Oct 042019
 


Paul Gauguin Breton woman 1886

 

Ignore The Hype — This Is Not An Impeachment Inquiry (McCarthy)
Trump Dares Pelosi To Hold Impeachment Inquiry Vote (ZH)
Joe Biden Sprang Into Action When Ukraine Prosecutor Came After His Son (MoA)
Trump Approval Climbs To Highest Level Of 2019 Amid Impeachment Inquiry (Hill)
Weakening The Dollar Is The Last Hope For The Global Economy – Saxo (CNBC)
Fed Policymakers ‘Open’ To Rate Cut As Risks To Outlook Rise (R.)
America’s Manufacturing Industry Is In Contraction (CNN)
Boris Has Destroyed What Is Left Of UK’s Credibility (Fintan O’Toole)
Hong Kong Leader Carrie Lam Invokes Emergency Powers, Bans Face Masks (CNBC)
UK Wildlife Species Dying Out, Many Will Soon Vanish (Ind.)

 

 

“What is portrayed as an “impeachment inquiry” is actually just a made-for-cable-TV political soap opera.”

Pelosi claims she can call a House impeachment inquiry without a House vote, and totally ignore Republican House members while she’s at it. That smells of prorogation.

The courts will have to decide this one. And that may take all the way to the 2020 election. Which the Dems think suits them just fine.

Ignore The Hype — This Is Not An Impeachment Inquiry (McCarthy)

There is no impeachment inquiry. There are no subpoenas. You are not to be faulted if you think a formal inquest is under way and that legal process has been issued. The misimpression is completely understandable if you have been taking in media coverage — in particular, reporting on a haughty Sept. 27 letter from House Democrats, presuming to direct Secretary of State Mike Pompeo, on pain of citation for obstruction, to cooperate in their demands to depose State Department officials and review various records. The letter is signed by not one but three committee chairmen. Remember your elementary math, though: Zero is still zero even when multiplied by three. What is portrayed as an “impeachment inquiry” is actually just a made-for-cable-TV political soap opera.

The House of Representatives is not conducting a formal impeachment inquiry. To the contrary, congressional Democrats are conducting the 2020 political campaign. The House has not voted as a body to authorize an impeachment inquiry. What we have are partisan theatrics, proceeding under the ipse dixit of Speaker Nancy Pelosi (D-Calif.). It raises the profile, but not the legitimacy, of the same “impeachment inquiry” House Judiciary Committee Chairman Jerrold Nadler (D-N.Y.) previously tried to abracadabra into being without a committee vote. Moreover, there are no subpoenas. As Secretary Pompeo observed in his fittingly tart response on Tuesday, what the committee chairmen issued was merely a letter.

Its huffing and puffing notwithstanding, the letter is nothing more than an informal request for voluntary cooperation. Legally, it has no compulsive power. If anything, it is rife with legal deficiencies. The Democrats, of course, hope you don’t notice that the House is not conducting a formal impeachment inquiry. They are using the guise of frenetic activity by several standing committees — Intelligence, Judiciary, Foreign Affairs, Oversight and Reform, Financial Services, and Ways and Means — whose normal oversight functions are being gussied up to look like serious impeachment business. But standing committees do have subpoena power, so why not use it? Well, because subpoenas get litigated in court when the people or agencies on the receiving end object. Democrats want to have an impeachment show — um, inquiry — on television; they do not want to defend its bona fides in court.

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“.. the White House is planning to send Nancy Pelosi a letter as soon as Friday arguing that President Trump and his team can ignore lawmakers’ demands until she holds a full House vote..”

Trump Dares Pelosi To Hold Impeachment Inquiry Vote (ZH)

Why do Republicans want a vote, besides have Democrats – especially those in states won by Trump – be put on the record? Because, as RealClearPolitics explains, holding a formal vote on impeachment would allow Republicans to subpoena documents and witnesses and investigate all the revelations surrounding the whistleblower’s complaint about Trump’s interactions with Ukraine, as well the roles of Joe Biden and his son Hunter in Ukrainian corruption allegations. “Republicans would have the opportunity to get information from all sources and get it on the table,” Cleta Mitchell, a conservative political law attorney, told RealClearPolitics. “The process they are proceeding under through their committee attorney means they are the only ones who have the rights to gather information.”

[..] Which brings us to late on Thursday, when Trump himself figured out that his position would be strengthened by having a formal vote, because according to Axios, the White House is planning to send Nancy Pelosi a letter as soon as Friday arguing that President Trump and his team can ignore lawmakers’ demands until she holds a full House vote formally approving an impeachment inquiry. In addition to the above considerations, Axios notes that by putting in writing the case that Trump and his supporters have been making verbally for days, “the White House is preparing for a court fight and arguing to the public that its resistance to Congress’ requests is justified.”

Trump wants to force House Democrats in vulnerable races to be on the record if they favor pursuing impeachment, these sources tell us. Republicans also say the minority party can exert more influence over hearings and other aspects of an inquiry once it is formalized with a vote. By calling this an inquiry without holding a vote, Pelosi and the Democratic committee chairmen are having it both ways, one official said. “They want to be a little bit pregnant.” A letter could be filed as soon as Friday, because according to Axios sources, several White House lawyers spent a good chunk of their Thursday reviewing the language in the letter, expecting that it could find its way before a judge.

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The MSM story that Shokin was corrupt seems to be falling apart. Biden’s defense for demanding him gone is that many voices said so. Yeah, the likes of Pyatt and Nuland, the architects of the Maidan coup.

Joe Biden Sprang Into Action When Ukraine Prosecutor Came After His Son (MoA)

After the U.S. sponsored Maidan coup in 2014 then Vice President Joe Biden led the Ukraine policy of the Obama administration. His campaign against prosecutor general Shokin started in September 2015: “[The U.S. ambassador at the time, Geoffrey] Pyatt kicked off the effort with a speech on Sept. 24, 2015 in which he blasted Shokin for “openly and aggressively undermining reform” and having “undermined prosecutors working on legitimate corruption cases.” In testimony to the Senate Foreign Relations Committee on Oct. 8, Nuland declared: “The Prosecutor General’s Office has to be reinvented as an institution that serves the citizens of Ukraine, rather than ripping them off.”


Biden followed up with a visit to Kiev in December. On Dec. 7, he held a news conference with Poroshenko and announced $190 million to “fight corruption in law enforcement and reform the justice sector.” He made no public mention of the loan guarantee, but behind the scenes he had explicitly linked the $1 billion loan guarantee to reform efforts, including removing Shokin, according to Colin Kahl, Biden’s national security adviser at the time. A day after the news conference, he addressed the Ukrainian parliament and decried the “cancer of corruption” in the country. “The Office of the General Prosecutor desperately needs reform,” he noted.

Biden next met on Jan. 20 with Poroshenko on the sidelines of the World Economic Forum in Davos, Switzerland, when he also pressed “the need to continue to move forward on Ukraine’s anti-corruption agenda,” according to a White House statement.

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Backdraft.

Trump Approval Climbs To Highest Level Of 2019 Amid Impeachment Inquiry (Hill)

President Trump’s approval ticked up to 49 percent – its highest mark this year, according to a new Hill-HarrisX survey released on Wednesday. The figure marks a 2-point increase from a Sept. 11-12 poll, but a 2-point decrease from its previous peak of 51 percent in August 2018. Trump’s disapproval rating, meanwhile, dropped to 51 percent, which marks his lowest level so far this year. The nationwide survey was conducted on Sept. 28 and 29, less than a week after House Democrats launched a formal impeachment inquiry into Trump over concerns raised in a whistleblower’s complaint about the president’s communications with Ukraine.


House Democrats threatened Wednesday morning to subpoena the White House for documents related to Trump’s dealings with Ukraine as part of their impeachment inquiry. House Oversight Committee Chairman Elijah Cummings (D-Md.) said in a memo that House committees have repeatedly tried to obtain voluntary compliance from Trump officials, but the White House has “refused to engage with – or even respond to – the Committees.” Speaker Nancy Pelosi (D-Calif.) and House Intelligence Committee Chairman Adam Schiff (D-Calif.) held a joint news conference later that morning, warning that attempts by the White House to “stonewall” the impeachment inquiry and “conceal facts” would be considered an obstruction of justice.

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Wait, isn’t that what Trump is after?

Weakening The Dollar Is The Last Hope For The Global Economy – Saxo (CNBC)

Weakening the dollar is the last throw of the dice in rescuing the global economy, according to Saxo Bank’s Steen Jakobsen. In the online trading and investment specialist’s outlook report for the fourth quarter, published Thursday, Jakobsen said 2019 will most likely be remembered as the year that kickstarted a global recession, despite the lowest ever nominal and real interest rates. “Monetary policy has reached the end of a very long road and has proven a failure,” Jakobsen, who is the chief economist and CIO at Saxo Bank, added. The U.S. Federal Reserve in September made a second 25 basis point cut to interest rates, moving to a range of 1.75% to 2%. Its initial 25 basis point reduction in July was the central bank’s first rate cut since the financial crisis.

The European Central Bank (ECB), meanwhile, recently unveiled a package of measures to reinvigorate the euro zone economy, cutting its deposit rate by 10 basis points to -0.5% and launching a massive new quantitative easing (QE) program. A host of other central banks across the world have also embarked on dovish policy shifts. Fears for the global economy have been exacerbated of late by the weakest manufacturing data out of the U.S. for over a decade, which compounded already fragile readings from across the euro zone and beyond. “In a global system of failed monetary policies and a long and difficult path to fiscal policy, there is only one other tool left in the box for the global economy and that is lower the price of global money itself: the U.S. dollar,” Jakobsen said.

The outlook report pointed to an estimated $240 trillion of debt worldwide, roughly 240% of global GDP, and argued that too much of this debt is denominated in dollars, due to the greenback’s role as global reserve currency and the deep liquidity of U.S. capital markets. This means the prospects for all asset classes have become a function of U.S. dollar liquidity and direction, Saxo Bank economists suggested. “If the dollar rises too much, the strain in the system increases: not only for U.S. exports, but also for the emerging market with its high dependence on USD funding and export machines,” Jakobsen said.

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End the Fed.

Fed Policymakers ‘Open’ To Rate Cut As Risks To Outlook Rise (R.)

Two Fed policymakers on Thursday signaled they are open to delivering another rate cut after a report showed the growth in the vast U.S. services sector is slowing, but the Fed’s No. 2, speaking late in the day, gave little away on his own thinking. The Fed “will act as appropriate to sustain a low unemployment rate and solid growth and stable inflation,” Fed Vice Chairman Richard Clarida said in New York, repeating a phrase Fed Chair Jerome Powell has used ahead of meetings when the Fed did cut rates, as well as in June, when it didn’t. The U.S. consumer and economy are in a “good place,” and the U.S. labor market is “very healthy,” Clarida said. At the same time, risks include slowing global growth, uncertainty over trade, and persistent low inflation overseas, all of which impact the U.S. economy.


“We have eight meetings a year, we take them one at a time. We are not on a preset course,” he said. Clarida’s circumspect comments came at the end of a day where traders bid up expectations of two more Fed rate cuts this year after the Institute for Supply Management (ISM)’s non-manufacturing activity index dropped to its lowest reading since August 2016. Separate data earlier in the week showed an index of U.S. factory activity contracting to its lowest level in more than a decade. The reports may signal that a slide in exports, business sentiment and business investment is spreading to the consumer, whose spending accounts for the bulk of the $20 trillion U.S. economy.

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Gee, that’s surprising. Service economy, right?

America’s Manufacturing Industry Is In Contraction (CNN)

America’s manufacturing industry is in contraction. Business spending is soft. And now the biggest chunk of the economy, the US service sector, is growing at its weakest pace in three years. Recession fears were reinforced on Thursday after the Institute for Supply Management said its non-manufacturing index dropped to 52.6 last month, down from 56.4 in August. This barometer of growth among service providers such as banks, restaurants and hotels is now at the lowest level since August 2016. Businesses expressed concern about tariffs, a shortage of workers and the direction of the economy, ISM said.


Although the service sector is still expanding, the gloomy report raises concern that America’s manufacturing troubles are spilling over into the broader economy. Slammed by the trade war, US manufacturing activity dropped deeper into contraction in September, the most sluggish month for factories since June 2009. “The weakness in manufacturing has now infected the services side of the US economy,” Peter Boockvar, chief investment officer at Bleakely Advisory Group, wrote in a note to clients on Thursday.

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The EU is talking about unilaterally declaring a Brexit extension.

Boris Has Destroyed What Is Left Of UK’s Credibility (Fintan O’Toole)

When Boris Johnson described his long-awaited proposals for changes to the Brexit withdrawal treaty as a compromise, he was not wrong. Two questions arise, however. What is being compromised? And who is Johnson compromising with? The answer to the second is obvious: the proposals are a compromise, not with the EU, but with the DUP. And what is being compromised is the credibility of the UK as a partner in any international negotiations. Though the EU and the Irish government are too polite to say so directly, Johnson’s plan destroys any remaining sense that the current regime in London is capable of sticking even to its own self-declared principles.

Ever since its victory in the referendum of June 2016, the Brexit project has been dogged by its inability to transcend its own origins. The referendum was always driven by the internal politics of the Conservative Party. Its purpose, from the point of view of the man who called it, David Cameron, was to silence the increasingly turbulent anti-EU faction in his own party and see off the threat of Nigel Farage. And it has never been able to move on from being an internal negotiation to being an external one. The only thing that has really changed is that “internal” Tory politics came, after the 2017 election, to include the DUP.

And so here we are again. Political compromise is about two sides with different agendas meeting each other half way. It is easy to see why Johnson might be sincere in thinking he has achieved this – but only if the two sides are Johnson himself with his need to look like he is coming up with some vaguely credible alternative to the backstop and the DUP with its “blood red line” of Northern Ireland leaving the EU on exactly the same terms as the rest of the UK.

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A 1922 law, right? Nothing much changed in the territory since then?

Hong Kong Leader Carrie Lam Invokes Emergency Powers, Bans Face Masks (CNBC)

Hong Kong leader Carrie Lam on Friday invoked emergency powers and banned face masks, saying the order goes into effect on Saturday, Oct. 5. Consequences for breaking the ban include up to one year in jail and a fine of $25,000 Hong Kong dollars ($3,187). In a press conference, Lam explained that the face mask ban was necessary because “almost all protesters who carry out vandalism and violence covered their face.” “The purpose was to hide their identity and evade the law and they have become more and more daring,” Lam said. She noted, however, that the mask ban contains certain exemptions “to cater for legitimate needs.”


Face masks have become ubiquitous in the city after the 2003 SARS outbreak. The disease killed 298 people in Hong Kong, according to World Health Organization data. Hong Kong’s parliamentary body, the Legislative Council, will discuss the legislation on Oct. 16 when it resumes session, Lam said. The Hong Kong leader said the decision was made after she called a special meeting of the Executive Council, which decided to invoke the Emergency Regulations Ordinance. Lam explained that the government believes the regulation will have a “deterrent effect” against violent behavior and help police officers carry out their duties. Under the 1922 law, the chief executive is allowed to “make any regulations whatsoever which he may consider desirable in the public interest.”

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Study since 1970. But more of the damage had already been done before that.

UK Wildlife Species Dying Out, Many Will Soon Vanish (Ind.)

The UK’s wildlife is dying out and many species will go extinct if urgent action is not taken, according to the latest State of Nature report, which draws on scientific monitoring since the 1970s. Leading professionals from more than 70 wildlife organisations have joined government agencies to create the comprehensive report, which warns wildlife declines continue “unabated”. Among thousands of mammal and plant species assessed, 15 per cent are threatened with being lost from Britain, including wildcats and greater mouse-eared bats. More than two-fifths of UK species including animals, birds and butterflies have seen significant declines in recent decades, the study found.


Since 1500 around 133 species have already vanished from Britain’s shores, including birds such as the wryneck and serin, which were lost as breeding birds in the 20th century. Dr Daniel Hayhow, lead author on the report and conservation scientist at RSPB, said: “We know more about the UK’s wildlife than any other country on the planet, and what it is telling us should make us sit up and listen. “We need to respond more urgently across the board if we are to put nature back where it belongs.” Data on nearly 700 species of land, freshwater and sea animals, fish, birds, butterflies and moths reveals 41 per cent have seen populations decline since 1970, while 26 per cent have increased.

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Aug 022019
 


Pablo Picasso Bathers with a toy boat 1937

 

The Giant Sucking Sound of Financial Repression (WS)
Dutch Bank ING Warns Against Further ECB Money Printing (R.)
Trump’s $300 Billion China Tariff Threat Sends Markets Into Tailspin (G.)
Rate Cut Odds Surge After Tariff Announcement (ZH)
US Tariffs Risk Reviving Chinese Zombies (R.)
The EU Has New People In Charge. It’s Not Good News For US Tech Firms (CNBC)
EU Governments Seek Name For IMF Head (R.)
Boris Johnson’s Commons Working Majority Cut To One (BBC)
Expecting Ireland To Be Servile Is Part Of A Long British Tradition (G.)
Irish Peace Is Too Precious To Be Squandered By The Brexit Ultras (G.)
Boeing To Change 737 MAX Flight-Control Software To Address Flaw (R.)
Rachel Maddow Ratings Tank After Collusion Narrative Implodes (Ryan)

 

 

The war on savings and pensions continues unabated. Central banks are in so deep there’s no way out anymore. But what happens when you want to, or have to, retire?

The Giant Sucking Sound of Financial Repression (WS)

It’s called interest-rate repression. Or more poetically, financial repression. It’s where central banks manipulate interest rates down to where investments with little credit risk, such as Treasury securities, FDIC-insured savings accounts and CDs, pay little or no interest, or pay less interest than the rate of inflation. People such as savers and retirees, and institutions such as pension funds, that depend on this cash flow have lost their income stream. In addition, the purchasing power of their principal is getting gradually wiped out by inflation. How much money are we talking about? In the US alone, this interest rate repression impacts nearly $40 trillion. This includes savings products, Treasury securities, municipal bonds, and high-grade corporate debt.

$40 Trillion with a T. A 2% reduction across the board cuts this income by $800 billion a year. And this has had an impact. Central banks have accomplished this interest-rate repression by pushing short-term rates to zero or below zero, and by buying bonds and other assets to push long-term rates down too. These were emergency measures during the Financial Crisis that have become the “new normal,” as it has been called. This new normal has been going on for over a decade now. Other central banks, including the ECB and the Bank of Japan, pushed their policy rates below zero. This, in addition to vast asset buying binges by those central banks, produced $13 trillion in negative yielding bonds. But that’s a different universe of idiocy that we’re not going to get into today. We’re going to stick to US conditions.

To the Fed’s credit, it is the only major central bank that has raised its policy-rate target a bit, from near-zero to a range between 2.25% and 2.5%, which are still historically low rates. But it is under immense pressure by Wall Street and by the White House to cut rates again. So now we have this situation where short-term Treasury yields are low, and long-dated Treasury yields are even lower. How much money are we talking about here? Let’s see. There are $22 trillion in Treasury securities. They’re held by individuals and institutions, including insurance companies, pension funds, and the Social Security Trust Fund. Then there is high-grade corporate debt. The category of triple-A to single-A-rated debt is about $3.3 trillion. These yields have been pushed down too.

Then there are $3.8 trillion in municipal bonds outstanding. Many of them trade below US Treasury yields. For example, the GO bonds of California, which is not exactly a paragon of fiscal rectitude. During trading last Thursday, the California 10-year yield was 1.76%. This was about one-third of a percentage point below the US Treasury 10-year yield of 2.08% on the same day. Then there are $9.4 trillion in savings products, mostly savings accounts and CDs at banks. There are also about $3 trillion in checking accounts, payroll accounts, etc., but they’re not included here. These are just savings products. So let’s add these categories up: They amount to $39 trillion.

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“There is no shortage of money in the market.”

Dutch Bank ING Warns Against Further ECB Money Printing (R.)

Ralph Hamers made his plea as central banks redouble efforts to keep the cost of borrowing at historic lows to buoy the economy, a policy that weighs on bank profits and makes it costly to hold deposits. “I don’t think QE is a recipe to support an uncertain environment,” Hamers told journalists, referring to so-called quantitative easing to print fresh money. “There is no shortage of money in the market.” Although bankers have previously made similar complaints, Hamers’ blunt comments carry weight because his bank is one of Europe’s largest, with 38 million customers. ING, the largest Dutch bank, cautioned on Thursday that rock-bottom interest rates would pressure future earnings, as it announced a 1.4 billion euro net profit in the second quarter of the year.


“Looking ahead, we expect that persistently low interest rates will put pressure on net interest income,” Hamers said, referring to the bank’s chief earnings pillar from activities such as lending. European Central Bank President Mario Draghi has all but pledged to loosen monetary policy further amid a continued economic deterioration of Europe’s euro currency bloc, still grappling with the aftermath of a debt crisis. Officials recently told Reuters that an interest rate cut in September appeared certain, while government bond buys were also likely. Draghi recently said the outlook looked bleak as a global trade war hit Europe’s manufacturers.

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Did he do it to push Powell?

Trump’s $300 Billion China Tariff Threat Sends Markets Into Tailspin (G.)

Donald Trump’s surprise decision to escalate the trade war with tariffs on another $300bn of Chinese goods has sent global financial markets into a tailspin. After sharp falls on Wall Street in the wake of the US president’s announcement on Twitter on Thursday, Asian share prices plummeted on Friday morning as growing hopes that the world’s two economic superpowers would be able to reach a deal were dashed. In Tokyo the Nikkei was down 2.3%, with a similar fall in Hong Kong and Shanghai. The Kospi was down 0.8% in Seoul while in Sydney the benchmark ASX200, which passed its pre-global financial crisis all-time high on Tuesday, fell 0.3%. On the commodities markets the price of Brent crude oil plunged 7%, its biggest fall for four years, although it recovered 2.5% on Friday to $62.01.


Trump’s decision was also likely to increase the chances of another cut in US interest rates with the prospect of worsening trade with China forcing the Federal Reserve to loosen monetary policy again in September. It follows Wednesday’s 0.25% reduction, which was widely seen as not being enough to please the president who has been very vocal in calling for lower rates to boost the economy. As a signal of lower rates to come, the 10-year US bond yield fell almost 12 basis points on Thursday to 1.902%, hitting the lowest level since Trump won the presidential election in November 2016. The US dollar also fell and stockmarkets in Europe and the US were braced for a turbulent last day’s trading of the week. The FTSE100 is set to drop 1% at the opening and the Dow 0.3%.

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“It’s very logical to conclude that if trade tensions increase, given what Powell said, that would be something he would look at to evaluate a further cut.”

Rate Cut Odds Surge After Tariff Announcement (ZH)

Earlier today, we wrote a post titled “What Would It Take For The Fed To Not Cut Again?”, with Goldman providing a stylized answer, although in retrospect, the post should have been titled “What Would It Take For The Fed To Cut Again”, as that is what the market was far more concerned about after yesterday’s hawkish Powell press conference. In any case, Goldman hinted at the one specific catalyst that could force the Fed to cut more: “We also see risks in the other direction, especially on a significant escalation of tariffs against China.” To this, we said that “if an acceleration in the trade war with China is what the Fed will need to cut more, it’s pretty clear what that means for the chances of any trade deal between Washington and Beijing, since even Trump now understands that if he keeps escalating trade war with China, Powell will have no choice but to eventually cut to 0% (and lower).”

Just a few hours later, we were proven right in suggesting that an escalation in the trade war is inevitable and imminent when Trump tweeted that he would hike tariffs on $300BN in Chinese imports to 10% starting September 1, ending the tentative ceasefire with Beijing with a bang, and sending risk prices sharply lower. And yes, while Trump did suffer a modest drop in his favorite polling indicator – i.e., the stock market – which “cratered” as much as 1.5% below its all time high – far more importantly Trump also called Powell’s bluff, and effectively forced the Fed to prepare for more rate cuts as the trade war with China – which Powell explicitly highlighted as a condition that would result in more easing – is set to escalate further.

Late today, Bloomberg confirmed as much noting that traders “fixated on a timeline in which Powell seems to suggest cooling trade tensions reduced the need for future rate reductions — and a day later Trump revs the tensions back up”, just as we said he would. “It fits the pattern of a president bent on getting the central bank to submit, many thought”, the Bloomberg authors concluded. “Powell was very careful to say that he was looking at three things, one of which was global growth and the extent to which that is risked by trade tensions,” said Ellen Hazen, senior vice president and portfolio manager for F.L. Putnam, which has $2.2 billion under management. “It’s very logical to conclude that if trade tensions increase, given what Powell said, that would be something he would look at to evaluate a further cut.” Precisely, hence our prediction first thing this morning.

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Really? Xi is going to build more bridges to nowhere?

US Tariffs Risk Reviving Chinese Zombies (R.)

President Donald Trump is threatening new levies on $300 billion of Chinese goods entering the United States, after Shanghai talks proved inconclusive this week. That might not prod Chinese officials into striking a deal, but it is likely to raise some unwelcome zombies. Trump is among those who claim the Chinese economy is on the brink of the abyss. And it’s true that as a truce in trade negotiations gets more elusive the country’s business community is being forced to price in a new status quo. Their country has stumbled into a cold war with the world’s largest economy, a nuclear-armed military colossus that controls the world’s foremost trading currency. But a $13 trillion economy growing at 6.2% is hardly imploding, and a country where private consumption makes up roughly two-fifths of nominal GDP has padding against a downturn in trade.


Tensions exacerbate economic problems of China’s own making, though. There is a massive stack of non-performing debt incurred by government banks that mis-allocated capital after the global financial crisis. And there are still plenty of inefficient state-backed companies that compete with China’s private sector, driving down profitability across the board. If the new 10% tariffs kick in on Sept. 1 as Trump threatened on Thursday, President Xi Jinping may re-open a playbook that reformist officials have been trying to close. The central government has already pushed localities to ramp up infrastructure spending, and there may be more to come. Construction investment creates jobs immediately, and the government can order banks to lend, and order state firms to build.

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Trump won’t like this.

The EU Has New People In Charge. It’s Not Good News For US Tech Firms (CNBC)

New officials at the heart of the EU will likely keep America’s big tech firms under close scrutiny, experts have told CNBC. The European Commission — the EU’s executive arm — has fined companies such as Google for disrespecting its competition rules, it’s asked Ireland to collect unpaid taxes from Apple and is currently investigating Amazon. It has also proposed different laws that seek to limit online content and there’s little evidence that anything will change under the EU’s new leadership. Dexter Thillien, a senior industry analyst at Fitch Solutions, told CNBC via telephone Wednesday that Europe is keen to continue to be seen as the global leading force in tech regulation. Thillien explained that Europe saw a loophole in global tech regulation and felt the need to act.


“Europeans have all the negatives but none of the positives,” he said, referring to the fact that Europe has not created any large tech firms but has had to deal with the presence of Silicon Valley behemoths. “The European Commission has become more assertive making big tech companies pay their fair share of taxes. If anything, the incoming Commission looks even more determined to do so,” Florian Hense, an economist at Berenberg, told CNBC via email. Ursula von der Leyen, the president-elect of the Commission, said during a speech earlier this month that “if (tech companies) are making these profits by benefiting from our education system, our skilled workers, our infrastructure and our social security, if this is so, it is not acceptable that they make profits, but they are barely paying any taxes because they play our tax system.”

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A European under Washington’s thumb.

EU Governments Seek Name For IMF Head (R.)

