sells robes to Greek Orthodox priests, “and they need to hear something positive.” Tsipras’s SYRIZA party was elected in January on a promise to end austerity, forming a coalition with the right-wing, anti-bailout Independent Greeks party – a move that broadened his political influence. As Greece’s economy tanked under his leadership, Tsipras’s own popularity only grew. And that appeal has not faded despite caving into demands for more austerity last week in exchange for a bailout that kept Greece within the eurozone. The U-turn at the eurozone summit in Brussels was in many ways baffling.
For it came after Tsipras pleaded with Greeks to reject European creditors’ original bailout proposal, in a referendum called by the prime minister himself. Days after a resounding “No” vote on more austerity, Tsipras agreed to a pact that will bring more brutal austerity for years to come. That might have been political suicide for any other leader. But Tsipras appears to have won Greek hearts with his tough talk against Europe – and a frank admission in parliament that he had accepted tough terms after making mistakes. Defending the deal, Tsipras also argued that he had not walked away from the eurozone summit empty-handed. His long-standing demand for some way to ease Greece’s whopping 320 billion euro ($347 billion) national debt is now being discussion by Europe’s policymakers.
Elias Nikolakopoulos, a leading Greek pollster, said that although it is still early to accurately gauge the depth of Tsipras’s popularity, his resilience may be partly due to Greeks seeing him fighting in their corner, doing what he can whether good or bad. “People say that at least he fought,” Nikolakopoulos said. He added that Tsipras’s portrayal of Greece rejecting the meddling of “foreigners” resonates among many Greeks.
Greek Prime Minister Alexis Tsipras tried to rally his leftwing Syriza party on Tuesday ahead of a vote in parliament on the second package of measures demanded by international creditors as a condition for opening talks on a new bailout deal. Tsipras has faced a revolt in the ruling Syriza party over the mix of tax hikes and spending cuts demanded by lenders but is expected to get the package through parliament with the support of pro-European opposition parties. Talking to Syriza officials on the eve of the vote, he said he aimed to seal the bailout accord, which could offer Greece up to €86 billion in new loans to bolster its tottering finances and ward off the threat of a forced exit from the euro.
“Up until today I’ve seen reactions, I’ve read heroic statements but I haven’t heard any alternative proposal,” he said, warning that party hardliners could not ignore the clear desire of most Greeks to remain in the single currency. “Syriza as a party must reflect society, must welcome the worries and expectations of tens of thousands of ordinary people who have pinned their hopes on it,” he said, according to an official at the meeting. Earlier government spokeswoman Olga Gerovasili said the government expected to wrap up bailout talks with the lenders by Aug. 20 with negotiations expected to begin immediately after Wednesday’s vote in parliament.
Officials from the creditor institutions, the Troika, are due in Athens on Friday for meetings with the government, Deputy Finance Minister Dimitris Mardas said. Wednesday’s vote in parliament follows a first vote last week on the so-called “prior actions” demanded of Greece as a condition before the start of full bailout talks. The bill was passed but a revolt by 39 Syriza lawmakers who refused to back the measures raised questions over the stability of the government, which came to power in January on an explicit anti-austerity platform.
Guy Verhofstadt, the senior MEP who lambasted Alexis Tsipras in Brussels last week, is on the Board of two companies due to gain from Greek energy privatisation…and is paid €190,000 a year by billionaire Nicolas Boël to lobby to that end. He has also been hawkishly anti-Putin over the Ukraine issue, where the Boël dynasty plotted régime change as a means of gaining valuable fracking contracts. Many of you will doubtless have seen this Youtube vitriol aimed at Tsipras by Belgian MEP Guy Verhofstadt:
He’s a pretty unpleasant and vindictively sarcastic bloke who wants régime change in Greece more than most. But Verhofstadt’s vomit-inducing mélange of acrimony and sanctimony left out one rather important element: a declaration by this corrupt bombast that he has a personal financial interest in hounding Syriza from office. You see, mijnheer Veryhighstink is on the Board of an energy company called Sofina. Sofina is quoted on the Brussels bourse – so, very handy for Guy – and yes indeed, here he is listed at Bloomberg:
If the Greek privatisation programme demanded by Verhofshit et al goes ahead, then shareholders in Sofina stand to make a lot of money as the shares sky rocket and earnings per share rise. Last February 24th, Go-getter Guy argued strongly for the Greek energy privatisation to be given priority. Tsipras and Varoufakis specifically blocked such a move. Now however, Sofina’s partner in crime GDFSuez is a front runner to win that privatisation contract. It’s a funny thing, but mijnheer Veryfat is very close to the Boël billionaire patriarch Nicolas, who owns 53.8% of Sofina. Let’s not beat about the bush here, Guy Verhofstadt is paid €130,000 a year to lobby for Nicolas Boël.