European Union finance ministers are set on Friday to choose the bloc’s candidate to lead the International Monetary Fund from a list of four names, a spokeswoman for the French government said. The list includes Jeroen Dijsselbloem, the Dutch former head of euro zone finance ministers; Nadia Calvino, the Spanish economy minister; Olli Rehn, the Finnish central bank governor; and Bulgaria’s World Bank chief executive Kristalina Georgieva. Mario Centeno, the Portuguese chairman of euro zone finance ministers, said on Thursday he was pulling out of the race “in this stage of the process”, adding that he would be available if needed for a compromise solution.


Britain did not field a candidate because it could not come up with a name on time, a European official said. It had been expected to name a candidate and the deadline was extended by a few hours on Thursday to allow it to do so. France is leading the process to select a European candidate. The top job at the Washington-based global lender has historically been filled by a European. Outgoing IMF head Christine Lagarde is taking over from Mario Draghi as European Central Bank president.

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is that enough to push through a no-deal Brexit?

Boris Johnson’s Commons Working Majority Cut To One (BBC)

The Liberal Democrats have won the Brecon and Radnorshire by-election, leaving new PM Boris Johnson with a Commons working majority of just one. Jane Dodds overturned an 8,038 majority to beat incumbent Conservative Chris Davies by 1,425 votes. Mr Davies stood again after being unseated by a petition following his conviction for a false expenses claim. It was the first electoral test for Mr Johnson just eight days after becoming prime minister. It is the quickest by-election defeat for any new prime minister since World War Two.


Now, with the thinnest possible working majority, he will have to rely heavily on the support of his own MPs and his confidence-and-supply partners the DUP to get any legislation passed in key votes. It was also a bad night for Labour, whose vote share dropped by 12.4% as it was beaten into fourth place by the Brexit Party. The result means the Lib Dems now have 13 MPs. Ms Dodds, who is the Welsh Liberal Democrat leader, said: “My very first act as your new MP when I get to Westminster will be to find Mr Boris Johnson, wherever he’s hiding, and tell him to stop playing with the future of our community and rule out a no-deal Brexit.”

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“Paddy should know his place..”

Expecting Ireland To Be Servile Is Part Of A Long British Tradition (G.)

Boris Johnson’s approach to Ireland is part of an ignoble tradition in British politics. At its heart is the false assumption that superiority in resources and military prowess equates to a superiority in intellectual power and moral rectitude. In short, the idea that might is right and that, ultimately, Paddy should know his place. This assumption shaped and even, at times, dominated, policy on Ireland for centuries before independence. It runs through 19th-century British depictions of the Irish as incapable of self-government, unreliable, lazy and inferior. For Benjamin Disraeli, a British prime minister who shares some personal characteristics with the current incumbent, the Irish were “wild, reckless, indolent, uncertain and superstitious”.

Most obviously, this sense of superiority and a refined “moral” stance was clearly manifest in government policy during the Great Famine of 1845-49, which caused the deaths of more than one million people on the island of Ireland. This consistently damaging strain of thought continued into the 20th century, with British military and economic power often used crudely to address deep-rooted political conflicts in Ireland, which refused, and continue to refuse, to allow for simple solutions. Ireland, the thinking went, should be the handmaiden for glorious Britannia – and this servile position is for Ireland’s own benefit and ultimately serves Irish interests.

Of course, within this particular strain of British political thought, the history of violence and tragedy in Ireland is sometimes portrayed as a product of Irish recalcitrance – a tendency towards disorder and conflict that fails to recognise the beneficence of British policy on the island. Britain, it is often suggested, is a guarantor of Irish stability, addressing and suppressing the inherent conflicts in Irish society, rather than a highly disruptive force that has often recklessly pursued its own interests at a serious cost to its nearest neighbour.

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“Tories of influence” told him privately that Leo Varadkar, Ireland’s taoiseach “isn’t bright” and “the Irish will blink”.

Irish Peace Is Too Precious To Be Squandered By The Brexit Ultras (G.)

In The Ultras, the brutal, brilliant novel by Eoin McNamee set during the Troubles, the protagonist (based on the real-life undercover British intelligence officer Robert Nairac) finds himself in the company of dangerous men like himself. The Ultras plot terrible events and create dark polities while forcing everyone else to live with their consequences. “Ultra meaning beyond,” wrote McNamee. “Ultra meaning extreme.” The so-called war cabinet formed by the new British prime minister, Boris Johnson, and whose course the maverick arch-Brexiteer Dominic Cummings now charts, of course bears no resemblance to the characters in the war of the Ultras imagined by McNamee.

But the sheer velocity and ferocity of their opening salvoes about crashing out of the EU with no deal on October 31 unless the backstop – the insurance policy to avoid a hard border in Ireland – is abolished, raise the kind of alarm that we in Ireland have not felt since the dark years of the Troubles. The political fear is that this new breed of “Brexit Ultras” (Johnson’s cabinet with Nigel Farage’s Brexit party snapping at its heels) could deliberately pursue a no-deal EU exit at the expense of a volatile Irish peace. The sabre-rattling and pre-emptive blame-shifting of course is intended to shore up political support in the UK ahead of a possible general election, but also to intimidate Ireland into abandoning the backstop while shaking the unity of the EU27.

Europe, with its own demons to face, has its red lines too and will not sacrifice the single market or its external borders, or jeopardise the wider integrity of the European project. Ireland, and the fragile peace process that has been built over the past 20 years, falls between these two positions. And while it is still early days for the Johnson premiership, we have a deteriorated state of Anglo-Irish relations following his ascent to power. How real is the damaging rhetoric emanating from London and the anti-Irish tropes spewing from much of the British media? David Yelland, the former editor of the Sun, revealed that he had been shocked when “Tories of influence” told him privately that Leo Varadkar, Ireland’s taoiseach “isn’t bright” and “the Irish will blink”. “It seems, amazingly, that this is the actual policy of HMG under Johnson,” tweeted Yelland. “They are anti-Irish, arrogant, dangerous and wrong.”

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Well, actually, they’re going to change hardware: a second flight control computer and a second angle-of-attack sensor. Both of which are altready on board, but not used.

Boeing To Change 737 MAX Flight-Control Software To Address Flaw (R.)

Boeing Co plans further changes to the software architecture of the 737 MAX flight-control system to address a flaw discovered after a test in June, two people briefed on the matter said late on Thursday. The redesign, first reported by the Seattle Times, involves using and receiving input from both flight control computers rather than one. The move comes in response to an effort to address a problem discovered in June during a Federal Aviation Administration(FAA) simulator test. This is on top of earlier announced changes to take input from both angle-of-attack sensors in the MCAS anti-stall system linked to two deadly crashes that led to a global grounding of the plane.


Boeing still hopes to complete the software redesign by the end of September to submit to the FAA for approval, the sources said. For decades, 737 models have used only one of the flight control computers for each flight, with the system switching to the other computer on the following flight, according to people familiar with the plane’s design. The FAA said in June that it had identified a new risk that would need to be addressed before the plane could be ungrounded. Under a scenario where a specific fault in a microprocessor caused an uncommanded movement of the plane’s horizontal tail, it took pilots too long to recognize a loss of control known as runaway stabilizer, a Boeing official said at the time.

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Crazy bag lady.

Rachel Maddow Ratings Tank After Collusion Narrative Implodes (Ryan)

Once a shining beacon of hope for Russiagate true believers, it looks like Rachel Maddow has left her best days behind her; MSNBC’s conspiracy queen has seen her show plummet to fifth place in cable news ratings. What happened? You rise fast and fall hard in the fickle world of television. Just last April, Maddow overtook Fox News’ Sean Hannity to claim the title of most-watched host across cable news. She had become a reliable source for Russigate aficionados to get their daily dose of crazy. Sadly for Maddow, the latest data released by Nielsen shows her show in fifth place with a total audience of 2.4877 million viewers for July – behind Hannity, Tucker Carlson, Laura Ingraham and The Five (all Fox News shows).


For context, in January this year, Maddow still boasted an audience of nearly 3.3 million, which means she shed around 800,000 viewers in just six months. Maddow was also in fifth place among viewers in the 25-54 age range – the group most-favored by advertisers. Ouch. Once dubbed “the smartest person on TV” by Forbes (really), this is certainly not the big payoff Maddow was expecting, having dedicated three years of her career to breathlessly covering every twist and turn in the anticlimactic Trump-Russia “collusion” drama.

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Ship with dolphins.Wall painting from Akrotiri, Thera island (Santorini), Greece.17th century BC.

 

 

 

 

 

Aug 012019
 
 August 1, 2019  Posted by at 9:35 am Finance Tagged with: , , , , , , , , , , , ,  8 Responses »


Piet Mondriaan Trees by the Gein at Moonrise 1908

 

Jerome Powell Finds Another Way To Please Nobody (R.)
The Fed’s Massive Debt for Equity Swap (RIA)
Mario Draghi Lays Out Plan For A Dangerous Round Of Stimulus (Sinn)
PBOC Keeps Powder Dry After Fed Rate Cut, But More Easing Expected (R.)
Bank of England To Lean Against Market Rate Cut Bets As Brexit Nears (R.)
Capitalism Is Part Of Solution To Climate Crisis, Says Mark Carney (G.)
UK’s Biggest Financial Scandal Bites Its Biggest Bank – Again (Coppola)
Jeffrey Epstein Could Spend At Least A Year In Jail Before Trial (F.)
James Comey’s Next Reckoning Is Imminent — This Time For Leaking (Solomon)
Judge’s Ruling Throws Huge Spanner Into Assange Extradition Proceedings (Can.)
Beijing Orders Arabic, Muslim Symbols Taken Down (R.)

 

 

A lot of seemingly serious people are commenting on the bad theater the Democratic debate has become. Nothing better to do with your lives?! It doesn’t matter what any of the ‘candidates’ says or does, the DNC will pull another Bernie 2016. It’s bad theater, it’s cheap, you’re being had, and everyone who watches it should watch themselves instead.

Yeah, just like the central banks. To clean up the US economy, you have to take -most of- the Fed’s powers away. To clean up US politics, you have to burn down the DNC. Or Trump will win forever.

Jerome Powell Finds Another Way To Please Nobody (R.)

The Federal Reserve has turned. The U.S. central bank on Wednesday cut its target overnight interest cost by a quarter percentage point, to a range of 2% to 2.25%. For some, like U.S. President Donald Trump, that’s surely not enough. For others – and going by most economic statistics – it’s too much. Fed Chairman Jerome Powell has found another way to please nobody. The last federal-funds rate reduction was in 2008, as the financial crisis cut deep. It then bounced along near zero for seven years before Powell’s predecessor, Janet Yellen, oversaw the start of a period of gradual rate hikes in late 2015. Since a quarter-point hike last December, the Fed had held steady at 2.25%-2.5%, until now.

The proximate causes of the move are external – mainly the threat to economic activity from Trump’s confrontational stance on trade. It’s a telling irony that a president who claims the Fed is damping the benefits of his policies by holding rates too high is providing one of the few reasons for the U.S. central bank to cut them. Wednesday’s modest move by the Federal Open Market Committee surely won’t satisfy him. Yet seen through the lens of the Fed’s dual mandate – full employment and stable prices – everything is still humming as the longest expansion in U.S. history enters its second decade, with economic growth steady, unemployment at historic lows and inflation tame. Prices increased just 1.4% in the year to June by the personal consumption expenditures measure, released on Tuesday.

The Fed would prefer inflation nearer its 2% target but that’s a somewhat flimsy rationale for lower rates given the backdrop. A significant minority of traders, meanwhile, expected a half-point cut, according to CME data, so they’ll be disappointed, too – even though buoyant stock and credit markets are hardly crying for help. Two of Powell’s colleagues also dissented, preferring not to cut rates, so they’re unhappy for a different reason.

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As everyone is staring at a 25 bps cut, here’s where the action is. An economy distorted beyond recognition.

The Fed’s Massive Debt for Equity Swap (RIA)

Since QE began, nearly 30% of the new corporate debt issued was used for stock buybacks. Putting the pieces of the mosaic together, it is fair to say the most intense corporate debt-for-equity swap in recorded history was enabled by the Fed via monetary policy and the federal government through tax-cuts. This is symptomatic of a variety of issues that have been created by prolonged extraordinary monetary policy. In the same way that corporate behavior has been seriously altered as described above, every central bank in the developed world has undertaken even more extreme measures to foster growth, dictating that the behavior of market participants transform in some manner.


The chart below is a stark reminder of how the Fed has changed the natural order of the corporate debt market. Over the past 25 years, when corporate debt loads became onerous, investors required higher yields and wider spreads to compensate them for the added risks. Today, despite the extreme amount of corporate leverage and the low quality of corporate credit, junk spreads remain near all-time lows. As shown below and highlighted by the red arrow, the long-standing correlation between leverage and high yield spreads is broken.

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Making sure Lagarde must stick with the program. Draghi is the craziest of them all.

Mario Draghi Lays Out Plan For A Dangerous Round Of Stimulus (Sinn)

Expectations – and, for many economists, rather bad ones – have been confirmed: the European Central Bank has decided to inflate the eurozone. Following the ECB’s latest policy meeting on 25 July, the outgoing president Mario Draghi made it clear that the bank’s seemingly harmless inflation target of 1.9% will in fact be the basis for a new phase of expansionary monetary policy over the next few years. This will go well beyond the ECB’s stimulus measures to date and is likely to pose further risks to the European economy. We should remember that the Maastricht treaty assigned the ECB the single, non-negotiable goal of maintaining stable prices, which, if taken literally, would mean an inflation rate of zero.

This is very different from the mandate given to other central banks. The introduction of the euro, however, caused interest rates in southern Europe to fall, leading to an inflationary bubble that raised annual price growth to well over 2% in some countries. The ECB’s governing council then argued that the goal of price stability could not be achieved exactly and also pointed to several measurement errors that complicate policymaking. So, the authorities said, they would tolerate average inflation of up to 2% for the eurozone as a whole. The governing council did not fancy a restrictive monetary policy aimed at reducing inflation, as it gave only little weight to the risk of reducing competitiveness in some countries and did not want to slow down countries in stagnation such as Germany.

Then came the euro crisis. With inflation plummeting, the ECB turned the still-tolerable upper limit for the inflation rate into its target. Suddenly, it was argued, the bank would seek to achieve inflation of “close to, but below 2%”. Draghi even went before the television cameras to claim in all seriousness that this was the ECB’s mandate. And now, at the end of his term of office, Draghi is seeking to bind his successor, Christine Lagarde, to a council decision that will force her to aim for 1.9% inflation with a symmetrical concern about potential deviations. In plain language, this means the ECB will try to achieve this figure on average over time, netting out future above-average inflation rates with below-average inflation in recent years.

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Xi demands total control. Trump wants Powell to make him look good, Xi demands that tripled and cubed. And he gets no dissent.

PBOC Keeps Powder Dry After Fed Rate Cut, But More Easing Expected (R.)

China’s central bank kept its main policy rates on hold on Thursday, opting not to follow an overnight benchmark rate cut by the U.S. Federal Reserve as policymakers wait to see if earlier support measures start to stabilize the economy. But market watchers say continued support is still needed, and expect more modest forms of policy easing from the People’s Bank of China (PBOC) in coming months if pressure on the economy persists. Amid mounting worries about risks to global growth, the Fed lowered its benchmark rate by a quarter-point on Wednesday, as expected, but the head of the U.S. central bank ruled out a long series of cuts.


Though China’s central bank does not always follow the Fed’s moves in lockstep, some analysts had thought a token PBOC cut, likely in one of its short-term rates, was a possibility. However, no move was apparent by midday on Thursday. The PBOC refrained from daily open market operations (OMOs) early in the session, saying banking system liquidity was “reasonably ample”. “The PBOC skipped OMOs and hence there was no rate adjustment,” said Frances Cheung, head of Asia macro strategy at Westpac in Singapore. “The market may need to wait until mid-August when the next tranche of medium term lending facility (MLF) matures to see if there is any action. Arguably they can adjust policy parameters anytime, and are not constrained by any meeting schedule, but we see no pressure on OMO rates.”

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No-deal Brexit is a big headache for Carney. He still has a full three months to go after Halloween. It will be messy.

Bank of England To Lean Against Market Rate Cut Bets As Brexit Nears (R.)

The Bank of England is likely to push back on Thursday against investors who bet that it will follow other central banks and cut rates in the coming months, even as the risk of a messy Brexit darkens growth prospects. Economists polled by Reuters are almost certain that the BoE’s Monetary Policy Committee will vote 9-0 to keep rates on hold at 0.75%. But it is less clear how Governor Mark Carney will tackle the challenge posed by a possible no-deal Brexit. New Prime Minister Boris Johnson has said he will take Britain out of the European Union on Oct. 31 without a transition deal if Brussels does not rewrite the deal it hammered out with his predecessor Theresa May.


The risk of a disruptive no-deal Brexit that could push Britain into a recession means interest rate futures now price in an almost 90% chance of a 25 basis point rate cut before Carney steps down at the end of January. The U.S. Federal Reserve reduced its main interest rate by a quarter of a percentage point on Wednesday, and the European Central Bank is expected to take similar action next month, as both battle a slowdown driven by the U.S.-China trade conflict. But the BoE says Britain is a special case. Chief economist Andy Haldane highlighted last week how British rates had not risen to anything like the extent they had in the United States, while Britain’s job market and inflation were much more buoyant than in the euro zone.

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Carney wrote that article with Michael Bloomberg talking about how to make a profit off of disaster. And here again: ..there will be great fortunes made along this path aligned with what society wants.” Dangerous.

Capitalism Is Part Of Solution To Climate Crisis, Says Mark Carney (G.)

Capitalism is “very much part of the solution” to tackling the climate crisis, according to the governor of the Bank of England, Mark Carney. Challenged in an interview by the Channel 4 News presenter Jon Snow over whether capitalism itself was fuelling the climate emergency, Carney gave a strident defence of the economic system predicated on private ownership and growth but said companies that ignored climate change would “go bankrupt without question”. “Capitalism is part of the solution and part of what we need to do,” he said in the interview broadcast on Wednesday.

The economist, who previously worked for Goldman Sachs, said he recognised the costs of ignoring climate change were rising, but stressed there were increasing opportunities for “doing something about it”, and that capital would shift in this direction. “Now there is $120tn of capital behind that framework that is saying to companies: ‘Tell us how you are going to manage these risks’ – that’s the first thing,” Carney said.

“The second thing the capitalist system needs to do is to manage the risks around climate change, be ready for the different speeds of the adjustment. And then the most important thing is to move capital from where it is today to where it needs to be tomorrow. The system is very much part of the solution.” He added: “Companies that don’t adapt – including companies in the financial system – will go bankrupt without question. [But] there will be great fortunes made along this path aligned with what society wants.”

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Corrupt to the core.

UK’s Biggest Financial Scandal Bites Its Biggest Bank – Again (Coppola)

To the surprise of markets and the chagrin of shareholders, the U.K.’s largest lender, Lloyds Banking Group, has reported disappointing profits for the second quarter of 2019. And no, it’s not because of Boris Johnson’s antics or the prospect of no-deal Brexit. It’s the final flourish of a much older issue – the U.K.’s long-running PPI scandal. Lloyds has had to take an additional provision of £550m ($670m) to cover a flurry of new PPI claims. This reduced its half-year profit to a paltry £2.2bn ($2.7bn). The share price dropped 5% on the news. Mis-selling of payment protection insurance (PPI) is by far the U.K.’s biggest financial scandal.

The Financial Conduct Authority (FCA) says that since January 2011, British banks and financial institutions have paid out £37.5bn ($45.73bn) in compensation to customers who were wrongly sold PPI insurance. Lloyds Banking Group alone accounts for more than half of this total. The origins of the scandal date back to the 1990s, when financial institutions in the U.K. started selling PPI on lending products including mortgages, car loans and credit cards. PPI was meant to cover loan interest and repayments if the customer became unable to pay, for example due to illness or unemployment. As it was highly profitable for lenders and insurance companies, it was, unsurprisingly, heavily promoted. By 2005, there were an estimated 20 million PPI contracts in existence with annual gross premiums of over £5bn ($6.1bn).

PPI was expensive: premiums could raise the cost of a loan by up to 50%. And it mostly didn’t work. In 2005, the U.K.’s Citizens’ Advice Bureau (CAB) complained that there were so many exclusion clauses in the contracts and administrative barriers to claiming that many people couldn’t make successful claims. Furthermore, the CAB reported, people were being sold policies that they did not need or were unsuitable for them.

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Over a million pages of evidence. Ghislaine Maxwell must have bought an industrial scale shredder.

Jeffrey Epstein Could Spend At Least A Year In Jail Before Trial (F.)

A Wednesday court hearing determined that Jeffrey Epstein’s trial for two federal counts of sex trafficking and conspiracy will begin no sooner than June 8, 2020, while his lawyers requested more time to prepare “a case of this magnitude.” Prosecutors said in the hearing that bringing the case to trial quickly is in the public’s interest. Epstein’s lawyer, Martin Weinberg, said they expect to review more than one million pages of evidence while preparing his case. Given the large amount of evidence, Epstein’s team asked for his trial to begin in September 2020, after Labor Day.


Wednesday’s hearing was Epstein’s first court appearance after a possible suicide attempt, and a day after he was reportedly served a new lawsuit from a woman claiming he raped her as a 15-year-old. He showed no signs of injuries, specifically bruising on his neck, from the potential suicide attempt. Epstein is being held in a Manhattan jail without bail, and will likely remain there until his trial begins next year. If convicted, he could spend up to 45 years in prison.

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Horowitz was ready to go. Barr said too soon.

James Comey’s Next Reckoning Is Imminent — This Time For Leaking (Solomon)

The Justice Department’s chief watchdog is preparing a damning report on James Comey’s conduct in his final days as FBI director that likely will conclude he leaked classified information and showed a lack of candor after his own agency began looking into his feud with President Trump over the Russia probe. Inspector General (IG) Michael Horowitz’s team referred Comey for possible prosecution under the classified information protection laws, but Department of Justice (DOJ) prosecutors working for Attorney General William Barr reportedly have decided to decline prosecution — a decision that’s likely to upset Comey’s conservative critics.

Prosecutors found the IG’s findings compelling but decided not to bring charges because they did not believe they had enough evidence of Comey’s intent to violate the law, according to multiple sources. The concerns stem from the fact that one memo that Comey leaked to a friend specifically to be published by the media — as he admitted in congressional testimony — contained information classified at the lowest level of “confidential,” and that classification was made by the FBI after Comey had transmitted the information, the sources said. Although a technical violation, the DOJ did not want to “make its first case against the Russia investigators with such thin margins and look petty and vindictive,” a source told me, explaining the DOJ’s rationale.

But Comey and others inside the FBI and the DOJ during his tenure still face legal jeopardy in ongoing probes by the IG and Barr-appointed special prosecutor John Durham. Those investigations are focused on the origins of the Russia investigation that included a Foreign Intelligence Surveillance Act (FISA) warrant targeting the Trump campaign at the end of the 2016 election, the source said.

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It all hinges on Julian helping -and failing- Chelsea (Bradley) find an identity to hide behind.

Judge’s Ruling Throws Huge Spanner Into Assange Extradition Proceedings (Can.)

A US judge has ruled that WikiLeaks was fully entitled to publish the Democratic National Congress (DNC) emails, which means no law was broken. The ruling is highly significant as it could impact upon the US extradition proceedings against WikiLeaks founder Julian Assange, as well as the ongoing imprisonment of whistleblower Chelsea Manning. On 30 July, federal judge John G. Koeltl ruled on a case brought against WikiLeaks and other parties in regard to the alleged hacking of DNC emails and concluded that: “If WikiLeaks could be held liable for publishing documents concerning the DNC’s political financial and voter-engagement strategies simply because the DNC labels them ‘secret’ and trade secrets, then so could any newspaper or other media outlet.”

In other words, if WikiLeaks is subject to prosecution, then every media outlet in the world would be. The judge argued that: “[T]he First Amendment prevents such liability in the same way it would preclude liability for press outlets that publish materials of public interest despite defects in the way the materials were obtained so long as the disseminator did not participate in any wrongdoing in obtaining the materials in the first place.” Significantly, the judge added that it’s not criminal to solicit or “welcome” stolen documents, and how: “A person is entitled to publish stolen documents that the publisher requested from a source so long as the publisher did not participate in the theft.”

[..] Greg Barns, a barrister and longtime adviser to the Assange campaign, told The Canary: “The Court, in dismissing the case, found that the First Amendment protected WikiLeaks’ right to publish illegally secured private or classified documents of public interest, applying the same First Amendment standard as was used in justifying the The New York Times publication of the Pentagon Papers. That right exists, so long as a publisher does not join in any illegal acts that the source may have committed to obtain that information. But that doesn’t include common journalistic practices, such as requesting or soliciting documents or actively collaborating with a source. So this case is important in restating what is and is not protected under the First Amendment. But does it have implications for the extradition hearing? Well it certainly helps to remind the courts in the UK that the First Amendment protection is very broad.”

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Moving backward.

Beijing Orders Arabic, Muslim Symbols Taken Down (R.)

Authorities in the Chinese capital have ordered halal restaurants and food stalls to remove Arabic script and symbols associated with Islam from their signs, part of an expanding national effort to “Sinicize” its Muslim population. Employees at 11 restaurants and shops in Beijing selling halal products and visited by Reuters in recent days said officials had told them to remove images associated with Islam, such as the crescent moon and the word “halal” written in Arabic, from signs. Government workers from various offices told one manager of a Beijing noodle shop to cover up the “halal” in Arabic on his shop’s sign, and then watched him do it.


“They said this is foreign culture and you should use more Chinese culture,” said the manager, who, like all restaurant owners and employees who spoke to Reuters, declined to give his name due to the sensitivity of the issue. The campaign against Arabic script and Islamic images marks a new phase of a drive that has gained momentum since 2016, aimed at ensuring religions conform with mainstream Chinese culture. The campaign has included the removal of Middle Eastern-style domes on many mosques around the country in favor of Chinese-style pagodas. China, home to 20 million Muslims, officially guarantees freedom of religion, but the government has campaigned to bring the faithful into line with Communist Party ideology.

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Jul 202019
 


 

‘Looking to Break Status Quo,’ Iran Seizes UK Tanker (Defense One)
Deflationary Bust Baked in the Cake (Mish)
Fed’s Rosengren Doesn’t See The Case For A US Rate Cut (R.)
Market Needs Deep Rate Cut To Prevent Earnings Recession – Bianco (CNBC)
After Williams “Misguidance”, Fed Leaks No 50bps Rate Cut This Month (ZH)
Airlines Delay Boeing Max 737 Return Until November (G.)
Kids Could End Up In Foster Care Over Unpaid School Lunch Bills (USAT)
In a Crisis of Democracy, We Must All Become Julian Assange (Hayase)
Jim Acosta Won’t Condemn Espionage Act Being Used Against Julian Assange (CF)
Trump Was Oddly Reasonable About Plastic Straws (G.)
Germany’s Forests On The Verge Of Collapse (DW)

 

 

Lt. Gen. Robert Ashley, the director of the Defense Intelligence Agency, knows exactly what’s going on, and only narrowly shies away from blaming US and UK for the problems:

“They’re not looking to do something that is going to spiral out of control because war is not what they’re looking for.. But at the same time, their decision calculus is they’ve gotta do something in response.”

‘Looking to Break Status Quo,’ Iran Seizes UK Tanker (Defense One)

Iranian forces have seized a British-flagged oil tanker in the Strait of Hormuz, heightening the uncertainty in the region amid the disintegrating Iran nuclear deal and reigniting fears that simmering tensions with Iran could flare into conflict. A Liberian-flagged tanker was also seized, British officials said Friday. None of the captured crew are British citizens and it was not immediately apparent whether there were any casualties. Iran has protested the July 4 British seizure of one of its tankers in Gibraltar, which the U.K. said was carrying Iranian oil to Syria in violation of EU sanctions.

Asked on Friday whether Friday’s incident was a likely retaliation for the detention of their ship, Lt. Gen. Robert Ashley, the director of the Defense Intelligence Agency, said that Iran typically looks for “things that are proportional in nature” to respond to actions from other nations that it considers a threat. Broadly, Iran is seeking to “break the status quo” of the Trump administration’s so-called “maximum pressure” campaign of stifling sanctions, Ashley said. “They’re not looking to do something that is going to spiral out of control because war is not what they’re looking for,” Ashley told a small group of reporters at the Aspen Security Forum in Colorado. “But at the same time, their decision calculus is they’ve gotta do something in response.”

The Trump administration has warned since May that Tehran is carrying out an intensifying campaign of provocative actions. Last month, President Trump ordered and then canceled airstrikes in retaliation for the downing of a U.S. surveillance drone that Iran said was flying in its airspace. (The United States says that the drone was flying over international waters.) On Thursday, U.S. Marines destroyed a drone that the White House said was Iranian (Tehran denies it) and which Pentagon officials said was closing in on an amphibious assault ship operating in the region.


If the United States hadn’t ordered airstrikes in June, this latest episode might not have drawn as much attention, said Mara Karlin, a Brookings Institution fellow and former defense official. But now, she said, Trump’s flirtation with airstrikes in June makes it almost impossible to predict how the White House, which has made constraining Iran a key pillar of its foreign policy, might respond to the seizure of a ship flagged to its closest ally. “We’re now in a totally different landscape,” she said, where both Iran and U.S. allies like the U.K. don’t understand Trump’s “escalation ladder.”

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Rate cuts no longer matter, says Mish.

Deflationary Bust Baked in the Cake (Mish)

A number of Fed governors and economic writers want a big cuts for insurance purposes. These people are economic illiterates. Rate cuts now as economic insurance is like trying to buy insurance on your car after you wrecked it. The bubbles have been blown. Rate cuts cannot unblow economic bubbles any more than they can unblow a horn.The bottom line at this point is an economic recession is baked in the cake. The global economy is slowing and the US will not be immune. It’s possible the US is in recession already, but consumer spending does not point that way, unless it’s revised. It’s all moot. The Fed has been fighting the deflation boogeyman.


Yet, the BIS did a historical study and found routine deflation was not any problem at all. “Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study. In the Fed’s foolish attempt to stave off consumer price deflation, the Fed sowed the seeds of a very destructive set of asset bubbles in junk bonds, housing, and the stock market. The widely discussed “everything bubble” is, in reality, a corporate junk bond bubble on steroids sponsored by the Fed. A 50 or even 100 basis point cut won’t matter now. It’s too late to matter. The debt deflation horn has already sounded.

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But if rate cuts no longer matter, then neither does the Fed. Can’t have that.

Fed’s Rosengren Doesn’t See The Case For A US Rate Cut (R.)

Boston Federal Reserve President Eric Rosengren on Friday pushed back against expectations for an interest-rate cut when Fed policymakers meet later this month, saying the U.S. economy does not need a boost the way some other countries might. “It makes sense that if I was in Japan or if I was at the ECB (European Central Bank) that I would seriously be thinking about easing,” Rosengren said in an interview with CNBC. “The U.S. economy is not at that point, the economy is actually quite reasonable at this stage. So, if that were to change, I’d be happy to ease that point. But I don’t want to ease if the economy is doing perfectly well without that easing.”


In a separate interview, conducted Thursday and published Friday, Rosengren told the Wall Street Journal that economic data had improved since the Fed met in June, when it held rates steady. On Thursday, comments by New York Fed President John Williams stoked expectations that the U.S. central bank would cut rates by a half-percentage-point when it meets on July 30-31. But those expectations were deflated just hours later when a New York Fed representative said the comments were not meant to signal policy actions at the upcoming meeting. The Fed is widely expected to cut rates for the first time in a decade at its July meeting. Friday was the last day that investors will hear from Fed officials until they release their policy statement at the close of the July meeting.

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Imagine seeing your self as a ‘market guy’, but failing to see there is no market left.

Market Needs Deep Rate Cut To Prevent Earnings Recession – Bianco (CNBC)

Market researcher James Bianco believes Wall Street is teetering closer to an earnings recession. Unless the Federal Reserve intervenes with a bigger-than-expected 50 basis point cut, he’s worried that year-over-year earnings growth rates for the second and third quarters will go even lower. “The estimates for the third quarter are somewhere just below zero. This is not earnings growth. This is just struggling to stay at zero,” the Bianco Research president told CNBC’s “Trading Nation ” on Wednesday. Bianco is building his case on an ominous trend in the current quarter’s S&P 500 earnings expectations.


“The estimates have just gone negative in the last week or so,” said Bianco. “They’re only down a couple of 10ths, but they are negative. And, they’ve been in a downtrend of several months.” Bianco, who calls himself a “market guy,” has been firmly in the rate-cut camp. He has been calling for the Fed to slash rates four times over the next 12 months. He is concerned the longer the 10-year and 3-month U.S. Treasury yields are inverted, corporate profits could sustain more damage. “It’s telling you that money is too tight for four or five months,” Bianco said. “Better to go 50 [basis point cut] now and you can raise rates later.”

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I see a bunch of spoiled, undereducated and overpaid kids shouting out to hide their ignorance.

After Williams “Misguidance”, Fed Leaks No 50bps Rate Cut This Month (ZH)

How do you put the monetary genie back in the bottle? That is what the Federal Reserve is scrambling to figure out today after a day of unprecedented miscommunication by NY Fed president John Wiliams, who as we reported on Thursday, not only singlehandedly repriced market expectations for a 50bps rate cut on July 31, but went so far as to hint that ZIRP is coming back. The fact that even uber dove, St Louis Fed president James Bullard, afterwards said they were expecting 25bps at best, was their desperate attempt to reset market expectations back to 25bps, but by then it was too late, and as of moments ago, the market was pricing in roughly 40% odds of a 50bps rate cut in two weeks, down from 70% yesterday. In retrospect, Williams made a massive communication mistake.

As Bank of America explained earlier today in a note from chief economist Michelle Meyer titled “The 50bps head fake”, in which she wrote that “on Thursday NY Fed President Williams gave a speech titled “Living Life Near the ZLB” arguing for monetary policy to be proactive and aggressive when confronting an “adverse” outlook. He argued that when short-term interest rates are close to zero, policymakers shouldn’t “keep their powder dry” and that they could not afford to take an “`wait and see’ approach to gain additional clarity about potentially adverse economic developments.” Shortly after, in a TV interview, Vice Chair Clarida strongly argued that it is prudent to take preventative measures with monetary policy when close to the zero lower bound (ZLB). Together, these comments moved markets closer to a 50bp cut at the end of the month.”


However, in an unprecedented move, the NY Fed subsequently released a statement stating that President Williams’s speech on Thursday afternoon was not intended to send a signal that the Fed might make a large interest rate cut this month but rather it was “an academic speech on 20 years of research.” Why did the NY Fed do this? Simple: as BofA explains, “the FOMC was uncomfortable with the market moving toward a 50bp cut and wanted to push the market back to a 25bp baseline.” In other words, as Meyer puts it, “Williams unintentionally misguided the markets”.

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Like they have any say in the matter.

Airlines Delay Boeing Max 737 Return Until November (G.)

The swift return of Boeing’s 737 Max aircraft to the skies was put further in doubt this week with airlines signalling that they do not hope to operate the plane any time soon. With more than four months already elapsed since the plane was grounded by regulators, Southwest and American, two of the jet’s main US operators, followed United Airlines in saying they would be taking the Max out of their schedules until November. Ryanair, Europe’s biggest short-haul carrier, also announced it would have to curb expansion plans pinned on the arrival of its 737 Max orders and that some airport bases would have to shut as a result. Making the announcement on Tuesday, its chief executive, Michael O’Leary, said he remained committed to the plane: “We’ve described them as gamechangers – and they remain gamechangers.”


But O’Leary admitted even its biggest customers – Ryanair has ordered 135 models – have little visibility on its immediate future: “We’re still operating in the realms of considerable uncertainty … there are no guarantees.” [..] Elsewhere this week, it became clear that restoring trust among passengers could take longer than fixing the plane. In Washington, relatives of passengers who died in the Ethiopian disaster told Congressional hearings that Boeing had focused on profits “at the expense of human life”. In a blistering attack on the manufacturer and the US regulator, the Federal Aviation Authority (FAA), Paul Njoroge, who lost five family members including his wife and three children in the crash, warned that, without change, “another plane will dive to the ground, killing me, you”.

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“After complaints, district officials announced they plan to send out a less threatening letter next week.”

Kids Could End Up In Foster Care Over Unpaid School Lunch Bills (USAT)

A Pennsylvania school district is warning children could end up in foster care if their parents do not pay overdue school lunch bills. The letters sent recently to about 1,000 parents in Wyoming Valley West School District have led to complaints from parents and a stern rebuke from Luzerne County child welfare authorities. The district says that it is trying to collect more than $20,000, and that other methods to get parents to pay have not been successful. Four parents owe at least $450 apiece. The letter claims the unpaid bills could lead to dependency hearings and removal of their children for not providing them with food. “You can be sent to dependency court for neglecting your child’s right to food. The result may be your child being taken from your home and placed in foster care,” the letter read. After complaints, district officials announced they plan to send out a less threatening letter next week.

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This is good.

In a Crisis of Democracy, We Must All Become Julian Assange (Hayase)

The framers of the constitution wanted to have power over people. As a testimony to this, the original draft of the constitution did not have a Bill of Rights. They were added to the constitution as amendments. This didn’t come about without a struggle. The proponents of the Bill of Rights demanded them in order to safeguard individual liberty and challenged those who seek to preserve levers of control. Even after the constitution was ratified with a Bill of Rights, the existence of this unaccounted power was never truly addressed. The wording of the First Amendment reads:

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.” Here, the First Amendment was aimed to restrict the governmental power. It was specifically addressing what Congress can’t do. However, the constitution didn’t ensure that corporations would not be able to circumvent laws and restrict freedom of speech. This lack of oversight made the system of governance vulnerable to corruption, as was observed by Thomas Jefferson, when he warned American people about a time when the American system of government would degenerate into a form of “elective despotism”.

The managed democracy relies on secrecy and deception to control the will of the populace. With the infiltration of commercial interests and the consolidation of media, the big business class has found a way to regulate free speech on their terms. The establishment of corporate media turned journalists’ First Amendment protection into a privilege that they can use against the public. Journalists, who have now become a new class of professionals, no longer share interests with ordinary people. They serve the agendas of the powerful state in maintaining an illusion of democracy, by restricting the flow of information and controlling narratives. For instance, the New York Times has publicly acknowledged that it sends some of its stories to the US government for approval from “national security officials” before publication.


With the merger of the state and corporations, the power of private companies to influence governments and erode civil liberty has increased. Transnational corporations can now revoke and restrict basic rights at any time, crossing the judicial boundaries on the borderless cyberspace. Tech giants like Google, Facebook and Twitter censor free speech online and, without warrant, spy and invade the privacy of users.

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Cassandra.

Jim Acosta Won’t Condemn Espionage Act Being Used Against Julian Assange (CF)

CNN talking head, and resident White House activist, Jim Acosta refused to condemn the Espionage Act being used against WikiLeaks publisher Julian Assange at an event where he was attempting to portray himself as a defender of the free press. Acosta’s book is titled, “The Enemy of the People: A Dangerous Time to Tell the Truth in America,” but do not let that headline fool you into thinking that he supports the freedom of the press. Acosta was asked about his thoughts on the subject by YouTuber Matt Orfalea at an event at the Newseum over the weekend titled, “The President and the Press: The First Amendment and the First 100 Days.”

The question asked by Orfalea was simple, “what do you think of the Trump administration’s use of the controversial Espionage Act to indict WikiLeaks founder Julian Assange for publishing classified information in the 2010s that exposed war crimes, informed the public, and didn’t harm anyone?” Assange has been charged for his release of the Iraq and Afghan War Logs which were provided to him by Chelsea Manning. He is not currently charged with anything related to the 2016 election, but that did not stop Acosta from trying to make a case for why he wants to see him punished for the 2010 release as payback for the completely unrelated publication of the Democratic National Committee emails.

“I am probably not gonna give you a satisfactory answer,” Acosta correctly began, “but I’m gonna do the best that I can. “I do think, and forgive me if you don’t agree with me on this, I do think what happened with us and my press pass case is slightly different than what happened with Julian Assange and WikiLeaks,” Acosta said. The CNN pundit was correct here, as Assange has published world changing information and has been nominated for the Nobel Peace Prize on seven occasions. Acosta simply attempts to insert himself into news cycles to go viral and keep his face on television.


“My understanding about the Julian Assange situation is that, you know, he is being charged not just for trying to speak truth to power, and trying to reveal things. He’s in trouble for other things. What we’ve seen during the 2016 campaign where there were contacts between WikiLeaks and Russian operatives — that I think takes WikiLeaks and Julian Assange into sort of a different category than just a straight news organization — straight publisher of news around the world,” Acosta stammered on, as if he himself is part of a “straight news organization.” Acosta added that he is not “rendering a verdict on Julian Assange” and that he should have his day in court.

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The Guardian struggles to agree with Trump on anything at all.

Trump Was Oddly Reasonable About Plastic Straws (G.)

[..] it was the question from a reporter who piped up after Trump had stonewalled a question on his felonious former fixer that was the last, well … “Are you in favor of banning plastic straws?” the reporter asked. “I do think we have bigger problems than plastic straws,” Trump responded. “You know, it’s interesting about plastic straws: so, you have a little straw, but what about the plates, the wrappers, and everything else that are much bigger and they’re made of the same material? So, the straws are interesting. Everybody focuses on the straws. There’s a lot of other things to focus on. But it’s an – it’s an interesting question.”

Trump’s response is largely remarkable for how reasonable it is. Straws are an interesting question that have garnered disproportionate focus, and other single-use plastics, such as cups, plates and wrappers, do need to be part of efforts to address our unsustainable addiction to plastic. [..] Plastic straws only make up about 1% of the plastic waste in the ocean, according to Jim Leape, co-director of the Stanford Center for Ocean Solutions. And while plastic straw bans alone will solve neither climate change nor plastic pollution, they have also been criticized by advocates for the rights of people with disabilities, who often need straws to drink. Kim Sauder, a PhD student in disability studies, has described such bans as “environmental theater”.

[..] Trump’s response is also surprising because, for once, he eschewed fanning the fire of a culture war that his campaign has been attempting to stoke. Plastic straw selfies were a mini-Maga meme last summer, with various rightwing pseudocelebrities photographed themselves wasting plastic for no reason other than to “own the libs” who care about sea turtles and sustainability. This week, Trump’s campaign manager Brad Parscale attempted to recapture the meme magic with a tweet comparing the efficacy of paper straws to “liberal progress”. “This is exactly what they would do to the economy as well,” he tweeted. “Squeeze it until it doesn’t work.”


The campaign website is also selling packs of 10 plastic straws “laser engraved” with Trump’s name for $15, with the tagline: “Liberal paper straws don’t work.” But if the campaign message was supposed to be “Vote for Trump because the libs are coming for your straws”, Trump himself failed to get the memo.

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Didn’t need the sensationalist headline. Issues are bad enough.

Germany’s Forests On The Verge Of Collapse (DW)

Germany’s forests are undoubtedly suffering as a result of climate change, with millions of seedlings planted in the hope of diversifying and restoring forests dying, warns Ulrich Dohle, chairman of the 10,000-member Bunds Deutscher Forstleute (BDF) forestry trade union. “It’s a catastrophe. German forests are close to collapsing,” Dohle added in an interview with t-online, a online news portal of Germany’s Ströer media group. Low rainfall last summer saw Germany’s rivers reach extreme lows, with some waterways still struggling and forests prone to fire. “These are no longer single unusual weather events. That is climate change,” said Dohle.

Helge Bruelheide, co-director of Germany’s Center for Integrative Biodiversity, warned: “if the trend prevails and the annual precipitation sinks below 400 millimeters (15.7 inches) then there will be areas in Germany that will no longer be forestable.” Lüdenscheid, a densely forested area in central Germany, was no exception, Bohle added. Its precipitation had slumped from one-meter (3.2-meters) in 2017 to only 483 millimeters last year. Catchments in central Europe collected only 10% more rainfall in the first half of 2019, compared to the same period in 2018, a trend exacerbated by uneven wet-then-dry months,Germany’s Institute of Hydrology (BFG) reported Thursday.


Low river levels “remain unchanged” in many parts of Germany, the BFG said, with only the Rhine River currently carrying sufficient water for shipping. It’s expected to fall in the coming weeks as dry, warmer weather returns. What Dohle of the forestry trade union termed “dramatic tree deaths” began with winter snow dumps in early 2018 which broke branches, weakening the trees’ natural defences and letting in fungal infections, “followed by drought and bark beetle infestation” that killed off European spruce trees. One million older trees have since died — not only heat susceptible spruces, but even Germany’s prized European Red Beech which had been widely planted over the past decade in the hope of creating climate stable forests, Dohle added.

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Picture Zero Hedge used with my article yesterday:

 

 

 

 

 

Jul 112019
 
 July 11, 2019  Posted by at 8:53 am Finance Tagged with: , , , , , , , , , , , , , ,  8 Responses »


Pablo Picasso Guernica 1937

 

Dollar Slips After Powell Bolsters Rate Cut Bets (R.)
AOC Is Making Monetary Policy Cool (and Political) Again (NYM)
Trump Tasks Aides To Find A Way To Weaken The US Dollar (CNBC)
Lock Him Up (Pinkerton)
Schumer Got Thousands In Donations From Jeffrey Epstein (NYP)
Democrat Rep. Stacey Plaskett To Donate Epstein Campaign Contributions (CNBC)
US Probing Deutsche Bank’s Dealings With Malaysia’s 1MDB (ZH)
Obama the Conservative vs Trump the Revolutionary (EH)
Former UK PM Major Vows To Block Brexit Parliament Suspension (R.)
OPCW’s New Chemical Weapons Team To Launch First Syria Investigations (R.)
UK, US Claim Iranian Boats Attempt To Seize Tanker In Strait Of Hormuz (ZH)

 

 

I’m getting so sick of this. Powelll wants to cut rates but it makes no sense if he’s to uphold Trump’s claim of a great US economy. So what does his spin team come up with? Cut rates because other countries are not doing so well. Cut the crap.

Dollar Slips After Powell Bolsters Rate Cut Bets (R.)

The dollar eased on Thursday after Federal Reserve Chairman Jerome Powell set the stage for a rate cut later this month, vowing to “act as appropriate” to ensure the world’s biggest economy will be able to sustain a decade-long expansion. In testimony to Congress, Powell pointed to “broad” global weakness that was clouding the U.S. economic outlook amid uncertainty about the fallout from the Trump administration’s trade conflict with China and other nations. “Chairman Powell sounded dovish on most dimensions. This is slightly surprising given benign trade developments following last month’s G20 meeting and the recent rebound in nonfarm payrolls,” said Michael Swell, co-head of global fixed income portfolio management at Goldman Sachs Asset Management.


“Overall, his comments around slowing growth against a backdrop of muted inflation and elevated uncertainties is consistent with ‘insurance rate cuts’ this year.” Adding to a generally dovish tone in his testimony, the minutes from the Fed’s previous policy meeting showed many policymakers thought more stimulus would be needed soon, reviving speculation of an aggressive rate cut.

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And AOC also wants low interest rates. Everyone wants the same thing, and nobody says: Wait a minute?!

AOC Is Making Monetary Policy Cool (and Political) Again (NYM)

Ocasio-Cortez : In early 2014, the Federal Reserve believed that the long run unemployment rate was around 5.4 percent. In early 2018, it as estimated that this was now lower, around 4.5 percent. Now, the estimate is around 4.2 percent. What is the current unemployment rate today?
Powell : 3.7 percent.

Ocasio: 3.7 percent…Unemployment has fallen about three full points since 2014 but inflation is no higher today than it was five years ago. Given these facts, do you think it’s possible that the Fed’s estimates of the lowest sustainable unemployment rate may have been too high?
Powell : Absolutely.

This exchange may sound dull and technical. But the congresswoman’s point has real human stakes. America’s central bank has a dual mandate: to promote full employment and price stability. How the Fed chooses to balance those two objectives has redistributive implications. The wealthy have far more to lose from inflation than they do from modest levels of unemployment. In fact, many business owners may actually prefer for the U.S. economy not to achieve full employment, since workers tend to be less demanding when jobs are scarce. By contrast, the most vulnerable workers in the U.S. — such as those with criminal records or little experience — will struggle to get a foothold in the labor market unless policy makers err on the side of letting unemployment fall “too low.”

And this is what AOC’s questions are implicitly about. If the Federal Reserve believes that the U.S. economy cannot sustain unemployment below 5 percent without suffering high inflation, then it will raise interest rates to cool off investment, thereby preventing too many workers from getting jobs. Ocasio-Cortez’s implication is that, by raising interest rates out of a fear of illusory inflation, the Fed may have needlessly hurt American workers. Powell’s concession on that point is significant, and suggests that the central bank will be less inclined to err on the side of hurting the vulnerable in the future.

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We’re all of us in the gutter… (but apparently there’s no-one left looking at the stars).

Trump Tasks Aides To Find A Way To Weaken The US Dollar (CNBC)

President Donald Trump has reportedly tasked aides to find a way to weaken the U.S. dollar in an effort to boost the economy ahead of the 2020 presidential election. The president also asked about the greenback while interviewing Federal Reserve board nominees Judy Shelton and Christopher Waller, people familiar with the matter told Bloomberg News. Those individuals also told Bloomberg that Trump’s chief economic advisor, Larry Kudlow, and Treasury Secretary Steven Mnuchin disapprove of the idea of government tampering to weaken the dollar. Traditionally, past administrations have always maintained publicly they were for a strong dollar because dollar assets like Treasurys are so widely held around the globe.


Trump has often bemoaned the relative strength of the U.S. dollar in foreign exchange markets, blaming foreign nations for devaluing their currencies and thereby inflating the American trade deficit. Last week, the president said in a tweet that the U.S. should match China and Europe’s “currency manipulation game.” “China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA,” Trump said on Twitter. “We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!”

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About Epstein, but with a historical twist.

Lock Him Up (Pinkerton)

One landmark of American reform was the White-Slave Traffic Act, signed into law in 1910 (“white slavery,” we might note, is known today as “sex trafficking”). That law, aimed at preventing not only prostitution but also “debauchery,” is known as the Mann Act in honor of its principal author, Representative James R. Mann, Republican of Illinois, who served in Congress from 1897 to 1922. Mann’s career mostly coincided with the presidential tenures of two great reformers, Theodore Roosevelt and Woodrow Wilson. And it’s hard to overstate just how central to progressive thinking was the combatting of “vice.” After all, if the goal was to create a just society, it also had to be a wholesome society; otherwise no justice could be sustainable.

Thus when Roosevelt served as police commissioner of New York City in the mid-1890s, he focused on fighting vice, rackets, and corruption. Of course, Mann, Roosevelt, and Wilson had much more on their minds than just cleaning up depravity. They saw themselves as reformers across the board; that is, they were eager to improve economic conditions as well as social ones. So it was that Mann also co-authored the Mann-Elkins Act, further regulating the railroads; he also spearheaded the Pure Food and Drug Act, creating the FDA. It’s interesting that when Mann died in 1922, The New York Times ran an entirely admiring obituary, recalling him as “a dominating figure in the House…[a] leader in dozens of parliamentary battles.” In other words, back then, the Times was fully onboard with full-spectrum cleanup, on the Right as well as the Left.

To be sure, the Mann Act hardly eradicated the problem of sex-trafficking, just as Mann’s other legislative efforts did not put an end to abuses in transportation and in foods and drugs. However, we can say that Mann made things better. Of course, the Mann Act has long been controversial. Back in 1913, the African-American boxer Jack Johnson was convicted according to its provisions. (Intriguingly, in 2018, Johnson was posthumously pardoned by President Trump.) In 1944, film legend Charlie Chaplin, too, found himself busted on a Mann Act rap. Chaplin was accused of transporting a young “actress” across state lines; he was acquitted after a sensational trial, but not before it was learned that he had financed his lover’s two abortions. Chaplin’s career in Hollywood was effectively over.

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Schumer telling others what to do, but doing dick all himself. How much did the Clinton Foundation get?

Schumer Got Thousands In Donations From Jeffrey Epstein (NYP)

Sen. Chuck Schumer — who called on Labor Secretary Alexander Acosta to resign and said President Trump should “answer” for his friendship with Jeffrey Epstein — accepted thousands of dollars in donations from the alleged pedophile throughout the 1990s, The Post has learned. Federal Election Commission records show that Schumer received seven $1,000 donations from Epstein between 1992 and 1997, first as a U.S. congressman from New York and then when he was vying to be the state’s senator in 1998, an election he won. Epstein — who was arrested Saturday and charged with sex trafficking and a related conspiracy count for allegedly sexually abusing a vast network of underage girls — also gave $10,000 to “Victory in New York,” a joint fundraising committee established by Schumer and the Democratic Senatorial Campaign Committee.

Epstein gave an additional $5,000 to “Win New York,” a Schumer-associated joint committee that benefited the Liberal Party of New York State. Both of Epstein’s donations to the committees came in October 1998 — and look to have primarily benefited the DSCC and the Liberal Party of New York, as Epstein would have already met the $2,000 limit of donating individually to Schumer. At the time, donors could give $1,000 to a candidate per election — once in the primary and again in the general. That means Schumer and Schumer-linked entities received a combined $22,000.

On the Senate floor Tuesday, Schumer made three Epstein-related demands. He first called on Acosta to resign. [..] “Instead of prosecuting a predator and serial sex trafficker of children, Acosta chose to let him off easy,” Schumer said on the floor. “This is not acceptable. We cannot have, as one of the leading appointed officials in America, someone who has done this.” Schumer also asked that the Department of Justice’s Office of Professional Responsibility make public its review of Acosta’s handling of the case. Finally, Schumer said that Trump should paint a fuller picture of what he meant when he called Epstein a “terrific guy” in a 2002 article for New York Magazine.

An April 2011 court filing shows that Trump eventually barred Epstein from Mar-a-Lago “because Epstein sexually assaulted a girl at the club,” the documents allege. Trump didn’t officially launch a political career until June 2015. No FEC records show that Epstein was ever a Trump donor.

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So when will Schumer follow suit? And the rest of them?

Democrat Rep. Stacey Plaskett To Donate Epstein Campaign Contributions (CNBC)

Democratic congresswoman Stacey Plaskett has decided to reverse course and will give away the contributions she has received from Jeffrey Epstein, who is accused of child sex trafficking. The move comes a day after her team told CNBC that she was unlikely to return the campaign donations after Epstein’s arrest. “In light of new information and allegations that have been made against Jeffrey Epstein I have decided to make contributions to Virgin Islands organizations that work with women and children in the amount of his previous contributions,” Plaskett said in a statement Tuesday.

“My litmus test for accepting campaign contributions has been based on whether the donor’s money was made legally or by ill-gotten means and that the contributor will not ask of me or my Congressional office for any special favors. All my contributions have passed that test. In this case however, I am uncomfortable having received money from someone who has been accused of these egregious actions multiple times,” said Plaskett, who represents the U.S. Virgin Islands in the House as a delegate. Her spokesman Mike McQueery later noted the Epstein donations will be given to The Women’s Coalition and The Family Resource Center.