It gets worse, I’m afraid. Verhypocradt is also on the board of Belgian shipping company Exmar, which specialises in the exploitation and transportation of gas; it too stands to make a fortune from the fire-sale of Greece’s seabed gas finds. And blow me down with a Belgian windbag, Guy Verhofstadt is paid €60,000 a year to lobby for Exmar. I think we have to ask European Parliament Chair and fellow anti-Tsipras loudmouth Martin Schulz why his chum Verhofstadt didn’t declare these obvious interest conflicts before laying into Alexis Tsipras, the spotless Prime Minister of an EU sovereign State. Also what he is going to do about these revelations.
And while Martin Shutzstaffel is pondering the best wriggle-strategy out of that one, he might also care to look into some of the Belgian chocolate’s other hobby-horses…and the remarkable confluence they have with his business interests. For example, mijnheer Verhofstadt has been a passionate advocate of fast-tracking Ukraine into the EU. This is because the Boël family is determined to grab a slice of the big shale-fracking potential of the Ukraine: and again, they pay him to make things easier for them. The EU has been happy dealing with corrupt politicians and mobsters in Ukraine to this end, because Verhofstadt has argued that the needs justify the means.
“The Greek government proposes to bundle public assets into a central holding company to be separated from the government administration and to be managed as a private entity, under the aegis of the Greek Parliament, with the goal of maximizing the value of its underlying assets and creating a homegrown investment stream.”
On July 12, the summit of eurozone leaders dictated its terms of surrender to Greek Prime Minister Alexis Tsipras, who, terrified by the alternatives, accepted all of them. One of those terms concerned the disposition of Greece’s remaining public assets. Eurozone leaders demanded that Greek public assets be transferred to a Treuhand-like fund – a fire-sale vehicle similar to the one used after the fall of the Berlin Wall to privatize quickly, at great financial loss, and with devastating effects on employment all of the vanishing East German state’s public property. This Greek Treuhand would be based in – wait for it – Luxembourg, and would be run by an outfit overseen by Germany’s finance minister, Wolfgang Schäuble, the author of the scheme. It would complete the fire sales within three years.
But, whereas the work of the original Treuhand was accompanied by massive West German investment in infrastructure and large-scale social transfers to the East German population, the people of Greece would receive no corresponding benefit of any sort. Euclid Tsakalotos, who succeeded me as Greece’s finance minister two weeks ago, did his best to ameliorate the worst aspects of the Greek Treuhand plan. He managed to have the fund domiciled in Athens, and he extracted from Greece’s creditors the important concession that the sales could extend to 30 years, rather than a mere three. This was crucial, for it will permit the Greek state to hold undervalued assets until their price recovers from the current recession-induced lows.
Alas, the Greek Treuhand remains an abomination, and it should be a stigma on Europe’s conscience. Worse, it is a wasted opportunity. The plan is politically toxic, because the fund, though domiciled in Greece, will effectively be managed by the troika. It is also financially noxious, because the proceeds will go toward servicing what even the IMF now admits is an unpayable debt. And it fails economically, because it wastes a wonderful opportunity to create homegrown investments to help counter the recessionary impact of the punitive fiscal consolidation that is also part of the July 12 summit’s “terms.” It did not have to be this way.
On June 19, I communicated to the German government and to the troika an alternative proposal, as part of a document entitled “Ending the Greek Crisis”: “The Greek government proposes to bundle public assets (excluding those pertinent to the country’s security, public amenities, and cultural heritage) into a central holding company to be separated from the government administration and to be managed as a private entity, under the aegis of the Greek Parliament, with the goal of maximizing the value of its underlying assets and creating a homegrown investment stream. The Greek state will be the sole shareholder, but will not guarantee its liabilities or debt.”
Germany’s finance minister, Wolfgang Schauble, has drawn opprobrium and praise in equal measure for his suggestion that Greece takes a “time-out” from the eurozone. In proposing that Greece could be better off outside the euro, the irascible 72-year-old crossed a political rubicon: he confirmed that the single currency was “reversible” after all. But having broken the euro’s biggest taboo, commentators have now suggested that it should be Mr Schaeuble’s Germany, rather than Greece, that should now take the plunge and ditch the euro. Figures as esteemed as the former Federal Reserve chief Ben Bernanke used last week’s decision to press ahead with a new, punishing bail-out for Greece as an opportunity to remind Germany of its responsibilities to the continent.
Mr Bernanke took to his blog to highlight that Berlin’s excessively tight fiscal policy has helped scupper the euro’s dreams of prosperity and “ever-closer” integration between 18 disparate economies. In its latest assessment of Germany’s economic strength, even the IMF (seen in many German circles as chief disciplinarian against the errant Greeks) urged Berlin to carry out “more ambitious action… and contribute to global rebalancing, particularly in the euro area”. Germany’s record trade surplus is held up as the main symptom of its dangerously preponderant position in the eurozone. A measure of the economy’s position in relation to the rest of the world, Germany’s current account hit a euro-area record of 7.9pc or €215bn in 2014. It is now expected to hit more than 8pc of GDP this year, according to the IMF.
The persistently high surplus in part reflects the strength of Germany’s much-vaunted export industries. But other contributing factors are reasons for concern. The IMF has said such chronic imbalance also reflects a “reluctance by the corporate sector to invest more in Germany”. As Mr Bernanke also notes, the surplus puts “all the burden of adjustment on countries with trade deficits, who must undergo painful deflation of wages and other costs to become more competitive.” Southern economies such as Greece are chief victims of the cost of this adjustment. But as the chart below shows, with Germany in the bloc, the eurozone’s rebalancing act is going nowhere. The initial adjustment between debtor and creditor nations, which started in 2008, “has halted since 2012, and seems to be on the verge of reversing”, find Standard & Poor’s.
After promising up to €86 billion to finance a third bailout for Greece, the country’s creditors now just have to find the money. So far, the numbers don’t add up. The figures officially mentioned since Athens and other eurozone governments clinched a deal July 13 don’t square with the official statements of the signatories themselves. The reason is politics. The IMF, which contributed about a third of the funding of the two previous Greek bailouts in 2010 and 2012, has yet to say whether it will put fresh money into a third. The IMF won’t go in without debt relief. Eurozone governments won’t go in without the IMF, but want debt relief to be only “considered after the first positive completion of a review.”
Either someone has to give in, or Greece’s creditors must come up with a major fudge to square their impossible circle. The IMF can only lend to a country if it deems its debt sustainable. Asked on July 17 whether the deal agreed by Greece and its eurozone creditors a few days before would be viable without debt relief, IMF managing director Christine Lagarde said: “The answer is unequivocal: No.” Germany and a few other eurozone governments refuse to talk about debt relief for now. Chancellor Angela Merkel said in a lengthy interview Sunday on German public television that the only form of debt relief Berlin will consider is a re-profiling of Greece’s obligations by extending maturities and lowering interest rates.
Merkel pointed out that creditors have previously taken such measures to relieve Greece’s debt burden and are willing to do so again. But she stressed that such a step, as outlined in the deal reached last week with Greece, could only come if Athens passes its first bailout review, expected in November. “These steps are included in the mandate and we can discuss them, but only once Greece has successfully completed the initial review of its program, not now, only then,” Merkel said, reiterating her opposition to an upfront “haircut” on Greek debt. The chancellor was merely reiterating the European Council’s July 12 statement, but the fact that she took such a definitive stance on the issue in a primetime television interview suggests that she will not back down on this point.