Her initial announcement led to an outcry on social media, with prominent Democratic strategists such as Adam Parkhomenko calling on Plaskett to give the money over to a nonprofit organization such as the Rape, Abuse & Incest National Network. Since Epstein pleaded not guilty Monday, Plaskett is the first politician to say she is giving away donations from Epstein.

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Deutsche severed ties with Epstein just months ago.

US Probing Deutsche Bank’s Dealings With Malaysia’s 1MDB (ZH)

When it rains inside the halls of Deutsche Bank, the flood is biblical. Just when it seemed that the biggest (if not for long) German bank, already reeling from the biggest mass layoffs since Lehman, couldn’t possibly bear any more bad news, along comes the US government with yet another potentially criminal investigation, this time over Deutsche Bank’s involvement with the sprawling, multibillion-dollar Malaysian development fraud scandal that toppled a prime minister, crippled Goldman Sachs stock and stretched from Hollywood to Wall Street. According to the WSJ, the DOJ is investigating whether the German bank violated foreign corruption or anti-money-laundering laws in its work for the 1Malaysia Development Bhd. fund, or 1MDB, which included helping the fund raise $1.2 billion in 2014 as concerns about the fund’s management and financials had begun to circulate.

So how did Deutsche Bank get thrown into yet another scandal? It turns out that DB was snitched out by former Goldman banker, Tim Leissner, the man who was ground zero in the original 1MDB scandal, and who ended up costing Goldman billions in dollar in market cap as its stock tumbled last year as its role in the biggest Malaysian corruption scandal got exposed, and according to some, cost Lloyd Blankfein his job. As it turns out, Leissner is now cooperating with authorities, and among his “good Samaritan” duties decided to throw the one bank that has more dirt on it than Goldman: Deutsche Bank. As we have reported extensively in the past, prosecutors have been investigating similar issues at Goldman, where Leissner, a former managing director, pleaded guilty last year and admitted to earlier helping siphon off billions of dollars from the fund.

[..] But wait, there’s more! Because roughly at the same time as DB’s potential role in the 1MDB scandal was exposed by the WSJ, both the NYT and Bloomberg reported that the German bank had extended relations with yet another, even more scandalous figure: Jeffrey Epstein. According to NYT, Epstein “appears to have been doing business and trading currencies through Deutsche Bank until just a few months ago.” But as the possibility of federal charges loomed, the bank ended its client relationship with Epstein. It is not clear what the value of those accounts were at the time they were closed. Bloomberg confirms, reporting that “Deutsche Bank severed business ties with Jeffrey Epstein earlier this year, just as federal authorities were preparing to charge the financier with operating a sex-trafficking ring of underage girls [..] “

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Nice take by Ed Harrison. I’m no big fan of these alleged sharp divisions between generations, though.

Obama the Conservative vs Trump the Revolutionary (EH)

I would argue that [Obama] ran for President in 2008 on a slogan – Change You Can Believe In – which very much fits his generation, late baby boom reaching across to the early Gen X’ers. “Change you can believe in” is a moniker designed to evoke a sense of technocratic tweaking, of taking a good system and making it more efficient and more fair for all citizens. It is not a call for revolution. What Obama was saying was essentially, “I am going to take the system we have – the best that man has created – and make it better.” He was not saying, “the system is rigged. The system is broken. And I’m going to burn it down and build up something better.”

Obama’s message was a conservative message. It was a message that was steeped in the status quo, with the change coming only at the margin. It meant continuity in policy and a bevy of tried and trusted policymakers to get us to the next destination. Even Obamacare is a tweak of the existing policy. It is not a fundamentally different healthcare system controlled by different healthcare providers. [..] Donald Trump doesn’t think that way. Norms only matter to him to the degree they move his personal agenda forward. He’s a pretty simple guy in this sense. If a policy choice or a norm helps Donald Trump, then he’s for it. If it hurts him, he’s against it. It’s as simple as that. But, that’s not conservative …at all. Trump may message “Make America Great Again”. But, his process is more about bending and breaking rules, damn the consequences.

None of this is to say that Millennials would support Trump over Obama because they want change. It’s more that Obama’s ‘change you can believe in’ approach was a very incremental, status quo-oriented conservative approach that has disappointed Millennials. They want still more change – not a bend and break the rule kind – but a fundamental systemic change. What does that mean about the next economic downturn? Personally, I think it means that — when people living in precarious at-will employment, with insufficient healthcare coverage, saddled by student debt, unable to purchase homes to build wealth feel the full bore of an economic downturn — they will be willing to burn the system down. They will have no allegiance to the status quo and will vote accordingly.

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Oh, c’mon, wouldn’t it be highly fitting if the Queen were to hammer the final nail into British democracy?

Former UK PM Major Vows To Block Brexit Parliament Suspension (R.)

Former British prime minister John Major vowed on Wednesday to go to court to block his party colleague Boris Johnson from suspending parliament and dragging the queen into a constitutional crisis to deliver a no-deal Brexit. Johnson, the favourite to win a Conservative leadership election and so become the next prime minister, has refused to rule out suspending, or proroguing, parliament to ensure Britain leaves the European Union on Oct. 31 — with or without a deal. That could provoke a constitutional crisis in one of the world’s oldest and most stable democracies because parliament is opposed to a disorderly exit, lacking a transition deal to ease the economic dislocation of leaving the bloc.

While it is essentially up to the prime minister to make the decision, Major, an opponent of Brexit who has not shied away for criticising his party on the issue, said it would require the queen’s blessing. “In order to close down parliament, the prime minister would have to go to Her Majesty the Queen and ask for her permission to prorogue,” he told BBC Radio. “If her first minister asks for that permission, it is almost inconceivable that the queen will do anything other than grant it. “She is then in the midst of a constitutional controversy that no serious politician should put the queen in the middle of. If that were to happen, there would be a queue of people who would seek judicial review. I for one would be prepared to go and seek judicial review.”

Major accused Johnson of hypocrisy for backing Brexit to secure more power for Britain’s parliament, only to propose to sideline lawmakers when it suited him. He said parliament had not been suspended since King Charles I did so during the English Civil War. Charles was eventually executed, in 1649.

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The OPCW killed its own credibility, thoroughly. Disband it.

OPCW’s New Chemical Weapons Team To Launch First Syria Investigations (R.)

A new team established by the global chemical weapons watchdog to attribute blame for the use of banned munitions in Syria will investigate nine alleged attacks during the country’s civil war, including in the town of Douma, sources briefed on the matter told Reuters. The Organisation for the Prohibition of Chemical Weapons (OPCW) was created in 1997 as a technical body to enforce a global non-proliferation treaty. Until now it had been authorised only to say whether chemical attacks occurred, not who perpetrated them. Last June, the Investigation and Identification Team (IIT) was established by the OPCW’s member states during a special session, a move that has brought deeper political division to the U.N. -backed agency.


Now it has identified the locations of its first investigations to be conducted in the coming three years. A document circulated to OPCW member states, a copy of which was seen by Reuters, said the team “has identified a non-exhaustive provisional list of incidents on which it intends to focus its investigative work” between 2014 and 2018. The British-led proposal creating the 10-member team was supported by the United States and European Union, but opposed by Russia, Iran, Syria and their allies. Syria has refused to issue visas to the team’s members or to provide it with documentation, OPCW chief Fernando Arias said in comments to member states published last month.

Read more …

Where’s the credibility in this case?

UK, US Claim Iranian Boats Attempt To Seize Tanker In Strait Of Hormuz (ZH)

With the Persian Gulf uncharacteristically quiet in recent days, without any material provocation either real or staged, late on Wednesday CNN reported that five armed Iranian Islamic Revolutionary Guard boats unsuccessfully tried to seize a British oil tanker in the Persian Gulf. There was no independent verification of the report, but instead it was once again sourced to those who stands to gain the most from a way with Iran, namely “two US officials with direct knowledge of the incident.” According to the report, the British Heritage tanker was sailing out of the Persian Gulf and was crossing into the Strait of Hormuz area when it was approached by the Iranian boats.


The Iranians ordered the tanker to change course and stop in nearby Iranian territorial waters, according to the officials. A US aircraft was overhead and recorded video of the incident, although so far a video has not been released. In addition to the US aircraft escort, the UK’s Royal Navy frigate HMS Montrose had been escorting the tanker, and during the confrontation, it trained its deck guns on the Iranians and gave them a verbal warning to back away, which they did. Montrose is equipped on the deck with 30 mm guns specifically designed to drive off small boats. The frigate was in the region performing a “maritime security role” according to a prior notification from UK officials.

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Seen at the inane Defend Media Freedom conference in the UK.

 

 

 

‘Man goes to a psychiatrist. He says, “I keep thinking I’m a dog.” Psychiatrist says, “OK, let’s get you on the couch.” Man says, “I’m not allowed on the couch.”‘

 

 

 

 

Jun 292019
 
 June 29, 2019  Posted by at 10:09 am Finance Tagged with: , , , , , , , , , , ,  6 Responses »


Salvador Dali Paranoiac Woman-Horse (Invisible Sleeping Woman, Lion, Horse) 1930

 

Wall Street Wraps Up Its Best June In Generations (R.)
Not A Rate-Cut Economy (WS)
You Are Nuts To Think A July Interest-Rate Cut Is A Slam Dunk (MW)
Deutsche Bank To Fire Up To 20,000: One In Six Full-Time Positions (ZH)
China and US Agree To Restart Trade Talks (R.)
Russia-India-China Will Be The Big G20 Hit (Escobar)
Trump Offers To Meet Kim Jong-Un At The DMZ (R.)
Boeing 737 Max Likely Grounded Until The End Of The Year (CNBC)
Boeing 787 Dreamliner Caught In Deepening 737 MAX Probe (RT)
EU Leaders Decide Against Weber For Commission Presidency (R.)
Say Anything! (Kunstler)

 

 

And nobody cares that none of it is real… Or that 3/4 of Americans live paycheck to paycheck.

Wall Street Wraps Up Its Best June In Generations (R.)

Wall Street advanced in heavy trading on Friday, with the S&P 500 and the Dow closing the book on their best June in generations, ahead of much-anticipated trade talks between U.S. President Donald Trump and Chinese counterpart Xi Jinping at the G20 summit now underway in Japan. All three major U.S. stock indexes gained ground at the close of the week, month, quarter and first half of the year, during which time the U.S. stock market has had a remarkable run. The S&P 500 had its best June since 1955. The Dow posted its biggest June percentage gain since 1938, the waning days of the Great Depression.


From the start of 2019, after investors fled equities amid fears of a global economic slowdown, which sent stock markets tumbling in December, the benchmark S&P 500 jumped 17.3%, its largest first-half increase since 1997. “The market came to the realization that the world is not going to end,” said John Ham, financial adviser at New England Investment and Retirement Group in North Andover, Massachusetts. “Also, (Federal Reserve chair) Powell did a 180 since (the Fed’s) last (interest) rate hike, which has put wind in our sails in the first half of the year.”

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Mostly it all just sounds stupid to me.

Not A Rate-Cut Economy (WS)

The inflation index that the Fed has anointed to be the yardstick for its inflation target – the PCE price index without the volatile food and energy components – rose 0.19% in May from April, according to the Bureau of Economic Analysis this morning. This increase in “core PCE” was near the top of the range since 2010. It followed the 0.25% jump in April, which had been the third largest increase since 2010. Fed Chair Jerome Powell, at the press conference following the no-rate-hike FOMC meeting last week, gave a clear and succinct summary of the US economy. It was mostly in good shape, he said, in particular where it mattered the most: “All of the underlying fundamentals for the consumer-spending part of the economy, which is 70% of the economy, are quite solid,” he said.

[..] The Fed’s “symmetric” target is a 2% annual increase in the core PCE index, meaning the increase can fluctuate some above or below the target without causing the Fed to act. Core PCE inflation was in the 2%-range for much of last year. But early this year, the increases softened. So in his opening remarks at the press conference, Powell said that “committee participants expressed concerns about the pace of inflation’s return to 2 percent.” [..] a trigger for a rate cut would be a “sustained” period significantly below the 2% target. Inflation data is volatile and jumps up and down. Earlier this year, when core PCE inflation fell significantly below 2%, Powell said that the factors behind this low inflation were “transitory.”


Janet Yellen, when she was still Fed Chair, also used “transitory” to describe the factors that in early and mid-2017 were causing an actual dip in core PCE – which hasn’t happened this year. And a few months later, she was proven right. After today’s data on the increase in the core PCE index, following the jump in April, the three-month increase – March, April, and May – has now hit 0.50%. Annualized, this amounts to 2.0% core PCE inflation over the past three months, in the bull’s eye of the Fed’s symmetrical target, with the last two months being substantially above the Fed’s target. But note the sharp decline in January, February, and March, and how it has now reversed:

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The sooner the Fed is gone the better.

You Are Nuts To Think A July Interest-Rate Cut Is A Slam Dunk (MW)

The markets have gotten so used to the Federal Reserve doing whatever it takes to keep the S&P 500 and bond prices rising that traders and investors are now expecting the Fed to go against its own judgment and aggressively cut interest rates next month. In putting a 100% probability on a cut in the federal funds target rate at the next Fed meeting on July 30 and 31, traders — and the economists who advise them — seem to have forgotten how language and math work. Not to mention economics. Comments by Fed Chairman Jerome Powell in the past 10 days have indicated that the Fed is open to cutting rates if necessary to keep the expansion going, but there’s no sign that policy makers have made up their minds about a July cut — or any cut at all, for that matter.


Powell said it would depend, “you know, on actual data and evolving risks.” The Fed might very well deliver the rate cut that the market is demanding, but only if something significant changes in the next four and a half weeks. The Fed won’t cut rates because it promised to do so at the last Fed meeting (it didn’t). And it won’t cut rates because the U.S. economy is teetering on the edge of recession (it isn’t), or because inflation is dropping (uh-uh), or because fragile financial markets could use a shot of confidence (nope). Before they cut rates, Fed officials would want to see some hard evidence that the outlook for the economy has materially worsened since they met on June 19. About the only thing that would qualify would be a disastrous meeting between Donald Trump and China’s Xi Jinping this weekend.

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No more global player.

Wall Street may have the best June in generations, but not all of Wall Street.

Deutsche Bank To Fire Up To 20,000: One In Six Full-Time Positions (ZH)

While Deutsche Bank finally delivered some good news for a change to its long-suffering investors, when it miraculously failed to fail the latest Fed stress test, on Friday the chronically sick bank reverted to its “cutting into muscle” baseline when the largest German lender with the €45 trillion notional derivatives was said to be preparing “to cut as much as half its global workforce in equities trading as part of a broad restructuring to boost profitability”, according to Bloomberg with the WSJ adding that the total number could be between 15,000 and 20,000 job cuts, or more than one in six full-time positions globally. The cuts being contemplated by senior executives reflect an acceleration of Deutsche Bank’s downsizing and another major pullback from its global ambitions.


If followed through, the reduction would represent 16% to 22% of Deutsche Bank’s workforce of 91,463 employees, as disclosed by the bank as of the end of March. According to the proposed plan the bank will eliminate hundreds of positions in equities trading and research, as well as derivatives trading, and is expected to start informing staff of cuts – including in the U.S. and Asia – as soon as next month. Rates trading is also affected. While the move begs the question just how effective half of the bank’s equity trading desk was, it will likely be welcomed by the market even if by slashing revenue producers the bank confirms that its trading margins have dropped to negative levels, a virtually unheard of event.

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They should always talk.

China and US Agree To Restart Trade Talks (R.)

The United States and China agreed on Saturday to restart trade talks and that Washington would hold off on imposing new tariffs on Chinese exports, signaling a pause in the trade hostilities between the world’s two largest economies. The truce offered relief from a nearly year-long dispute in which the countries have slapped tariffs on billions of dollars of each other’s imports, disrupting global supply lines, roiling markets and dragging on global economic growth. “We’re right back on track and we’ll see what happens,” U.S. President Donald Trump told reporters after an 80-minute meeting with Chinese President Xi Jinping on the sidelines of a summit of leaders of the Group of 20 (G20) major economies in Japan.


Trump said while he would not lift existing import tariffs, he would refrain from slapping new levies on an additional $300 billion worth of Chinese goods – which would have effectively extended tariffs to everything China exports to the America. “We’re holding back on tariffs and they’re going to buy farm products,” he said at a news conference. “If we make a deal, it will be a very historic event.” Trump said China would buy more farm products but did not provide specifics. In a lengthy statement on the talks, China’s foreign ministry said the United States would not add new tariffs on Chinese exports and that negotiators of both countries would discuss specific issues. Xi told Trump he hoped the United States could treat Chinese companies fairly, the statement added.

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India and Iran.

Russia-India-China Will Be The Big G20 Hit (Escobar)

It all started with the Vladimir Putin–Xi Jinping summit in Moscow on June 5. Far from a mere bilateral, this meeting upgraded the Eurasian integration process to another level. The Russian and Chinese presidents discussed everything from the progressive interconnection of the New Silk Roads with the Eurasia Economic Union, especially in and around Central Asia, to their concerted strategy for the Korean Peninsula. A particular theme stood out: They discussed how the connecting role of Persia in the Ancient Silk Road is about to be replicated by Iran in the New Silk Roads, or Belt and Road Initiative (BRI). And that is non-negotiable.

Especially after the Russia-China strategic partnership, less than a month before the Moscow summit, offered explicit support for Tehran signaling that regime change simply won’t be accepted, diplomatic sources say. Putin and Xi solidified the roadmap at the St Petersburg Economic Forum. And the Greater Eurasia interconnection continued to be woven immediately after at the Shanghai Cooperation Organization (SCO) summit in Bishkek, with two essential interlocutors: India, a fellow BRICS (Brazil, Russia, India, China, South Africa) and SCO member, and SCO observer Iran.


At the SCO summit we had Putin, Xi, Narendra Modi, Imran Khan and Iranian President Hassan Rouhani sitting at the same table. Hanging over the proceedings, like concentric Damocles swords, were the US-China trade war, sanctions on Russia, and the explosive situation in the Persian Gulf. Rouhani was forceful – and played his cards masterfully – as he described the mechanism and effects of the US economic blockade on Iran, which led Modi and leaders of the Central Asian “stans” to pay closer attention to Russia-China’s Eurasia roadmap. This occurred as Xi made clear that Chinese investments across Central Asia on myriad BRI projects will be significantly increased.

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“While there, if Chairman Kim of North Korea sees this, I would meet him at the Border/DMZ just to shake his hand and say Hello(?)!”

Trump Offers To Meet Kim Jong-Un At The DMZ (R.)

U.S. President Donald Trump said on Saturday he would like to see North Korean leader Kim Jong Un this weekend at the demilitarized zone (DMZ) between North and South Korea, and North Korea said a meeting would be “meaningful” if it happened. Trump, who is in Osaka, Japan, for a Group of 20 summit, is due to arrive in South Korea later on Saturday. He is scheduled to return to Washington on Sunday. If Trump and Kim were to meet, it would be for the third time in just over a year, and four months since their second summit, in Vietnam, broke down with no progress on U.S. efforts to press North Korea to give up its nuclear weapons.


Trump made the offer to meet Kim in a comment on Twitter about his trip to South Korea. “While there, if Chairman Kim of North Korea sees this, I would meet him at the Border/DMZ just to shake his hand and say Hello(?)!” he said. Trump later told reporters his offer to Kim was a spur-of-the-moment idea: “I just thought of it this morning.” “We’ll be there and I just put out a feeler because I don’t know where he is right now. He may not be in North Korea,” he said. “If he’s there, we’ll see each other for two minutes, that’s all we can, but that will be fine,” he added. Trump said he and Kim “get along very well”.

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They still pretend it’s about software.

Boeing 737 Max Likely Grounded Until The End Of The Year (CNBC)

Boeing’s 737 Max could stay on the ground until late this year after a new problem emerged with the plane’s in-flight control chip. This latest holdup in the plane’s troubled recertification process has to do with a chip failure that can cause uncommanded movement of a panel on the aircraft’s tail, pointing the plane’s nose downward, a Boeing official said. Subsequent emergency tests to fix the issue showed it took pilots longer than expected to solve the problem, according to The Wall Street Journal. This marks a new problem with the plane unrelated to the issues Boeing is already facing with the plane’s MCAS automated flight control system, an issue the company maintains can be remedied by a software fix.


Boeing hopes to submit all of its fixes to the Federal Aviation Administration this fall, the Boeing official said. “We’re expecting a September time frame for a full software package to fix both MCAS and this new issue,” the official said. “We believe additional items will be remedied by a software fix.” Once that software package is submitted, it will likely take at least another two months before the planes are flying again. The FAA will need time to recertify the planes. Boeing will need to reach agreement with airlines and pilots unions on how much extra training pilots will need. And the airlines will need some time to complete necessary maintenance checks.

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There we go…

Boeing 787 Dreamliner Caught In Deepening 737 MAX Probe (RT)

Federal prosecutors are expanding their Boeing probe, investigating charges the 787 Dreamliner’s manufacture was plagued with the same incompetence that dogged the doomed 737 MAX and resulted in hundreds of deaths. The US Department of Justice has requested records related to 787 Dreamliner production at Boeing’s South Carolina plant, where two sources who spoke to the Seattle Times said there have been allegations of “shoddy work.” A third source confirmed individual employees at the Charleston plant had received subpoenas earlier this month from the “same group” of prosecutors conducting the ongoing probe into the 737 MAX.

Boeing is in the hot seat over alleged poor quality workmanship and cutting corners at the South Carolina plant. Prosecutors are likely concerned with whether “broad cultural problems” pervade the entire company, including pressure to OK shoddy work in order to deliver planes on time, one source told the Seattle Times. The South Carolina plant manufactured 45 percent of Boeing’s 787s last year, but its supersize -10 model is built exclusively there. Prosecutors are on the hunt for “hallmarks of classic fraud,” the source said, such as lying or misrepresentation to customers and regulators. Whistleblowers in the Charleston factory who pointed to debris and even tools left in the engine, near wiring, and in other sensitive locations likely to cause operating issues told the New York Times they were punished by management, and managers reported they had been pushed to churn planes out faster and cover up delays.


[..] A critical fire-fighting system on the Dreamliner was discovered to be dysfunctional earlier this month, leading Boeing to issue a warning that the switch designed to extinguish engine fires had failed in “some cases.” While the FAA warned that “the potential exists for an airline fire to be uncontrollable,” they opted not to ground the 787s, instead ordering airlines to check that the switch was functional every 30 days.

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Tidings from the Empire.

EU Leaders Decide Against Weber For Commission Presidency (R.)

European Union leaders have agreed that conservative German candidate Manfred Weber will not become president of the bloc’s executive Commission, Germany’s Die Welt daily reported on Friday, citing sources familiar with the decision. The decision was reached during talks on the sidelines of the G20 summit in Osaka, Japan, Die Welt said. If confirmed, the compromise would be a blow to Chancellor Angela Merkel, who had backed Weber’s bid to replace Jean-Claude Juncker. French President Emmanuel Macron had opposed Weber’s candidacy, partly because of his lack of experience in high office.

EU leaders failed at a summit earlier this month to agree on who should hold the bloc’s top jobs after European Parliament elections last month, including on the Commission, which has broad powers on matters from trade to competition and climate policy. Weber is the leader of the European People’s Party (EPP), the conservative bloc that won most seats in the election and which includes Merkel’s Christian Democrats (CDU). A senior European diplomat told Reuters that socialist Dutchman Frans Timmermans, a deputy head at the Commission, was the front-runner to succeed Juncker. “Timmermans is the best placed,” the diplomat said.


The EU’s 28 national leaders will meet on June 30 to decide who fills the five prominent positions that would help the bloc navigate through internal and external challenges. The jobs include the presidency of the European Central Bank, which has helped the bloc’s economy return to growth after the financial crisis thanks to an extraordinary monetary stimulus programme.

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“..a wayward jellyfish blown hither and yon by Progressive winds..”

Say Anything! (Kunstler)

Apart from the colorful homage to all things Mexican, the signal event of the night was Elizabeth Warren’s stealth political suicide when the popular question of Medicare-for-all came up and NBC’s Lester Holt asked the candidates for a show of hands as to who would abolish private health insurance altogether. Up shot Liz’s hand. Only New York’s mayor, the feckless Bill DeBlasio joined her. If the contest was a game of “Survivor” both would have thereby voted themselves off the island — except Big Bill was never really on the island, just circling around it like a wayward jellyfish blown hither and yon by Progressive winds.


The only “B” Team figure onstage who appeared to be a serious candidate was Hawaiian congressperson Tulsi Gabbard, a major in the US Army Reserve with tours-of-duty in Iraq and Kuwait — especially impressive when smacking down cretinous Ohio congressman Tim Ryan, who mistakenly asserted that the Taliban were behind 9/11. Uh, no, Tulsi informed him, it was al Qaeda (sponsored by our “friend” Saudi Arabia). I predict Tulsi will make the cut to the “A” team, despite the news media’s desperate efforts to shove her off the playing field.

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Aug 052016
 
 August 5, 2016  Posted by at 9:46 am Finance Tagged with: , , , , , , , , , ,  1 Response »


G.G. Bain Three-ton electric sign blown into Broadway, New York. 1912

New Tool for Central Banks: Buying Corporate Bonds (WSJ)
UK Interest Rate Cut Is A ‘Hammer Blow’ For Workplace Pensions (G.)
UK Labor Market Enters “Freefall” After Brexit Vote (R.)
China Regulator Tells Banks to Evergreen Loans of Troubled Companies (ET)
For Europe’s Elite the Party Lives On After Brexit (BBG)
Tsipras Eyes Southern EU Alliance To Back Debt Deal (Kath.)
The 60-Year Decay of American Politics (Bacevich)
US Unlikely To Extradite Imam Turkey Blames For Coup (CNBC)
How Europe Is Getting Rich by Fueling Its Own Terror Epidemic (TAM)
War Or Peace: The Essential Question For American Voters On November 8th (RI)

 

 

Maybe we need to remind ourselves from time to time that we do NOT have functioning markets. Central banks buying up corporate bonds is of course about as distorting for markets as it comes.

We will yet take debt to its inevitable conclusion.

New Tool for Central Banks: Buying Corporate Bonds (WSJ)

Central banks have a new favorite tool for boosting lackluster growth: corporate-debt purchases. Two months after the ECB started buying corporate bonds, the Bank of England said Thursday that it would adopt a similar strategy. It will buy as much as £10 billion ($13.33 billion) of U.K. corporate debt starting in September as part of a larger package of stimulus measures, including £60 billion of additional government-bond purchases. The move, investors and analysts say, is likely to drive down borrowing costs even further around the globe for large companies already benefiting from ultralow interest rates.

But the decision again raises concerns about possible side effects of unconventional monetary policies, including excessive risk taking by investors, and faces substantial skepticism from investors who doubt such programs meaningfully address the global economy’s core deficiencies, centering on soft demand for goods and services. Already this year, negative-interest-rate policies and aggressive bond buying by central banks in Japan and Europe have helped create trillions of dollars of negative-yielding government bonds. That in turn has driven down corporate-bond yields, leading to robust debt issuance among companies in the U.S., if not all developed countries.

In the U.S., the average yield of investment-grade corporate bonds was 2.85% Wednesday, compared with 3.67% at the end of 2015, according to Barclays data. The average spread to Treasury yields also has shrunk, to 1.48 percentage points from 1.72. Companies have issued $519.2 billion of investment-grade corporate bonds this year, just below their pace at this time last year when issuance ultimately reached a record $794.6 billion, according to Dealogic.

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Wait till the stock market crashes, that’s when pensions will be hit.