At the same time, on the insistence of Germany and its closest eurozone allies, the same statement insists that the IMF contribution “is a pre-condition for the Eurogroup to agree on a new program.” The Fund was called in to take part in Greece’s financial rescue in 2010 on the insistence of Merkel, who thought the institution’s reputation would lend credibility to the conditionality attached to the bailout. So how do you find as much as €86 billion in this difficult context?
National Bank of Greece declined to buy bonds from the euro zone’s bailout fund in a sale on Tuesday because of Greece’s capital controls, bankers said, a sign of the country’s financial isolation. NBG is one of 39 dealer banks the European Stability Mechanism routinely uses to help distribute its bonds. The banks, called the Market Group, underwrite the bonds and sell them on to investors in a process known as syndication. Banks earn a flat fee plus any margin they make in the process. Sources at two dealer banks said that NBG declined when it was asked in an online chat forum to take part in Tuesday’s bond sale, citing the capital controls.
The bankers said it was very rare for dealer banks to decline an offer to participate. NBG was not available for comment. The ESM declined to comment. Greece reopened its banks on Monday, three weeks after closing to prevent a collapse of the country’s banking system in a flood of withdrawals, but capital controls remain in place and the Athens stock market has yet to reopen. The ESM — which is expected to increase its issuance of bonds this year to fund a third bailout for Greece – sold €2 billion of bonds maturing in October 2019 on Tuesday.
Greek Prime Minister Alexis Tsipras has asked Russian President Vladimir Putin for $10 billion in order to print drachmas, according to newspaper “To Vima.” The newspaper report cited Tsipras saying in his last major interview to Greek national broadcaster ERT that “in order for a country to print its own national currency, it needs reserves in a strong currency.” Moscow’s response was a vague mention of a 5-billion-dollar advance on the new South Stream natural gas pipeline construction that will pass through Greece. Tsipras also sent similar loan requests to China and Iran, but to no avail, the report said.
The idea of introduction of a new national currency was examined by technocrats and Greek Finance Ministry employees, who studied the model of Slovakia’s secession from Czechoslovakia in early 1993 and the introduction of the Slovak koruna, the report said. Tsipras was planning the return to the drachma since early 2015 and was counting on Russia’s help to achieve this goal. According to the report, Panos Kammenos, Yiannis Dragasakis, Yanis Varoufakis, Nikos Pappas, Panagiotis Lafazanis and other key coalition members were aware of his plan. In his first visit to Moscow, Tsipras condemned the EU policy in Ukraine and supported the referendum of east Ukraine seeking secession.
It was then that Germany realized Greece was prepared to shift alliances, something that would threaten the Eurozone cohesion. Tsipras was hoping that Germany would back down under that threat and offer Greece a generous debt haircut. At the time, Tsipras had the rookie ambition that he could change Europe, the report continued. It also spoke of a “geopolitical matchmaking” as Tsipras was introduced to Leonid Resetnikof, Director of the Russian Institute of Strategic Studies, before the European Parliament elections in May 2014. The introduction was made by Professor of Russian Studies Nikos Kotzias, who later cashed in on his services by getting the chair of Foreign Affairs Minister.
The July 5 referendum was a test for Tsipras to see what the Greek people were thinking about Europe and the Eurozone. However, on the night of the referendum, word came from Russia that Putin did not want to support Greece’s return to the drachma. That was confirmed the days that followed. After that, Tsipras had no choice left but to “surrender” to German Chancellor Angela Merkel and sign the third bailout package. The report created a stir and led 17 New Democracy MPs to send a letter to Tsipras, asking if any of the allegations are true.
“We are both heading for the cliff. Who jumps first is the chicken” were the famous last words of James Dean’s opponent in the classic movie “Rebel Without A Cause” The game of chicken is a standard model of conflict for two players in game theory. While game theorist and sometime finance minister Yanis Varoufakis has drawn all the attention for his ‘chicken’ negotiating approach, the real champion of this game of chicken has turned out to be Germany’s finance minister Wolfgang Schäuble. Many observers of the Greek crisis agree that it was Schäuble’s detailed Grexit proposal that forced Alexis Tsipras, who took over in this game from his co-pilot Varoufakis, to finally surrender and jump.
Although many observers expected that Angela Merkel and Wolfgang Schäuble would have been feted for their victory upon their return to Berlin, the exact opposite has been the case. The tersest reaction came from Thomas Strobl, vice chairman of the Christian Democrats (CDU) and Schäuble’s son-in-law. Prior to the CDU’s steering committee meeting after the euro summit last Monday he said: “The Greek has now annoyed long enough.” While Strobl has since been heavily criticised for this remark, this chauvinistic attitude does reflect strongly the sentiment of many people in Germany and in Strobl’s party in particular.
This ‘friend or foe’ thinking is back in vogue in Europe and it dominates the public debate in Germany. For weeks major German media outlets, including Bild-Zeitung and Die Welt have promoted this perception. This week Der Spiegel ran a story headlined “Our Greeks – Getting closer to a strange people” together with a political cartoon of a Greek man dancing with a glass of Ouzo and a bunch of Euros next to a betrayed looking German tourist. The polarisation of the debate since the last crisis summit on Sunday has divided the rhetorical battlefield in Germany into two major camps. In this bizarre zero-sum contest you can either be “for Greece and against Germany” or “for Germany and against Greece”.
The antagonistic attitude has been internalised by the government, the political parties, and public opinion, too. The most depressing aspect of this debate has been the combination on each side of a startlingly narrow-minded perspective on the political problems and a puzzling resistance to acknowledging the plains fact that Greece’s problems are inextricably part of the Eurozone’s own longstanding troubles.
In an article which was published on Saturday in EfSyn (and translated by ThePressProject International), the former Finance Minister, Y.Varoufakis attempts to explain the reasons why he voted NO to the prior actions deal that the government brought to the parliament.
I decided to come into politics for one reason: to support Alexis Tsipras in his fight against debt serfdom. On his behalf, Alexis Tsipras honoured me in conscripting me for one reason: a particular understanding of the crisis based on the rejection of the Papakonstantinos dogma; namely, the view that given a choice between anarchic bankruptcy and toxic loans, the latter is always preferable. It is a dogma I rejected as being a standing threat, which helped enforce policies that guarantee permanent bankruptcy and, eventually, lead to debt serfdom. On Wednesday night, I was asked in the parliament to choose between (a) espousing the aforementioned dogma by voting in favour of the document that our “partners” imposed on Alexis Tsipras in the Euro Summit by putschist means and unimaginable aggression, or (b) say “no” to my Prime Minister.
The Prime Minister asked us “Is the blackmail real or make-belief?”, expressing the hideous dilemma that would burden all in everyone’s own consciousness – his too. Clearly, the blackmail was real. Its “reality” first hit me when on the 30th of January, J.Dissjenbloem visited me in my office to present me with the dilemma memorandum or closed banks . We knew from the beginning just how merciless the lenders would be. And yet we decided on what we kept repeating to each other during those long nights and days at the PM’s headquarters: “We are going to do all it takes to bring home a financially viable agreement. We will compromise but not be compromised. We will step back just as much as is needed to secure an agreement-solution within the Eurozone.
However, if we are defeated by the catastrophic policies of the memorandum we shall step down and pass on the power to those who believe in such means; let them enforce those measures while we return to the streets.” The Prime Minister asked on Wednesday Is there an alternative? I estimate that, yes, there was. But I shall not dwell on that now. It is not the appropriate time. What is important is that on the night of the referendum the Prime Minister was determined that there was no alternative course of action. And that is why I resigned, so that I would facilitate his going to Brussels and coming back with the best terms he could possibly deliver. But that does not mean that we would be automatically committed to enforcing those measures no matter what they were!