UK Interest Rate Cut Is A ‘Hammer Blow’ For Workplace Pensions (G.)

Pension savers could be big losers from the Bank of England rate cut, as critics warned of a “hammer blow” to workplace schemes and forecast that pension payouts would fall to record lows. Within minutes of the Bank’s decision to cut the base rate to 0.25%, yields on government bonds, otherwise known as gilts, dived to all-time lows. Companies that still offer final salary pension schemes will as a result see the cost of maintaining them soar. Hymans Robertson, a pensions consultancy, said the rate cut meant a £70bn increase in the amount company schemes needed to meet their commitments to scheme members, to a total of £2.4trn. “To put this in context, UK GDP currently stands at £1.8trn. This has pushed the aggregate UK [company scheme] deficit up to £945bn – the worst it has ever been,” it said.

Companies will have to find the money to fill the gap in their pension schemes, or like most already have, close them to new members. In extreme cases, some may attempt to redraw pension contracts to cap their future liabilities. Patrick Bloomfield of Hymans Robertson said: “Pension schemes are being hit hard by recent events, but we need to remember that the impact will not be felt equally by all … There are schemes with robust funding plans that don’t take more risk than they need to, which will be able to weather this. The gap between pension schemes that hedged their risks and those that haven’t is starker than ever before.”

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A forced reset is not necessarily a bad thing.

UK Labor Market Enters “Freefall” After Brexit Vote (R.)

Britain’s labour market entered “freefall” after the vote to leave the European Union, with the number of permanent jobs placed by recruitment firms last month falling at the fastest pace since May 2009, a survey showed on Friday. The monthly report from the Recruitment and Employment Confederation (REC) showed starting salaries for permanent jobs rose in July at the slowest pace in more than three years. Overall, the survey added to evidence that business confidence and activity slowed sharply after the June 23 vote to leave the European. “The UK jobs market suffered a dramatic freefall in July, with permanent hiring dropping to levels not seen since the recession of 2009,” said REC chief executive Kevin Green. “Economic turbulence following the vote to leave the EU is undoubtedly the root cause.”

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Different countries have different ways of hiding their debt.

China Regulator Tells Banks to Evergreen Loans of Troubled Companies (ET)

On the surface, China is talking the reform talk. But is it also walking the walk? There are many examples to demonstrate it isn’t. The most recent one is a directive from the China Banking Regulatory Commission (CBRC) to not cut off lending to troubled companies and evergreening bad loans. This first reported by The Chinese National Business Daily on Aug. 4. “A Notice About How the Creditor Committees at Banks and Financial Institutes Should Do Their Jobs” tells banks to “act together and not ‘randomly stop giving or pulling loans.’ These institutes should either provide new loans after taking back the old ones or provide a loan extension, to ‘fully help companies to solve their problems,’” the National Business Daily writes.

“It’s big news. A couple of weeks ago they were threatening Liaoning Province to cut off all lending to them if they didn’t tighten loan standards,” said Christopher Balding, a professor of economics at Peking University in Shenzen. “This is a pretty significant turn-around for them to do and it indicates how significant the problem is.” The official reform narrative is espoused in this Xinhua piece which claims China has to reform because there is no Plan B. “Supply-side structural reform is also advancing as the country moves to address issues like industrial overcapacity, a large inventory of unsold homes and unprofitable ‘zombie companies.’” Clearly resolving the bad debt of zombie companies is not high on the priority list.

Goldman Sachs complained in a recent note to clients that companies can default on payments and often nothing happens. The investment bank notes that companies like Sichuan Coal default on payments of interest and principal for weeks or months and then maybe pay creditors later. The company in question defaulted on 1 billion yuan ($150 million) worth of commercial paper in June but made full payments later during the summer, a somewhat arbitrary process. Another case is Dongbei Special Steel, which missed at least five payments on $6 billion of debt since the beginning of the year, but has done nothing to resolve the problem. This is why creditors wrote an angry letter to the local government to help resolve the issue.

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Why the EU can’t be reformed.

For Europe’s Elite the Party Lives On After Brexit (BBG)

Europe’s political elite may have missed the Brexit memo. Six weeks since U.K. voters rebuked the ruling class by choosing to leave the European Union, the region’s establishment has reacted by carrying on as before. The revolving door of former policy makers joining the finance industry has spun again, with European Commission President Jose Manuel Barroso signing up with Goldman Sachs and former Bank of England Governor Mervyn King joining Citigroup. Meanwhile departed Prime Minister David Cameron is facing criticism for nominating numerous aides for honors, including his wife’s stylist.

The perception of elite coziness risks further disenfranchising those backing Brexit, and peers across the continent who share the feeling of being left behind by the powerful and wealthy in the era of globalization and financial crises. A potential upshot is more support for populist parties that tap into alienation such as the U.K. Independence Party or France’s National Front. “Anything that doesn’t show government or public institutions in a good light merely confirms some of the attitudes that probably contributed to the Brexit vote,” said Chris Roebuck, a visiting professor at London’s Cass Business School. For some voters, “there is a group of people out there who aren’t normal people like you or me, who have benefited since the financial crisis – because they’re an elite.”

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Tsipras already lost the ‘fight’. Beppe Grillo may lead such an alliance, not Tsipras.

Tsipras Eyes Southern EU Alliance To Back Debt Deal (Kath.)

Prime Minister Alexis Tsipras is planning to forge an alliance with the leaders of other countries in Southeastern Europe in a bid to bolster Greece’s bid for a debt restructuring and lower the primary surplus targets set by creditors. Tsipras is expected to explore the prospects for such an alliance at a meeting of European socialist heads of state scheduled to take place in Paris on August 25, particularly with Italian Prime Minister Matteo Renzi and French President Francois Hollande. The meeting had originally been planned for May 20 in Rome but was postponed after an Egyptian passenger plane crashed in the Mediterranean. The Greek premier’s aim, according to sources, is to arrange a subsequent meeting in Athens, probably on September 9, and in any case before a scheduled European Union leaders’ summit on September 16, to further explore the prospect of forming a Southeastern European alliance.

Tsipras and Renzi had agreed at their last meeting on the sidelines of an EU summit on June 28 on the need for southern states to create their own growth-focused agenda, compared to the austerity prescribed by Northern European countries. At the time, Hollande and Portuguese Prime Minister Antonio Costa had appeared open to the prospect of such an alliance. In Athens, sources close to Tsipras believe the time is right to pursue the creation of a strong southern “axis” to counter the stance of countries in Northern Europe. The idea of a united front of Southern European countries was first mooted by leftist SYRIZA before the general elections of January 2015 that brought it to power.

At the time, Tsipras thought Athens would attract the solidarity of Southern European countries in SYRIZA’s rhetoric against austerity and that those countries would stand by Greece in its negotiations with international creditors. That solidarity did not transpire then. However, sources close to Tsipras believe the current situation is potentially more beneficial for Athens as the protracted imposition of austerity on Greece and elsewhere has increased the pressure on countries in Southern Europe. Athens is also hopeful about forming a common front on another crucial issue that has divided Southern and Northern European countries: the ongoing refugee crisis. Indications by Turkey that it might not honor a migrant deal with the EU have fueled concerns in Greece that a slowed migrant influx could pick up again.

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Nostalgia. “And don’t kid yourself that things really can’t get much worse. Unless Americans rouse themselves to act, count on it, they will.”

The 60-Year Decay of American Politics (Bacevich)

Presidential campaigns today are themselves, to use Boorstin’s famous term, “pseudo-events” that stretch from months into years. By now, most Americans know better than to take at face value anything candidates say or promise along the way. We’re in on the joke — or at least we think we are. Reinforcing that perception on a daily basis are media outlets that have abandoned mere reporting in favor of enhancing the spectacle of the moment. This is especially true of the cable news networks, where talking heads serve up a snide and cynical complement to the smarmy fakery that is the office-seeker’s stock in trade. And we lap it up. It matters little that we know it’s all staged and contrived, as long as — a preening Megyn Kelly getting under Trump’s skin, Trump himself denouncing “lyin’ Ted” Cruz, etc., etc. — it’s entertaining.

This emphasis on spectacle has drained national politics of whatever substance it still had back when Ike and Adlai commanded the scene. It hardly need be said that Donald Trump has demonstrated an extraordinary knack — a sort of post-modern genius — for turning this phenomenon to his advantage. Yet in her own way Clinton plays the same game. How else to explain a national convention organized around the idea of “reintroducing to the American people” someone who served eight years as First Lady, was elected to the Senate, failed in a previous high-profile run for the presidency, and completed a term as secretary of state? The just-ended conclave in Philadelphia was, like the Republican one that preceded it, a pseudo-event par excellence, the object of the exercise being to fashion a new “image” for the Democratic candidate.

The thicket of unreality that is American politics has now become all-enveloping. The problem is not Trump and Clinton, per se. It’s an identifiable set of arrangements — laws, habits, cultural predispositions — that have evolved over time and promoted the rot that now pervades American politics. As a direct consequence, the very concept of self-government is increasingly a fantasy, even if surprisingly few Americans seem to mind.

At an earlier juncture back in 1956, out of a population of 168 million, we got Ike and Adlai. Today, with almost double the population, we get — well, we get what we’ve got. This does not represent progress. And don’t kid yourself that things really can’t get much worse. Unless Americans rouse themselves to act, count on it, they will.

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Can’t see US handing Gulen over on a platter, but Turkey is not done demanding his head. And many others.

US Unlikely To Extradite Imam Turkey Blames For Coup (CNBC)

U.S. officials weren’t likely to extradite Fethullah Gulen, an imam Turkey blames for plotting the recent failed coup, The Wall Street Journal reported Thursday, citing people familiar with the discussion. Those people said the evidence presented so far by Turkey wasn’t convincing and U.S. officials were also concerned about Turkish officials’ threatening public statements, which made the fairness of his potential treatment questionable, the report said. Gulen, who lives in Pennsylvania, has denied wrongdoing, the report said.

Separately, Reuters reported that Turkey’s President Tayyip Erdogan pledged on Thursday to cut off revenues from businesses tied to the 75-year-old Gulen, which include schools, firms and charities. Even before the failed coup, authorities in Turkey had seized Islamic lender Bank Asya, closed media businesses and arrested businessmen on accusations of funding the imam’s movement, Reuters reported. The failed coup, which took place on July 15, left more than 230 dead. Since then, more than 60,000 people across various branches of government have been detained, suspended or put under investigation, Reuters reported. That’s spurred concerns Erdogan was cracking down on all dissent.

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“68 flights that took place within 13 months transported weapons and ammunition to the Middle East, including to NATO member Turkey, which in turn “funnelled arms into brutal civil wars in Syria and Yemen.”

How Europe Is Getting Rich by Fueling Its Own Terror Epidemic (TAM)

Though Europe does not have the rates of gun violence the United States continues to grapple with, European governments have made over a billion euros by fueling gun violence in the Middle East and North Africa. A report conducted by a team of reporters from the Balkan Investigative Reporting Network (BIRN) and the Organized Crime and Corruption Reporting Project (OCCRP) found a group of European nations has been funneling arms into the Middle East region since 2012, making at least 1.2 billion euros in the process. According to the report, 68 flights that took place within 13 months transported weapons and ammunition to the Middle East, including to NATO member Turkey, which in turn “funnelled arms into brutal civil wars in Syria and Yemen.”

The report also notes that these flights make up only a small portion of the 1.2 billion euros in arms deals between Europe and the Middle East since 2012. The report’s conclusions are horrifying, to say the least. The report states: “Arms export licenses, which are supposed to guarantee the final destination of the goods, have been granted despite ample evidence that weapons are being diverted to Syrian and other armed groups accused of widespread human rights abuses and atrocities.” Considering Europe is battling a continually rising terrorist threat, they seem to be going about tackling this issue the wrong way. Surely the best way to counter terrorism is to cease funding it in the first place.

One astounding aspect of the report is that the lucrative war-profiteering business involves nations the world would not usually regard as overly-interested in war. The countries contributing to the rising terror threat, as identified by the report, are Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, and Romania, among others. This report adds to the already glaring problem of European countries making billions of dollars off the death and destruction of Middle Eastern civilian life. The Stockholm International Peace Research Institute (SIPRI) found the United Kingdom was second only to the United States in arms sales, making up 10.4% of the total $401 billion worth of arms sold around the world for the 2014 period.

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Trump for Peace. We have 3 months left to get used to that.

War Or Peace: The Essential Question For American Voters On November 8th (RI)

In matters of substance as opposed to character assassination that both parties’ candidates have engaged in freely, what separates the candidates and makes it worthwhile to register and vote on November 8th is the domain of international relations. This, as a general rule, is the only area where a president has free hands anyway, whatever position his party holds in the Congress. Here the choice facing voters is stark, I would say existential: do we want War or Peace? Do we want to pursue our path of global hegemony, which is bringing us into growing confrontation with Russia, meaning a high probability of war, (the policy of Hillary Clinton), or do we want a harmonious international order in which the U.S. plays its role at the board of governors, just like other major world powers (the policy of Donald Trump).

Let me go one step further and explain what “war” means, since it is not something that gets much attention in our media, whereas it is at the top of the news each day in Russia. “War” does not mean Cold War-II, a kind of scab you can pick to indulge a pleasure in pain that is not life threatening. War means what our military like to call “kinetics” to mask the horror of it all. It means live ammunition, ranging from conventional to thermonuclear devices that can devastate large swathes of the United States if we play our hand badly, as would likely be the case for reasons I explain below should Hillary and her flock of Neocon armchair strategists take the reins of power in January 2017.

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Mar 102016
 
 March 10, 2016  Posted by at 9:56 am Finance Tagged with: , , , , , , , , ,  5 Responses »


William Henry Jackson Tunnel 3, Tamasopo Canyon, San Luis Potosi, Mexico 1890

IMF Says World At Risk Of ‘Economic Derailment’ (BBC)
Whole Of Europe Risks Spinning Into Crisis If Leaders Mishandle Brexit (AEP)
This Is Jeff Gundlach’s Favorite -& Scariest- Chart (ZH)
“However It Takes” #Draghi (BM)
Senior European Bankers Voice Concerns Over ECB Cut (FT)
Markets Betting On Near-Zero Interest Rates For Another Decade (Reuters)
What’s In A Growth Target? For China, Hope And Simple Math (WSJ)
China To Allow Commercial Banks To Swap Bad Debt For Equity Stakes (Reuters)
Albany Can Solve the World’s Sovereign Debt Crisis (BBG)
Germany Needs 470,000 Immigrants Per Year For Next 25 Years (GM)
Record Number Of African Rhinos Killed In 2015 (Guardian)
Syrians Under Siege: ‘We Have No Children Any More, Only Small Adults’ (G.)
Did Michel Foucault Predict Europe’s Refugee Crisis? (Baele)
Refugees At Border Should Move To Camps, Says Greek Minister (AP)
Conditions At Idomeni Refugee Camp Worsen By The Day (Kath.)
Five Iranians, Afghans Drown Trying To Reach Greece (Reuters)

And the IMF worked hard to get it there.

IMF Says World At Risk Of ‘Economic Derailment’ (BBC)

The IMF has warned that the global economy faces a growing “risk of economic derailment.” Deputy director David Lipton called for urgent steps to boost global demand. “We are clearly at a delicate juncture,” he said in a speech to the National Association for Business Economics in Washington on Tuesday. “The IMF’s latest reading of the global economy shows once again a weakening baseline,” he warned. The comments come after weaker-than-expected trade figures from China showing that exports in February plunged by a quarter from a year ago. With the world’s second largest economy often referred to as as “the engine of global growth”, weaker global demand for its goods is read as an indicator of the general global economic climate. The IMF has already said it is likely to downgrade its current forecast of 3.4% for global growth when it releases its economic predictions in April.

Last month, the international lender had warned that the world economy was “highly vulnerable” and called for new efforts to spur growth. In a report ahead of last month’s Shanghai G20 meeting, the IMF said the group should plan a co-ordinated stimulus programme as world growth had slowed and could be derailed by market turbulence, the oil price crash and geopolitical conflicts. In his Washington speech, Mr Lipton said “the burden to lift growth falls more squarely on advanced economies” which have fiscal room to move. “The downside risks are clearly much more pronounced than before, and the case for more forceful and concerted policy action, has become more compelling.” “Moreover, risks have increased further, with volatile financial markets and low commodity prices creating fresh concerns about the health of the global economy,” he added. The downbeat picture is one that has continuing ramifications for businesses and industries that bet on China’s growth story.

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“..the whole of Europe is sitting on a bed of nitroglycerin..”

Whole Of Europe Risks Spinning Into Crisis If Leaders Mishandle Brexit (AEP)

[..] Personally, I find talk about “retaliation” against Britain to be a little odd, though I do not rule it out. Any such madness would risk a political crisis in Denmark and Sweden, and ultimately spread to Germany. British withdrawal would be a thunderous shock to the EU project. The immediate imperative for Europe’s leaders at that point would be to patch things up and ensure a velvet divorce as quickly as possible to stop the crisis spinning out of control. France’s Marine Le Pen likens Brexit to the collapse of the Berlin Wall. “It will be the beginning of the end. If Britain knocks down part of the wall, it s finished, it’s over, she said. Whether she is right or wrong depends on the statecraft of Angela Merkel, Francois Hollande, Mateo Renzi and Poland’s Beata Szydlo. A report this week by Morgan Stanley spells out the grim price Europeans will pay if they mishandle this event.

Foreign investors would start to withdraw their $8.3 trillion of investments in the eurozone. There might be a bond run with Spain in the firing line. The bank’s base case for Brexit is that the MSCI Europe index of equities will fall 15pc-20pc, and 0.7 percentage points will be knocked off growth by late 2017. Its “high stress” scenario is a stock market crash of up to 30pc, a tightening in financial conditions by 200 basis points, severe contagion, and a 2pc blow to GDP that pushes the eurozone into recession, with “growing concerns around the sustainability of the entire European project”. Whether the eurozone could withstand a fresh shock of this force is an open question. The region already has one foot in deflation, with toxic effects on debt dynamics. Public debt ratios are massively higher than they were at the top of the last credit cycle in 2008, and pushing safe limits of 133pc of GDP in Italy and 129pc in Portugal.

The hysteresis effects of mass unemployment have done lasting damage to economic dynamism, lowering the eurozone’s speed limit for a decade to come. There is no fiscal union, and no genuine banking union. Little has been done to make monetary union viable. The ECB is running low on ammunition. Populist movements are simmering everywhere. I do not wish to gloss over the risks to the UK. These are real and have been widely aired, emphatically by the Bank of England recently. My point is that the whole of Europe is sitting on a bed of nitroglycerin. It is a fair bet that EU leaders would refrain from reprisals that would make their crisis infinitely worse, but it is only a bet. No level of folly can ever be excluded in the march of human affairs.

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“These lines will converge..”

This Is Jeff Gundlach’s Favorite -& Scariest- Chart (ZH)

According to DoubleLine’s Jeff Gundlach, this is his favorite chart – backing his persepctive that equity markets have “2% upside and 20% downside) from here. In his words: “These lines will converge…” It should be pretty clear what drove the divergence, and unless (and maybe if) The Fed unleashes another round of money-printing (or worse), one can’t help but agree with Gundlach’s ominous call.


Chart: Bloomberg

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“We don’t want to play any more.” Sounds nice, but a ton of bankers, investors etc. MUST play.

“However It Takes” #Draghi (BM)

Never has an ECB meeting been so eagerly anticipated, and yet so confused. In October’s meeting, we expected nothing. Instead we got that “things have changed” about “going into further negative territory”. Sell the Euro! Buy Euribors! In December’s meeting, we expected everything. But we thought we didn’t. So we got a market that was overly short of Euros/long of Euribors and forced to exit. Buy the Euro! Sell Euribors! In January’s meeting, we didn’t want to listen. But we had to, because this time Draghi didn’t leave it to the Q&A to deliver his own thoughts. He managed to shoehorn some kind of consensus towards further easing into the actual statement: ‘we decided to keep the key ECB interest rates unchanged and we expect them to remain at present or lower levels for an extended period of time’. Sell the Euro a bit! Buy Euribors a bit more!

Now the time has come. It’s the March meeting and they can present new staff forecasts as they indicate just how much lower, and for how much longer, the stimulus can continue. Are we buying or selling everything? There was an important step between 3 and 4, however, and that was the impact of the Bank of Japan moving into negative rates, as well as the ongoing cumulative bout of fear subsuming the markets. In February, we all decided that lower interest rates might not actually be very good for the banking system. Which is a bit of a shame, given that the banks are the transmission mechanism by which those super-stimulative rates are supposed to super-stimulate the economy. This now leaves us in this position:
• October: We forgot that Draghi always over-delivers!
• December: No, we didn’t, and EUR/USD has its biggest upmove of the year
• January: No, we were wrong again, he does want to over-deliver, here he is putting in his fresh order for a kitchen sink
• March: We don’t want to play any more.

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Don’t think the ECB is done blowing bubbles.

Senior European Bankers Voice Concerns Over ECB Cut (FT)

Some of Europe’s most senior bankers have warned the European Central Bank of the dangers of negative interest rates ahead of a widely anticipated cut at the bank’s policy meeting on Thursday. The ECB is expected to cut its deposit rate by 10 basis points to minus 0.4% as it takes further action in its struggles to lift persistently low inflation and boost economic growth back to normal levels. Bank leaders are alarmed by the crippling effect on their profits of negative rates which they cannot pass on to ordinary customers, adding to concerns about the fragility of financial stability in some parts of the eurozone. But any attempt by the ECB to shield lenders from the effects of negative rates could weaken the policy and open the central bank to claims that it is engaged in a beggar-thy-neighbour devaluation.

Andreas Treichl, chief executive of Austria’s Erste Bank, told the Financial Times that another cut could encourage financial bubbles, hurt economic growth and create “social disparity” by penalising savers. José García Cantera, Santander’s chief financial officer, added that the banks that would take the biggest hit to their profits if rates were cut again were those least able to bear it. Last week, Sergio Ermotti, UBS chief executive, warned that excessively low rates were prompting banks to extend too many risky loans because they “don’t know what to do” with deposits. The industry hopes to lay out concrete evidence of the detrimental impact negative rates are already having in mid-April, when the European Banking Federation will present the results of a review into how its members are being affected.

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Nobody oversees 10 years in this climate.

Markets Betting On Near-Zero Interest Rates For Another Decade (Reuters)

World markets may have recovered their poise from a torrid start to the year, but their outlook for global growth and inflation is now so bleak they are betting on developed world interest rates remaining near zero for up to another decade. Even though the U.S. Federal Reserve has already started what it expects will be a series of interest rate rises, markets appear to have bought into a “secular stagnation” thesis floated by former U.S. Treasury Secretary Larry Summers. The idea posits that the world is entering a peculiarly prolonged period in which structurally low inflation and wage growth – hampered by aging populations and slowing productivity growth – means the inflation-adjusted interest rate needed to stimulate economic demand may be far below zero.

As there’s likely a lower limit to nominal interest rates just below zero – because it’s cheaper to hold physical cash and bank profitability starts to ebb – then even these zero rates do not gain traction on demand. For all the debate about the accuracy of that view, it’s already playing out in world markets, with long-term projections from the interest rate swaps market showing developed world interest rates stuck near zero for several years. Take overnight interest rate swaps. They imply ECB policy rates won’t get back above 0.5% for around 13 years and aren’t even expected to be much above 1% for at least 60 years. Japan’s main interest rate won’t reach 0.5% for at least 30 years, they suggest, and even U.S. and UK rates are set to remain low for years. It will be six years before U.S. rates return to 1%, and a decade until UK rates reach that level.

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Poetry in motion: “In China, you can see it visibly”, she said.”

What’s In A Growth Target? For China, Hope And Simple Math (WSJ)

What’s in an economic growth target? When it comes to China, not all that much. That the government has a passion for setting targets is well-established; the nation’s top economic planning agency lists 59 in the appendix of its annual report to China’s parliament, of which it says it only undershot in four categories last year. Given that, one might assume that the policymakers of Beijing arrive at their numbers through reams of Excel sheets and several lecture-hall chalkboards worth of mathematical formula. Not so, according to Wu Xiaoling, deputy director of China’s congressional finance and economy committee. Ms. Wu is a former deputy governor of the central bank, the former head of its foreign-exchange regulator, and a respected thinker in China’s financial policy circles.

In explaining China’s current monetary policy, which is trying to strike a balance between providing enough money for growth without sparking another round of debt bingeing, Ms. Wu walked reporters through the steps the government takes to build its target for M2, the broadest measurement of money, capturing all the cash, savings and deposits flowing through an economy. M2 is an indicator that economists watch not just for its sheer size in China, but also because it s driving an accumulation of debt at twice the speed that the world’s second-largest economy is growing. M2’s growth is the result of deliberate government policy. Last year, it set a goal of 12%; the actual expansion came in at 13.3%. This year, Beijing is setting an expansion in the money supply by 13%. How did the officials arrive at these numbers? It begins, Ms. Wu says, with China s’all-important indicator: its economic growth target.

Last year, the gross domestic product expansion target was 7%. This year, as growth slows, the government has lowered the target to a range of 6.5% to 7%. That target is the minimum that would enable Beijing to accomplish a lofty government goal to double household income per capita between 2010 and 2020. The central bank then takes that GDP target and tacks on its expectations of consumer price inflation -3% both this and last year- and “then we add 2% or 3% points to take into account ‘uncertainty'”, Ms. Wu said earlier this week. The final sum becomes the government’s goal of monetary expansion for the year: 12% last year, and 13% this year, since the central bank this year chose to use the upper bound of the GDP growth range for its planning purposes. The nub of China’s M2 growth strategy isn t unique. Economists have long theorized that monetary supply can have a strong correlation with economic growth; managing M2 is therefore potentially a key way that central banks influence economic growth.

The problem, as Ms. Wu also acknowledged, is that an unbridled reliance on monetary expansion often drives debt and inflation. “In China, you can see it visibly”, she said. “Property prices have risen a lot since 2009.” The other major problem for China is that such an expansion in money supply is coinciding with a period of currency weakness fueled by worries over its economic slowdown and the ability of China s leaders to manage it that has led to an unprecedented rundown of its foreign-exchange reserves. Economists look at the correlation between broad money and foreign reserves for clues to how likely an economy is exposed to the risk of capital flight. The higher the M2-to-reserves ratio or conversely, the lower the reserves-to-M2 ratio the higher the likelihood of capital flight. In China s case, the reserves-to-M2 measurement is currently about 15%, which is about as low as Indonesia s when the Asian financial crisis struck in 1997. Indonesia saw capital flight, a plummeting currency and civil unrest.

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Until truly nobody knows what anything is worth anymore. Just nationalize everything that smells bad.

China To Allow Commercial Banks To Swap Bad Debt For Equity Stakes (Reuters)

China’s central bank is preparing regulations that would allow commercial banks to swap non-performing loans of companies for stakes in those firms, two sources with direct knowledge of the new policy told Reuters. The sources, who spoke on condition of anonymity, said the release of a new document explaining the regulatory change was imminent. On paper, the move would represent a way for indebted corporates to reduce their leverage, reducing the cost of servicing debt and making them more worthy of fresh credit. It would also reduce NPL ratios at commercial banks, reducing the cash they would need to set aside to cover losses incurred by bad loans. These funds could then be freed up for fresh lending for investment in the new wave of infrastructure products and factory upgrades the government hopes will rejuvenate the Chinese economy.