Germans aren’t too keen on paying off Greek debts. It’s a good thing that U.S. taxpayers don’t have that hang-up. Most Americans aren’t aware that their states have made similar bargains—protection from economic fallout in exchange for helping the federal government prop up weaker states when they need it. Billions of dollars flow from wealthier to less well-off states. The oft-cited strategic problem with the euro zone is that while European countries bound themselves together in a monetary union, they didn’t do much to give the combined entity power over fiscal decisions. That prevents the easy flow of liquidity and means that although EU countries will effectively sink or swim together, each country is alone in making budget decisions and in dealing with fiscal emergencies when they arise.
At the same time, a country can’t make traditional economic maneuvers like devaluing their currency when they get in trouble. But just as in Europe, some U.S. states end up taking more and some states end up giving more. So which state is our Greece? It changes, but based on average figures from 2011 to 2014 for federal tax payments and funding outlays to the states, our North Dakota takes the prize. The state received nearly 71% of its entire GDP in federal funding on average over the past four years—and almost $50 billion more than the state contributed in taxes last year, according to the Internal Revenue Service. That probably feels like a bad deal for nearby Minnesota and Kansas, which together paid about that amount more in taxes than they received—around 13% of their GDPs.
And what about Germany and the fiscally sound countries of Northern Europe? California, Texas and New York together paid out almost $345 billion more than they received in 2014, but as a%age of GDP, Delaware is the most generous. The tiny state paid an average of $20.5 billion, or 20.8% of its GDP over the past four years, to the Feds to be redistributed among its needy neighbors, according to the IRS. Perhaps economic unity is a small price to pay for peace of mind—Delaware could be the new Greece the next time around.
“..the debt-laden nation has been slow to embrace generics is that the country has traditionally had low prices for branded drugs relative to the rest of Europe, and relatively high ones for generics..”
Here’s a simple way to prune Greece’s debt load: use fewer brand-name drugs. The land of Hippocrates taps fewer generic medicines (and reaps lower savings) than any other European nation at the moment. Not ideal for a country negotiating its third bailout. Greek pharmacies last year continued to dispense a majority of branded medicines from overseas, according to data from IMS Health, which tracks drug consumption. Novartis’s Diovan, which keeps blood vessels from narrowing, and Pfizer’s cholesterol-buster Lipitor still dominate, years after their expired patents opened the door for generics. That’s because Greece doesn’t require doctors to prescribe cheaper alternatives, according to Per Troein, IMS’s vice president of strategic partners.
The branded drug dominance is hobbling authorities’ efforts to comply with the terms of the last rescue. “If they’re going to save money, they need to have prescription guidelines,” Troein said by phone. “The first-line treatment in many cases should be an off-patent product.” Diovan, for instance, accounted for 82% of prescriptions in the fourth quarter, according to IMS. By contrast, the medicine makes up only 4% of pharmacy sales in Germany after it lost patent protection in Europe four years ago. The Lipitor original commands 29% of the market in Greece, compared with just 5% in Germany. Lipitor, which went off patent in 2012, costs about €11.51 for a pack of 14 tablets of 40 milligrams each in Greece, 27% more than the generic version, IMS data show.
Diovan costs about €7.22, or 48% more than the generic, for a pack of pills that are 320 milligrams each. Even so, branded drugs account for 51% of medicines dispensed in Greece, the most among 20 European countries studied by IMS in a report published last month. The daily treatment cost in Greece for seven key drug classes is the third-highest in Europe, behind Switzerland and Ireland, the IMS data show. Panagiotis Kouroumplis, who became health minister after the Syriza party came to power this year, blames drugmakers. He was among the cabinet ministers to retain his position after Greek Prime Minister Alexis Tsipras last week replaced officials who rejected austerity measures needed to appease creditors.
“Efforts to increase the penetration of generics in the Greek market did not yield fruit mainly because of the fact that the interests of the pharmaceutical companies which promote the brands are very powerful,” Kouroumplis said in an e-mailed response to questions earlier this month. Medicines are one of Greece’s biggest imports, alongside fuel, cars and electronics. Foreign-made drugs make up about 88 percent of Greece’s pharmaceutical market, according to IMS. Part of the reason the debt-laden nation has been slow to embrace generics is that the country has traditionally had low prices for branded drugs relative to the rest of Europe, and relatively high ones for generics, according to Troein.
EU member states have fallen short of their own target to relocate 40,000 migrants from Greece and Italy in clear need of international protection. On Monday, the member states agreed to the relocation of 32,256 refugees, starting in October, which is 20% lower than the agreed goal. They also committed to the future resettlement of 22,504 refugees, although the target of 20,000 was met only thanks to “the readiness of [non-EU members] Iceland, Liechtenstein, Norway and Switzerland to participate in this effort through multilateral and national schemes”, according to the Council of the European Union meeting notes. The total falls short of the combined 60,000 target that was agreed at a summit at the end of June after hundreds of migrants died while attempting to cross the Mediterranean from Libya.
However, EU states at the time were unable to agree how to apportion the figure between countries as most disagreed with the European commission’s proposed distribution. Germany, France and the Netherlands, which are taking on the highest number of refugees, are in favour of the allocations the commission proposed earlier this year. However, most other states are not – and have refused to meet the figures suggested. For example, Spain has committed to 1,300 refugees, more than three times lower than the number the EU requested. The commitments of Baltic and several eastern European nations also fall well short. Latvia is proposing to take in only 200 asylum seekers, fewer than half of what the commission originally suggested.
While Slovakia is offering to take 100 refugees, which is fewer than Cyprus (173), a country with a population nearly five times smaller than that of the eastern European country. Lithuania has pledged to take 255 refugees, fewer than Luxembourg despite the Baltic country’s population being about six times larger. At the June summit, the Lithuanian president, Dalia Grybauskaité, had told Matteo Renzi, the prime minister of Italy, that she had no intention of contributing to any solution. Renzi accused government chiefs of wasting time and was said to reply: “If this is your idea of Europe, you can keep it.”
Thousands of desperate migrants are camping out on roundabouts amid squalid camps overflowing with rubbish on the Greek holiday islands of Lesbos and Kos. Around 5,000 people have arrived in Lesbos in the past few days and many are forced to sleep outside amid broken glass and piles of rubble without access to water, shelter, toilets or medical care. Shocking images taken at the official Moria camp near the main town of Mitlini show filthy and overflowing latrines strewn with discarded plastic bottles and tents perched next to piles of rubbish. Conditions at the unofficial Kara Tep camp, which has been heaving with up to 2,000 new arrivals in recent days, are similarly dire, with people camping out on roundabouts, puddles of unclean stagnant water and migrants forced to boil water on fires using discarded Coke cans.
The pictures have been released by Médecins Sans Frontières/Doctors Without Borders (MSF), which has emergency teams in Lesbos and Kos – the only two Greek islands with capacity to receive migrants, the majority fleeing war and persecution in Syria, Afghanistan and Iraq. MSF emergency coordinator in Lesbos, Elisabetta Faga, told MailOnline from the island: ‘There are people sleeping on bits of paper and using nets meant to collect olives to try and make a sort of shelter. ‘The camps are not clean. When they are busy, just like in a discotheque when you have 2,000 people who haven’t showered, the smell is not very good. ‘The municipality makes some effort to clean but it is very difficult to do the maintenance, cleaning the rubbish the latrines and the showers.
‘During June something like 15,000 people arrived on the island. It’s very difficult for Lesbos to receive these sorts of numbers. They come from many different countries and cultures. ‘Everybody is struggling and the authorities are trying to do something but we need to remember this is Greece so they are overworked already.’ Ms Faga has been on the island two weeks and the first day of her arrival she joined a small team checking up on migrants making the 70km (43 mile) walk in baking heat from arrival points on the north coast to the registration centre in Mitilini.