The sources said the new regulations would be promulgated with special approval from the State Council, China’s cabinet-equivalent body, thus skirting the need to revise the current commercial bank law, which prohibits banks from investing in non-financial institutions. In the past Chinese commercial banks usually dealt with NPLs by selling them off at a discount to state-designated asset management companies. The AMCs would turn around and attempt to recover the debt or resell it at a profit to distressed debt investors. The sources did not have further detail about how the banks would value the new stakes, which would represent assets on their balance sheets, or what ratio or amount of NPLs they would be able to convert using this method. Official data from the China Banking Regulatory Commission shows Chinese banks held NPLs and “special mention” troubled loans in excess of 4 trillion yuan ($614.04 billion) at the end of 2015.

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Paul Singer won’t let them.

Albany Can Solve the World’s Sovereign Debt Crisis (BBG)

In recent years, many countries – including Greece, Argentina and Ukraine – have found themselves indebted beyond their ability to pay. Argentina may now be on the brink of resolving a decade-long dispute with some of its creditors, but its predicament highlights a fundamental problem of sovereign debt. Unlike individuals and corporations, countries cannot use bankruptcy laws to restructure unsustainable debt. They are forced to try to separately renegotiate each of their debt contracts, which often fails because it requires unanimity. Although attempts have been made to try to bypass this requirement by including so-called collective action clauses in sovereign debt contracts, many contracts still lack them. Furthermore, most collective action clauses only bind a party to the particular contract that includes it.

The parties to any given sovereign debt contract, therefore, can act as holdouts in any debt restructuring plan that requires the parties to all of the country’s other debt contracts to agree to it. Recent judicial decisions interpreting New York law, which governed the relevant Argentine debt contracts, have made sovereign debt restructuring even harder; they allow “vulture funds” to extract ransom money by buying debt claims to block the ability of majority creditors to reach a settlement. These decisions broadly threaten New York’s dominance as the law that governs sovereign debt contracts. Yet New York has the unique ability not only to preserve its dominance but also to help solve the sovereign debt crisis. Because around half the world’s sovereign debt contracts are governed by New York law, the state could pass a measure to amend the voting requirements under those contracts.

For example, contracts that now require unanimity for revisions could be amended to allow changes that are approved by at least a supermajority of similarly situated creditors (even if those creditors’ claims arise under different debt contracts); such a law would overcome the major hurdle to sovereign debt restructuring. That, in turn, would give struggling nations the real prospect of equitably restructuring their debt to sustainable levels, thereby lowering sovereign borrowing costs and increasing creditor confidence by reducing uncertainty. This is a financially powerful opportunity for New York. Never before has a U.S. state had the power to influence the international community to such an extent. Being that New York City is the world’s financial center and home of the United Nations headquarters, it is fitting that circumstances have endowed the state with this power. Enactment of such a measure would also reinforce New York’s legitimacy as the governing law for future sovereign debt contracts.

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Try tell that to the right wing.

Germany Needs 470,000 Immigrants Per Year For Next 25 Years (GM)

German Chancellor Angela Merkel continues to receive both praise and criticism for her decision last year to open Germany’s doors to hundreds of thousands of the migrants arriving on Europe’s shores. ‘It goes without saying that we help and accommodate people who seek safe haven with us,’ she declared. However, while recent immigration has added enough people to offset any natural population shrinkage as a result of increasing death rates compared to birth rates, the next few decades are still likely to see the country’s increasingly elderly population go into a steady decline. Destatis, Germany’s national statistics office, estimates that the number of Germans between the ages of 20 and 66 is expected to shrink by a quarter – around 13 million people – between 2013 and 2040, while the number of people over 67 is expected to rise from 15.1 million to 21.5 million over the same time.

‘The shrinking of the population has consequences,’ explains Stephan Sievert, researcher at the Berlin Institute for Population and Development. ‘It has repercussions on the economy, on social security, and on infrastructure. A more gradual, incremental shrinking would be preferable to a rapid decline. The more time you have to adjust to the new situation, the more time you have to adapt the functioning of your society.’ Destatis confirms that immigration cannot be expected to make up this shortfall. It concludes that the country would require an estimated 470,000 immigrants ready to join the workforce every year between now and 2040 to prevent a significant demographic shift, a rate which the current unprecedented period of high immigration cannot be expected to sustain.

‘It’s not necessarily about the number of people, it’s about what they bring to the table,’ continues Sievert. ‘What kind of qualifications do they have? Can they find employment? Can they relieve some of the burden on the social security systems that increasingly more people are getting money out of than people are paying in to?’ He also raises the issue of where immigrants might settle spatially; whether they could help revive rural parts of the country where populations are dwindling. ‘It’s a different question to whether or not this would be desirable,’ he adds. ‘To have immigration on the scale that could make up for these losses, we’d be talking about more than half a million every year, and that doesn’t make the task of integration any easier.’

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The animal man truly is.

Record Number Of African Rhinos Killed In 2015 (Guardian)

A record number of rhinos were killed by poachers across Africa last year, driven by demand in the far east for their horn. The number slaughtered in their heartland in South Africa, which has four-fifths of the continent’s rhino, dipped for the first time since the crisis exploded nearly a decade ago. But increases in the number of rhino poached in Nambia and Zimbabwe offset the small signs of hope in South Africa, leading to a record 1,338 to be killed continent-wide. A total of 5,940 have been poached since 2008. Conservationists said it was possible that a clampdown by authorities in South Africa, where ministers have stepped up efforts against an illegal trade that they say threatens the tourism industry, have led to organised criminals moving their operations.

“They [poachers] operate like an amoeba so if you push in one place they expand elsewhere. What you may be seeing is a response at the regional level, where increased pressure in South Africa makes it more difficult for operatives to operate, having a response elsewhere,” said Mike Knight, chair of the respected International Union for the Conservation of Nature’s African rhino specialist group.

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The legacy of the ‘developed’ world.

Syrians Under Siege: ‘We Have No Children Any More, Only Small Adults’ (G.)

Sick children dying as lifesaving medicine waits at checkpoints, youngsters forced to survive on animal feed and leaves, and families burning their mattresses just to find something to keep them warm. Schools moving underground for shelter from barrel bombs, the crude, explosive-filled and indiscriminate crates that fall from the sky and are so inaccurate that some observers have said their use is a de facto war crime. The wounded left to die for lack of medical supplies, anaesthetics, painkillers and chronic medicine; children dying of malnutrition and even rabies due to the absence of vaccines, while landmines and snipers await anyone trying to escape. The scenes are not from second world war death camps or Soviet gulags.

They are the reality of life for more than a million Syrians living in besieged areas across the war-torn nation, according to a report by Save the Children. Tanya Steele, the charity’s chief executive, said: “Children are dying from lack of food and medicines in parts of Syria just a few kilometres from warehouses that are piled high with aid. They are paying the price for the world’s inaction.” At least a quarter of a million children are living in besieged areas across Syria, Save the Children estimates, in conditions that the charity describes as living in an open-air prison. The report is based on a series of extensive interviews and discussions with parents, children, doctors and aid workers on the ground in besieged zones.

It illustrates with startling clarity the brutality with which the conflict in Syria is being conducted, five years into a revolution-turned-civil-war that has displaced half the country and killed more than 400,000 people. The suffering of people in besieged areas in Syria is also an indictment of the failure of the international community to bring an end to the crisis. Less than 1% of them were given food assistance in 2015 and less than 3% received healthcare. Rihab, a woman living in eastern Ghouta near Damascus, which has been besieged by Bashar al-Assad’s regime, was quoted as saying: “Fear has taken control. Children now wait for their turn to be killed. Even adults live only to wait for their turn to die.”

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Nice theory, though maybe a little farfetched.

Did Michel Foucault Predict Europe’s Refugee Crisis? (Baele)

In March 1976, philosopher Michel Foucault described the advent of a new logic of government, specific to Western liberal societies. He called it biopolitics. States were becoming obsessed with the health and wellbeing of their populations. And sure enough, 40 years later, Western states are prodigiously promoting healthy food, banning tobacco, regulating alcohol, organizing breast cancer checks, and churning out information on the risk probabilities of this or that disease. Foucault never claimed this was a bad trend—it saves lives after all. But he did warn that paying so much attention to the health and wealth of one population necessitates the exclusion of those who are not entitled to—and are perceived to endanger—this health maximization program. Biopolitics is therefore the politics of live and let die.

The more a state focuses on its own population, the more it creates the conditions of possibility for others to die, “exposing people to death, increasing the risk of death for some people.” Rarely has this paradox been more apparent than in the crisis that has seen hundreds of thousands of people seeking asylum in Europe over the past few years. It is striking to watch European societies investing so much in health at home and, at the same time, erecting ever more impermeable legal and material barriers to keep refugees at bay, actively contributing to human deaths. The conflict in the Middle East is a deadly war. Most estimates suggest 300,000 have been killed in Syria alone. The conflict has shown us some of the most gruesome practices that war can produce, including the gassing of several thousands of civilians in Damascus in 2013.

Extremist groups such as the Islamic State display unimaginable levels of violence. They have beheaded people with knives or explosives, burned people locked in cages, crucified people, thrown people from the tops of buildings, or more recently exploded people locked in a car (a child supposedly detonated the bomb). This violence has been exported to Europe. Some of the biggest Syrian cities now look pretty much like Stalingrad in 1943. Inevitably, people escape—just like, for example, the Belgians who fled their country in the first years of World War I (250,000 to the UK alone, with up to 16,000 individuals arriving per day). This emigration is inevitable simply because normal life has become impossible in most parts of the country—and it will continue for almost as long as there are people living in this war-torn region. Jordan—a country just short of 10 million inhabitants—currently hosts more than a million refugees. Turkey hosts almost two million.

Faced with this disaster in its neighbourhood, what do the EU and its member states do? Exactly what Foucault predicted. Germany apart, they compete in imagination to design policies making sure refugees don’t arrive, and send ever-clearer deterrent signals. Austria has unilaterally fixed quotas on the number of asylum seekers that will be accepted at its border each day, effectively leaving bankrupt Greece to handle the burden of the influx alone. A week previously, French prime minister Manuel Valls announced that France and Europe “cannot accept more refugees.” His country originally agreed to receive 30,000 refugees over two years. To put that in perspective in terms of population size, if France was a village of 2,200 inhabitants, it would accept no more than a single person over that time.

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Makes sense, but most won’t want to. Greek government indicates it wants to start moving people out of Idomeni as per Sunday. Reports of dozens of sick children.

Refugees At Border Should Move To Camps, Says Greek Minister (AP)

Greece’s public order minister says refugees living in a squalid camp at the country’s border with Former Yugoslav Republic of Macedonia (FYROM) must accept that the border is shut and move to organized facilities. Nikos Toskas says the country can provide better conditions in other camps within 10-20 kilometers (6-12 miles) of the Idomeni crossing, where up to 14,000 people live in a waterlogged tent city. Toskas told state ERT TV Wednesday that Greece can offer “no serious support” to such a large number of people gathered in one spot. He said authorities will hand out fliers telling refugees seeking to reach central Europe that “there is no hope of you continuing north, therefore come to the camps where we can provide assistance.” More than 36,000 transient refugees and migrants are stuck in financially struggling Greece.

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42,000 refugees stuck in Greece today. One week from now, it’ll be over 60,000.

Conditions At Idomeni Refugee Camp Worsen By The Day (Kath.)

Refugees were still flowing into the Idomeni border camp in northern Greece Wednesday, despite the complete border closure by authorities in the Former Yugoslav Republic of Macedonia over the last few days, while torrential rain has made conditions even worse. “The situation is stifling as more people are arriving daily on foot,” the coordinator of the Hellenic Red Cross in northern Greece, Despina Filipidaki, told Kathimerini on Wednesday. “The biggest problem is that the bad living conditions are worsening the health problems,” she added. According to the latest estimates, more than 12,000 refugees are camped there in deplorable conditions while a further 3,050 are at Piraeus port, bringing the total number of migrants throughout Greece to 35,945.

Government sources told Kathimerini that the total cost of managing the crisis has risen to 278 million euros but that EU assistant funds are on the way. Giorgos Kyritsis, spokesman for the Coordinating Body for the Management of Migration, reiterated Wednesday that the main priority is to eventually evacuate Idomeni and “transfer people to structures affording better living conditions.” But, he said, it won’t be an easy task to convince the refugees. Nor will it be easy to overcome the reaction of locals in other areas where shelters are being erected.

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No comment anymore.

Five Iranians, Afghans Drown Trying To Reach Greece (Reuters)

Five migrants, including a baby, hoping to reach Europe via Greece drowned when their speedboat capsized off the Turkish coast, Dogan News Agency said on Thursday. The Turkish Coast Guard rescued nine people after they called for help late on Wednesday and recovered five bodies, it said. The group, comprised of Afghans and Iranians, were trying to reach the Greek island of Lesvos in the Aegean Sea. The EU has offered Turkey billions of euros in aid to curb illegal migration. Under a draft deal struck on Monday, Turkey agreed to take back all irregular migrants in exchange for more funding, faster visa liberalisation for Turks, and a speeding up of Ankara’s long-stalled EU membership talks. The aim is to discourage illegal migrants and break the grip of human smugglers who have sent them on perilous journeys across the Aegean. But migrants have continued to try to cross from Turkey’s coast in recent days.

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Oct 242015
 
 October 24, 2015  Posted by at 10:03 am Finance Tagged with: , , , , , , , , , , ,  3 Responses »


William Henry Jackson Hospital Street, St. Augustine, Florida 1897

China Cuts Interest Rates, Reserve Ratios to Counter Slowdown (Bloomberg)
China Interest Rate Cut Fuels Fears Over Ailing Economy (Guardian)
Why The Chinese Rate Cut Will Not Slow China’s Economic Decline (Coward)
Reactions To Rate Cut: “China Is Getting More And More Desperate” (Zero Hedge)
China Takes ‘Riskiest’ Step by Ending Deposit-Rate Controls (Bloomberg)
Draghi’s Signal Adds $190 Billion to Negative-Yield Universe (Bloomberg)
Eurozone Crosses Rubicon As Portugal’s Anti-Euro Left Banned From Power (AEP)
Italy ex-PM Monti: Ignoring Greek Referendum A Violation Of Democracy (EurActiv)
Rare Metals: The War Over the Periodic Table (Bloomberg)
$6.5 Billion in Energy Writedowns and We’re Just Getting Started (Bloomberg)
Greece’s Creditors Demand Further Reform (La Tribune)
Investment Grade Ain’t What It Used to Be in Nervous Bond Market (Bloomberg)
An All Too Visible Hand (WSJ)
EU Negotiators Break Environmental Pledges In Leaked TTIP Draft (Guardian)
Populist, Pernicious and Perilous : Germany’s Growing Hate Problem (Spiegel)
Germany To Push For Compulsory EU Quotas To Tackle Refugee Crisis (Guardian)
Worried Slovenia Might Built Fence To Cope With Migrant Crisis (Reuters)

This cannot end well.

China Cuts Interest Rates, Reserve Ratios to Counter Slowdown (Bloomberg)

China’s central bank cut its benchmark lending rate and reserve requirements for banks, stepping up efforts to cushion a deepening economic slowdown. The one-year lending rate will drop to 4.35% from 4.6% effective Saturday the People’s Bank of China said on its website on Friday. The one-year deposit rate will fall to 1.5% from 1.75%. Reserve requirements for all banks were cut by 50 basis points, with an extra 50 basis point reduction for some institutions. The PBOC also scrapped a deposit-rate ceiling. The expanded monetary easing underscores the government’s determination to meet its 2015 growth target of about 7%. Moderated consumer inflation and a deeper slump in producer prices have given policy makers room for further easing.

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If growth numbers were anywhere near the IMF’s predictions, China wouldn’t be cutting rates.

China Interest Rate Cut Fuels Fears Over Ailing Economy (Guardian)

China fuelled fears that its ailing economy is about to slow further after Beijing cut its main interest rate by 0.25 percentage points. The unexpected rate cut, the sixth since November last year, reduced the main bank base rate to 4.35%. The one-year deposit rate will fall to 1.5% from 1.75%. The move follows official data earlier this week showing that economic growth in the latest quarter fell to a six-year low of 6.9%. A decline in exports was one of the biggest factors, blamed partly by analysts on the high value of China’s currency, the yuan. The rate cut sent European stock markets higher as investors welcomed the boost from cheaper credit in China, together with the hint of further monetary easing by the European Central Bank president, Mario Draghi, on Thursday.

Investors were also buoyed by the likelihood that the US Federal Reserve would be forced to signal another delay to the first US rate rise since the financial crash of 2008-2009 until later next year. The FTSE 100 was up just over 90 points, or 1.4%, at 6466, while the German Dax and French CAC were up almost 3%. The People’s Bank of China’s last rate cut in August triggered turmoil in world markets after Beijing combined the decision with a 2% reduction in the yuan’s value. Shocked at the prospect of a slide in the Chinese currency, investors panicked and sent markets plunging. Some economists have warned that the world economy is about to experience a third leg of post-crash instability after the initial banking collapse and eurozone crisis.

The slowdown in China, as it reduces debts and a dependence for growth on investment in heavy industry and property, will be the third leg. World trade has already contracted this year with analysts forecasting weaker trade next year. The IMF in July trimmed its forecast for global economic growth for this year to 3.1% from 3.3% previously, mainly as a result of China’s slowing growth. The Washington-based fund also warned that the weak recovery in the west risks turning into near stagnation. At its October annual meeting, it said growth in the advanced countries of the west is forecast to pick up slightly, from 1.8% in 2014 to 2% in 2015 while growth in the rest of the world is expected to fall from 4.6% to 4%.

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“The continued and dramatic slowing of the Chinese economy in the years ahead is baked in the cake.”

Why The Chinese Rate Cut Will Not Slow China’s Economic Decline (Coward)

Today the Peoples Bank of China cut the benchmark interest rate by .25% and lowered banks’ reserve requirements by .5%. The measure is supposed to spur growth and make life a little easier on debt-ridden Chinese companies. In the immediate term it may give a slight boost to the economy, but there is no chance this measure, or others like it, will keep the Chinese economy from slowing much further in the years ahead. Let us explain… The continued and dramatic slowing of the Chinese economy in the years ahead is baked in the cake. For the last decade Chinese growth has been fueled by investment in infrastructure (AKA fixed capital formation). In an effort to sustain a high level of growth massive and unprecedented investment in fixed capital was carried out and fixed investment has now become close to 50% of the Chinese economy.

On the flip side, consumption as a% of GDP has shrunk from about 46% of GDP to only 38% of GDP. Most emerging market countries run with fixed investment of around 30-35% of GDP and with consumption accounting for about 40-50% of GDP – exactly the opposite dynamic of the Chinese economy. China has run into a ceiling in terms of the percentage of the economy accounted for by fixed investment and now fixed investment must shrink to levels more appropriate for China’s stage of economic development. This necessarily implies a slowing of the Chinese economy from what the government says is near 7% to something closer to 2-4%, and that is in the optimistic scenario in which consumption growth picks up the pace to mitigate the slowdown in investment.

This is why cuts in rates mean practically nothing for China’s long-term economic prospects. In the short-term rate cuts may postpone corporate bankruptcies by allowing companies to refinance debt at lower rates. Rate cuts may also make housing more affordable, on the margin. But these are cyclical boosts that act as tailwinds to China’s economic train.

No amount of wind, save a hurricane, is going to keep the train from slowing. As a reminder, it has not been working…

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“..easing shows China is “getting more and more desperate” and that “things are really bad there.”

Reactions To Rate Cut: “China Is Getting More And More Desperate” (Zero Hedge)

To say that China, which a few days ago reported GDP of 6.9% which “beat” expectations and which a few hours ago reported Chinese home prices rose in more than half of tracked cities for the first time in 17 months, stunned everyone with its rate cut on Friday night, meant clearly for the benefit of US stocks, as well as the global commodity market, is an understatement: nobody expected this. As a result strategists have been scrambling to put China’s 6th rate cut in the past year (one taking place just ahead of this weekend’s Fifth plenum) in context. Here are the first responses we have seen this morning. First, from Vikas Gupta, executive vice president at Arthveda Fund Management, who told Bloomberg that “China rate cut will spur fund flows to EMs.” He adds that “the move rules out U.S. rate increase this yr; Fed’s “hands are getting tied” concluding that “easing shows China is “getting more and more desperate” and that “things are really bad there.”

While there is no debate on just how bad things in China are, one can disagree that the Fed’s hands are tied – after all the Fed’s biggest “global” concern was China. The PBOC should have just taken that concern off the table. The second reaction comes from Citi’s Richard Cochinos: “Bottom line: Impacts of China rate announcements on the G10 are falling. Investors remain cautious ahead of this weekend’s announcements, and what policy cuts imply for the region. One day after a dovish ECB, China cuts interest rates by 25bp and RRR cut by 50bps. Accommodative policy begets accommodative policy it seems. Our economics team has been expecting further policy accommodation out of China, the issue was just a matter of timing.

Unlike other major central banks, the PBOC doesn’t announce policy on a set schedule – but this doesn’t mean there isn’t a pattern to it. Before today, it had announced cuts to the RRR or interest rate six times in 2015 – the last being on 25 August. So today was a surprise in terms of action, but not completely unexpected. We prefer to see the easing can be seen in the larger picture of China adjusting to weaker growth in a systematic and controlled manner, rather than a reaction to a new economic shock.”

This view helps explain the muted reaction in the G10. So far, AUDUSD (0.27%) and USDJPY (0.18%) have borne the bulk of price action, but we note price action so far is muted relative to April, June or August. Clearly stimulus is beneficial to both Japan and Australia – but we are cautious not to sound too optimistic. Today’s rate cut comes ahead of this weekend’s Fifth plenum, and previous ones haven’t been sufficient to reverse the economic slowdown. Additionally, this weekend it has been expected GDP targets for the next 5-years will be announced (currently at 7%, but broadly expected to fall), along with other fiscal plans and goals. Without knowing the full baseline of what China expects and is working towards, it is difficult to chase price action. The main drivers of EM Asia lower has been poor growth and trade in the region – hence we main cautious. Policy adjustments now could be a way to soften the impact of further weak economic growth.

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Will adding more leverage save Beijing?

China Takes ‘Riskiest’ Step by Ending Deposit-Rate Controls (Bloomberg)

China scrapped a ceiling on deposit rates, tackling what the central bank has called the “riskiest” part of freeing up the nation’s interest rates. The move came as the central bank cut benchmark rates and banks’ reserve requirements to support a faltering economy. The changes take effect on Saturday, the People’s Bank of China said in a statement on Friday. Scrapping interest-rate controls boosts the role of markets in the economy, part of efforts by Premier Li Keqiang to find new engines of growth. While officials must be on guard for any excessive competition for deposits that could increase borrowing costs for companies or lead to lenders going bust, weakness in the economy may be mitigating the risks.

Ending the ceiling is an important milestone but comes in the wake of “a tremendous amount of deposit-rate liberalization over the last several years,” especially in the shape of wealth management products, according to Charlene Chu at Autonomous Research Asia. Wealth products issued by Internet firms are increasingly siphoning away deposits, making rate controls less effective and adding urgency to accelerating reform, the central bank said in a question-and-answer statement after the move. History shows that the best time to deregulate rates is when they’re being cut and inflation is easing, it said. The risks may not be as high as they would’ve been two or three years ago, because competition for deposits has cooled, with weaker demand for funding and a decline in banks’ willingness to lend, Chu, formerly of Fitch Ratings, said ahead of the PBOC announcement. Banks aren’t fully using the deposit-rate flexibility that they already have, she said.

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Remember that Draghi et al have no idea what the effect of negative rates will be. None. All they have is theories.

Draghi’s Signal Adds $190 Billion to Negative-Yield Universe (Bloomberg)

With his confirmation that policy makers had discussed cutting the region’s deposit rate, Mario Draghi extended the euro area’s negative yield universe by $190 billion. Those comments by the ECB chief on Thursday sparked a rally that left yields on German sovereign securities at less than zero for as long as six years. Across the currency bloc, the value of securities issued by governments at negative yields rose to $1.57 trillion, from $1.38 trillion before Draghi’s comments. That’s equivalent to about a quarter of the market. German and French two-year yields set fresh record-lows Friday, while their longer-dated peers pared weekly gains. Draghi also said the ECB will re-examine its quantitative-easing plan in December.

“This is certainly an exceptional environment,” said Christian Lenk at DZ Bank in Frankfurt. “We have to admit that the discussion about the deposit rate being cut further came as a surprise. It takes the curve very much into negative territory. In the time being the short-end looks a bit artificial.” Germany’s two-year yield was little changed at minus 0.32% as of 9:58 a.m. London time, after earlier reaching a record-low minus 0.348%. The price of the 0% security maturing September 2017 was at 100.605% of face value. French two-year yields dropped to a record minus 0.292% on Friday, also below the current level of the deposit rate, which is at minus 0.20%. There are about $752 billion of securities in the euro region with yields below that rate, making them ineligible for the ECB’s €1.1 trillion bond-buying plan

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Next major Brussels headache: “Public debt is 127pc of GDP and total debt is 370pc, worse than in Greece. Net external liabilities are more than 220pc of GDP.”

Eurozone Crosses Rubicon As Portugal’s Anti-Euro Left Banned From Power (AEP)

Portugal has entered dangerous political waters. For the first time since the creation of Europe’s monetary union, a member state has taken the explicit step of forbidding eurosceptic parties from taking office on the grounds of national interest. Anibal Cavaco Silva, Portugal’s constitutional president, has refused to appoint a Left-wing coalition government even though it secured an absolute majority in the Portuguese parliament and won a mandate to smash the austerity regime bequeathed by the EU-IMF Troika. He deemed it too risky to let the Left Bloc or the Communists come close to power, insisting that conservatives should soldier on as a minority in order to satisfy Brussels and appease foreign financial markets. Democracy must take second place to the higher imperative of euro rules and membership.

“In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO,” said Mr Cavaco Silva. “This is the worst moment for a radical change to the foundations of our democracy. “After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets,” he said. Mr Cavaco Silva argued that the great majority of the Portuguese people did not vote for parties that want a return to the escudo or that advocate a traumatic showdown with Brussels.

This is true, but he skipped over the other core message from the elections held three weeks ago: that they also voted for an end to wage cuts and Troika austerity. The combined parties of the Left won 50.7pc of the vote. Led by the Socialists, they control the Assembleia. The conservative premier, Pedro Passos Coelho, came first and therefore gets first shot at forming a government, but his Right-wing coalition as a whole secured just 38.5pc of the vote. It lost 28 seats. The Socialist leader, Antonio Costa, has reacted with fury, damning the president’s action as a “grave mistake” that threatens to engulf the country in a political firestorm. “It is unacceptable to usurp the exclusive powers of parliament. The Socialists will not take lessons from professor Cavaco Silva on the defence of our democracy,” he said.

Mr Costa vowed to press ahead with his plans to form a triple-Left coalition, and warned that the Right-wing rump government will face an immediate vote of no confidence. There can be no fresh elections until the second half of next year under Portugal’s constitution, risking almost a year of paralysis that puts the country on a collision course with Brussels and ultimately threatens to reignite the country’s debt crisis. The bond market has reacted calmly to events in Lisbon but it is no longer a sensitive gauge now that the ECB is mopping up Portuguese debt under quantitative easing. Portugal is no longer under a Troika regime and does not face an immediate funding crunch, holding cash reserves above €8bn. Yet the IMF says the country remains “highly vulnerable” if there is any shock or the country fails to deliver on reforms, currently deemed to have “stalled”. Public debt is 127pc of GDP and total debt is 370pc, worse than in Greece. Net external liabilities are more than 220pc of GDP.

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“Europe has steadily departed from its principal founding goals, democracy, human rights and freedoms and the prosperity of its people and its societies..”

Italy ex-PM Monti: Ignoring Greek Referendum A Violation Of Democracy (EurActiv)

By disregarding the resounding ‘No’ of the recent Greek referendum, Europe clearly violated democracy, said the former Italian premier, Mario Monti. At the “Regaining Public Trust in Europe” event organised this week in Brussels by Friends of Europe, Zoe Konstantopoulou, the former speaker of the Greek Parliament, strongly criticized the EU institutions for the unfolding humanitarian crisis in Greece. “Would you trust the EU if they told you that your vote or the court decisions in your countries do not matter?”, Konstantopoulou wondered. Zoe Konstantopoulou served as a speaker of the Greek parliament under the first term of Syriza coalition government and was a close ally of the Greek premier, Alexis Tsipras.

But shortly after the deal agreed on between Athens and its international creditors this summer, Konstantopoulou resigned from Syriza, and joined the newly established leftist Popular Unity party led by former energy minister Panagiotis Lafazanis. In the recent snap election in Athens, Popular Unity did not manage to enter the Greek parliament, scoring below the required 3% threshold. Konstantopoulou and Monti had a vivid dialogue during the panel discussion. The former Greek lawmaker was quite critical of the EU, and said that at times when the democratic principles of the EU are shaken, “it is our duty to speak clearly and honestly”.

“Europe has steadily departed from its principal founding goals, democracy, human rights and freedoms and the prosperity of its people and its societies,” she stressed. Konstantopoulou noted that “Greeks have been sacrificed and crucified for more than 5 years now, to pay a debt which has been evaluated to be wholly unsustainable ever since 2010 to the knowledge of the IMF and the EU.” “And it was baptised as public, although it was initially private, involving private banks in Germany, France and Greece,” she added.

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Must. Read. Whole. Article.

Rare Metals: The War Over the Periodic Table (Bloomberg)

A little past 9:30 on the morning of Sept. 7, 2010, a Japanese Coast Guard vessel in the East China Sea spots a Chinese fishing trawler off the coast of islands, known as Senkaku in Japanese and Diaoyu in Chinese. The Japanese have little tolerance for such incursions in the Senkakus, which they annexed in 1895 after the Sino-Japanese War. But recently China has asserted claims to these islands extending hundreds of years earlier. The island dispute is wrapped up in a morass of misunderstanding and oneupmanship, with an eye toward the rich seabed resources nearby. When you ask Japanese officials about the territorial dispute, they will look at you as if it is almost insulting to answer the question. “It’s our land,” one government official told me, as if an American diplomat had been asked if Hawaii is part of the US.

On that morning, the Japanese vessel pulls alongside the smaller Chinese trawler and blares messages to the crew in Chinese from loudspeakers: “You are inside Japanese territorial waters. Leave these waters.” Videos from the day show that instead of leaving, the Chinese boat bends toward the stern of the Japanese cutter, hitting it and then sailing on. Forty minutes later, the same captain veers into another Japanese coast guard ship. Tokyo has managed previous incursions with little fanfare. However, the newly elected Democratic Party of Japan detained the trawler’s crew and captain. It planned to put the captain on trial. China retaliated by detaining four Japanese citizens.

Then, on Sept. 21, Japanese trading houses informed its Ministry of Economy, Trade and Industry that China was refusing to fill orders for rare-earth elements – a set of 17 different, obscure rare metals. What seemed like a battle over seabed resources became a new conflict, one that is potentially far larger, a War over the Periodic Table. Japanese officials and manufacturers were frightened. These elements – essential materials in Japan’s high-tech industry, well known for its high quality components – were virtually all produced in China. Beijing never acknowledged an export ban or said it would use the rare-metal trade as a political weapon. But no other country reported such delays. And Beijing never explained why all 32 of the country’s rare-earth exporters halted trade on the same day.

Restricting these exports was an astute move if Beijing’s goal was to escalate the political conflict between the two countries without the use of force. Tokyo worried that rare earths were just the beginning of what China might withhold because China is also the leading global producer of 28 advanced metals also vital to Japanese industry. Bowing to Beijing’s pressure, Tokyo quickly released the Chinese captain. But the damage to Japan and the rare-earth market had only just begun. Prices for rare earths started to climb, some as much as 2,000% over the next year and a half. Prices have since returned to lower levels, and China changed its export regime after being found in violation of global trade rules last year. But the lessons from this episode have not yet been fully realized as a fundamental market instability remains. A little perspective is in order.

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It’s already much much more.

$6.5 Billion in Energy Writedowns and We’re Just Getting Started (Bloomberg)

The oil and gas industry’s earnings season is barely underway, and already there’s been $6.5 billion in writedowns. On Thursday, Freeport-McMoRan reported a $3.7 billion charge for the third quarter, while Southwestern Energy – which has a market value of $4.5 billion – booked $2.8 billion. And that’s just the beginning. Barclays estimated in an Oct. 21 analysis that there could be $20 billion in charges among just six companies. Southwestern’s writedown was double Barclays’ forecast. Oil prices have tumbled 44% in the past year, and natural gas is down 35%, making the write-offs a foregone conclusion from an accounting standpoint. The companies use an accounting method that requires them to recognize a charge when estimates of future cash flow from their properties falls below what the companies spent buying and developing the acreage. The predictions of future cash flow have fallen along with prices.

Since it’s no secret oil and gas prices have plunged, “the majority of write-offs are typically non-events,” said Barclays’ analysts led by Thomas R. Driscoll in the report. Southwestern’s shares have declined 64% in the past year, and Phoenix-based Freeport-McMoRan’s are down 61%. Barclays predicted ceiling-test impairments for Apache, Chesapeake Energy , Devon Energy, Encana and Newfield. All five companies are scheduled to report third-quarter results in November. “Many companies will have writedowns as the price of oil is about half of where it once was and gas is also down,” Timothy Parker at T. Rowe Price said in an e-mail. “However, it won’t generally hurt the companies because very few have debt covenants that are linked to book value, which the writedowns affect.”

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The troika wants to evict Greeks from their homes.

Greece’s Creditors Demand Further Reform (La Tribune)

The European institutions and the IMF are increasing their demands on Greece, despite the recent reforms adopted by the Greek parliament. Athens can hardly afford to resist. Our partner La Tribune reports. Discussions between Greece and its creditors are tense, despite the major reforms accepted by the Greek parliament, the Vouli, on Monday (19 October). The talks between Greece and the new institutional ‘quartet’ began on Wednesday (21 October). The old troika of the Commission, the ECB and the IMF has been joined by the European Stability Mechanism (ESM). On Wednesday afternoon, Olga Gerovasili, a spokesperson for the Greek government, spoke of a “very hard battle” with the institutions.

At the heart of this battle are the Greek banks, which were severely weakened by the massive withdrawal of deposits in the first half of this year. Added to this is the increasing cost of debt. According to the Bank of Greece, in 2014 this represented 34% of the total deposits held by all the Hellenic banks put together. This figure has risen since 2014, and will continue to rise as Greek GDP contracts in 2015 and 2016. Fewer deposits mean more toxic debt: the Greek banking system needs a bailout. The Greek government says it needs a recapitalisation fund of €25 billion. But the creditors clearly hope to provide only the bare minimum. As the supervisor of the process, the ECB plans to carry out an asset quality review (AQR) to determine exactly how much money the banks need before bailing them out.

But the conditions attached to this bailout may create a raft of other problems. Greece’s creditors are now demanding that borrowers who cannot afford to repay their loans be evicted from their homes. The vacated properties would then be sold in order to settle the exact payment due on each loan. Up to now, households with modest incomes have been protected from eviction as long as their main residence was worth less than €250,000; a measure that has helped to keep many families hit by unemployment off the streets. But the creditors want this limit lowered so more bank loans can be recovered in this way. Olga Gerovasili said that the government was “fighting to maintain the protection of main residences”.

A similar issue arose in Cyprus last year. The Cypriot parliament refused to implement the tougher eviction conditions demanded by the troika, and the ECB responded by excluding Cyprus from its quantitative easing programme. The troika then froze all transfers to Nicosia, pushing the island to the verge of bankruptcy. Under pressure from the government, the parliament finally accepted the demand to make evictions easier to carry out.

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Where and why debt deflation starts: “Companies have increased leverage massively, and that is starting to catch up..”

Investment Grade Ain’t What It Used to Be in Nervous Bond Market (Bloomberg)

After six years of a credit boom in which investors distinguished less and less between ratings, rewarding companies across the spectrum with favorable borrowing costs, the market is becoming more discriminating. Fear of low growth, which has largely been focused on the riskiest of energy companies, is spilling over to other industries and into the lower rungs of investment grade as the strength of balance sheets comes back into focus. Just being investment grade, it seems, isn’t good enough anymore. “The chickens are coming home to roost,” said Freddie Offenberg at Andres Capital Management. “Companies have increased leverage massively, and that is starting to catch up, especially given the worries in the economy.” Earnings for Standard & Poor’s 500 companies contracted 1.7% last quarter, the most since 2009.

And more than half of companies in the index that reported earnings this quarter have disappointed analysts’ sales expectations. The credit-ratings companies have noticed: There have been 1.6 investment-grade companies upgraded for every one downgraded so far this year, compared with last year’s 3.5-1 ratio. “It’s not time to panic, but the market is paying closer attention to performance and quality, and rightly so,” said David Leduc at Standish Mellon Asset Management. Companies like Fossil are paying nearly half a percentage point more for their debt since May, based on secondary prices of comparable securities, according to Bank of America Merrill Lynch Indexes. Companies with the best balance sheets, such as Microsoft and Johnson & Johnson, only pay 0.05 percentage point more.

Among companies that have had to pay up in debt markets is Hewlett-Packard. The Baa2 rated computer maker sold $14.6 billion of bonds on Sept. 30 that yielded half apercentage point more than the average for bonds with similar ratings and maturities in the secondary market, according to Bank of America Merrill Lynch index data. That’s not good news for companies that still need to raise debt to finance $356 billion of takeovers that are expected to be completed by the end of the year. This includes Charter Communications, which is attempting to complete its $55.1 billion takeover of Time Warner Cable with the lowest investment-grade rating from S&P and Fitch Ratings, and a junk rating from Moody’s Investors Service.

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“On the basis of its record, the financial system as constituted in the years 1900-1913 must be considered to have been successful to an extent rarely equalled in the United States.”

An All Too Visible Hand (WSJ)

When Woodrow Wilson signed the Federal Reserve Act into law in 1913, the dollar was defined as a weight of gold. You could exchange the paper for the metal, and vice versa, at a fixed and statutory rate. The stockholders of nationally chartered banks were responsible for the solvency of the institutions in which they owned a fractional interest. The average level of prices could fall, as it had done in the final decades of the 19th century, or rise, as it had begun to do in the early 20th, without inciting countermeasures to arrest the change and return the price level to some supposed desirable average. The very idea of a macroeconomy—something to be measured and managed—was uninvented. Who or what was in charge of American finance? Principally, Adam Smith’s invisible hand.

How well could such a primitive system have possibly functioned? In “The New York Money Market and the Finance of Trade, 1900-1913,” a scholarly study published in 1969, the British economist C.A.E. Goodhart concluded thus: “On the basis of its record, the financial system as constituted in the years 1900-1913 must be considered to have been successful to an extent rarely equalled in the United States.” The belle epoque was not to be confused with paradise, of course. The Panic of 1907 was a national embarrassment. There were too many small banks for which no real diversification, of either assets or liabilities, was possible. The Treasury Department was wont to throw its considerable resources into the money market to effect an artificial reduction in interest rates—in this manner substituting a very visible hand for the other kind.

Mr. Lowenstein has written long and well on contemporary financial topics in such books as “When Genius Failed” (2000) and “While America Aged” (2008). Here he seems to forget that the past is a foreign country. “Throughout the latter half of the nineteenth century and into the early twentieth,” he contends, “the United States—alone among the industrial powers—suffered a continual spate of financial panics, bank runs, money shortages and, indeed, full-blown depressions.” If this were even half correct, American history would have taken a hard left turn. For instance, William Jennings Bryan, arch-inflationist of the Populist Era, would not have lost the presidency on three occasions. Had he beaten William McKinley in 1896, he would very likely have signed a silver-standard act into law, sparking inflation by cheapening the currency. As it was, President McKinley signed the Gold Standard Act of 1900, which wrote the gold dollar into the statute books.

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Well, that’s a surprise…

EU Negotiators Break Environmental Pledges In Leaked TTIP Draft (Guardian)

The EU appears to have broken a promise to reinforce environmental protections in a leaked draft negotiating text submitted in the latest round of TTIP talks in Miami.. In January, the bloc promised to safeguard green laws, defend international standards and protect the EU’s right to set high levels of environmental protection, in a haggle with the US over terms for a free trade deal. But a confidential text seen by the Guardian and filed in the sustainable development chapter of negotiations earlier this week contains only vaguely phrased and non-binding commitments to environmental safeguards. No obligations to ratify international environmental conventions are proposed, and ways of enforcing goals on biodiversity, chemicals and the illegal wildlife trade are similarly absent.

The document does recognise a “right of each party to determine its sustainable development policies and priorities”. But lawyers say this will have far weaker standing than provisions allowing investors to sue states that pass laws breaching legitimate expectations of profit. “The safeguards provided to sustainable development are virtually non-existent compared to those provided to investors and the difference is rather stark,” said Tim Grabiel, a Paris-based environmental attorney. “The sustainable development chapter comprises a series of aspirational statements and loosely worded commitments with an unclear dispute settlement mechanism. It has little if any legal force.” The document contains a series of broadly sympathetic statements about the importance of conservation and climate action.

But it offers no definitions of what core terms – such as “high levels of protection” for the environment or “effective domestic policies” for implementing them – actually mean. Last year, more than a million people across Europe signed a petition calling for the Transatlantic Trade and Investment Partnership (TTIP) talks to be scrapped. Their concern was that multinationals could use the treaty’s investor-state dispute settlement (ISDS) provisions to sue authorities in private tribunals, not bound by legal precedent. In one famous case, Lone Pine launched an unresolved $250m suit against the state of Quebec after it introduced a fracking moratorium, using ISDS provisions in the North American Free Trade Agreement (Nafta).

US officials maintain that few such cases are ever likely to be brought under the TTIP, which could wipe away tariffs in the world’s largest ever free trade deal. However, environmental cases accounted for 60% of the 127 ISDS cases already brought against EU countries under bilateral trade agreements in the last two decades, according to Friends of the Earth Europe. Europe’s taxpayers paid out at least $3.5bn to private investors as a result.

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Seen this before: “..a shift in norms that will be difficult to get back under control.”

Populist, Pernicious and Perilous : Germany’s Growing Hate Problem (Spiegel)

Germany these days, it seems, is a place where people feel entirely uninhibited about expressing their hatred and xenophobia. Images from around the country show a level of brutalization that hasn’t been witnessed for some time, and attest to primitive instincts long believed to have been relegated to the past in Germany. The examples are as myriad as they are shocking, and include the bloody attack in Cologne as well as the mock gallows for Angela Merkel and her deputy Sigmar Gabriel carried by a demonstrator at a Pegida rally in Dresden on Oct. 12.

But they also include the abuse shouted at the German chancellor when she visited a refugee hostel in Heidenau near Dresden in August, where she was called a “slut” and other insults, or the placards held aloft by demonstrators on the first anniversary of the Pegida rallies listing the supposed “enemies of the German state” – Merkel, Gabriel and their “accomplices.” The lack of inhibition when it comes to vicious tirades took on a whole new scale on Monday, when Turkish-born German author and Pegida supporter Akif Pirincci, said there are other alternatives in the refugee crisis, but “the concentration camps are unfortunately out of action at the moment.”

There have been more than twice as many attacks on refugee hostels during the first nine months of this year as in the whole of 2014. The rising tide of hatred is now reaching the politicians many hold responsible for the perceived chaos besetting Germany. The national headquarters of Merkel’s conservative Christian Democratic Union (CDU) party in Berlin fields thousands of hate mails every week. As the architect of the “we can do it” policy of allowing masses of refugees into the country, Chancellor Merkel is their primary target. Within the SPD, it is General Secretary Yasmin Fahimi, whose father is Iranian. “Open the doors to the showers, fire up the ovens. They’re going to be needed,” read one recent anonymous mail addressed to her.

The hatred comes in many forms. It’s expressed on the streets and on the Internet. Sometimes it’s loud. Other times it’s unspoken. It eminates from every class and every section of society. According to studies conducted by Andreas Zick, the respected head of the Institute for Interdisciplinary Research on Conflict and Violence at the University of Bielefeld, who has been researching German prejudices against different groups for many years, almost 50% of Germans harbor misanthropic views. Zick warns of a shift in norms that will be difficult to get back under control.

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Rinse and repeat?!

Germany To Push For Compulsory EU Quotas To Tackle Refugee Crisis (Guardian)

Germany is to push for more ambitious and extensive common European policies on the refugee crisis, according to policymakers in Berlin, with compulsory and permanent EU quotas for sharing probably hundreds of thousands of people to be brought to Europe directly from the Middle East. New European powers replacing some national authority over border control, and the possible raising of a special EU-wide levy to fund the new policies are also on Berlin’s agenda. The plans, being prepared in Berlin and Brussels, are certain to trigger bitter resistance and major clashes within the EU. Berlin backs European commission plans to make the proposed scheme “permanent and binding”. But up to 15 of 28 EU countries are opposed.

The plans will not apply to the UK as it is not part of the EU’s passport-free Schengen zone and has opted out of EU asylum policy, saying it will not take part in any proposed European refugee-sharing schemes. Angela Merkel, appears determined to prevail, as she grapples with a crisis that will likely define her political legacy. The German chancellor is said to be angry with the governments of eastern and central Europe who are strongly opposed to being forced to take in refugees. She is said to resent that these EU member states are pleading for “solidarity” against the threats posed by Russia and Vladimir Putin while they resist sharing the burdens posed by the refugee crisis. EU government leaders agreed last month to share 160,000 asylum seekers already inside the EU, redistributing them from Greece and Italy over two years.

But the decision had to be pushed to a majority vote overruling the dissenters, mainly in eastern Europe, with the Hungarian prime minister, Viktor Orban, accusing Merkel of “moral imperialism” by forcing the issue. It is highly unusual in the EU for sensitive issues of such deep national political impact to be settled by majority voting. But Berlin appears prepared to go there if no consensus can be reached. The opponents of quotas insist last month’s decision was a one-off. But according to policymakers in Berlin, Merkel now wants to go much further, shifting the emphasis of burden-sharing from redistribution of refugees inside the EU to those collecting en masse in third countries, notably Turkey where more than two million Syrians are hosted.

Under one proposal being circulated in Berlin, the EU would strike pacts with third countries such as Turkey agreeing to take large but unspecified numbers of refugees from them directly into Europe. In return the third country would need to agree on a ceiling or a cap for the numbers it can send to Europe and commit to keeping all other migrants and refugees, and accommodate them humanely. This effectively means Europe will be financing large refugee camps in those third countries, which will also be obliged to take back any failed asylum seekers returned from Europe.

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Foreign cops on sovereign territory?

Worried Slovenia Might Built Fence To Cope With Migrant Crisis (Reuters)

Slovenia said it will consider all options, including fencing off its border with Croatia, if European leaders fail to agree a common approach to the migrant crisis as thousands stream into the ex-Yugoslav republic. Migrants began crossing into Slovenia last Saturday after Hungary closed its border with Croatia. The Slovenian Interior Ministry said that a total of 47,000 had entered the country since Saturday, including some 10,000 in the past 24 hours. A Reuters cameraman said about 3,000 people broke the fence at the border crossing at Sentilj and walked in to Austria on Friday morning. Slovenian officials said the country is too small and does not have enough resources to handle such large numbers of people. Prime Minister Miro Cerar accused Croatia of transporting too many people too quickly to Slovenia.

When asked if there was the possibility of building a fence on the border, Cerar told Slovenian state TV: “We are considering also those options.” “At first we are seeking a European solution. If we lose hope on the European level, if we do not get enough on Sunday … then all options are possible as that would mean that we are on our own,” Cerar said. Several European leaders are due to meet in Brussels on Sunday under the auspices of the European Commission to discuss the latest developments in the migrant crisis, Europe’s biggest since World War. [..] According to Slovenia’s interior ministry, the cost of fencing off the 670-km long border with Croatia would be about €80 million. Slovenia has asked for the EU for assistance and officials said Austria, Germany, Italy, France, Hungary, the Czech Republic, Slovakia and Poland offered to send police reinforcements.

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Feb 032015
 
 February 3, 2015  Posted by at 11:56 am Finance Tagged with: , , , , , , , , ,  10 Responses »


DPC City Hall subway station, New York 1904

US Consumer Spending Declined in December by Most in Five Years (Bloomberg)
US Household Spending Tumbles Most Since 2009 (Zero Hedge)
Q1 Energy Earnings Shocker: Then And Now (Zero Hedge)
Exxon Revenue, Earnings Down 21% From YoY, Sales Miss By $5 Billion (Zero Hedge)
BP Hit By $3.6 Billion Charge, Cuts Capex On Oil Prices (CNBC)
Greece Finance Minister Varoufakis Unveils Plan To End Debt Stand-Off (FT)
Germany Will Have To Yield In Dangerous Game Of Chicken With Greece (AEP)
The Truth About Greek Debt Is Far More Nuanced Than You Think (Telegraph)
Greece Standoff Sparks Ire From US, UK Over Economic Risks (Bloomberg)
Varoufakis Is Brilliant. So Why Does He Make Everyone So Nervous? (Bloomberg)
Greece’s Damage Control Fails to Budge Euro Officials (Bloomberg)
What is Plan B for Greece? (Kenneth Rogoff)
Why The Bank Of England Must Watch Its Words (CNBC)
More Than 25% Of Euro Bond Yields Are Negative, But … (MarketWatch)
Draghi’s Negative-Yield Vortex Draws in Corporate Bonds (Bloomberg)
China Debt Party Nears The End Of The Road (MarketWatch)
Global Deflation Risk Deepens As China Economy Slows (Guardian)
Canada Mauled by Oil Bust, Job Losses Pile Up (WolfStreet)
Aussie Gets Crushed – How Much More Pain Lies Ahead? (CNBC)

But don’t worry: nothing Bloomberg can’t spin: “Consumers are in a good mood coming into 2015, and we think that’s likely to continue..”

US Consumer Spending Declined in December by Most in Five Years (Bloomberg)

Consumer spending fell in December as households took a breather following a surge in buying over the previous two months. Household purchases declined 0.3%, the biggest decline since September 2009, after a 0.5% November gain, Commerce Department figures showed Monday in Washington. The median forecast of 68 economists in a Bloomberg survey called for a 0.2% drop. Incomes and the saving rate rose. Consumers responded to early promotions by doing most of their holiday shopping in October and November, leading to the biggest jump in consumer spending last quarter in almost nine years. For 2015, a pick-up in wage growth will be needed to ensure households remain a mainstay of the expansion as the economy tries to ward off succumbing to a global slowdown.

“Consumers are in a good mood coming into 2015, and we think that’s likely to continue,” said Russell Price, a senior economist at Ameriprise, who correctly forecast the drop in outlays. “The prospects for 2015 look very encouraging.” Stock-index futures held earlier gains after the report. Projections for spending ranged from a decline of 0.6% to a 0.2% gain. The previously month’s reading was initially reported as an increase of 0.6%. For all of 2014, consumer spending adjusted for inflation climbed 2.5%, the most since 2006. Incomes climbed 0.3% in December for a second month, the Commerce Department’s report showed. The Bloomberg survey median called for a 0.2% increase. November’s income reading was revised down from a 0.4% gain previously reported. While growth in the world’s largest economy slowed in the fourth quarter, consumption surged, with household spending rising at the fastest pace since early 2006, a report from the Commerce Department last week showed.

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Recovery.

US Household Spending Tumbles Most Since 2009 (Zero Hedge)

After last month’s epic Personal Income and Spending data manipulation revision by the BEA, when, as we explained in detail, the household saving rate (i.e., income less spending ) was revised lower not once but twice, in the process eliminating $140 billion, or some 20% in household savings… there was only one possible thing for household spending to do in December: tumble. And tumble it did, when as moments ago we learned that Personal Spending dropped in the month of December by a whopping 0.3%, the biggest miss of expectations since January 2014 and the biggest monthly drop since September 2009!

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“By December 31, the estimated growth rate fell to -28.9%. Today, it stands at -53.8%.” Just a little off.”

Q1 Energy Earnings Shocker: Then And Now (Zero Hedge)

Here is what Factset has to say about forecast Q1 energy earnings: “On September 30, the estimated earnings growth rate for the Energy sector for Q1 2015 was 3.3%. By December 31, the estimated growth rate fell to -28.9%. Today, it stands at -53.8%.” Just a little off. This is what a difference 4 months makes.

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“XOM did the best with margins and accounting gimmickry it could under the circumstances..”

Exxon Revenue, Earnings Down 21% From YoY, Sales Miss By $5 Billion (Zero Hedge)

Moments ago, following our chart showing the devastation in Q1 earning forecasts, Exxon Mobil came out with its Q4 earnings, and – as tends to happen when analysts take a butcher knife to estimates – beat EPS handily, when it reported $1.56 in EPS, above the $1.34 expected, if still 18% below the $1.91 Q4 EPS print from a year earlier. A primary contributing factor to this beat was surely the $3 billion in Q4 stock buybacks, with another $2.9 billion distributed to shareholders mostly in the form of dividends. Overall, XOM distributed $23.6 billion to shareholders in 2014 through dividends and share purchases to reduce shares outstanding.

This number masks the 29% plunge in upstream non-US earnings which were smashed by the perfect storm double whammy of not only plunging oil prices but also by the strong dollar. Curiously, all this happened even as XOM actually saw its Q4 worldwide CapEx rise from $9.9 billion a year ago to $10.5 billion, even though capital and exploration expenditures were $38.5 billion in the full year, down 9% from 2013. However, while XOM did the best with margins and accounting gimmickry it could under the circumstances, there was little it could do to halt the collapse in revenues, which printed at $87.3 billion, well below the $92.7 billion expected, and down a whopping 21% from a year ago. And this is just in Q4 – the Q1 slaughter has yet to be unveiled!

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Set to get much worse.

BP Hit By $3.6 Billion Charge, Cuts Capex On Oil Prices (CNBC)

BP revealed plans to cut capital expenditure (capex) on Tuesday, after it was hit by tumbling oil prices and an impairment charge of $3.6 billion. “We have now entered a new and challenging phase of low oil prices through the near- and medium-term,” said CEO Bob Dudley in a news release. “Our focus must now be on resetting BP: managing and rebalancing our capital program and cost base for the new reality of lower prices while always maintaining safe, reliable and efficient operations.” BP reported a replacement-cost loss of $969 million for the fourth quarter of 2014, after taking a $3.6-billion post-tax net charge relating to impairments of upstream assets given the fall in oil prices. On an underlying basis, replacement cost profit came in at $2.2 billion, above analyst expectations of $1.5 billion.

In the news release, BP said it was “taking action to respond to the likelihood of oil prices remaining low into the medium-term, and to rebalance its sources and uses of cash accordingly.” The company said that organic capex was set to be around $20 billion in 2015, significantly lower than previous guidance of $24-26 billion. Capex for 2014 came in at $22.9 billion, lower than initial guidance of $24-25 billion. “In 2015, BP plans to reduce exploration expenditure and postpone marginal projects in the Upstream, and not advance selected projects in the Downstream and other areas,” said the company.

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“Attempting to sound an emollient note, Mr Varoufakis told the Financial Times the government would no longer call for a headline write-off of Greece’s €315bn foreign debt. Rather it would request a “menu of debt swaps..”