The head of New Jersey largest public employee union said Monday he will not negotiate any pension reforms with Governor Chris Christie, a Republican who rose to national prominence on claims he had “fixed” the state’s pension system. Four years later, Christie finds himself unable to make scheduled payments into the retirement system and saying, as a spokeswoman put it on Monday, that the system remains “broken and unaffordable.” But Wendell Steinhauer, president of the New Jersey Education Association, said he and his members “will not concede one inch to this governor.” “He’s dishonest, unreliable and hopelessly incapable of good-faith negotiations,” Steinhauer said in a fiery, six-paragraph statement.
“He’s consistently lied about his pension funding intentions, and he’s yet to live up to the promises he’s already made. The ball is in his court to fund the pensions according to the law he signed. We will not negotiate against ourselves.” After a lengthy and bitter battle with unions, Christie signed a reform package into law in 2011 that boosted contributions from public employees and slashed cost-of-living adjustments, but said the state would start making annual contributions to the fund. Christie hailed the deal for years, even talking about it in his 2012 keynote speech at the Republican National Convention. But the fiscal situation in New Jersey did not turn out as expected, and this year, Christie found himself unable to keep up with the payments.
As he prepared to launch his presidential campaign, the governor won a state Supreme Court case last month that allowed him to skip a $1.57 billion pension payment and balance the budget. Spokeswoman Nicole Sizemore said Monday the teacher’s union needs to recognize the reality the state is facing. “The simple fact is this: the average NJEA member contributes $186,000 to their pension and health benefit costs over 30 years and takes out $2.5 million in benefits,” Sizemore said. “The math does not work and all the name calling in the world by NJEA leadership won’t change that fact.”
In the face of worsening ecological and economic crises and continuing social deprivation, the last two decades have seen two broad trends emerge among those seeking sustainability, equality and justice. First there are the green economy and sustainable development approaches that dominate the upcoming Paris climate summit and the post-2015 sustainable development goals (SDGs). To date, such measures have failed to deliver a harmonisation of economic growth, social welfare and environmental protection. Political ecology paradigms, on the other hand, call for more fundamental changes, challenging the predominance of growth-oriented development based on fossil fuels, neoliberal capitalism and related forms of so-called representative democracy.
If we look at international environmental policy of the last four decades, the initial radicalism of the 1970s has vanished. The outcome document of the 2012 Rio+20 Summit, The Future We Want, failed to identify the historical and structural roots of poverty, hunger, unsustainability and inequity. These include: centralisation of state power, capitalist monopolies, colonialism, racism and patriarchy. Without diagnosing who or what is responsible, it is inevitable that any proposed solutions will not be transformative enough. Furthermore, the report did not acknowledge that infinite growth is impossible in a finite world. It conceptualised natural capital as a “critical economic asset”, opening the doors for commodification (so-called green capitalism), and did not challenge unbridled consumerism.
A lot of emphasis was placed on market mechanisms, technology and better management, undermining the fundamental political, economic and social changes the world needs. In contrast, a diversity of movements for environmental justice and new worldviews that seek to achieve more fundamental transformations have emerged in various regions of the world. Unlike sustainable development, which is falsely believed to be universally applicable, these alternative approaches cannot be reduced to a single model. Even Pope Francis in the encyclical Laudato Si’, together with other religious leaders like the Dalai Lama, has been explicit on the need to redefine progress: “There is a need to change ‘models of global development’; […] Frequently, in fact, people’s quality of life actually diminishes […] in the midst of economic growth.
In this context, talk of sustainable growth usually becomes a way of distracting attention and offering excuses. It absorbs the language and values of ecology into the categories of finance and technocracy, and the social and environmental responsibility of businesses often gets reduced to a series of marketing and image-enhancing measures.” But critique is not enough: we need our own narratives. Deconstructing development opens up the door for a multiplicity of new and old notions and world views. This includes buen vivir (or sumak kawsay or suma qamaña), a culture of life with different names and varieties emerging from indigenous peoples in various regions of South America; ubuntu, with its emphasis on human mutuality (“I am because we are”) in South Africa; radical ecological democracy or ecological swaraj, with a focus on self-reliance and self-governance, in India; and degrowth, the hypothesis that we can live better with less and in common, in western countries.