Greece Finance Minister Varoufakis Unveils Plan To End Debt Stand-Off (FT)

Greece’s radical new government unveiled proposals on Monday for ending the confrontation with its creditors by swapping outstanding debt for new growth-linked bonds, running a permanent budget surplus and targeting wealthy tax-evaders. Yanis Varoufakis, the new finance minister, outlined the plan in the wake of a dramatic week in which the government’s first moves rattled its eurozone partners and rekindled fears about the country’s chances of staying in the currency union. After meeting Mr Varoufakis in London, George Osborne, the UK chancellor of the exchequer, described the stand-off between Greece and the eurozone as the “greatest risk to the global economy”.

Attempting to sound an emollient note, Mr Varoufakis told the Financial Times the government would no longer call for a headline write-off of Greece’s €315bn foreign debt. Rather it would request a “menu of debt swaps” to ease the burden, including two types of new bonds. The first type, indexed to nominal economic growth, would replace European rescue loans, and the second, which he termed “perpetual bonds”, would replace European Central Bank-owned Greek bonds. He said his proposal for a debt swap would be a form of “smart debt engineering” that would avoid the need to use a term such as a debt “haircut”, politically unacceptable in Germany and other creditor countries because it sounds to taxpayers like an outright loss. But there is still deep scepticism in many European capitals, in particular Berlin, about the new government’s brinkmanship and its calls for an end to austerity policies.

“What I’ll say to our partners is that we are putting together a combination of a primary budget surplus and a reform agenda,” Mr Varoufakis, a leftwing academic economist and prolific blogger, said. “I’ll say, ‘Help us to reform our country and give us some fiscal space to do this, otherwise we shall continue to suffocate and become a deformed rather than a reformed Greece’.” [..] Mr Varoufakis said the government would maintain a primary budget surplus — after interest payments — of 1 to 1.5% of gross domestic product, even if this meant Syriza, the leftwing party that dominates the ruling coalition, would not fulfil all the public spending promises on which it was elected. Mr Varoufakis also said the government would target wealthy Greeks who had not paid their fair share of taxes during the nation’s six-year economic slump. “We want to prioritise going for the head of the fish, then go down to the tail,” he said.

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“The creation of the euro was a terrible mistake but breaking it up would be an even bigger mistake. We would be in a world where anything could happen:”

Germany Will Have To Yield In Dangerous Game Of Chicken With Greece (AEP)

Finland’s governor, Erkki Liikanen, was categorical. “Some kind of solution must be found, otherwise we can’t continue lending.” So was the ECB’s vice-president Vitor Constancio. Greece currently enjoys a “waiver”, allowing its banks to swap Greek government bonds or guaranteed debt for ECB liquidity even though these are junk grade and would not normally qualify. This covers at least €30bn of Greek collateral at the ECB window. “If we find out that a country is below that rating – and there’s no longer a (Troika) programme – that waiver disappears,” he said. These esteemed gentlemen are sailing close to the wind. The waiver rules are not a legal requirement. They are decided by the ECB’s governing council on a discretionary basis. Frankfurt can ignore the rating agencies if it wishes. It has changed the rules before whenever it suited them.

The ECB may or may not have good reasons to cut off Greece – depending on your point of view – but let us all be clear that such a move would be political. A central bank that is supposed to be the lender of last resort and guardian of financial stability would be taking a deliberate and calculated decision to destroy the Greek banking system. Even if this were to be contained to Greece – and how could it be given the links to Cyprus, Bulgaria, and Romania? – this would be a remarkable act of financial high-handedness. But it may not be contained quite so easily in any case, as Mr Osborne clearly fears. I reported over the weekend that there is no precedent for such action by a modern central bank. “I have never heard of such outlandish threats before,” said Ashoka Mody, a former top IMF official in Europe and bail-out expert. “The EU authorities have no idea what the consequences of Grexit might be, or what unknown tremors might hit the global payments system. They are playing with fire.

The creation of the euro was a terrible mistake but breaking it up would be an even bigger mistake. We would be in a world where anything could happen. “What they ignore at their peril is the huge political contagion. It would be slower-moving than a financial crisis but the effects on Europe would be devastating. I doubt whether the EU would be able to act in a meaningful way as a union after that.” In reality, the ECB cannot easily act on this threat. They do not have the political authority or unanimous support to do so, and historians would tar and feather them if they did. The ground is shifting in Paris, Rome and indeed Brussels already. Jean-Claude Juncker, the European Commission’s president, yielded on Sunday, accepting (perhaps with secret delight) that the Troika is dead. French finance minister Michel Sapin bent over backwards to be accommodating at a meeting with Mr Varoufakis. There is no unified front against Greece. It is variable geometry, as they say in EU parlance.

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“if Greece were to measure its debt using corporate accounting standards, which take account of interest rates and maturities, its debt burden could be lower than 70pc of GDP.”

The Truth About Greek Debt Is Far More Nuanced Than You Think (Telegraph)

“Greek debts are unsustainable” Greece’s debts are, as a proportion of GDP, higher than most countries in the eurozone. But, by the same measure, the interest rates it pays on those debts are among the lowest in the currency bloc; the maturities on its loans are the longest. Eurozone countries calculate their debt according to the Maastricht definition, which means that a liability is valued in the same way whether it is due to repaid tomorrow or in 50 years’ time. Greece’s debts are 175pc of GDP under this definition. Some people have calculated that if Greece were to measure its debt using corporate accounting standards, which take account of interest rates and maturities, its debt burden could be lower than 70pc of GDP.

Greece’s debts might actually be a distraction from bigger issues. One is the requirement that, under the bailout conditions, Greece must run a primary surplus of 4.5pc of GDP. Another is the so-called fiscal compact, which requires EU governments with debts of more than 60pc of GDP to reduce the excess by one-twentieth a year. Are Greece’s debts unsustainable? Maybe and maybe not. Are these targets unattainable? Probably.

“The eurozone can withstand ‘Grexit’ now” This rather depends on what you mean by “withstand”. It is certainly true that the eurozone is in a better financial position to deal with Greece quitting or being ejected from the euro than when the last crisis flared up in 2012. It now has a rescue fund and has embarked on a quantitative easing programme. Even as yields on Greek sovereign debt have shot up in recent weeks, those in Spain, Portugal and Italy have stayed at or near record lows, suggesting the markets believe the potential fallout from Greece won’t spread to other southern European countries.

It is less clear that the eurozone could handle the existential threat posed by a Grexit. Membership of the currency bloc would no longer by irrevocable. The markets would scent blood. And the political and diplomatic repercussions are almost impossible to predict: Would it subdue or embolden the various anti-austerity and anti-euro factions that are gaining ground elsewhere in the region? Would it help foster an Orthodox alliance between Greece and Russia? Does Brussels really want to find out?

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“Calling the meeting with Osborne a “breath of fresh air,” Varoufakis said: “we are highly tuned into finding common ground and we already have found it.”

Greece Standoff Sparks Ire From US, UK Over Economic Risks (Bloomberg)

U.S. and British leaders are expressing frustration at Europe’s failure to stamp out financial distress in Greece and the risk it poses to the global economy. U.K. Chancellor of the Exchequer George Osborne, whose government faces voters in three months, became the latest critics, following comments by Britain’s central banker, Mark Carney, and U.S. President Barack Obama. “It’s clear that the standoff between Greece and the euro zone is fast becoming the biggest risk to the global economy,” Osborne said after meeting Greek Finance Minister Yanis Varoufakis in London. “It’s a rising threat to our economy at home. Varoufakis travels to Rome Tuesday, along with Prime Minister Alexis Tsipras, in a political offensive geared to building support for an end to German-led austerity demands, a lightening of their debt load and freedom to increase domestic spending even as they rely on bailout loans.

Tsipras, who went to Cyprus on Monday, also heads to Brussels and Paris. Calling the meeting with Osborne a “breath of fresh air,” Varoufakis said, “we are highly tuned into finding common ground and we already have found it.” Osborne’s comment came a day after Obama questioned further austerity. “You cannot keep on squeezing countries that are in the midst of depression,” he said on CNN. “When you have an economy that is in freefall there has to be a growth strategy and not simply an effort to squeeze more and more out of a population that is hurting worse and worse.” Greece’s economy has shrunk by about a quarter since its first bailout package in 2010. Tsipras was elected Jan. 25 promising the end the restrictions that have accompanied the aid that has kept it afloat.

The premier issued a conciliatory statement on Jan. 31, promising to abide by financial obligations after Varoufakis said the country won’t take more aid under its current bailout and wanted a new deal by the end of May. Before his appointment as finance minister, he advocated defaulting on the country’s debt while remaining in the euro. The Greek finance minister told bankers in London he wants the country’s “European Union-related” loans to be restructured, leaving debt to the IMF and the private sector intact. “A priority for them is to address the high level of debt,” said Sarah Hewin, head of research at Standard Chartered, who was at the meeting. “They’re looking to restructure EU bilateral loans and ECB loans and leave IMF and private-sector debt alone. At the moment, they’re working at a broad case without being specific on how this restructuring will take place.”

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“Varoufakis knows as much about this subject “as anyone on the planet,” Galbraith says. “He will be thinking more than a few steps ahead” in any interactions with the troika.”

Varoufakis Is Brilliant. So Why Does He Make Everyone So Nervous? (Bloomberg)

Yanis Varoufakis, Greece’s new finance minister, is a brilliant economist. His first steps onto the political stage, though, didn’t seem to go very smoothly. Before joining the Syriza-led government, Varoufakis taught at the University of Texas and attracted a global following for his blistering critiques of the austerity imposed on Greece by its international creditors. Among his memorable zingers: Describing the Greek bailout deal as “fiscal waterboarding” and comparing the euro currency to the Hotel California, as in, “You can check out any time you like, but you can never leave.” His social-media followers seem to love the fiery rhetoric—but investors and European Union leaders are clearly less enthusiastic. Greek stock and bond markets tanked on Jan. 30 after Varoufakis said the new government would no longer cooperate with representatives of the troika of international lenders who’ve been enforcing the bailout deal.

At an awkward Jan. 30 meeting with Jeroen Dijsselbloem, head of the Eurogroup of EU finance ministers, Varoufakis appeared to make things worse by calling for a conference on European debt. “This conference already exists, and it’s called the Eurogroup,” an obviously irritated Dijsselbloem told reporters afterwards. The reaction from Berlin was even frostier, with Finance Minister Wolfgang Schaeuble saying Germany “cannot be blackmailed” by Greece. Prime Minister Alexis Tsipras appeared to be scrambling to contain the damage. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole,” he said on Jan. 31. But Varoufakis stayed on the offensive, with blog posts accusing news media organizations of inaccurate reporting and a BBC interview in which he blasted an anchorwoman for “rudely” interrupting him. “He may need some tips on how to handle himself on TV,” Steen Jakobsen, chief investment officer at Denmark’s Saxo Bank, wrote.

Is this really the guy Greece is counting on to negotiate a better deal with its creditors? Yes—and Varoufakis’s admirers say he shouldn’t be underestimated. “Yanis is the most intense and deep intellectual figure I’ve met in my generation,” says James K. Galbraith, an economist at the University of Texas who has worked closely with him. “Yanis knows far more about the current situation than some of the people he will be negotiating with,” adds Stuart Holland, an economist and former British Labour Party politician who has co-authored a series of papers with Varoufakis on the euro zone debt crisis. What’s more, Varoufakis’s academic specialty is game theory, the study of strategic decision-making in situations where people with differing interests try to maximize their gains and minimize their losses. Varoufakis knows as much about this subject “as anyone on the planet,” Galbraith says. “He will be thinking more than a few steps ahead” in any interactions with the troika.

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“It’s clear that the stand-off between Greece and the euro zone is fast becoming the biggest risk to the global economy..”

Greece’s Damage Control Fails to Budge Euro Officials (Bloomberg)

Greek Prime Minister Alexis Tsipras’s damage-control efforts calmed investors while failing to budge European policy makers on his week-old government’s key demands. Officials in Berlin, Paris and Madrid rejected the possibility of a debt writedown raised by Greece’s anti-bailout coalition, as they held out the prospect of easier repayment terms, an offer that has been on the table since November 2012. Greek stocks and bonds rebounded following a conciliatory statement issued by the premier Saturday. He promised to abide by financial obligations, a prelude to a tour of European capitals, after Finance Minister Yanis Varoufakis had prompted concern of a looming cash crunch by saying the country won’t take more aid under its current bailout and wanted a new deal by the end of May.

“The weekend statements sound less absurd than the noises from Athens last week,” Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a note today. “However, the ideas of the new Greek government remain far removed from reality.” The Athens Stock Exchange index jumped 4.6%, led by Eurobank Ergasias. The yield on 10-year notes fell 22 basis points to 10.9% at 5:30 p.m. in Athens. Varoufakis was in London today, meeting Chancellor of the Exchequer George Osborne and then investors in sessions organized by Bank of America and Deutsche Bank.

“It’s clear that the stand-off between Greece and the euro zone is fast becoming the biggest risk to the global economy,” Osborne said in a statement after their talks. “It’s a rising threat to our economy at home.” Tsipras was in Cyprus before trips to Rome, Paris and Brussels, with Berlin not yet on the agenda. German Chancellor Angela Merkel wants to duck a direct confrontation and isolate him, a German government official said. In Nicosia, Tsipras repeated his finance chief’s call for an end to the committee that oversees the Greek economy. Dismantling the troika, which includes representatives of the European Commission, ECB and IMF, is “timely and necessary,” Tsipras said.

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“They might be right; then again, back in 2008, US policy makers thought that the collapse of one investment house, Bear Stearns, had prepared markets for the bankruptcy of another, Lehman Brothers. We know how that turned out.”

What is Plan B for Greece? (Kenneth Rogoff)

Financial markets have greeted the election of Greece’s new far-left government in predictable fashion. But, though the Syriza party’s victory sent Greek equities and bonds plummeting, there is little sign of contagion to other distressed countries on the eurozone periphery. Spanish 10-year bonds for example, are still trading at interest rates below those of U.S. Treasuries. The question is how long this relative calm will prevail. Greece’s fire-breathing new government, it is generally assumed, will have little choice but to stick to its predecessor’s program of structural reform, perhaps in return for a modest relaxation of fiscal austerity.

Nonetheless, the political, social, and economic dimensions of Syriza’s victory are too significant to be ignored. Indeed, it is impossible to rule out completely a hard Greek exit from the euro (“Grexit”), much less capital controls that effectively make a euro inside Greece worth less elsewhere. Some eurozone policy makers seem to be confident that a Greek exit from the euro, hard or soft, will no longer pose a threat to the other periphery countries. They might be right; then again, back in 2008, US policy makers thought that the collapse of one investment house, Bear Stearns, had prepared markets for the bankruptcy of another, Lehman Brothers. We know how that turned out.

True, there have been some important policy and institutional advances since early 2010, when the Greek crisis first began to unfold. The new banking union, however imperfect, and the European Central Bank’s vow to save the euro by doing “whatever it takes,” are essential to sustaining the monetary union. Another crucial innovation has been the development of the European Stability Mechanism, which, like the International Monetary Fund, has the capacity to execute vast financial bailouts, subject to conditionality. And yet, even with these new institutional backstops, the global financial risks of Greece’s instability remain profound. It is not hard to imagine Greece’s brash new leaders underestimating Germany’s intransigence on debt relief or renegotiation of structural-reform packages. It is also not hard to imagine eurocrats miscalculating political dynamics in Greece.

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“‘The question’ said Humpty Dumpty, ‘is which is to be master? The words or the girl?”

Why The Bank Of England Must Watch Its Words (CNBC)

Once upon a time, it was only Alice who vanished down a rabbit hole into Wonderland. Nowadays, we’re all falling in head-first – thanks to a bunch of central bankers. But as we’re down here, in this inverted quantitative easing (QE) world, Mark Carney, governor of Britain’s central bank, should probably heed the words of Humpty Dumpty who warned Alice that she’d only gain control of reality if she became “master of words.” In Alice’s looking-glass reality, and maybe ours too, sense has become nonsense and nonsense sense – and not just because of asset bubbles. “‘The question’ said Humpty Dumpty, ‘is which is to be master?'” The words or the girl?

All central bankers worry about being imprisoned by their own words. But it will be preoccupying Carney’s thoughts more than ever as the Bank of England prepares its historic move to publish the minutes alongside the rate setting committee’s decision, due to begin in August. The frenzied over-analysis of the U.S. Federal Reserve’s choice of words could not have escaped his attention, with its decision to drop the phrase “considerable time” dominating newspaper columns and analysts notes. One economist complained privately that his job had morphed from monetary policy to structural linguistics.

Back in March 2011, Jean-Claude Trichet, the then president of the ECB got hemmed in by his own verbal signaling. Ironically, it was one of his favourite catch phrases: “strong vigilance”. It eventually forced his hand into making an ill-advised rate hike from 1% to 1.25% despite a deteriorating economic climate, duly sending the euro zone into recession. Of course, the ECB’s current boss, Mario Draghi, understands Humpty Dumpty’s lesson about making words perform the exact meaning one wants, though €1.1 trillion of QE and a crisis in Greece might now fully test “whatever it takes”.

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“Government bond yields typically fall near the beginning of central-bank led programs intended to boost shaky economies, like the ECB’s bond-buying program, due to a shortage of bonds available to meet the central bank’s demand.”

More Than 25% Of Euro Bond Yields Are Negative, But … (MarketWatch)

More than a quarter of eurozone bonds have negative yields — meaning investors are essentially paying for the privilege of lending money to a European sovereign government — but several analysts are betting that those yields will soon return to normal. The exact number of negative yielding sovereign bonds is 27%, according to Tradeweb data based on Monday’s closing rates. “We’re hoping that this is roughly the peak,” said David Keeble, head of fixed-income strategy at Crédit Agricole. “There’s certainly no reason to keep them in negative territory after five year [bonds].” So why are sovereign bond yields negative? Government bond yields typically fall near the beginning of central-bank led programs intended to boost shaky economies, like the ECB’s bond-buying program, due to a shortage of bonds available to meet the central bank’s demand.

But after two or three weeks, the effects of this stimulus programs should begin to take hold, Keeble said, resulting in stronger economic data. This in turn should whet the market’s appetite for risky assets like equities while safe investments like bonds fall out of favor. Keeble added that his prediction is contingent on the European Central Bank keeping monetary policy steady. “We’re not going to get any more rate cuts from ECB and i don’t think we’re going to see anymore QE,” Keeble added. In its latest forecast on eurozone bond yields, published Monday, Bank of America Merrill Lynch said they expect the yield on five-year eurozone bonds to fall from negative 0.05% to negative 0.10% in the second quarter, before rising in the third and fourth quarters.

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Price discovery urgently needed.

Draghi’s Negative-Yield Vortex Draws in Corporate Bonds (Bloomberg)

Credit markets are being so distorted by the European Central Bank’s record stimulus that investors are poised to pay for the privilege of parking their cash with Nestle. The Swiss chocolate maker’s securities, which have the third-highest credit ranking at Aa2, may be among the first corporate bonds to trade with a negative yield, according to Bank of America strategist Barnaby Martin. Covered bonds, which are bank securities backed by loans, started trading with yields below zero at the end of September. With the growing threat of falling prices menacing the euro-area’s fragile economy, some investors are calculating it’s worth owning Nestle bonds, even with little or no return. That’s because yields on more than $2 trillion of the developed world’s sovereign debt, including German bunds, have turned negative and the ECB charges 0.2% interest for cash deposits.

“In the same way that bunds went negative, there’s nothing, in theory, to stop short-dated corporate bond yields going slightly negative as well,” Martin said. “If investors want to park some cash, the problem with putting it in a bank or money market fund is potential negative returns, because of the negative deposit rate policy of the ECB.” Vevey-based Nestle SA’s 0.75% notes due October 2016 were quoted to yield 0.05% today, according to data compiled by Bloomberg. It isn’t the only company with short-dated bond yields verging on turning negative. Roche, the world’s largest seller of cancer drugs, issued €2.75 billion of bonds with a coupon of 5.625% in 2009. The notes, which mature in March 2016, pay 0.09%, Bloomberg data show. “The current yield is market-driven,” Nicolas Dunant, head of media relations at Basel, Switzerland-based Roche, said in an e-mail. “The bond has traded up because it has become increasingly attractive for investors in the current low-rate environment.”

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The end of omnipotence.

China Debt Party Nears The End Of The Road (MarketWatch)

Despite an interest-rate cut late last year, China’s economy has got off to a slow start, with weak factory and service-sector readings. The typical response to such data is to expect more monetary stimulus. But have we reached the point where rate cuts are no longer able to lift China’s debt-heavy economy? As China enters its third year of slowing growth, there is growing concern the debt reckoning cannot be kicked down the road any longer. Credit has been growing faster than the economy for six years, and there has always been a recognition this cannot continue indefinitely. Experience elsewhere would suggest countries coming off a multi-year, debt-fueled expansion could expect an inevitable hangover.

This would include everything from bad debts, bankruptcies and asset write-downs, together with currency weakness and perhaps a dose of austerity to restore order to finances. For China, however, we are led to expect a different economy — one where, even in a down cycle, you don’t get recessions but growth that only changes gear from double-digit to “just” 7%. While naysayers warn China’s debt binge is an accident waiting to happen, it never quite does: The bond market and shadow-banking sector have not experienced any meaningful defaults, nor has the banking system seen anything more than a limited increase in non-performing loans. China’s property market might look a lot like bubbles in the U.S., Spain or Japan at different times in history, yet here the ending is again benign, with a gentle plateauing of prices.

But elsewhere, it is possible to find evidence that an abrupt China slowdown is underway. In various global hard-commodity markets – where Chinese demand was widely acknowledged to have lifted prices in everything from iron ore to copper in the boom years — a major reversal is underway. A collection of industrial commodities has now reached multi-year lows. This suggests a lot of folk in China are already facing a hard landing. Signs are accumulating that the financial economy is now getting to a moment of reckoning. At home, slower growth puts added pressure on servicing corporate debt as profitability weakens. Overseas, tighter credit as the Federal Reserve retreats from quantitative easing means hot-money flows are no longer providing a boost to liquidity and are instead reversing.

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“The slide in global oil prices and inflation has turned out to be even bigger than anticipated..”

Global Deflation Risk Deepens As China Economy Slows (Guardian)

The risk of global deflation looms large for 2015 as surveys of China’s mammoth manufacturing sector showed excess supply and insufficient demand in January drove down prices and production. While the pulse of activity was livelier in Japan, India and South Korea, they shared a common condition of slowing inflation. “The slide in global oil prices and inflation has turned out to be even bigger than anticipated,” said David Hensley, an economist at JP Morgan, and central banks from Europe to Canada to India have responded by easing policy. “What is now in the pipeline will help extend the near-term impulse from energy to economic growth into the second half of the year.” A fillip was clearly necessary in China where two surveys showed manufacturing struggling at the start of the year.

The HSBC/Markit Purchasing Managers’ Index (PMI) inched a up a fraction to 49.7 in January, but stayed under the 50.0 level that separates growth from contraction. More worryingly, the official PMI – which is biased towards large Chinese factories – unexpectedly showed that activity fell for the first time in nearly 30 months. The reading of 49.8 in January was down from 50.1 in December and missed forecasts of 50.2. The report showed input costs sliding at their fastest rate since March 2009, with lower prices for oil and steel playing major roles. Ordinarily, cheaper energy prices would be good for China, one of the world’s most intensive energy consumers, but most economists believe the phenomenon is a net negative for Chinese firms because of its impact on ultimate demand.

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Canada joins the currency war: “The Bank of Canada surprised the dickens out of everyone by cutting the overnight interest rate by 25 basis points.”

Canada Mauled by Oil Bust, Job Losses Pile Up (WolfStreet)

Ratings agency Fitch had already warned about Canada’s magnificent housing bubble that is even more magnificent than the housing bubble in the US that blew up so spectacularly. “High household debt relative to disposable income” – at the time hovering near a record 164% – “has made the market more susceptible to market stresses like unemployment or interest rate increases,” it wrote back in July. On September 30, the Bank of Canada warned about the housing bubble and what an implosion would do to the banks: It’s so enormous and encumbered with so much debt that a “sharp correction in house prices” would pose a risk to the “stability of the financial system”.

Then in early January, oil-and-gas data provider CanOils found that “less than 20%” of the leading 50 Canadian oil and gas companies would be able to sustain their operations long-term with oil at US$50 per barrel. “A significant number of companies with high-debt ratios were particularly vulnerable right now,” it said. “The inevitable write-downs of assets that will accompany the falling oil price could harm companies’ ability to borrow,” and “low share prices” may prevent them from raising more money by issuing equity. In other words, these companies, if the price of oil stays low for a while, are going to lose a lot of money, and the capital markets are going to turn off the spigot just when these companies need that new money the most. Fewer than 20% of them would make it through the bust.

To hang on a little longer without running out of money, these companies are going on an all-out campaign to slash operating costs and capital expenditures. The Canadian Association of Petroleum Producers estimated that oil companies in Western Canada would cut capital expenditures by C$23 billion in 2015, with C$8 billion getting cut from oil-sands projects and C$15 billion from conventional oil and gas projects. However, despite these cuts, CAPP expected oil production to rise, thus prolonging the very glut that has weighed so heavily on prices (a somewhat ironic, but ultimately logical phenomenon also taking place in the US). Then on January 21 – plot twist. The Bank of Canada surprised the dickens out of everyone by cutting the overnight interest rate by 25 basis points. So what did it see that freaked it out?

A crashing oil-and-gas sector, deteriorating employment, and weakness in housing. A triple shock rippling through the economy – and creating the very risks that it had fretted about in September. “After four years of scolding Canadians about taking on too much debt, the Bank has pretty much said, ‘Oh, never mind, we’ve got your back’, despite the fact that the debt/income ratio is at an all-time high of 163 per cent,” wrote Bank of Montreal Chief Economist Doug Porter in a research note after the rate-cut announcement. Clearly the Bank of Canada, which is helplessly observing the oil bust and the job losses, wants to re-fuel the housing bubble and encourage consumers to drive their debt-to-income ratio to new heights by spending money they don’t have.

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As predicted, Australia joins the currency race to the bottom.

Aussie Gets Crushed – How Much More Pain Lies Ahead? (CNBC)

With the Reserve Bank of Australia (RBA) leaving the door open to further rate cuts, the only way forward for the Australian dollar is down, say strategists. The Aussie plunged 1.9% against the U.S. dollar to $0.7655 on Tuesday after the central bank cut its benchmark cash rate by 25 basis points to a fresh record low of 2.25%. It was the currency’s biggest once-day loss since mid-2013, according to Reuters. “75 cents seems the natural progression point from here – I would expect that over the next two weeks if not sooner,” Jonathan Cavenagh, a currency strategist at Westpac told CNBC. “Beyond that, we’ll see how things unfold. If we see another rate cut, the Aussie could definitely be trading in the low-70 cent range,” he said.

The central bank struck a dovish tone in its policy statement highlighting below-trend growth and weak domestic demand in the economy, giving rise to expectations of additional easing. It also said the Aussie remained above fundamental value and that a lower exchange rate is needed to achieve balanced growth. In December, RBA Governor Glenn Stevens told local media that he would prefer to see the currency at $0.75 – levels not seen since early 2009. The Austrian dollar has already suffered a 26% decline against the U.S. dollar over the past two years, weighed by weak commodity prices and a stronger greenback. Paul Bloxham, chief economist for Australia and New Zealand at HSBC also expects the currency to come under further selling pressure. He forecasts the currency will head towards $0.70 going into 2016.

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